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<SEC-DOCUMENT>0000914317-05-000934.txt : 20050316
<SEC-HEADER>0000914317-05-000934.hdr.sgml : 20050316
<ACCEPTANCE-DATETIME>20050316141729
ACCESSION NUMBER:		0000914317-05-000934
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050316
DATE AS OF CHANGE:		20050316

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MIDDLESEX WATER CO
		CENTRAL INDEX KEY:			0000066004
		STANDARD INDUSTRIAL CLASSIFICATION:	WATER SUPPLY [4941]
		IRS NUMBER:				221114430
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-00422
		FILM NUMBER:		05684686

	BUSINESS ADDRESS:	
		STREET 1:		1500 RONSON RD
		STREET 2:		P O BOX 1500
		CITY:			ISELIN
		STATE:			NJ
		ZIP:			08830
		BUSINESS PHONE:		7326341500

	MAIL ADDRESS:	
		STREET 1:		1500 RONON ROAD
		CITY:			ISELIN
		STATE:			NJ
		ZIP:			08830
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>form10k-66788_msx.txt
<TEXT>

================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-K

(Mark One)

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

            For the fiscal year ended December 31, 2004

                                       OR

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

            For the transition period from _______________ to _______________

Commission File Number 0-422

                             MIDDLESEX WATER COMPANY
             (Exact name of registrant as specified in its charter)

       New Jersey                                           22-1114430
       ----------                                           ----------
(State of Incorporation)                       (IRS employer identification no.)

                        1500 Ronson Road, Iselin NJ 08830
          (Address of principal executive offices, including zip code)

                                 (732) 634-1500
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:                  Name of each exchange on which registered:
None                                  None

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, No par Value
                           --------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.      Yes |X|  No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. |X|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
                                        Yes |X|  No |_|

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant at June 30, 2004 was  $212,760,366  based on the closing market price
of $19.41 per share.

The number of shares outstanding for each of the registrant's  classes of common
stock, as of March 1, 2005:

            Common Stock, No par Value: 11,377,403 shares outstanding

                       Documents Incorporated by Reference
                       -----------------------------------

Proxy Statement to be filed in connection with the  Registrant's  Annual Meeting
of  Shareholders  to be held on May 25,  2005,  which  will be  filed  with  the
Securities and Exchange  Commission  within 120 days, is incorporated as to Part
III.

================================================================================

<PAGE>

                             MIDDLESEX WATER COMPANY
                                    FORM 10-K

                                      INDEX
                                      -----

                                                                            PAGE
                                                                            ----
Forward-Looking Statements                                                    1

PART I
Item 1.   Business:
             Overview                                                         2
             Financial Information                                            4
             Water Supplies and Contracts                                     4
             Employees                                                        6
             Competition                                                      6
             Regulation                                                       6
             Management                                                       8
             Risk Factors                                                    10
Item 2.   Properties                                                         13
Item 3.   Legal Proceedings                                                  14
Item 4.   Submission of Matters to a Vote of Security Holders                15

PART II
Item 5.   Market for the Registrant's Common Equity, Related
             Stockholder Matters and Issuer Purchase of
             Equity Securities                                               15
Item 6.   Selected Financial Data                                            17
Item 7.   Management's Discussion and Analysis of
             Financial Condition and Results of Operations                   18
Item 7A.  Qualitative and Quantitative Disclosure About Market Risk          26
Item 8.   Financial Statements and Supplementary Data                        27
Item 9.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                             48
Item 9A.  Controls and Procedures                                            48
Item 9B.  Other Information                                                  51

PART III
Item 10.  Directors and Executive Officers of the Registrant                 52
Item 11.  Executive Compensation                                             52
Item 12.  Security Ownership of Certain Beneficial Owners
             and Management                                                  52
Item 13.  Certain Relationships and Related Transactions                     52
Item 14.  Principal Accountant Fees and Services                             52

PART IV
Item 15.  Exhibits and Financial Statement Schedules                         53

Signatures                                                                   54
Exhibit Index                                                                55

<PAGE>

Forward-Looking Statements

Certain  statements   contained  in  this  annual  report  are  "forward-looking
statements"  within the meaning of federal  securities laws. The Company intends
that these  statements be covered by the safe harbors  created under those laws.
These statements include, but are not limited to:

      -     statements  as  to  expected   financial   condition,   performance,
            prospects and earnings of the Company;

      -     statements regarding strategic plans for growth;

      -     statements  regarding  the amount and timing of rate  increases  and
            other regulatory matters;

      -     statements  regarding  expectations  and events  concerning  capital
            expenditures;

      -     statements  as to the  Company's  expected  liquidity  needs  during
            fiscal  2005  and  beyond  and  statements  as to  the  sources  and
            availability of funds to meet its liquidity needs;

      -     statements as to expected rates,  consumption volumes, service fees,
            revenues, margins, expenses and operating results;

      -     statements as to the Company's  compliance with  environmental  laws
            and  regulations  and  estimations of the materiality of any related
            costs;

      -     statements  as to  the  safety  and  reliability  of  the  Company's
            equipment, facilities and operations;

      -     statements as to financial projections;

      -     statements as to the ability of the Company to pay dividends;

      -     statements as to the Company's plans to renew  municipal  franchises
            and consents in the territories it serves;

      -     expectations  as to the  cost of  cash  contributions  to  fund  the
            Company's  pension  plan,  including  statements  as to  anticipated
            discount rates and rates of return on plan assets;

      -     statements as to trends; and

      -     statements  regarding  the  availability  and  quality  of our water
            supply.

These forward-looking  statements are subject to risks,  uncertainties and other
factors that could cause actual results to differ materially from future results
expressed or implied by the forward-looking  statements.  Important factors that
could cause actual results to differ  materially  from  anticipated  results and
outcomes include, but are not limited to:

      -     the effects of general economic conditions;

      -     increases in competition in the markets served by the Company;

      -     the  ability of the  Company to control  operating  expenses  and to
            achieve efficiencies in its operations;

      -     the availability of adequate supplies of water;

      -     actions taken by government regulators,  including decisions on base
            rate increase requests;

      -     new or additional water quality standards;

      -     weather variations and other natural phenomena;

      -     acts of war or terrorism; and

      -     other factors discussed elsewhere in this annual report.

Many of these  factors are beyond the  Company's  ability to control or predict.
Given these uncertainties,  readers are cautioned not to place undue reliance on
any forward-looking statements,  which only speak to the Company's understanding
as of the  date of this  annual  report.  The  Company  does not  undertake  any
obligation to release publicly any revisions to these forward-looking statements
to reflect  events or  circumstances  after the date of this annual report or to
reflect the occurrence of unanticipated  events, except as may be required under
applicable securities laws.

For an additional  discussion of factors that may affect the Company's  business
and results of operations, see Item 1. Business- Risk Factors.


                                       1
<PAGE>

                                     PART I

Item 1. Business.

Overview

Middlesex Water Company was  incorporated as a water utility company in 1897 and
owns and operates  regulated  water utility  systems in central and southern New
Jersey and in Delaware as well as a regulated wastewater utility in southern New
Jersey. We also operate water and wastewater  systems on behalf of others in New
Jersey and Delaware.

The terms "the Company,"  "we," "our," and "us" refer to Middlesex Water Company
and its  subsidiaries,  including  Tidewater  Utilities,  Inc.  (Tidewater)  and
Tidewater's  wholly-owned  subsidiaries,  Southern  Shores  Water  Company,  LLC
(Southern  Shores) and White Marsh  Environmental  Systems,  Inc. (White Marsh),
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).

We recently  created a new  wholly-owned  Delaware  corporation  named Tidewater
Environmental  Services,  Inc.  (TESI),  which  will be used to own and  operate
regulated   wastewater   systems  in  Delaware  (see   Regulation   for  further
discussion).

Middlesex  principal  executive offices are located at 1500 Ronson Road, Iselin,
New Jersey 08830. Our telephone  number is (732) 634-1500.  Our internet website
address  is  http://www.middlesexwater.com.  We make  available,  free of charge
through our internet website, reports and amendments filed or furnished pursuant
to Section  13(a) or 15(d) of the  Securities  Exchange Act of 1934,  after such
material  is  electronically  filed  with or  furnished  to the  Securities  and
Exchange Commission (SEC).

Middlesex System

The Middlesex  System  provides  water services to  approximately  58,000 retail
customers,  primarily in eastern Middlesex County, New Jersey and provides water
under  contract to the  Township of Edison,  the  Boroughs of Highland  Park and
Sayreville,  and  both  the Old  Bridge  and  the  Marlboro  Township  Municipal
Utilities Authorities. The Middlesex System treats, stores and distributes water
for residential,  commercial,  industrial and fire prevention purposes.  Under a
special contract, the Middlesex System also provides water treatment and pumping
services to the Township of East Brunswick.  The Middlesex  System,  through its
retail and contract sales, produced approximately 67% of our 2004 revenue.

The Middlesex  System's retail customers are located in an area of approximately
55 square miles in Woodbridge Township, the City of South Amboy, the Boroughs of
Metuchen  and  Carteret,  portions of Edison  Township  and the Borough of South
Plainfield in Middlesex County and, to a minor extent, a portion of the Township
of Clark in Union  County.  The retail  customers  include a mix of  residential
customers,  large  industrial  concerns  and  commercial  and  light  industrial
facilities. These retail customers are located in generally well-developed areas
of central New Jersey.  The contract  customers of the Middlesex System comprise
an area of  approximately  141 square miles with a population  of  approximately
267,000.  Contract  sales to Edison,  Sayreville,  Old Bridge and  Marlboro  are
supplemental to the existing water systems of these customers.  The State of New
Jersey in the  mid-1980's  approved  plans to increase  available  surface water
supply to the South  River  Basin  area of the state to permit a reduced  use of
ground water in this area. The Middlesex  System


                                       2
<PAGE>

provides  treated  surface water under  long-term  agreements to East Brunswick,
Marlboro, Old Bridge and Sayreville consistent with the state-approved plan.

Tidewater System

Tidewater,  together with its  wholly-owned  subsidiary,  Southern  Shores Water
Company,  LLC, provides water services to approximately  26,000 retail customers
for  domestic,  commercial  and fire  protection  purposes in over 250  separate
community  water  systems in New  Castle,  Kent and Sussex  Counties,  Delaware.
Tidewater  has  another  wholly-owned  subsidiary,   White  Marsh  Environmental
Systems,  Inc.,  which operates water and wastewater  systems under contract for
approximately  4,500  customers and also owns the office building that Tidewater
uses as its  business  office.  White  Marsh's  rates for  water and  wastewater
operations are not regulated by the Delaware  Public Service  Commission  (PSC).
The Tidewater System produced approximately 17% of our total revenue in 2004.

Utility Service Affiliates (Perth Amboy)

USA-PA  operates the City of Perth Amboy's water and wastewater  systems under a
20-year agreement, which expires in 2018. Perth Amboy has a population of 40,000
and has approximately 9,600 customers,  most of whom are served by both systems.
The  agreement  was  effected  under New Jersey's  Water  Supply  Public-Private
Contracting Act and the New Jersey Wastewater Public/Private Contracting Act and
requires  USA-PA to lease from Perth Amboy all of its  employees  who  currently
work on the Perth  Amboy  water and  wastewater  systems.  Under the  agreement,
USA-PA receives both fixed and variable fees based on increased  system billing.
Fixed fee  payments  began at $6.4 million in the first year and are to increase
over  the  term of the  20-year  contract  to  $10.2  million.  USA-PA  produced
approximately 11% of our total revenue in 2004.

In  connection  with the  agreement,  we  guaranteed  a  series  of bonds in the
principal amount of approximately  $26.3 million,  of which  approximately $23.9
million  remains  outstanding.  In addition to the  agreement  with Perth Amboy,
USA-PA entered into a 20-year  subcontract with a wastewater  operating  company
for the operation and  maintenance  of the Perth Amboy  wastewater  system.  The
subcontract  provides  for the sharing of certain  fixed and  variable  fees and
operating expenses.

Pinelands System

Pinelands  Water  provides  water services to  approximately  2,400  residential
customers in Burlington County,  New Jersey.  Pinelands Water produced less than
1% of our total revenue in 2004.

Pinelands   Wastewater  provides  wastewater  services  to  approximately  2,400
primarily  residential  retail customers.  Under contract,  it also services one
municipal  wastewater  system in  Burlington  County,  New Jersey with about 200
residential  customers.  Pinelands  Wastewater produced  approximately 1% of our
total revenue in 2004.

Utility Service Affiliates, Inc.

In 1999,  we  implemented  a  franchise  agreement  with the City of South Amboy
(South Amboy) to provide  water  service and install water system  facilities in
South  Amboy.  The South  Amboy  franchise  was  approved by the Board of Public
Utilities  (BPU) and its  implementation  significantly  impacted  two  existing
agreements entered into by the parties.  The first agreement was for the sale of
water to South  Amboy on a wholesale  basis.  The second  agreement  was for the
provision of management services for a fixed fee.

USA provides  customers  within the Middlesex  System a service line maintenance
program called LineCare(SM).  LineCare(SM) is an affordable  maintenance program
that covers all parts, material and labor required to repair or replace specific
elements of the customer's water service line and customer shut-off value.


                                       3
<PAGE>

Middlesex and USA have entered into a venture with an entity that provides meter
installation and related  services.  This venture seeks to obtain  competitively
bid service  contracts with  municipalities  in the Mid-Atlantic and New England
regions.  The  contract  work may  include  any or all of the  following:  meter
purchases, replacement meter program, new meter program and meter testing. These
businesses contributed approximately 3% of our total revenue in 2004.

Bayview System

Bayview  provides  water  service to  approximately  300 customers in Cumberland
County, New Jersey. Bayview produced less than 1% of our total revenue in 2004.

Financial Information

Consolidated operating revenues and operating income are as follows:

                                             (Thousands of Dollars)
                                            Years Ended December 31,
                                            ------------------------
                                        2004          2003          2002
                                       -------       -------       -------
      Operating Revenues               $70,991       $64,111       $61,933
      Operating Income                 $13,119       $11,500       $12,467

Operating revenues were earned from the following sources:

                                          Years Ended December 31,
                                          ------------------------
                                         2004       2003       2002
                                        -----      -----      -----

            Residential                  39.9%      39.4%      40.0%
            Commercial                    9.5        9.8        9.7
            Industrial                   10.9       11.1       11.9
            Fire Protection              10.2       10.7       10.5
            Contract Sales               12.8       13.2       14.1
            Contract Operations          11.2       12.6       12.1
            Other                         5.5        3.2        1.7
                                        -----      -----      -----

                 TOTAL                  100.0%     100.0%     100.0%
                                        -----      -----      -----

Water Supplies and Contracts

Our New Jersey and Delaware water supply systems are physically separate and are
not  interconnected.  In New Jersey, the Pinelands System and Bayview System are
not  interconnected  with the Middlesex System or each other. We believe we have
adequate  sources of water  supply to meet the  current and  anticipated  future
service requirements of our present customers in New Jersey and Delaware.

Middlesex System

Our Middlesex  System,  which produced 16,623 million  gallons in 2004,  obtains
water from surface  sources and wells,  which we call  groundwater  sources.  In
2004,  surface  sources of water  provided  approximately  70% of the


                                       4
<PAGE>

Middlesex System's water supply,  groundwater from wells provided  approximately
23% and the balance of 7% was  purchased  from a  nonaffiliated  water  utility.
Middlesex System's  distribution  storage facilities are used to supply water to
its customers at times of peak demand, outages and emergencies.

The principal  source of surface  water supply for the  Middlesex  System is the
Delaware & Raritan Canal, which is owned by the State of New Jersey and operated
as a water resource by the New Jersey Water Supply Authority.  Middlesex renewed
and modified its agreement with the New Jersey Water Supply Authority, which was
effective  January 1, 2004 and expires  November 30,  2023,  and provides for an
average  purchase  of 27 million  gallons  per day of  untreated  water from the
Delaware & Raritan  Canal,  augmented by the Round  Valley/Spruce  Run Reservoir
System. Surface water is pumped to and treated at the Carl J. Olsen (CJO) Plant.
Middlesex  also has an  agreement  with a  nonaffiliated  water  utility for the
purchase of treated  water.  This  agreement,  which expires  December 31, 2005,
provides for the minimum  purchase of 3 million gallons per day of treated water
with provisions for additional purchases. Purchased water costs are shown below:

                                              (Millions of Dollars)
                                            Years Ended December 31,
                                            ------------------------
            Purchased Water                 2004      2003      2002
            ---------------                 ----      ----      ----
            Untreated                       $2.2      $2.0      $1.9
            Treated                          2.0       1.8       1.8
                                            ----      ----      ----
            Total Costs                     $4.2      $3.8      $3.7
                                            ====      ====      ====

Our Middlesex System also derives water from  groundwater  sources equipped with
electric motor-driven,  deepwell turbine-type pumps. The Middlesex System has 31
wells,  which  provide an aggregate  pump capacity of  approximately  27 million
gallons per day.

The Middlesex System's groundwater sources are:

<TABLE>
<CAPTION>
                                                 2004
                                             Maximum Use
                             No.of         Per Day Pumpage            Pump
            Source           Wells      (millions of gallons)    Capacity (mgd)     Location
            ------           -----      ---------------------    --------------     --------
<S>                           <C>                <C>                  <C>       <C>
      Park Avenue             15                  8.3                 15.2      South Plainfield
      Tingley Lane North       4                  2.8                  2.8      Edison
      Tingley Lane South       5                  2.1                  2.6      Edison
      Spring Lake              4                  0.0                  2.8      South Plainfield
      Sprague Avenue #1        1                  1.1                  1.1      South Plainfield
      Sprague Avenue #2        1                  1.3                  1.3      South Plainfield
      Maple Avenue             1                  0.0                  0.9      South Plainfield
                              --                 ----                 ----

           Totals             31                 15.6                 26.7
</TABLE>

Tidewater System

Our Tidewater System, which produced 1,517 million gallons in 2004, obtains 100%
of its water from 202 wells. In 2004, we placed 11 new wells in service and also
deactivated,  sealed  and  abandoned  18 wells.  Tidewater  continues  to submit
applications to Delaware  regulatory  authorities for the approval of additional
wells as growth,  demand and water quality  warrants.  The Tidewater System does
not have a central  treatment  facility but has several  regional filter plants.
Several of its water systems in New Castle,  Kent and Sussex Counties,  Delaware
have interconnected transmission systems.


                                       5
<PAGE>

Pinelands System

Water supply to our Pinelands System is derived from four wells drilled into the
Mt. Laurel aquifer which provided overall system delivery of 179 million gallons
in 2004. The pump capacity for the four wells is 2.2 million gallons per day.

Bayview System

Water supply to Bayview  customers is derived from two wells,  which provided an
overall system  delivery of 11 million  gallons in 2004. Each well has treatment
facilities.

Pinelands Wastewater System

The Pinelands Wastewater System discharges into the South Branch of the Rancocas
Creek  through  a  tertiary   treatment   plant  that  provides   clarification,
sedimentation,  filtration and disinfection.  The total capacity of the plant is
0.5 million  gallons per day.  Current  average flow is 0.3 million  gallons per
day.  Pinelands  has a current valid  discharge  permit issued by the New Jersey
Department of Environmental Protection (DEP).

Employees

As of December 31, 2004,  we had a total of 149  employees in New Jersey,  and a
total of 71 employees in Delaware.  In addition, we lease 22 employees under the
USA-PA  contract  with the City of Perth Amboy,  New Jersey.  No  employees  are
represented  by a union  except the leased  employees.  We believe our  employee
relations are good.  Wages and benefits,  other than for leased  employees,  are
reviewed annually and are considered competitive within the industry.

Competition

Our business in our franchised  service area is  substantially  free from direct
competition  with other public  utilities,  municipalities  and other  entities.
However,  our  ability to provide  some  contract  water  supply and  wastewater
services and operations and maintenance  services is subject to competition from
other public utilities,  municipalities  and other entities.  Although Tidewater
has been granted an exclusive franchise for each of its existing community water
systems, its ability to expand service areas can be affected by the PSC awarding
franchises to other regulated water utilities.

Regulation

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.  Only our USA,  USA-PA
and White Marsh  subsidiaries  are not  regulated  utilities.  We are subject to
environmental  and water quality  regulation by the United States  Environmental
Protection  Agency  (EPA),  and the DEP with respect to operations in New Jersey
and the Delaware  Department  of Natural  Resources  and  Environmental  Control
(DNREC),  Delaware Department of Health and Social  Services-Division  of Public
Health (DPH),  and the Delaware  River Basin  Commission  (DRBC) with respect to
operations in Delaware. In addition,  our issuances of securities are subject to
the prior approval of the Securities and Exchange  Commission and the BPU or the
PSC.

During 2004, the PSC assumed  regulatory  authority over wastewater  services in
Delaware and issued proposed rules and regulations  similar to the water systems
it regulates.


                                       6
<PAGE>

Regulation of Rates and Services

New Jersey water and wastewater service operations  (excluding the operations of
USA-PA) are subject to  regulation  by the BPU.  Similarly,  our Delaware  water
service operations,  and beginning in 2005, wastewater services to be offered by
TESI, are subject to regulation by the PSC. These  regulatory  authorities  have
jurisdiction with respect to rates, service, accounting procedures, the issuance
of securities and other matters of utility companies operating within the States
of New Jersey and Delaware,  respectively.  For ratemaking purposes,  we account
separately for  operations in New Jersey and Delaware to facilitate  independent
ratemaking  by the BPU  for  New  Jersey  operations  and  the PSC for  Delaware
operations.

In  determining  our rates,  the BPU and the PSC consider the income,  expenses,
rate base of property  used and useful in providing  service to the public and a
fair rate of return on that property each within its separate jurisdiction. Rate
determinations by the BPU do not guarantee  particular rates of return to us for
our New  Jersey  operations  nor do  rate  determinations  by the PSC  guarantee
particular rates of return for our Delaware operations. Thus, we may not achieve
the rates of return permitted by the BPU or the PSC.

Effective May 27, 2004,  Middlesex Water Company received  approval from the BPU
for a  9.5%,  or  $4.3  million  increase  in its  water  rates.  This  increase
represents  a portion of the  Company's  November  2003 request for a total rate
increase of 17.8% to cover the costs of its  increased  capital  investment,  as
well as maintenance and operating expenses.

Effective  June 24, 2004,  Pinelands  Water and  Pinelands  Wastewater  received
approval  from  the BPU  for  increases  of  9.2%  and  9.9%,  respectively,  or
approximately  $131,000 in the aggregate.  This increase represents a portion of
Pinelands' December 2003 request for a total base rate increase of approximately
$250,000  to  help  offset  the   increased   costs   associated   with  capital
improvements, and the operation and maintenance of their systems.

Effective June 25, 2004, Tidewater received approval from the PSC for an interim
increase of 15%, or $1.5 million in its water  rates,  which  includes  4.89% of
previously  Distribution System Improvement Charges (DSIC). On October 19, 2004,
the PSC approved a  settlement  between  Tidewater  and the  interveners  in the
matter.  The  settlement  allowed the interim  rates to become  permanent.  This
increase  represents a portion of Tidewater's April 2004 request for at 24% rate
increase to accommodate the growth of Tidewater's customer base, improvements to
water  treatment,  fire  protection  and to  interconnect  systems  for  service
reliability and back-up.  As part of the settlement,  Tidewater will be eligible
to apply for a second phase rate increase of $0.5 million, provided it completes
a number of capital  projects  within a specified time schedule.  Tidewater must
file an  application  for this increase no earlier than March 2005 or later than
May 2005.  Upon  verification  of  project  completion,  new rates  will  become
effective  30 days after the filing  date.  Tidewater  also  agreed to waive its
right to file DSIC  applications  over the next three six-month  cycles (January
and July  2005,  and  January  2006) and to defer  making an  application  for a
general rate increase until after April 1, 2006.

In accordance with the tariff  established for Southern  Shores, a rate increase
of 2.8% based on the Consumer Price Index was implemented on January 1, 2004.

Other than rates for the Southern Shores system,  there can be no assurance that
any future rate increases  will be granted or, if granted,  that they will be in
the amounts we requested.

Water Quality and Environmental Regulations

Both the EPA and the DEP regulate our  operations  in New Jersey with respect to
water supply,  treatment and distribution  systems and the quality of the water,
as do the EPA, DNREC, DPH and DRBC with respect to operations in Delaware.


                                       7
<PAGE>

Federal,  New Jersey and Delaware  regulations adopted relating to water quality
require us to perform  expanded  types of testing to ensure that our water meets
state  and  federal  water  quality  requirements.  In  addition,  environmental
regulatory  agencies are reviewing current  regulations  governing the limits of
certain  organic  compounds  found in the water as byproducts  of treatment.  We
participate  in  industry-related  research  to identify  the  various  types of
technology  that might  reduce the level of  organic,  inorganic  and  synthetic
compounds found in the water.  The cost to water companies of complying with the
proposed  water  quality  standards  depends  in part on the  limits  set in the
regulations and on the method  selected to implement such reduction.  We believe
the CJO Plant  capabilities  put us in a strong position to meet any such future
standards  with regard to our Middlesex  System.  We use regular  testing of our
water to determine  compliance  with existing  federal,  New Jersey and Delaware
primary water quality standards.

Well water  treatment in our Tidewater  System is by  chlorination  and, in some
cases, pH correction and filtration for nitrate and iron removal.

Well water treatment in the Pinelands and Bayview Systems (disinfection only) is
done at individual well sites.

The DEP and the DPH  monitor  our  activities  and review  the  results of water
quality tests that are performed for adherence to applicable regulations.  Other
regulations  applicable  to us include  the Lead and Copper  Rule,  the  maximum
contaminant  levels  established for various  volatile  organic  compounds,  the
Federal Surface Water Treatment Rule and the Total Coliform Rule.

Management

This table lists information concerning our senior management team:

<TABLE>
<CAPTION>

Name                  Age  Principal Position(s)
- ------------------    ---  -----------------------------------------------------
<S>                   <C>  <C>
Dennis G. Sullivan    63   President and Chief Executive Officer
Dennis W. Doll        46   Executive Vice President
A. Bruce O'Connor     46   Vice President and Chief Financial Officer
Ronald F. Williams    55   Vice President-Operations and Chief Operating Officer
Kenneth J. Quinn      57   Vice President, General Counsel, Secretary and Treasurer
James P. Garrett      59   Vice President-Human Resources
Richard M. Risoldi    48   Vice President- Subsidiary Operations
Gerard L. Esposito    53   President, Tidewater Utilities, Inc.
</TABLE>

Dennis G. Sullivan - Mr.  Sullivan has been a Director of Middlesex  since 1999.
Mr.  Sullivan was hired in 1984 as Corporate  Attorney,  responsible for general
corporate internal legal matters.  He was elected Assistant  Secretary-Assistant
Treasurer in 1988 and Vice President and General Counsel in 1990. He was elected
President and General  Counsel in 2001 and became  President and Chief Executive
Officer in January 2003. He is Chairman of the Board and a Director of Tidewater
Utilities,   Inc.,   Tidewater   Environmental   Services,   Inc.,  White  Marsh
Environmental  Systems,  Inc.,  Pinelands  Water Company,  Pinelands  Wastewater
Company,  Utility Service  Affiliates,  Inc.,  Utility Service Affiliates (Perth
Amboy) Inc. and Bayview Water  Company.  He is also a Director of the New Jersey
Utilities Association and the National Association of Water Companies.

Dennis W. Doll - Mr. Doll, a Certified Public Accountant,  joined the Company in
November 2004 as Executive Vice President. Prior to joining the Company Mr. Doll
was employed by Elizabethtown Water Company since 1985, serving most recently as
a member of the  senior  leadership  team of the  Northeast  Region of  American
Water, which was comprised of Elizabethtown  Water Company,  New Jersey-American
Water Company and


                                       8
<PAGE>

Long Island Water  Corporation  and included other  regulated and  non-regulated
subsidiaries.  In this  capacity,  Mr. Doll served as Vice President - Finance &
Controller and served previously, as Vice President - Merger Integration.  Prior
to 2001,  Mr.  Doll  served as Vice  President &  Controller  of  Elizabethtown,
Elizabethtown's parent company, E'town Corporation,  and various other regulated
and  non-regulated  subsidiaries,  primarily engaged in the water and wastewater
fields.

A. Bruce O'Connor - Mr.  O'Connor,  a Certified  Public  Accountant,  joined the
Company in 1990 as Assistant  Controller and was elected  Controller in 1992 and
Vice  President in 1995. He was elected Vice  President and Controller and Chief
Financial  Officer in 1996. In July 2004, his Controller  responsibilities  were
assigned to the newly created Corporate Controller  position.  He is responsible
for financial  reporting,  customer  service,  rate cases,  cash  management and
financings.  He is  Treasurer  and a  Director  of  Tidewater  Utilities,  Inc.,
Tidewater Environmental Services,  Inc., Bayview Water Company,  Utility Service
Affiliates,  Inc.,  and  White  Marsh  Environmental  Systems,  Inc.  He is Vice
President,  Treasurer and a Director of Utility Service Affiliates (Perth Amboy)
Inc., Pinelands Water Company and Pinelands Wastewater Company.

Ronald  F.  Williams  - Mr.  Williams  was  hired  in  1995  as  Assistant  Vice
President-Operations, responsible for the Company's Engineering and Distribution
Departments.  He was elected  Vice  President-Operations  in October  1995.  Mr.
Williams  was  elected  to the  additional  posts  of  Assistant  Secretary  and
Assistant  Treasurer for  Middlesex in 2004.  He was formerly  employed with the
Garden State Water Company as President  and Chief  Executive  Officer.  He is a
Director and President of Utility  Service  Affiliates  (Perth Amboy) Inc.,  and
Director of Utility Service Affiliates, Inc., Pinelands Water Company, Pinelands
Wastewater Company, and Bayview Water Company.

Kenneth J. Quinn - Mr. Quinn  joined the Company in 2002 as General  Counsel and
was elected  Assistant  Secretary in 2003.  In 2004,  Mr. Quinn was elected Vice
President,  Secretary  and  Treasurer  for Middlesex and Secretary and Assistant
Treasurer for all subsidiaries of Middlesex. He has been engaged in the practice
of law for 29 years and prior to joining the Company he had been employed by the
law firm of Schenck,  Price, Smith and King in Morristown,  New Jersey. Prior to
that,  Mr.  Quinn  spent 10 years  as  in-house  counsel  to two  major  banking
institutions  located  in New  Jersey.  In May 2003,  he was  elected  Assistant
Secretary of Tidewater  Utilities,  Inc.,  Pinelands  Water  Company,  Pinelands
Wastewater Company, Utility Service Affiliates (Perth Amboy) Inc., Bayview Water
Company and White Marsh Environmental  Systems, Inc. He is a Director of Utility
Service  Affiliates  (Perth  Amboy)  Inc.,  Utility  Service  Affiliates,  Inc.,
Pinelands  Water  Company,  Pinelands  Wastewater  Company,  and  Bayview  Water
Company.  He is a member of the New Jersey State Bar  Association  and is also a
member of the Public Utility Law Section of the Bar.

James P.  Garrett - Mr.  Garrett  joined the Company in 2003 as  Assistant  Vice
President-Human  Resources.  In May 2004, he was elected Vice  President-  Human
Resources.  Prior to his hire, Mr. Garrett was employed by Toys "R" Us, Inc. for
23 years, most recently as Director of Organizational  Development.  Mr. Garrett
is responsible for all human resource programs and activities at Middlesex Water
Company and its subsidiaries.

Richard M.  Risoldi - Mr.  Risoldi  joined the  Company in 1989 as  Director  of
Production,  responsible  for the  operation  and  maintenance  of the Company's
treatment and pumping  facilities.  He was appointed Assistant Vice President of
Operations in 2003. He was elected Vice President in May 2004,  responsible  for
regulated subsidiary  operations and business  development.  He is a Director of
Tidewater Utilities,  Inc., Tidewater Environmental Services,  Inc., White Marsh
Environmental  Systems Inc and USA-PA.  He also serves as Director and President
of Pinelands Water Company,  Pinelands Wastewater Company, Bayview Water Company
and Utility Service Affiliates, Inc.

Gerard L. Esposito - Mr. Esposito joined  Tidewater  Utilities,  Inc. in 1998 as
Executive Vice President.  He was elected President of Tidewater and White Marsh
Environmental   Systems,  Inc.  in  2003  and  elected  President  of  Tidewater
Environmental  Services,  Inc. in January 2005 . Prior to joining the Company he
worked for 22 years


                                       9
<PAGE>

in various executive positions for Delaware  environmental  protection and water
quality governmental  agencies.  He is a Director of Tidewater Utilities,  Inc.,
Tidewater Environmental  Services,  Inc., and White Marsh Environmental Systems,
Inc.

Risk Factors

Our revenue and earnings depend on the rates we charge our customers.  We cannot
raise utility rates without filing a petition with the appropriate  governmental
agency. If these agencies modify, delay, or deny our petition, our revenues will
not increase and our earnings will decline unless we are able to reduce costs.

The BPU regulates all of our public utility companies in New Jersey with respect
to rates and charges for  service,  classification  of  accounts,  awards of new
service territory,  acquisitions,  financings and other matters. That means, for
example,  that we cannot  raise  the  utility  rates we charge to our  customers
without  first  filing a  petition  with the BPU and  going  through  a  lengthy
administrative  process.  In much the same way,  the PSC  regulates  our  public
utility companies in Delaware. We cannot give assurances of when we will request
approval  for any such  matter,  nor can we predict  whether the BPU or PSC will
approve, deny or reduce the amount of such requests.

Certain  costs of doing  business  are not within our  control.  The  failure to
obtain any rate  increase  would  prevent us from  increasing  our revenues and,
unless we are able to reduce costs, would result in reduced earnings.

We are  subject  to  penalties  unless we  comply  with  environmental  laws and
regulations, including water quality regulations. Compliance with those laws and
regulations impose costs on us.

The EPA and DEP  regulate  our  operations  in New Jersey with  respect to water
supply,  treatment and distribution  systems and the quality of the water, as do
the EPA,  DNREC,  DPH and DRBC with respect to operations in Delaware.  Federal,
New Jersey and  Delaware  regulations  relating to water  quality  require us to
perform  expanded  types of testing  to ensure  that our water  meets  state and
federal water quality requirements.  We are subject to EPA regulations under the
Federal Safe Drinking  Water Act,  which  include the Lead and Copper Rule,  the
maximum  contaminant  levels established for various volatile organic compounds,
the Federal Surface Water Treatment Rule and the Total Coliform Rule.  There are
also similar state regulations by the DEP in New Jersey. The DEP and DPH monitor
our activities and review the results of water quality tests that we perform for
adherence  to  applicable  regulations.  In addition,  environmental  regulatory
agencies  are  reviewing  current  regulations  governing  the limits of certain
organic compounds found in the water as byproducts of treatment.

The  cost to water  companies  of  complying  with the  proposed  water  quality
standards depends in part on the limits set in the regulations and on the method
selected  to  implement  them.  Those  costs could be very high and make us less
profitable if we cannot recover those costs through our rates that we charge our
customers.

We depend upon our ability to raise money in the capital markets to finance some
of the costs of complying  with laws and  regulations,  including  environmental
laws and  regulations  or to pay for some of the  costs of  improvements  or the
expansion  of our  utility  system  assets.  We  cannot  issue  debt  or  equity
securities without regulatory approval.

We require  financing to fund the ongoing capital program for the improvement of
our utility system assets and for planned  expansion of that system.  We project
that we may expend approximately $74.4 million for existing capital projects. We
must have regulatory  approval to sell debt or equity  securities to raise money
for these  projects.  If  sufficient  capital  is not  available  or the cost of
capital is too high, or if the regulatory authorities deny a petition of ours to
sell  debt or  equity  securities,  we  would  not be able to meet  the  cost of
complying with


                                       10
<PAGE>

environmental  laws and  regulations or the costs of improving and expanding our
utility  system  assets.  This  might  result  in the  imposition  of  fines  or
restrictions  on our  operations and may curtail our ability to improve upon and
expand our utility system assets.

Weather  conditions and overuse of  underground  aquifers may interfere with our
sources of water, demand for water services,  and our ability to supply water to
customers.

Our  ability to meet the  existing  and future  water  demands of our  customers
depends on an adequate supply of water. Unexpected conditions may interfere with
our water supply sources.  Drought and overuse of underground aquifers may limit
the  availability  of ground and surface  water.  These factors might  adversely
affect our ability to supply water in sufficient  quantities  to our  customers.
Governmental  drought  restrictions  might  result  in  decreased  use of  water
services and can adversely affect our revenue and earnings.  Additionally,  cool
and wet weather may reduce  consumption  demands,  also adversely  affecting our
revenue and earnings. Freezing weather may also contribute to water transmission
interruptions  caused by pipe and main breakage.  Any  interruption in our water
supply could cause a reduction in our revenue and profitability.

Our water sources may become  contaminated  by  naturally-occurring  or man-made
compounds and events.  This may cause disruption in services and impose costs to
restore the water to required levels of quality.

Our sources of water may become contaminated by  naturally-occurring or man-made
compounds and events. In the event that our water supply is contaminated, we may
have to  interrupt  the use of that  water  supply  until we are able to install
treatment equipment or substitute the flow of water from an uncontaminated water
source through our  transmission  and  distribution  systems.  We may also incur
significant  costs in treating  the  contaminated  water  through the use of our
current  treatment  facilities,  or  development of new treatment  methods.  Our
inability to substitute water supply from an uncontaminated  water source, or to
adequately  treat the contaminated  water source in a cost-effective  manner may
reduce our revenues and make us less profitable.

The necessity for increased security has and may continue to result in increased
operating costs.

In the wake of the September 11, 2001 terrorist  attacks and the ensuing threats
to the health and security of the United States of America,  we have taken steps
to increase security measures at our facilities and heighten employee  awareness
of  threats  to our  water  supply.  We have  tightened  our  security  measures
regarding the delivery and handling of certain  chemicals  used in our business.
We are at risk  for  terrorist  attacks  and have  and  will  continue  to incur
increased costs for security  precautions to protect our facilities,  operations
and supplies from such risks.

We face  competition  from other  utilities  and service  providers  which might
hinder our growth and reduce our profitability.

We face risks of competition from other utilities  authorized by federal,  state
or local  agencies.  Once a utility  regulator  grants a service  territory to a
utility,  that  utility  is  usually  the only one to  service  that  territory.
Although a new territory offers some protection against competitors, the pursuit
of  service  territories  is  competitive,  especially  in  Delaware  where  new
territories  may be awarded to  utilities  based upon  competitive  negotiation.
Competing  utilities  have  challenged,  and may in the  future  challenge,  our
applications  for new service  territories.  Also,  third parties  entering into
long-term  agreements to operate municipal systems might adversely affect us and
our long-term agreements to supply water on a contract basis to municipalities.

We have a  long-term  contractual  obligation  for water and  wastewater  system
operation and  maintenance  under which we may incur costs in excess of payments
received.


                                       11
<PAGE>

Middlesex Water Company and USA-PA operate and maintain the water and wastewater
systems of the City of Perth Amboy, New Jersey under a multi-year contract. This
contract  does not protect us against  incurring  costs in excess of payments we
will receive  pursuant to the contract.  There can be no assurance  that we will
not experience  losses resulting from this contract.  Losses under this contract
or our failure or inability to perform may have a material adverse effect on our
financial  condition and results of  operations.  Also, as of December 31, 2004,
approximately  $23.9 million of Perth Amboy's  bonds we have  guaranteed  remain
outstanding. If Perth Amboy defaults on its obligations to pay the bonds we have
guaranteed,  we would  have to raise  funds to meet our  obligations  under that
guarantee,

An  important  element of our growth  strategy is the  acquisition  of water and
wastewater  systems.  Any pending or future  acquisitions we decide to undertake
may involve risks.

The acquisition of water and wastewater  systems is an important  element in our
growth  strategy.  This strategy  depends on  identifying  suitable  acquisition
opportunities and reaching mutually agreeable terms with acquisition candidates.
The negotiation of potential acquisitions as well as the integration of acquired
businesses  could require us to incur  significant  costs and cause diversion of
our  management's  time and  resources.  Further,  acquisitions  may  result  in
dilution  of  our  equity   securities,   incurrence  of  debt  and   contingent
liabilities,  fluctuations in quarterly  results and other  acquisition  related
expenses. In addition,  the business and other assets we acquire may not achieve
the sales and profitability expected.

We have  restrictions  on our dividends.  There can also be no assurance that we
will  continue to pay  dividends in the future or, if dividends  are paid,  that
they will be in amounts similar to past dividends.

Our Restated Certificate of Incorporation and our Indenture of Mortgage dated as
of April 1,  1927,  as  supplemented  impose  conditions  on our  ability to pay
dividends.  We have paid  dividends on our common stock each year since 1912 and
have  increased the amount of dividends paid each year since 1973. Our earnings,
financial  condition,  capital  requirements,  applicable  regulations and other
factors, including the timeliness and adequacy of rate increases, will determine
both our  ability  to pay  dividends  on common  stock  and the  amount of those
dividends.  There can be no assurance  that we will continue to pay dividends in
the future or, if dividends  are paid,  that they will be in amounts  similar to
past dividends.

We are subject to anti-takeover measures that may be used by existing management
to  discourage,   delay  or  prevent  changes  of  control  that  might  benefit
non-management shareholders.

Subsection  10A of  the  New  Jersey  Business  Corporation  Act,  known  as the
Shareholder Protection Act, applies to us. The Shareholder Protection Act deters
merger  proposals,  tender  offers or other  attempts  to effect  changes in our
control  that are not  negotiated  and  approved by our Board of  Directors.  In
addition, we have a classified Board of Directors, which means only one-third of
the Directors  are elected each year. A classified  Board can make it harder for
an acquirer to gain control by voting its candidates onto the Board of Directors
and may also deter merger  proposals and tender  offers.  Our Board of Directors
also has the ability,  subject to obtaining BPU  approval,  to issue one or more
series  of  preferred   stock   having  such  number  of  shares,   designation,
preferences,  voting  rights,  limitations  and  other  rights  as the  Board of
Directors may fix.  This could be used by the Board of Directors to  discourage,
delay or prevent an acquisition that might benefit non-management shareholders.


                                       12
<PAGE>

Item 2. Properties.

Utility Plant

The water  utility  plant in our systems  consist of source of supply,  pumping,
water  treatment,  transmission  and  distribution,  general  facilities and all
appurtenances, including all connecting pipes.

Middlesex System

The  Middlesex  System's  principal  source of surface  supply is the Delaware &
Raritan Canal owned by the State of New Jersey and operated as a water  resource
by the New Jersey Water Supply Authority.

Water is  withdrawn  from the  Delaware & Raritan  Canal at New  Brunswick,  New
Jersey through our intake and pumping station, which has a design capacity of 80
million gallons per day and is located on state-owned  land bordering the canal.
The four electric motor-driven,  vertical turbine pumps presently installed have
an aggregate design capacity of 82 million gallons per day. Water is transported
through our 4,900 foot 54-inch reinforced concrete supply main for treatment and
distribution at our CJO Plant in Edison,  New Jersey. The design capacity of our
raw water supply main is 55 million gallons per day.

In the Spring of 2004,  the  Company  began  construction  on a second raw water
pipeline  from the intake and pumping  station to the CJO Plant.  The  pipeline,
which is approximately 6,100 feet of 60-inch ductile iron pipe, will provide for
redundancy,  additional security,  and additional capacity.  The project,  which
includes  renovations  to the intake and pumping  station,  is  scheduled  to be
completed  in the  Spring  of 2005  (see  Item 7.  Management's  Discussion  and
Analysis of Financial Condition and Results of Operation-  Liquidity and Capital
Resources- Capital Expenditures and Commitments for additional discussion).

The CJO Plant includes  chemical  storage and chemical feed equipment,  two dual
rapid   mixing   basins,   four   upflow   clarifiers   which  are  also  called
superpulsators, four underground reinforced chlorine contact tanks, twelve rapid
filters containing  gravel,  sand and anthracite for water treatment and a steel
washwater tank. The CJO Plant also includes a computerized  Supervisory  Control
and Data Acquisitions  system to monitor and control the CJO Plant and the water
supply and  distribution  system in the  Middlesex  System.  There is an on site
State  certified  laboratory  capable of performing  bacteriological,  chemical,
process control and advanced  instrumental  chemical sampling and analysis.  The
firm design  capacity of the CJO Plant is 45 million gallons per day (60 million
gallons per day maximum capacity). The main pumping station at the CJO Plant has
a design capacity of 90 million gallons per day. The four electric motor-driven,
vertical  turbine pumps  presently  installed  have an aggregate  capacity of 72
million gallons per day.

In addition,  there is a 15 million  gallon per day  auxiliary  pumping  station
located in a separate  building  at the CJO Plant  location.  It has a dedicated
substation and emergency power supply provided by a diesel-driven  generator. It
pumps from the 10 million gallon  distribution  storage reservoir  directly into
the distribution system.

The transmission and distribution  system is comprised of 722 miles of mains and
includes 23,200 feet of 48-inch reinforced concrete transmission main connecting
the CJO Plant to our distribution  pipe network and related storage  facilities.
Also included is a 58,600 foot  transmission main and a 38,800 foot transmission
main,  augmented  with  a  long-term,  non-exclusive  agreement  with  the  East
Brunswick system to transport water to several of our contract customers.

Middlesex  System's storage  facilities consist of a 10 million gallon reservoir
at the CJO Plant,  5 million  gallon and 2 million  gallon  reservoirs in Edison
(Grandview),  a 5 million gallon  reservoir in Carteret  (Eborn) and a 2 million
gallon reservoir at the Park Avenue Well Field.


                                       13
<PAGE>

In New Jersey,  we own the properties on which  Middlesex  System's 31 wells are
located,  the  properties  on which our storage tanks are located as well as the
property where the CJO Plant is located.  We also own our  headquarters  complex
located at 1500 Ronson Road, Iselin,  New Jersey,  consisting of a 27,000 square
foot, two story office building and an adjacent  16,500 square foot  maintenance
facility.

Tidewater System

The Tidewater System's is comprised of 91 production plants that vary in pumping
capacity from 40,000  gallons per day to 1.5 million  gallons per day.  Water is
transported to our customers  through 446 miles of transmission and distribution
mains.  Storage  facilities  include 38 tanks, with an aggregate capacity of 4.7
million gallons.  Our Delaware  operations are managed from  Tidewater's  leased
offices in Dover, Delaware and Millsboro,  Delaware. Tidewater's Dover, Delaware
office property,  located on property owned by White Marsh,  consists of a 6,800
square foot office  building  situated on an  eleven-acre  lot. White Marsh also
owns another business site for which it is exploring  several options for future
use.

Pinelands System

Pinelands  Water  owns well site and  storage  properties  that are  located  in
Southampton Township,  New Jersey. The Pinelands Water storage facility is a 1.2
million gallon standpipe. Water is transported to our customers through 18 miles
of transmission and distribution mains.

Pinelands Wastewater System

Pinelands  Wastewater  owns a 12 acre site on which its 0.5 million  gallons per
day capacity  tertiary  treatment  plant and connecting  pipes are located.  Its
wastewater collection system is comprised of approximately 24.5 miles of main.

Bayview System

Bayview owns two wells, which are located in Downe Township,  Cumberland County,
New  Jersey.  Water  is  transported  to its  customers  through  our  3.5  mile
distribution system.

USA-PA, USA and White Marsh

Our non-regulated  subsidiaries,  namely USA-PA, USA and White Marsh, do not own
utility plant property.

Item 3. Legal Proceedings

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,  which the  Company has accrued  for.
While we are unable to predict the outcome of the  arbitration,  we believe that
we have substantial defenses.

A claim involving a construction subcontractor, the Company's general contractor
and the Company  concerning  a major  construction  project  was settled  during
October 2004. The matter was instituted in 2001, and related to work required to
be performed under a construction contract and related subcontracts and included
payment


                                       14
<PAGE>

issues and timing/delay issues. The amount that was determined to be due from us
for the work  performed  was $1.4  million  and was  recorded  as an addition to
utility plant in service during fiscal 2004.

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

Item 4. Submission of Matters to a Vote of Security Holders.

None.

                                     PART II

Item 5. Market for the Registrant's  Common Equity,  Related Stockholder Matters
        and Issuer Purchases of Equity Securities.

(a)         Market Information

The  Company's  common  stock is traded on the NASDAQ  Stock  Market,  under the
symbol MSEX.  The  following  table shows the range of high and low share prices
per share for the common stock and the  dividend  paid to  shareholders  in such
quarter.

        2004                                 High           Low         Dividend
        ----                                 ----           ---         --------

Fourth Quarter                             $ 20.72        $ 17.06        $0.1675
Third Quarter                                19.50          16.65         0.1650
Second Quarter                               21.81          18.83         0.1650
First Quarter                                21.32          19.38         0.1650

        2003                                 High           Low         Dividend
        ----                                 ----           ---         --------

Fourth Quarter                             $ 21.12        $ 18.19        $0.1650
Third Quarter                                21.23          17.72         0.1613
Second Quarter                               18.49          16.32         0.1613
First Quarter                                18.00          15.77         0.1613

(b)         Approximate  Number of Equity  Security  Holders as of December  31,
            2004

                                                                     Number of
                               Title of Class                     Record Holders
                               --------------                     --------------

            Common Stock, No Par Value                                2,077
            Cumulative Preferred Stock, No Par Value:
                 $7.00 Series                                            14
                 $4.75 Series                                             1
            Cumulative Convertible Preferred Stock, No Par Value:
                 $7.00 Series                                             4
                 $8.00 Series                                             3


                                       15
<PAGE>

(c)         Dividends

The  Company  has paid  dividends  on its common  stock  each year  since  1912.
Although it is the present intention of the Board of Directors of the Company to
continue  to pay regular  quarterly  cash  dividends  on its common  stock,  the
payment  of future  dividends  is  contingent  upon the future  earnings  of the
Company,  its financial condition and other factors deemed relevant by the Board
of Directors at its discretion.

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.  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.  Substantially all of the Utility Plant
of the  Company  is  subject to the lien of its  mortgage,  which also  includes
certain  restrictions as to cash dividend  payments and other  distributions  on
common stock.

(d)         Restricted Stock Plan

The Company maintains a shareholder  approved restricted Stock Plan, under which
65,233  shares of the  Company's  common stock are held in escrow by the Company
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
grant other than as a result of  retirement,  death or  disability.  The maximum
number of shares authorized for grant under this plan is 240,000 shares.

(e)         Sale of Unregistered Securities

The Company did not issue any shares of  unregistered  securities  during fiscal
years 2004, 2003, or 2002.

(f)         Issuer Purchases of Equity Securities

The Company did not purchase any shares of its equity  securities  during fiscal
year 2004.


                                       16
<PAGE>

Item 6. Selected Financial Data

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

<TABLE>
<CAPTION>
                                            2004         2003         2002         2001         2000
- ----------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>          <C>
Operating Revenues                      $ 70,991     $ 64,111     $ 61,933     $ 59,638     $ 54,477
- ----------------------------------------------------------------------------------------------------
Operating Expenses:
   Operations and Maintenance             39,984       36,195       32,767       31,740       30,269
   Depreciation                            5,846        5,363        4,963        5,051        4,701
   Other Taxes                             8,228        7,816        7,737        7,594        6,916
   Income Taxes                            3,814        3,237        3,999        3,760        2,653
- ----------------------------------------------------------------------------------------------------
      Total Operating Expenses            57,872       52,611       49,466       48,145       44,539
- ----------------------------------------------------------------------------------------------------
Operating Income                          13,119       11,500       12,467       11,493        9,938
Other Income, Net                            795          358          442          502          364
Interest Charges                           5,468        5,227        5,144        5,042        4,997
- ----------------------------------------------------------------------------------------------------
      Net Income                           8,446        6,631        7,765        6,953        5,305
Preferred Stock Dividend                     255          255          255          255          255
- ----------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock     $  8,191     $  6,376     $  7,510     $  6,698     $  5,050
- ----------------------------------------------------------------------------------------------------
Earnings per Share:
      Basic                             $   0.74     $   0.61     $   0.73     $   0.66     $   0.50
      Diluted                           $   0.73     $   0.61     $   0.73     $   0.66     $   0.50
Average Shares Outstanding:
      Basic                               11,080       10,475       10,280       10,131       10,044
      Diluted                             11,423       10,818       10,623       10,474       10,387
Dividends Declared and Paid             $  0.663     $  0.649     $  0.634     $  0.623     $  0.613
Total Assets                            $299,129     $263,192     $248,962     $240,312     $222,815
Convertible Preferred Stock             $  2,961     $  2,961     $  2,961     $  2,961     $  2,961
Long-term Debt                          $115,281     $ 97,377     $ 87,483     $ 88,140     $ 82,109
- ----------------------------------------------------------------------------------------------------
</TABLE>


                                       17
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operation.

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  is  expected  to  commence  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  58,000  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  26,000  retail  customers  in New  Castle,  Kent  and  Sussex
Counties,  Delaware.  Our other Delaware  subsidiary,  White Marsh,  services an
additional 4,500 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 three  factors:  weather,  adequate and timely rate  increases,  and customer
growth.  These  factors are evident in the  discussions  below which compare our
results of operations from prior years.

Results of Operations in 2004 Compared to 2003

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.

While we  anticipate  continued  growth in the number of customers and increased
water  consumption  among  our  Delaware  systems,  such  growth  and  increased
consumption cannot be guaranteed. Weather conditions may


                                       18
<PAGE>

adversely  impact  future  consumption  even with an  anticipated  growth in the
number of  customers.  Our New Jersey  systems are also highly  dependent on the
effects of  weather.  Our ability to  generate  operating  revenues by our meter
services venture is dependent upon our ability to obtain  additional  contracts,
however USA did not submit bids for any meter  service  contracts  during fiscal
2004 and currently  does not expect to submit any bids during  fiscal 2005.  The
existing meter services contracts were substantially completed during the fourth
quarter of 2004.

Operating expenses  increased by $5.3 million,  or 10.0% as compared to the same
period in 2003.  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.  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.

Going  forward we  anticipate  an increase in New Jersey's  electric  generation
costs due to deregulation of electricity. These increasing costs, in addition to
higher business insurance and corporate  governance costs, as well as completion
of the new raw water pipeline  during the second quarter of 2005 will require us
to file for a base rate  increase  with the BPU for  Middlesex  during 2005.  We
cannot  predict  whether the BPU will approve,  deny or reduce the amount of any
request.

Depreciation  expense for 2004  increased  by $0.5  million,  or 9.0%,  due to a
higher  level of utility  plant in  service.  Allowance  for funds  used  during
construction  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 (see
Liquidity and Capital Resources for additional  discussion of capital spending).
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 $0.4 million generally  reflecting  additional taxes on
higher  taxable  gross  revenues,  payroll and real estate.  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.

Other income increased $0.1 million,  primarily due 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.

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.


                                       19
<PAGE>

Results of Operations in 2003 Compared to 2002

Operating revenues for the year rose $2.2 million,  or 3.5% over the same period
in 2002.  Customer  growth of 10.9% in  Delaware  provided  additional  facility
charges and connection  fees of $1.4 million.  Higher base rates in our Delaware
service  territories  provided $0.6 million of the increase.  For the year ended
December  31,  2003,  cool  wet  weather  in  the  Mid-Atlantic   region  pushed
Tidewater's  consumption revenue down by $0.3 million and Middlesex  consumption
revenue down by $0.5 million. Despite such adverse weather conditions,  revenues
from our operations and maintenance contracts rose $0.5 million due to scheduled
increases in fixed fees under the City of Perth Amboy contract.

New  unregulated  wastewater  operations  in Delaware  provided  $0.1 million in
additional  revenues.  Our new meter services  venture  provided $0.3 million in
additional  revenues.  All other  operations  accounted  for $0.1 million of the
higher revenues.

Operating  expenses  increased by $3.1 million,  or 6.4%.  Costs related to main
breaks  resulting from severe winter weather  conditions in the first quarter of
2003 contributed to additional expenses of $0.4 million.  There were also higher
sewer disposal fees and security costs for USA-PA that helped  increase costs by
$0.6 million.  An increase in our Delaware employee base, general wage increases
and higher costs associated with employee medical and retirement benefits pushed
up costs by $0.7 million.  In New Jersey,  payroll costs,  employee benefits and
legal fees pushed up costs by $0.9  million.  Non-regulated  operations of meter
installations and wastewater,  which began in 2003,  contributed $0.3 million of
the overall  expense  increase.  Water  treatment,  source of supply and pumping
costs increased by $0.5 million combined.

Depreciation  expense for 2003  increased  by $0.4  million,  or 8.1%,  due to a
higher  level of utility  plant in  service.  Allowance  for funds  used  during
construction  rose  17% for the year as  Tidewater's  capital  program  included
larger projects with longer construction schedules.

Other taxes  increased by $0.1 million  generally due to higher payroll  related
taxes and real  estate  taxes in both New Jersey  and  Delaware.  Lower  federal
income  taxes of $0.8  million  over last year are  attributable  to the reduced
operating results for 2003 as compared to 2002.

Other income decreased by $0.1 million as interest rates fell on short-term cash
balance investments.  Interest expense increased by $0.1 million due to a higher
level of overall debt outstanding as compared to last year.

Net income  decreased  to $6.6  million  from $7.8 million and basic and diluted
earnings per share decreased by $0.12 to $0.61 due to lower earnings.

Outlook

In  addition  to some of the  factors  previously  discussed  under  "Results of
Operations  in 2004  Compared to 2003," our revenues are expected to increase in
2005 from anticipated  customer growth in Delaware for our regulated  operations
and, to a lesser degree, from growth of non-regulated operations in Delaware and
elsewhere.  We settled  four rate  cases  during  2004,  from which we expect to
receive the full annualized benefit in 2005.  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.  The level of revenues and earnings will be impacted
by the ultimate  timing and outcome of the  anticipated  base rate filing in New
Jersey during 2005.

We continue to explore  viable plans to streamline  operations and reduce costs,
particularly  in Delaware,  where customer  growth  continues to exceed industry
averages.  Part  of  the  challenge  is  that  our  Delaware  operations  are  a
combination of over 91 stand-alone  production and distribution  systems serving
250 communities.


                                       20
<PAGE>

As a result of  anticipated  regulation of wastewater  services in Delaware,  we
have  established  a new  regulated  wastewater  operation  that  will  commence
operations during fiscal 2005. Due to the start-up nature of this operation,  we
expect our expenses  with respect to this  subsidiary  to exceed its revenues in
the near term.

We expect our interest  expense to increase during 2005 as a result of incurring
a full year of interest expense on the approximately  $19.0 million of long-term
debt we financed during fiscal 2004 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).

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 2004,  cash flows from
operating activities increased $1.4 million to $15.6 million, as compared to the
prior year. This increase was primarily  attributable to improved  profitability
during the current  year period and the timing of payments  made toward  prepaid
expenses, materials and supplies, and employee benefit plans. These increases in
cash  flows  were  partially  offset by the  timing of  collection  of  customer
accounts  and  payments  to  vendors.  The $15.6  million  of net cash flow from
operations   allowed  us  to  fund   approximately  52%  of  our  utility  plant
expenditures  for the period  internally,  with the  remainder  funded with both
short-term and long-term  borrowings.  Net proceeds from issuing  long-term debt
were used to fund the balance of those expenditures.

For 2003, net cash flow from  operations of $14.2 million,  which increased over
2002 due to lower  working  capital  requirements,  and proceeds from prior year
financings  allowed  us to find  approximately  85% of our  2003  utility  plant
expenditures.  Net proceeds  from issuing  long-term  debt 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 2004 we
received rate relief for Middlesex,  Tidewater and the Pinelands  Companies.  We
also plan to file for a base rate increase for Middlesex in 2005 in  conjunction
with the completion of the raw water pipeline project (see Capital  Expenditures
and Commitments).  There is no certainty, however, that the BPU will approve any
or all of this or other future requested increases.

Sources of Liquidity

Short-Term Debt. The Board of Directors has authorized lines of credit for up to
an  aggregate  of $40.0  million.  As of  December  31,  2004,  the  Company has
established revolving lines of credit aggregating $33.0 million. At December 31,
2004, the outstanding  borrowings under these credit lines were $11.0 million at
a weighted  average  interest  rate of 3.42%.  As of that date,  the Company had
borrowing capacity of $22.0 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 $8.9
million and $14.0  million at 2.37% and 1.89% for the years ended  December  31,
2004 and 2003, 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


                                       21
<PAGE>

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 SRF loan programs  during 2004 and will
continue to pursue opportunities to participate as circumstances allow us in the
future.

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 (see Capital  Expenditures  and Commitments for
discussion  of these  projects).  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 2004,  Tidewater  closed on a Delaware SRF loan of $0.8 million to fund a
portion of its multi-year capital program.  The Delaware SRF program will allow,
but does not obligate,  Tidewater to draw down against a General Obligation Note
for three specific projects.

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.  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 2005 and
2006 to increase over 2004. These increases are attributable to a major pipeline
installation in the Middlesex  system and continued  customer growth and service
improvement  requirements in our Tidewater  systems in Delaware,  where we spent
$12.8 million on utility plant in 2004. At this time we have not  determined any
amounts anticipated to be spent by TESI in the table below.

                                                       (Millions of Dollars)
                                                       2005     2006     2007
                                                      -----    -----    -----
            Delaware Systems                          $16.5    $18.1    $ 9.3
            Raw Water Line                              3.4       --       --
            RENEW Program                               3.3      3.3      3.3
            Scheduled Upgrades to Existing Systems      5.3      8.1      3.8
                                                      -----    -----    -----

            Total                                     $28.5    $29.5    $16.4
                                                      =====    =====    =====

Under our capital  program for 2005,  we plan to expend $16.5  million for water
system additions and improvements  for our Delaware  systems,  which include the
construction  of  several  storage  tanks  and the  creation  of new  wells  and
interconnections.  We expect to spend approximately $3.4 million to complete the
new raw water line to the Middlesex  primary water treatment plant that began in
2004.  We expect to spend  $3.3  million  for the  RENEW  program,  which is our
program to clean and cement line unlined  mains in the Middlesex  System.  There
remains a total of  approximately  129 miles of  unlined  mains in the  730-mile
Middlesex  System.  In 2004, nine miles of unlined mains were cleaned and cement
lined. The capital program also includes $5.3 million for scheduled  upgrades to
our  existing  systems in New Jersey.  The  scheduled  upgrades  consist of $1.1
million for improvements to existing plant, $1.2 million for mains, $0.8 million
for


                                       22
<PAGE>

service  lines,  $0.3 million for meters,  $0.3 million for  hydrants,  and $1.6
million for computer systems and various other items.

To pay for our capital  program in 2005,  we will utilize  internally  generated
funds and funds available under existing NJEIT loans  (currently,  $8.3 million)
and Delaware SRF loans (currently,  $1.8 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  $33.0  million  of  available  lines  of  credit  with  four  financial
institutions.  As of December 31, 2004, we had $11.0 million outstanding against
the lines of credit.

Going  forward into 2006  through  2007,  we  currently  project that we will be
required to expend  approximately  $45.9  million for capital  projects.  To the
extent  possible  and  because of the  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.

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, 2004.

<TABLE>
<CAPTION>
                                                            Payment Due by Period
                                                            (Millions of Dollars)
                                                         Less
                                                         than         1-3         4-5     More than
                                             Total      1 Year       Years       Years     5 Years
                                            ------      ------      ------      ------     -------
<S>                                         <C>         <C>         <C>         <C>         <C>
            Long-term Debt                  $116.4      $  1.1      $  3.4      $  3.9      $108.0
            Notes Payable                     11.0        11.0          --          --          --
            Interest on Long-term Debt       104.0         5.6        11.2        10.2        77.0
            Purchased Water Contracts         21.7         3.9         4.5         4.5         8.8
            Wastewater Operations             63.0         3.8         7.8         8.3        43.1
                                            ------      ------      ------      ------      ------
            Total                           $316.1      $ 25.4      $ 26.9      $ 26.9      $236.9
                                            ======      ======      ======      ======      ======
</TABLE>

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  began at $6.4 million in the first year
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


                                       23
<PAGE>

maturity date on September 1, 2015. As of December 31, 2004, 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 86% of  Operating  Revenues  and 99% of Total
Assets,  are subject to regulation  in the states 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.  In those instances, the Company follows the guidance
provided in the  Financial  Accounting  Standards  Board  (FASB),  Statement  of
Financial  Accounting  Standards 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.


                                       24
<PAGE>

      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 6.75% at  December  31,  2002 to 6.00% at  December  31, 2003 to
5.875% at December  31,  2004.  Lowering  the  discount  rate by 0.5% would have
increased  the net periodic  pension cost by $0.1 million in 2004.  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  2004  by
approximately $0.1 million.

The discount rate for  determining  future  pension  obligations  are 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  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.

Recent Accounting Standards

In December 2004, the FASB issued  Statement of Financial  Accounting  Standards
(SFAS) No.123(R) "Share-Based Payment", which replaces SFAS No.123,  "Accounting
for Stock-Based  Compensation",  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 is effective for quarters
beginning  after June 15, 2005. 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 Company does not anticipate adoption
of this standard will have a material impact on its 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  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  Management's  discussions  with its
Actuary,  Management  determined  the  effect of the  Medicare  Drug Act was not
considered a significant event and thus


                                       25
<PAGE>

the Company  will  account for the effects of FSP 106-2 at its next  measurement
date  (January  1,  2005).  The  adoption  of FSP 106-2 will 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.

Item 7A. 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  $1.1  million of the  current  portion  of ten  existing
long-term  debt  instruments  will mature.  Combining this amount with the $11.0
million in  short-term  debt  outstanding  at December 31, 2004,  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.


                                       26
<PAGE>

Item 8. Financial Statements and Supplementary Data.

             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, 2004 and 2003,  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, 2004. 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, 2004
and 2003,  and the results of its  operations and its cash flows for each of the
three years in the period ended December 31, 2004, 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, 2004, 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 15, 2005 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.


/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 15, 2005


                                       27
<PAGE>
<TABLE>
<CAPTION>
                                         MIDDLESEX WATER COMPANY
                                       CONSOLIDATED BALANCE SHEETS
                                                                                              December 31,
ASSETS                                                                                    2004            2003
==================================================================================================================
<S>                           <C>                                                     <C>             <C>
UTILITY PLANT:                Water Production                                        $ 82,340,798    $ 77,265,782
                              Transmission and Distribution                            188,026,091     174,455,437
                              General                                                   20,451,215      19,776,293
                              Construction Work in Progress                             13,013,391       2,798,070
                              ------------------------------------------------------------------------------------
                              TOTAL                                                    303,831,495     274,295,582
                              Less Accumulated Depreciation                             52,017,761      47,510,797
                              ------------------------------------------------------------------------------------
                              UTILITY PLANT - NET                                      251,813,734     226,784,785
                              ------------------------------------------------------------------------------------

==================================================================================================================
CURRENT ASSETS:               Cash and Cash Equivalents                                  4,034,768       3,005,610
                              Accounts Receivable, net                                   6,316,853       5,682,608
                              Unbilled Revenues                                          3,572,713       3,234,788
                              Materials and Supplies (at average cost)                   1,203,906       1,419,142
                              Prepayments                                                  823,976       1,009,304
                              ------------------------------------------------------------------------------------
                              TOTAL CURRENT ASSETS                                      15,952,216      14,351,452

==================================================================================================================
DEFERRED CHARGES              Unamortized Debt Expense                                   3,172,254       3,272,783
AND OTHER ASSETS:             Preliminary Survey and Investigation Charges               1,032,182       1,380,771
                              Regulatory Assets                                          8,198,565       8,216,117
                              Operations Contracts Fees Receivable                         685,599         699,806
                              Restricted Cash                                           13,257,106       3,825,420
                              Non-utility Assets - Net                                   4,552,023       4,147,685
                              Other                                                        465,419         513,116
                              ------------------------------------------------------------------------------------
                              TOTAL DEFERRED CHARGES AND OTHER ASSETS                   31,363,148      22,055,698
                              ------------------------------------------------------------------------------------
                              TOTAL ASSETS                                            $299,129,098    $263,191,935
                              ------------------------------------------------------------------------------------

CAPITALIZATION AND LIABILITIES
==================================================================================================================
CAPITALIZATION:               Common Stock, No Par Value                              $ 71,979,902    $ 56,924,028
                              Retained Earnings                                         23,103,908      22,668,348
                              Accumulated Other Comprehensive Income, net of tax            44,841          50,808
                              ====================================================================================
                              TOTAL COMMON EQUITY                                       95,128,651      79,643,184
                              ====================================================================================
                              Preferred Stock                                            4,063,062       4,063,062
                              Long-term Debt                                           115,280,649      97,376,847
                              ------------------------------------------------------------------------------------
                              TOTAL CAPITALIZATION                                     214,472,362     181,083,093

==================================================================================================================
CURRENT                       Current Portion of Long-term Debt                          1,091,351       1,067,258
LIABILITIES:                  Notes Payable                                             11,000,000      12,500,000
                              Accounts Payable                                           6,001,806       4,777,400
                              Accrued Taxes                                              6,784,380       6,258,739
                              Accrued Interest                                           1,703,131       1,810,639
                              Unearned Revenues and Advanced Service Fees                  387,156         602,854
                              Other                                                        795,456         678,596
                              ------------------------------------------------------------------------------------
                              TOTAL CURRENT LIABILITIES                                 27,763,280      27,695,486

==================================================================================================================
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)

==================================================================================================================
DEFERRED CREDITS              Customer Advances for Construction                        12,366,060      11,711,846
AND OTHER LIABILITIES:        Accumulated Deferred Investment Tax Credits                1,696,566       1,775,183
                              Accumulated Deferred Income Taxes                         14,556,153      14,125,970
                              Employee Benefit Plans                                     5,464,056       5,086,988
                              Regulatory Liability - Cost of Utility Plant Removal       5,363,152       4,830,308
                              Other                                                        849,551         909,498
                              ------------------------------------------------------------------------------------
                              TOTAL DEFERRED CREDITS AND OTHER LIABILITIES              40,295,538      38,439,793

==================================================================================================================
CONTRIBUTIONS IN AID OF CONSTRUCTION                                                    16,597,918      15,973,563
                              ------------------------------------------------------------------------------------
                              TOTAL CAPITALIZATION AND LIABILITIES                    $299,129,098    $263,191,935
                              ------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       28
<PAGE>
                                   MIDDLESEX WATER COMPANY
                              CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                        2004             2003             2002
==================================================================================================
<S>                                                 <C>              <C>              <C>
Operating Revenues                                  $ 70,991,146     $ 64,111,214     $ 61,932,786
- --------------------------------------------------------------------------------------------------

Operating Expenses:
    Operations                                        36,519,355       32,666,099       29,918,921
    Maintenance                                        3,464,036        3,529,113        2,847,209
    Depreciation                                       5,846,191        5,362,727        4,963,268
    Other Taxes                                        8,228,354        7,815,918        7,737,155
    Income Taxes                                       3,814,418        3,237,218        3,999,295
- --------------------------------------------------------------------------------------------------

        Total Operating Expenses                      57,872,354       52,611,075       49,465,848
==================================================================================================

               Operating Income                       13,118,792       11,500,139       12,466,938
- --------------------------------------------------------------------------------------------------

Other Income (Expense):
    Allowance for Funds Used During Construction         606,019          315,919          269,668
    Other Income                                         221,950          131,499          249,324
    Other Expense                                        (32,676)         (89,931)         (77,114)
- --------------------------------------------------------------------------------------------------

        Total Other Income, net                          795,293          357,487          441,878

Interest Charges                                       5,468,576        5,227,030        5,143,463
- --------------------------------------------------------------------------------------------------

Net Income                                             8,445,509        6,630,596        7,765,353

Preferred Stock Dividend Requirements                    254,786          254,786          254,786
- --------------------------------------------------------------------------------------------------

Earnings Applicable to Common Stock                 $  8,190,723     $  6,375,810     $  7,510,567
==================================================================================================

Earnings per share of Common Stock:
    Basic                                           $       0.74     $       0.61     $       0.73
    Diluted                                         $       0.73     $       0.61     $       0.73

Average Number of
    Common Shares Outstanding :
    Basic                                             11,079,835       10,475,295       10,280,302
    Diluted                                           11,422,975       10,818,435       10,623,442

Cash Dividends Paid per Common Share                $      0.663     $      0.649     $      0.634
</TABLE>

See Notes to Consolidated Financial Statements.

                                       29
<PAGE>
                             MIDDLESEX WATER COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                  Twelve Months Ended December 31,
                                                               2004             2003             2002
                                                           ==============================================
<S>                                                        <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                 $  8,445,509     $  6,630,596     $  7,765,353
Adjustments to Reconcile Net Income to
      Net Cash Provided by Operating Activities:
          Depreciation and Amortization                       6,387,808        5,633,863        5,436,525
          Provision for Deferred Income Taxes and ITC           603,275          306,919          197,714
          Allowance for Funds Used During Construction         (606,019)        (315,919)        (269,668)
      Changes in Assets and Liabilities:
          Accounts Receivable                                  (634,245)         345,694          637,418
          Unbilled Revenues                                    (337,925)         (53,697)        (380,076)
          Materials & Supplies                                  215,236         (228,805)        (162,417)
          Prepayments                                           185,328         (193,912)          54,301
          Other Assets                                         (578,048)         275,802         (256,683)
          Operations Contracts Receivable                        14,207         (699,806)              --
          Accounts Payable                                    1,224,406        2,260,431         (476,148)
          Accrued Taxes                                         528,715          333,815         (432,126)
          Accrued Interest                                     (107,508)         196,361         (199,618)
          Employee Benefit Plans                                377,068         (192,749)          17,061
          Unearned Revenue & Advanced Service Fees             (215,698)         186,265           71,316
          Other Liabilities                                      56,913         (236,431)        (803,949)

- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                    15,559,022       14,248,427       11,199,003
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Utility Plant Expenditures*                           (29,860,100)     (19,574,205)     (16,489,095)
      Cash Surrender Value & Other Investments                 (273,837)        (466,290)          (4,438)
      Restricted Cash                                        (9,431,686)       2,321,158        2,843,996
      Proceeds from Real Estate Dispositions                         --          532,922               --
      Preliminary Survey & Investigation Charges                348,589         (282,303)        (154,846)
      Other Assets                                                   --          (47,264)         (68,179)

- ---------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                       (39,217,034)     (17,515,982)     (13,872,562)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Redemption of Long-term Debt                           (1,067,258)        (884,427)      (6,443,836)
      Proceeds from Issuance of Long-term Debt               18,995,153       11,205,723        6,067,350
      Net Short-term Bank Borrowings (Repayments)            (1,500,000)      (5,150,000)       4,425,000
      Deferred Debt Issuance Expenses                           (65,219)        (194,484)        (510,818)
      Common Stock Issuance Expense                            (379,534)        (103,284)          (3,688)
      Restricted Cash                                                --              121          219,588
      Proceeds from Issuance of Common Stock                 15,055,874        3,609,859        3,214,548
      Payment of Common Dividends                            (7,375,629)      (6,791,254)      (6,510,494)
      Payment of Preferred Dividends                           (254,786)        (254,786)        (254,786)
      Construction Advances and Contributions-Net             1,278,569        1,897,803          874,205
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                    24,687,170        3,335,271        1,077,069
- ---------------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS                      1,029,158           67,716       (1,596,490)
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                3,005,610        2,937,894        4,534,384
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                   $  4,034,768     $  3,005,610     $  2,937,894
- ---------------------------------------------------------------------------------------------------------

*Excludes Allowance for Funds Used During Construction

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
   Cash Paid During the Year for:
      Interest                                             $  5,409,803     $  5,061,878     $  5,103,787
      Interest Capitalized                                 $   (606,019)    $   (315,919)    $   (269,668)
      Income Taxes                                         $  3,074,513     $  2,472,000     $  4,237,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       30
<PAGE>
                             MIDDLESEX WATER COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITAL STOCK
                               AND LONG-TERM DEBT
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                             2004             2003
======================================================================================================
<S>                                                                     <C>               <C>
Common Stock, No Par Value
     Shares Authorized - 20,000,000
     Shares Outstanding - 2004 - 11,358,772                             $  71,979,902     $ 56,924,028
                          2003 - 10,566,937

Retained Earnings                                                          23,103,908       22,668,348
Accumulated Other Comprehensive Income, net of tax                             44,841           50,808
- ------------------------------------------------------------------------------------------------------
        TOTAL COMMON EQUITY                                                95,128,651       79,643,184
- ------------------------------------------------------------------------------------------------------

Cumulative Preference Stock, No Par Value:
     Shares Authorized - 100,000
     Shares Outstanding - None
Cumulative Preferred Stock, No Par Value
     Shares Authorized - 140,497
   Convertible:
     Shares Outstanding, $7.00 Series - 14,881                              1,562,505        1,562,505
     Shares Outstanding, $8.00 Series - 12,000                              1,398,857        1,398,857
   Nonredeemable:
     Shares Outstanding, $7.00 Series -  1,017                                101,700          101,700
     Shares Outstanding, $4.75 Series - 10,000                              1,000,000        1,000,000
- ------------------------------------------------------------------------------------------------------
        TOTAL PREFERRED STOCK                                               4,063,062        4,063,062
- ------------------------------------------------------------------------------------------------------

Long-term Debt
   8.05%, Amortizing Secured Note, due December 20, 2021                    3,063,389        3,136,531
   6.25%, Amortizing Secured Note, due May 22, 2028                         9,835,000       10,255,000
   4.22%, State Revolving Trust Note, due December 31, 2022                   784,000          192,281
   3.60%, State Revolving Trust Note, due May 1, 2025                       2,348,316          580,792
   4.00% to 5.00%, State Revolving Trust Bond, due September 1, 2021          790,000          820,000
   0.00%, State Revolving Fund Bond, due September 1, 2021                    652,306          690,833

   First Mortgage Bonds:
      5.20%, Series S, due October 1, 2022                                 12,000,000       12,000,000
      5.25%, Series T, due October 1, 2023                                  6,500,000        6,500,000
      6.40%, Series U, due February 1, 2009                                15,000,000       15,000,000
      5.25%, Series V, due February 1, 2029                                10,000,000       10,000,000
      5.35%, Series W, due February 1, 2038                                23,000,000       23,000,000
      0.00%, Series X, due September 1, 2018                                  755,006          807,956
      4.25% to 4.63%, Series Y, due September 1, 2018                         920,000          965,000
      0.00%, Series Z, due September 1, 2019                                1,679,979        1,792,435
      5.25% to 5.75%, Series AA, due September 1, 2019                      2,085,000        2,175,000
      0.00%, Series BB, due September 1, 2021                               2,048,095        2,168,277
      4.00% to 5.00%, Series CC, due September 1, 2021                      2,275,000        2,360,000
      5.10%, Series DD, due January 1, 2032                                 6,000,000        6,000,000
      0.00%, Series EE, due September 1, 2024                               7,715,909               --
      3.00% to 5.50%, Series FF, due September 1, 2024                      8,920,000               --
- ------------------------------------------------------------------------------------------------------
        SUBTOTAL LONG-TERM DEBT                                           116,372,000       98,444,105
- ------------------------------------------------------------------------------------------------------
                            Less: Current Portion of Long-term Debt        (1,091,351)      (1,067,258)
- ------------------------------------------------------------------------------------------------------
                               TOTAL LONG-TERM DEBT                     $ 115,280,649     $ 97,376,847
- ------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       31
<PAGE>
                             MIDDLESEX WATER COMPANY
            CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY AND
                              COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
                                                                                                    Accumulated
                                                   Common           Common                             Other
                                                   Stock            Stock           Retained       Comprehensive
                                                   Shares           Amount          Earnings           Income           Total
                                                ===========      ===========      ===========      =============     ===========
<S>                                              <C>             <C>              <C>               <C>              <C>
Balance at January 1, 2002                       10,168,002      $50,099,621      $22,190,691       $        --      $72,290,312

    Net Income                                                                      7,765,353                          7,765,353
    Dividend Reinvestment & Common
      Stock Purchase Plan                           176,320        2,990,712                                           2,990,712
    Restricted Stock Awards - Net                    12,167          223,836                                             223,836
    Cash Dividends on Common Stock                                                 (6,510,494)                        (6,510,494)
    Cash Dividends on Preferred Stock                                                (254,786)                          (254,786)
    Common Stock Expenses                                                              (3,688)                            (3,688)

                                                -----------      -----------      -----------       -----------      -----------
Balance at December 31, 2002                     10,356,489      $53,314,169      $23,187,076       $        --      $76,501,245

    Net Income                                                                      6,630,596                          6,630,596
    Change in Value of Equity Investments,
     net of $26,000 Income Tax                                                                           50,808           50,808
                                                                                                                     -----------
      Comprehensive Income                                                                                             6,681,404
                                                                                                                     -----------
    Dividend Reinvestment & Common
      Stock Purchase Plan                           192,515        3,263,569                                           3,263,569
    Restricted Stock Awards - Net                    17,933          346,290                                             346,290
    Cash Dividends on Common Stock                                                 (6,791,254)                        (6,791,254)
    Cash Dividends on Preferred Stock                                                (254,786)                          (254,786)
    Common Stock Expenses                                                            (103,284)                          (103,284)

                                                -----------      -----------      -----------       -----------      -----------
Balance at December 31, 2003                     10,566,937      $56,924,028      $22,668,348       $    50,808      $79,643,184

    Net Income                                                                      8,445,509                          8,445,509
    Change in Value of Equity Investments,
     net of $3,000 Income Tax                                                                            (5,967)          (5,967)
                                                                                                                     -----------
      Comprehensive Income                                                                                             8,439,542
    Dividend Reinvestment & Common
      Stock Purchase Plan                            76,935        1,533,507                                           1,533,507
    Issuance of Common Stock                        700,000       13,257,000                                          13,257,000
    Restricted Stock Awards - Net                    14,900          265,367                                             265,367
    Cash Dividends on Common Stock                                                 (7,375,629)                        (7,375,629)
    Cash Dividends on Preferred Stock                                                (254,786)                          (254,786)
    Common Stock Expenses                                                            (379,534)                          (379,534)

                                                -----------      -----------      -----------       -----------      -----------
Balance at December 31, 2004                     11,358,772      $71,979,902      $23,103,908       $    44,841      $95,128,651
                                                ===========      ===========      ===========       ===========      ===========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       32
<PAGE>

                             Middlesex Water Company
                   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),  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 for water services in Delaware,
as to the quality of water service we provide and as to certain  other  matters.
Our Tidewater  Environmental  Services, Inc. subsidiary will commence 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 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, 2004,  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,
2004, 2003 and 2002. These rates have been approved by either the BPU or PSC:

      Source of Supply  1.15% -  3.44%      Transmission and Distribution (T&D):
      Pumping           2.87% -  5.04%      T&D - Mains       1.10% - 3.13%
      Water Treatment   2.71% -  7.64%      T&D - Services    2.12% - 2.81%
      General Plant     2.08% - 17.84%      T&D - Other       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.


                                       33
<PAGE>

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

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, 2004, 2003 and 2002 approximately $0.6 million,
$0.3  million  and $0.3  million of AFUDC was added to the cost of  construction
projects.  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 rate for the years ended  December  31,  2004,  2003 and 2002 for
Middlesex,  Tidewater  and Bayview  were 7.42%,  8.77% 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 at December
31,  2004,  2003 and  2002 was $0.2  million,  $0.2  million  and $0.1  million,
respectively.  The  corresponding  expense for the year ended December 31, 2004,
2003 and 2002 was $0.1 million, $0.2 million and $0.1 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 billed in advance for their fixed service
charge and these  revenues  are  recognized  as the  service is  provided to the
customer.

Bayview and Southern Shores are unmetered systems.  Customers are billed a fixed
service charge in accordance  with the approved  tariff.  Southern Shore 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.

(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.


                                       34
<PAGE>

(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.

(m)  Recent  Accounting   Pronouncements  -  In  December  2004,  the  Financial
Accounting  Standards  Board (FASB)  issued  Statement  of Financial  Accounting
Standards (SFAS) No.123(R)  "Share-Based  Payment",  which replaces SFAS No.123,
"Accounting  for Stock-Based  Compensation",  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 is
effective  for quarters  beginning  after June 15, 2005.  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 Company does not anticipate adoption
of this standard will have a material impact on its 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  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  Management's  discussions  with its
Actuary,  Management  determined  the  effect  of the  Medicare  Drug Act is not
considered a significant event and thus the Company will account for the effects
of FSP 106-2 at its next measurement date (January 1, 2005). The adoption of FSP
106-2 will 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


                                       35
<PAGE>

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.

(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.

(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 86% 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.  In those instances,  the
Company follows the guidance  provided SFAS No. 71,  "Accounting for the Effects
of Certain Types of Regulation."

(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 7.25%
for the year ended  December  31, 2002 to 6.75% for the year ended  December 31,
2003 to 6.00% for the year ended December 31, 2004. 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 May 27, 2004,  Middlesex received approval from the BPU for a 9.5%, or
$4.3 million increase in its water rates. This increase  represents a portion of
Middlesex's  November  2003 request for a total rate  increase of 17.8% to cover
the  costs of its  increased  capital  investment,  as well as  maintenance  and
operating expenses.

Effective  June 24, 2004,  Pinelands  Water and  Pinelands  Wastewater  received
approval  from the BPU for rate  increases  of 9.2% and 9.9%,  respectively,  or
approximately $0.13 million in the aggregate. This increase represents a portion
of Pinelands'  December 2003 request for a total rate increase of  approximately
$0.25  million to help  offset the  increasing  costs  associated  with  capital
improvements, and the operation and maintenance of their systems.

Effective June 25, 2004, Tidewater received approval from the PSC for an interim
rate  increase  of 15%,  or $1.5  million  increase  in its water  rates,  which
includes 4.89% of previously implemented Distribution System Improvement Charges
(DSIC). On October 19, 2004, the PSC approved a settlement between Tidewater and
interveners  in the matter.  The  settlement  allows the interim rates to become
permanent.  This increase represents a portion of Tidewater's April 2004 request
for a 24% rate increase to accommodate the growth of Tidewater's  customer base,
improvements to water treatment, fire protection and to interconnect systems for
service  reliability and back-up.  As part of the settlement,  Tidewater will be
eligible to apply for a second phase rate increase of $0.5 million,  provided it
completes  a number  of  capital  projects  within a  specified  time  schedule.
Tidewater must file an application  for this increase no earlier than March 2005
or later than May 2005. Upon


                                       36
<PAGE>

verification  of project  completion,  new rates will become  effective  30 days
after the filing  date.  Tidewater  also  agreed to waive its right to file DSIC
applications  over the next three  six-month  cycles (January and July 2005, and
January  2006) and to defer making an  application  for a general rate  increase
until after April 1, 2006.

In accordance with the tariff  established for Southern  Shores,  an annual rate
increase of 2.8% was  implemented on January 1, 2004. The increase cannot exceed
the lesser of the regional Consumer Price Index or 3%.

Other than rates for the Southern Shores system,  there can be no assurance that
any rate  increases  will be granted  or, if  granted,  that they will be in the
amounts we requested.

In the fall of  2002,  the BPU  approved  a 76.7%  base  rate  increase  for the
Bayview.  This translates  into  additional  revenues of less than $0.1 million.
Two-thirds  of the increase was  implemented  on January 1, 2003 and the balance
became  effective  July 1,  2003.  The new rates are  designed  to allow for the
recovery of  operating  costs and capital  costs  incurred to replace the entire
water distribution system on Fortescue Island in Southern New Jersey.

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)
                                                               Remaining
                                                               Recovery
         Regulatory Assets                2004      2003        Periods
         -----------------               ------    ------       -------

      Income Taxes                       $6,535    $6,786       Various
      Post-retirement Benefits              697       783       8 years
      Tank Painting                         426       198     3-10 years
      Rate Cases and Other                  541       449    Up to 3 years
                                         ------    ------
      Total                              $8,199    $8,216
                                         ======    ======

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

The Company uses the  composite  deprecation  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 deprecation method, the anticipated
costs of removing assets upon retirement are provided for over the life of those
assets as a component  of  depreciation  expense.  However,  FASB  Statement  of
Financial  Accounting  Standards  No.  143,  "Accounting  for  Asset  Retirement
Obligations"  (SFAS 143),  precludes the recognition of expected future costs of
removal as a component of depreciation expense unless they are legal obligations
under SFAS 143. The Company  recovers  certain  asset  retirement  costs through
rates charged to customers as an approved component of deprecation  expense.  As
of December 31, 2004 and 2003,  the Company has  approximately  $5.4 million and
$4.8 million,  respectively,  of cost of removal recovered in rates in excess of
actual costs incurred. These amounts are included in regulatory liabilities.

Bayview, Pinelands Water and Pinelands Wastewater are recovering the acquisition
premium of $0.9 million over the remaining  life of their Utility  Plant.  These
deferred  costs have been  included in their rate bases as utility plant and are
earning a return on the unamortized costs during the recovery periods.


                                       37
<PAGE>

Note 3 - Income Taxes

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

                                                  Years Ended December 31,
                                                   (Thousands of Dollars)
                                                2004         2003         2002
- -------------------------------------------------------------------------------
Income Tax at Statutory Rate of 34%           $ 4,168      $ 3,355      $ 4,000
Tax Effect of:
  Utility Plant Related                          (500)        (171)        (123)
  State Income Taxes - Net                        167          106           80
  Employee Benefits                               (25)         (67)          25
  Other                                             4           14           17
- -------------------------------------------------------------------------------
Total Income Tax Expense                      $ 3,814      $ 3,237      $ 3,999
- -------------------------------------------------------------------------------

Income tax expense is comprised of the following:

Current:
   Federal                                    $ 3,128      $ 2,835      $ 3,730
   State                                           83           95           82
Deferred:
   Federal                                        512          321          227
   State                                          170           65           39
   Investment Tax Credits                         (79)         (79)         (79)
- -------------------------------------------------------------------------------
Total Income Tax Expense                      $ 3,814      $ 3,237      $ 3,999
- -------------------------------------------------------------------------------

The  statutory  review period for income tax returns for the years prior to 2001
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)
                                                       2004              2003
- -------------------------------------------------------------------------------
Utility Plant Related                                $ 21,293          $ 20,522
Customer Advances                                      (4,263)           (4,218)
Employee Benefits                                      (2,568)           (2,209)
Other                                                      94                31
- --------------------------------------------------------------------------------
Total Deferred Tax Liability                         $ 14,556          $ 14,126
- -------------------------------------------------------------------------------

The  Company is  required  to set up  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, an offsetting regulatory asset of $6.5 million and $6.8
million has been recorded at December 31, 2004 and 2003 respectively.


                                       38
<PAGE>

Note 4 - Commitments and Contingent Liabilities

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 2004, 2003 and 2002
were $7.4 million, $7.2 million and $6.9 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,  2004,  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.

Franchise  Agreement/Service  Agreement  -  In  1999,  Middlesex  implemented  a
franchise  agreement with the City of South Amboy (South Amboy) to provide water
service and install  water  system  facilities  in South  Amboy.  The  agreement
between Middlesex and South Amboy was approved by the BPU. The implementation of
the  franchise  agreement  had  significantly  impacted two existing  agreements
entered into by the parties.

The  first  agreement  was for the sale of water to South  Amboy on a  wholesale
basis. The second agreement,  which included Middlesex's wholly-owned subsidiary
USA,  was a  contract  to  provide  management  services  for a  fixed  fee.  In
conjunction  with  the  franchise  agreement,   the  water  sales  contract  was
eliminated.  In addition,  the management services contract was extended through
May 2045 and significantly  modified to correspond with the terms and conditions
of the franchise  agreement.  Fixed fee revenues  recognized  under the original
contract  have been  eliminated  effective  December  1999,  in lieu of revenues
earned from providing water to South Amboy's 2,900 customers.

Water Supply - Middlesex  revised and extended its agreement with the New Jersey
Water Supply Authority  (NJWSA) for the purchase of untreated  water,  effective
January 1, 2004.  The  agreement  now expires  November 30, 2023 and provides an
average  purchase of 27 million gallons a day (mgd) up from 20 mgd.  Pricing has
been modified to include a two tier pricing schedule for the original 20 mgd and
the  additional 7 mgd. In addition,  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  nonaffiliated  water  utility for the
purchase of treated  water.  This  agreement,  which expires  December 31, 2005,
provides for the minimum  purchase of 3 mgd of treated water with provisions for
additional purchases.


                                       39
<PAGE>

Purchased water costs are shown below:

                                             (Millions of Dollars)
                                           Years Ended December 31,
            Purchased Water                 2004      2003      2002
            ---------------                -----     -----     -----
            Untreated                      $ 2.2     $ 2.0     $ 1.9
            Treated                          2.0       1.8       1.8
                                           -----     -----     -----
            Total Costs                    $ 4.2     $ 3.8     $ 3.7
                                           =====     =====     =====

Construction  -  Based  on its  capital  budget,  the  Company  plans  to  spend
approximately  $28.5 million in 2005, $29.5 million in 2006 and $16.4 million in
2007 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,  which the
Company  has  accrued  for.  While we are unable to predict  the  outcome of the
arbitration, we believe that we have substantial defenses.

A claim involving a construction subcontractor, the Company's general contractor
and the Company  concerning  a major  construction  project  was settled  during
October 2004. The matter was instituted in 2001, and related to work required to
be performed under a construction contract and related subcontracts and included
payment issues and timing/delay issues. The amount that was determined to be due
from us for the work  performed was $1.4 million and was recorded as an addition
to utility plant in service during fiscal 2004.

The Company is  defendant  in various  lawsuits.  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, 2004 and 2003 is summarized below:

                                                       (Millions of Dollars)
                                                           2004      2003
            ----------------------------------------------------------------

            Established Lines at Year-End                 $33.0     $25.0
            Maximum Amount Outstanding                     13.5      18.5
            Average Outstanding                             8.9      14.0
            Notes Payable at Year-End                      11.0      12.5
            Weighted Average Interest Rate                 2.37%     1.89%
            Weighted Average Interest Rate at Year-End     3.42%     1.64%

Year-end interest rates on short-term  borrowings  outstanding ranged from 2.82%
to 3.75% and 1.56% to 1.67% as of December 31, 2004 and 2003, respectively.  The
maturity dates for borrowings  outstanding as of December 31, 2004 are:  January
3, 2005- $7.0 million;  January 21, 2005- $3.0 million; and March 14, 2005- $1.0
million.


                                       40
<PAGE>

The Board of Directors has  authorized  lines of credit for up to $40.0 million.
Short-term  borrowings  are  below the prime  rate  with some  requirements  for
compensating balances not exceeding 1% of the line.

Note 6 - Capitalization

All the transactions  discussed below related to the issuance of securities were
approved by the BPU, except where 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
its common  stock,  effective  November 14, 2003 for  shareholders  of record on
November  1,  2003.  In  October  2001,  the  Board  of  Directors   approved  a
three-for-two  common stock split effective January 2, 2002, for shareholders of
record on December 14, 2001.  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 both stock splits.

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, 2004, is  1,316,725.  In each of 2003 and 2002 for
specific six month periods, 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, 2004, no
preferred stock dividends were in arrears.

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,
2004 and 2003,  37,898  shares 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.

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 at the election of the security holder until 2004.  After
that date Middlesex also has the right to elect the conversion feature.

Long-term Debt

On March 24,  2004,  Tidewater  received  approval  from the PSC to borrow  $0.8
million to fund a portion of its multi-year  capital program.  Subsequent to the
PSC approval,  Tidewater closed on a Delaware State Revolving Fund (SRF) loan of
$0.8  million.  The  Delaware  SRF program  will allow,  but does not  obligate,
Tidewater  to


                                       41
<PAGE>

draw down  against  a  General  Obligation  Note for  three  specific  projects.
Tidewater  will be charged an annual  fee,  which is a  combination  of interest
charges and administrative  fees, of 3.30% on the outstanding  principal amount.
All unpaid principal and fees must be paid on or before March 1, 2026.

Middlesex  received  approval from the BPU to issue up to $18.0 million of first
mortgage bonds through the New Jersey  Environmental  Infrastructure Trust under
the New  Jersey  SRF  program.  The  Company  closed on $16.6  million  of 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              Annual
                  Year   Maturities   Year   Maturities
                  ----   ----------   ----   ----------
                  2005      $1.1      2008      $1.9
                  2006      $1.5      2009      $2.0
                  2007      $1.9

The weighted  average  interest rate on all long-term  debt at December 31, 2004
and 2003 was 5.26% and 6.03%,  respectively.  Except for the Amortizing  Secured
Note 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  ($27.9
million) and the SRF program ($3.1 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  BB and CC  proceeds  can only be used  for the 2004  main
cleaning and cement lining programs.  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.

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, 2004.  Basic EPS are 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 three-for-two  common
stock  split,  effective  January 2, 2002 and the  four-for-three  common  stock
split, effective November 14, 2003.


                                       42
<PAGE>

<TABLE>
<CAPTION>
                                                          (In Thousands of Dollars, Except per Share Amounts)
                                                         2004                    2003                    2002
Basic:                                            Income      Shares      Income      Shares      Income      Shares
- --------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>        <C>          <C>        <C>          <C>
Net Income                                       $ 8,446      11,080     $ 6,631      10,475     $ 7,765      10,280
Preferred Dividend                                  (255)                   (255)                   (255)
                                                 -------------------------------------------------------------------
Earnings Applicable to Common Stock              $ 8,191      11,080     $ 6,376      10,475     $ 7,510      10,280

Basic EPS                                        $  0.74                 $  0.61                 $  0.73

Diluted:
- --------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock              $ 8,191      11,080     $ 6,376      10,475     $ 7,510      10,280

$7.00 Series Dividend                                104         178         104         178         104         178
$8.00 Series Dividend                                 96         165          96         165          96         165
                                                 -------------------------------------------------------------------
Adjusted Earnings Applicable to Common Stock     $ 8,391      11,423     $ 6,576      10,818     $ 7,710      10,623

Diluted EPS                                      $  0.73                 $  0.61                 $  0.73
</TABLE>

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:

                                             (Thousands of Dollars)
                                                At December 31,
                                         2004                       2003
                                 Carrying       Fair        Carrying      Fair
                                  Amount        Value        Amount       Value
- --------------------------------------------------------------------------------
First Mortgage Bonds             $98,899      $101,968      $82,769      $85,734
State Revolving Bonds            $ 1,442      $  1,476      $ 1,511      $ 1,539

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, 2004 and 2003 was $16.0 million and $14.2  million,
respectively. Customer advances for construction have a carrying amount of $12.4
million and $11.7  million at December  31, 2004 and 2003,  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


                                       43
<PAGE>

plan for its  executives.  The  Accumulated  Benefit  Obligation for all pension
plans at December 31, 2004 was $20.9 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 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, 2004 and 2003,  respectively were $0.7 million
and $0.8 million.

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

<TABLE>
<CAPTION>
                                                                         (Thousands of Dollars)
                                                                        Years Ended December 31,
                                                             Pension Benefits             Other Benefits
                                                             2004          2003          2004         2003
- ------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>           <C>           <C>
Reconciliation of Projected Benefit Obligation
Beginning Balance                                          $ 23,671      $ 19,677      $  9,498      $ 7,437
Service Cost                                                    746           684           426          263
Interest Cost                                                 1,387         1,356           580          485
Actuarial (Gain)/Loss                                         1,516         3,039         1,028        1,645
Benefits Paid                                                (1,221)       (1,085)         (399)        (332)
- ------------------------------------------------------------------------------------------------------------
Ending Balance                                             $ 26,099      $ 23,671      $ 11,133      $ 9,498
- ------------------------------------------------------------------------------------------------------------

Reconciliation of Plan Assets at Fair Value
Beginning Balance                                          $ 18,587      $ 15,846      $  2,582      $ 2,065
Actual Return on Plan Assets                                  1,497         2,768           190           15
Employer Contributions                                          647         1,058         1,057          834
Benefits Paid                                                (1,221)       (1,085)         (399)        (332)
- ------------------------------------------------------------------------------------------------------------
Ending Balance                                             $ 19,510      $ 18,587      $  3,430      $ 2,582
- ------------------------------------------------------------------------------------------------------------

Funded Status                                              $ (6,589)     $ (5,084)     $ (7,703)     $(6,916)
Unrecognized Net Transition Obligation                           --            --         1,082        1,217
Unrecognized Net Actuarial (Gain)/Loss                        2,655         1,144         4,835        4,076
Unrecognized Prior Service Cost                                 173           264            (3)          (3)
- ------------------------------------------------------------------------------------------------------------
Accrued Benefit Cost                                       $ (3,761)     $ (3,676)     $ (1,789)     $(1,626)
- ------------------------------------------------------------------------------------------------------------
</TABLE>


                                       44
<PAGE>
<TABLE>
<CAPTION>
                                                                      (Thousands of Dollars)
                                                                     Years Ended December 31,
                                                      Pension Benefits                        Other Benefits
                                               2004         2003         2002         2004         2003         2002
- ---------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Components of Net Periodic Benefit Cost
Service Cost                                 $   746      $   684      $   724      $   426      $   263      $   222
Interest Cost                                  1,387        1,356        1,300          580          485          463
Expected Return on Plan Assets                (1,492)      (1,272)      (1,281)        (213)        (175)        (125)
Amortization of Net Transition Obligation         --           --            2          135          135          135
Amortization of Net Actuarial (Gain)/Loss         --           --           --          292          143          111
Amortization of Prior Service Cost                92           92           92           --           --           --
- ---------------------------------------------------------------------------------------------------------------------
Net Periodic Benefit Cost                    $   733      $   860      $   837      $ 1,220      $   851      $   806
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                               2004         2003         2002         2004         2003         2002
                                             -------      -------      -------      -------      -------      -------
<S>                                            <C>          <C>          <C>          <C>           <C>          <C>
Actual Return on Plan Assets                    8.18%       17.48%       (9.47%)       6.53%        0.77%        1.38%
Weighted Average Assumptions:
   Expected Return on Plan Assets               8.00%        8.00%        8.00%        7.50%        7.50%        7.50%
   Discount Rate for:
     Benefit Obligation                        5.875%        6.00%        6.75%       5.875%        6.00%        6.75%
     Benefit Cost                               6.00%        6.75%        7.25%        6.00%        6.75%        7.25%
   Compensation Increase for:
     Benefit Obligation                         3.50%        3.50%        3.50%        3.50%        3.50%        3.50%
     Benefit Cost                               3.50%        3.50%        4.25%        3.50%        3.50%        4.25%
</TABLE>

For measurement  purposes, a 9.0% annual rate of increase in the per capita cost
of covered  healthcare  benefits was assumed for 2004 and  declining by 1.0% per
year through 2007 and 0.5% per year to 5% by year 2009.  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:

<TABLE>
<CAPTION>
                                                      (Thousands of Dollars)
                                                        1 Percentage Point
                                                              Increase         Decrease
- ---------------------------------------------------------------------------------------
<S>                                                            <C>             <C>
Effect on Current Year's Service and Benefit Cost              $  230          $  (173)
Effect on Benefit Obligation                                    1,714           (1,338)
</TABLE>

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

Year                         Pension Benefits          Other Benefits
- ----                         ----------------          --------------
2005                             $ 1,282                   $  354
2006                               1,269                      367
2007                               1,457                      388
2008                               1,509                      414
2009                               1,528                      452
2010-2014                          8,075                    2,565
                                 -------                   ------
  Totals                         $15,120                   $4,540
                                 =======                   ======

Benefit Plans Assets

The benefit  plans asset  allocations  at December  31, 2004 and 2003,  by asset
category are as follows:

<TABLE>
<CAPTION>
                             Pension Plan       Other Benefits
                           ---------------     ---------------
      Asset Category        2004      2003      2004      2003      Target   Range
                           -----     -----     -----     -----      ------   -----
<S>                        <C>       <C>       <C>       <C>          <C>    <C>
      Equity Securities     62.8%     63.1%     54.0%     -0- %       60%    30-65%
      Debt Securities       34.5      33.4      36.9      -0- %       38%    25-70%
      Cash                   2.7       3.5       9.1     100.0%        2%     0-10%
                           -----     -----     -----     -----
      Total                100.0%    100.0%    100.0%    100.0%
                           =====     =====     =====     =====
</TABLE>

                                       45
<PAGE>

Middlesex  utilizes  two  investment  firms to manage  its  pension  plan  asset
portfolio.  One of those  investment  firms  manages  the other  post-retirement
benefits  assets.  Quarterly  meetings  are held between the  Company's  Pension
Committee  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  in which it  invests  and the  current
expectations and historical performance for these categories.

Equity securities  include Middlesex common stock in the amounts of $0.7 million
(3.8  percent of total plan  assets) and $0.8 million (4.2 percent of total plan
assets) at December 31, 2004 and 2003, respectively.

For the pension plan, Middlesex made total cash contributions of $0.6 million in
2004 and expects to make cash  contributions  of  approximately  $0.8 million in
2005.

For the other  benefit plan,  Middlesex  made total cash  contributions  of $1.1
million in 2004 and expects to make cash  contributions  of  approximately  $1.2
million in 2005.

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  compensation,  plus  50%  of  a  participant's
contributions  exceeding  1% but  not  more  than  6%.  The  Company's  matching
contributions  were $0.3 million in 2004,  $0.3 million in 2003 and $0.2 million
in 2002.

Stock Based Compensation

The Company  maintains a Restricted Stock Plan, under which 65,233 shares of the
Company's common stock are held in escrow by the Company 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 or disability.

The  maximum  number of shares  authorized  for grant under this plan is 240,000
shares.  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.
Compensation  expense for each of the years ended  December 31,  2004,  2003 and
2002 was $0.3 million, $0.3 million and $0.2 million, respectively.

The Company  recognizes  compensation  expense at fair value for the  restricted
stock  awards  in  accordance  with SFAS No.  123  "Accounting  for  Stock-Based
Compensation."


                                       46
<PAGE>

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.

                                                   (Thousands of Dollars)
                                              Twelve Months Ended December 31,
Operations by Segments:                      2004          2003          2002
- -------------------------------------------------------------------------------
Revenues:
   Regulated                               $ 60,745      $ 55,707      $ 54,398
   Non - Regulated                           10,366         8,500         7,576
Inter-segment Elimination                      (120)          (96)          (41)
- -------------------------------------------------------------------------------
Consolidated Revenues                      $ 70,991      $ 64,111      $ 61,933
- -------------------------------------------------------------------------------

Operating Income:
   Regulated                               $ 12,569      $ 11,013      $ 12,032
   Non - Regulated                              550           487           435
- -------------------------------------------------------------------------------
Consolidated Operating Income              $ 13,119      $ 11,500      $ 12,467
- -------------------------------------------------------------------------------

Depreciation:
   Regulated                               $  5,762      $  5,308      $  4,925
   Non - Regulated                               84            55            38
- -------------------------------------------------------------------------------
 Consolidated Depreciation                 $  5,846      $  5,363      $  4,963
- -------------------------------------------------------------------------------

Other Income, Net:
   Regulated                               $    892      $    506      $    474
   Non - Regulated                               (1)          (33)           22
Inter-segment Elimination                       (96)         (116)          (54)
- -------------------------------------------------------------------------------
Consolidated Other Income, Net             $    795      $    357      $    442
- -------------------------------------------------------------------------------

Interest Expense:
   Regulated                               $  5,469      $  5,227      $  5,143
   Non - Regulated                               96           116            54
Inter-segment Elimination                       (96)         (116)          (54)
- -------------------------------------------------------------------------------
Consolidated Interest Charges              $  5,469      $  5,227      $  5,143
- -------------------------------------------------------------------------------

Net Income:
   Regulated                               $  7,993      $  6,292      $  7,361
   Non - Regulated                              453           339           404
- -------------------------------------------------------------------------------
Consolidated Net Income                    $  8,446      $  6,631      $  7,765
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
Capital Expenditures:
   Regulated                               $ 29,650      $ 19,002      $ 16,060
   Non - Regulated                              210           572           429
- -------------------------------------------------------------------------------
Total Capital Expenditures                 $ 29,860      $ 19,574      $ 16,489
- -------------------------------------------------------------------------------

                                                         As of         As of
                                                      December 31,  December 31,
                                                          2004          2003
- --------------------------------------------------------------------------------
Assets:
   Regulated                                            $296,260      $259,689
   Non - Regulated                                         4,943         5,223
   Inter-segment Elimination                              (2,074)       (1,720)
- --------------------------------------------------------------------------------
Consolidated Assets                                     $299,129      $263,192
- --------------------------------------------------------------------------------


                                       47
<PAGE>

Note 9 - Quarterly Operating Results - Unaudited

Quarterly operating results for 2004 and 2003 are as follows:

                               (Thousands of Dollars, Except per Share Data)

                               1st        2nd        3rd        4th       Total
2004
- --------------------------------------------------------------------------------
Operating Revenues           $15,876    $17,770    $19,856    $17,489    $70,991
Operating Income               2,220      3,110      4,497      3,292     13,119
Net Income                     1,034      1,890      3,362      2,160      8,446
Basic Earnings per Share     $  0.09    $  0.17    $  0.29    $  0.19    $  0.74
Diluted Earnings per Share   $  0.09    $  0.16    $  0.29    $  0.19    $  0.73

2003
- --------------------------------------------------------------------------------
Operating Revenues           $14,981    $15,998    $17,586    $15,546    $64,111
Operating Income               2,376      3,108      3,500      2,516     11,500
Net Income                     1,225      1,804      2,393      1,209      6,631
Basic Earnings per Share     $  0.11    $  0.17    $  0.22    $  0.11    $  0.61
Diluted Earnings per Share   $  0.11    $  0.17    $  0.22    $  0.11    $  0.61

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.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

None.

Item 9A. Controls and Procedures

(1) As required by Rule 13a-15  under the  Exchange  Act, an  evaluation  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures was conducted by the Company's  Chief  Executive  Officer and the
Company's Chief Financial  Officer.  Based upon that  evaluation,  the Company's
Chief Executive Officer and the Company's Chief Financial Officer concluded that
the Company's  disclosure  controls and  procedures are effective as of December
31,  2004.  There have been no  significant  changes in the  Company's  internal
controls or other factors,  which could  significantly  affect internal controls
during the quarter ended December 31, 2004.

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


                                       48
<PAGE>

(2) 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, 2004. 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,  2004,  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 pages 50 and 51.


            /s/ Dennis G. Sullivan            /s/ A. Bruce O'Connor
            ---------------------------       --------------------------
            Dennis G. Sullivan                A. Bruce O'Connor
            President                         Vice President and Chief
                                                Financial Officer

Iselin, New Jersey
March 15, 2005


                                       49
<PAGE>

(3) 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, 2004,  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, 2004,  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, 2004, based on the criteria established in Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway Commission.


                                       50
<PAGE>

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, 2004,  and the related  consolidated  statements of income,  common
stockholders' equity and comprehensive income, and cash flows for the year ended
December 31, 2004 and our report dated March 15, 2005  expressed an  unqualified
opinion on those consolidated financial statements.


/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 15, 2005




Item 9B. Other Information.

None.


                                       51
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

Information  with respect to Directors of Middlesex Water Company is included in
Middlesex  Water  Company's  Proxy  Statement  for the 2005  Annual  Meeting  of
Stockholders and is incorporated herein by reference.

Information  regarding  the  Executive  Officers of Middlesex  Water  Company is
included under Item 1. in Part I of this annual report.

Item 11. Executive Compensation.

This  Information  for Middlesex  Water  Company is included in Middlesex  Water
Company's  Proxy  Statement for the 2005 Annual Meeting of  Stockholders  and is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

This  information  for Middlesex  Water  Company is included in Middlesex  Water
Company's  Proxy  Statement for the 2005 Annual Meeting of  Stockholders  and is
incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

This  information  for Middlesex  Water  Company is included in Middlesex  Water
Company's  Proxy  Statement for the 2005 Annual Meeting of  Stockholders  and is
incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

This  information  for Middlesex  Water  Company is included in Middlesex  Water
Company's  Proxy  Statement for the 2005 Annual Meeting of  Stockholders  and is
incorporated herein by reference.


                                       52
<PAGE>

                                     PART IV

Item 15. Exhibits and Financial Statement Schedules.

1.    The following Financial  Statements and Supplementary Data are included in
      Part II- Item 8. of this annual report:

      Consolidated Balance Sheets at December 31, 2004 and 2003.

      Consolidated  Statements  of  Income  for each of the  three  years in the
      period ended December 31, 2004, 2003 and 2002.

      Consolidated  Statements  of Cash Flows for each of the three years in the
      period ended December 31, 2004, 2003 and 2002.

      Consolidated  Statements of Capital  Stock and Long-term  Debt at December
      31, 2004 and 2003.

      Consolidated  Statements of Common  Stockholders  Equity and Comprehensive
      Income for each of the three years in the period ended  December 31, 2004,
      2003 and 2002.

      Notes to Consolidated Financial Statements.

2.    Financial Statement Schedules
      -----------------------------

      All Schedules are omitted  because of the absence of the conditions  under
      which they are  required or because the required  information  is shown in
      the financial statements or notes thereto.

3.    Exhibits
      --------

      See Exhibit listing immediately following the signature page.


                                       53
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

MIDDLESEX WATER COMPANY


By:   /s/ Dennis G. Sullivan
      -----------------------------------------------
      Dennis G. Sullivan
      President, Chief Executive Officer and Director

Date: March 16, 2005

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
registrant and in the capacities on March 16, 2005.


By:   /s/ A. Bruce O'Connor
      -----------------------------------------------
      A. Bruce O'Connor
      Vice President and Chief Financial Officer


By:   /s/ J. Richard Tompkins
      -----------------------------------------------
      J. Richard Tompkins
      Chairman of the Board and Director


By:   /s/ Dennis G. Sullivan
      -----------------------------------------------
      Dennis G. Sullivan
      President, Chief Executive Officer and Director


By:   /s/ Annette Catino
      -----------------------------------------------
      Annette Catino
      Director


By:   /s/ John C. Cutting
      -----------------------------------------------
      John C. Cutting
      Director


By:   /s/ John R. Middleton
      -----------------------------------------------
      John R. Middleton
      Director


By:   /s/ John P. Mulkerin
      -----------------------------------------------
      John P. Mulkerin
      Director


By:   /s/ Walter G. Reinhard
      -----------------------------------------------
      Walter G. Reinhard
      Director


By:   /s/ Jeffries Shein
      -----------------------------------------------
      Jeffries Shein
      Director


                                       54
<PAGE>

                                  EXHIBIT INDEX

Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so
designated have  heretofore been filed with the Commission and are  incorporated
herein by reference to the documents  indicated in the previous  filing  columns
following the  description of such exhibits.  Exhibits  designated with a dagger
(t) are management contracts or compensatory plans.

<TABLE>
<CAPTION>
                                                                                         Previous        Filing's
                                                                                       Registration      Exhibit
Exhibit No.                              Document Description                               No.             No.
=================================================================================================================
<S>               <C>                                                                    <C>            <C>
   3.1            Certificate of Incorporation of the Company, as amended, filed
                  as Exhibit 3.1 of 1998 Form 10-K.

   3.2            Bylaws of the Company, as amended                                      33-54922           3.2

   3.3            Certificate  of  Correction  of Middlesex  Water Company filed
                  with the  State of New  Jersey  on April  30,  1999,  filed as
                  Exhibit 3.3 of 2003 Form 10-K.

   3.4            Certificate  of  Amendment  to  the  Restated  Certificate  of
                  Incorporation Middlesex Water Company, filed with the State of
                  New Jersey on February 17, 2000,  filed as Exhibit 3.4 of 2003
                  Form 10-K.

   3.5            Certificate  of  Amendment  to  the  Restated  Certificate  of
                  Incorporation Middlesex Water Company, filed with the State of
                  New Jersey on June 5, 2002,  filed as Exhibit 3.5 of 2003 Form
                  10-K.

   4.1            Form of Common Stock Certificate.                                       2-55058          2(a)

   4.2            Registration Statement, Form S-3, under Securities Act of 1933
                  filed February 3, 1987, relating to the Dividend  Reinvestment
                  and Common Stock Purchase Plan.                                        33-11717

   4.3            Revised Prospectus  relating to the Dividend  Reinvestment and
                  Common Stock  Purchase  Plan,  Submitted to the Securities and
                  Exchange Commission, January 20, 2000.                                 33-11717

   4.4            Post Effective  Amendments  No. 7, Form S-3, under  Securities
                  Act of 1933 filed  February 1, 2002,  relating to the Dividend
                  Reinvestment and Common Stock Purchase Plan.                           33-11717

   10.1           Copy of  Purchased  Water  Agreement  between  the Company and
                  Elizabethtown  Water  Company,  filed as Exhibit  10.1 of 1996
                  Form 10-K.

   10.2           Copy of Mortgage, dated April 1, 1927, between the Company and
                  Union County Trust Company,  as Trustee,  as  supplemented  by
                  Supplemental Indentures, dated as of October 1, 1939 and April
                  1, 1949.                                                                2-15795       4(a)-4(f)

   10.3           Copy of Supplemental  Indenture,  dated as of July 1, 1964 and
                  June 15,  1991,  between the Company  and Union  County  Trust
                  Company, as Trustee.                                                   33-54922       10.4-10.9

   10.4           Copy of  Supply  Agreement,  dated as of  November  17,  1986,
                  between  the Company  and the Old Bridge  Municipal  Utilities
                  Authority.                                                             33-31476         10.12

   10.5           Copy of Supply Agreement,  dated as of July 14, 1987,  between
                  the  Company and the  Marlboro  Township  Municipal  Utilities
                  Authority, as amended.                                                 33-31476         10.13
</TABLE>


                                       55
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                         Previous        Filing's
                                                                                       Registration      Exhibit
Exhibit No.                              Document Description                               No.             No.
=================================================================================================================
<S>               <C>                                                                    <C>              <C>
    10.6          Copy of Supply Agreement,  dated as of February 11, 1988, with
                  modifications  dated  February 25,  1992,  and April 20, 1994,
                  between the Company  and the  Borough of  Sayreville  filed as
                  Exhibit No. 10.11 of 1994 First Quarter Form 10-Q.

    10.7          Copy of Water  Purchase  Contract,  dated as of September  25,
                  2003,  between  the Company  and the New Jersey  Water  Supply
                  Authority, filed as Exhibit No. 10.7 of 2003 Form 10-K.

    10.8          Copy of Treating and Pumping  Agreement,  dated April 9, 1984,
                  between  the  Company  and the  Township  of  East  Brunswick.         33-31476         10.17

    10.9          Copy of Supply  Agreement,  dated  June 4, 1990,  between  the
                  Company and Edison Township.                                           33-54922         10.24

    10.10         Copy of Supply Agreement,  between the Company and the Borough
                  of  Highland  Park,  filed as Exhibit  No.  10.15 of 1996 Form
                  10-K.

  (t)10.11        Copy of  Supplemental  Executive  Retirement  Plan,  filed  as
                  Exhibit 10.13 of 1999 Third Quarter Form 10-Q.

  (t)10.12        Copy of 1989 Restricted Stock Plan, filed as Appendix B to the
                  Company's  Definitive Proxy  Statement,  dated and filed April
                  25, 1997.                                                              33-31476         10.22

 (t)10.13(a)      Employment  Agreement  between  Middlesex  Water  Company  and
                  Dennis G.  Sullivan,  filed as Exhibit  10.15(f) of 1999 Third
                  Quarter Form 10-Q.

 (t)10.13(b)      Employment  Agreement  between  Middlesex Water Company and A.
                  Bruce  O'Connor,  filed  as  Exhibit  10.15(c)  of 1999  Third
                  Quarter Form 10-Q.

 (t)10.13(d)      Employment  Agreement  between  Middlesex  Water  Company  and
                  Richard M.  Risoldi,  filed as Exhibit  10.13(d)  of 2003 Form
                  10-K.

 (t)10.13(e)      Employment  Agreement  between  Middlesex  Water  Company  and
                  Kenneth J. Quinn, filed as Exhibit 10.13(e) of 2003 Form 10-K.

 (t)10.13(f)      Employment Agreement between Middlesex Water Company and James
                  P. Garrett, filed as Exhibit 10.13(f) of 2003 Form 10-K.

 (t)10.13(g)      Employment  Agreement  between Tidewater  Utilities,  Inc. and
                  Gerard L.  Esposito,  filed as Exhibit  10.13(g)  of 2003 Form
                  10-K.

 (t)10.13(h)      Consulting  Agreement  between  Middlesex Water Company and J.
                  Richard Tompkins, filed as Exhibit 10.13(h) of 2003 Form 10-K.

(t)*10.13(i)      Employment  Agreement  between  Middlesex  Water  Company  and
                  Dennis W. Doll.
</TABLE>


                                       56
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                         Previous        Filing's
                                                                                       Registration      Exhibit
Exhibit No.                              Document Description                               No.             No.
=================================================================================================================
<S>               <C>                                                                    <C>              <C>
   10.14          Copy  of  Transmission  Agreement,  dated  October  16,  1992,
                  between  the  Company  and the  Township  of  East  Brunswick.         33-54922         10.23

   10.15          Copy of  Supplemental  Indentures,  dated  September  1, 1993,
                  (Series S & T) and  January 1, 1994,  (Series U & V),  between
                  the Company and United  Counties  Trust  Company,  as Trustee,
                  filed as Exhibit No. 10.22 of 1993 Form 10-K.

   10.16          Copy of Trust Indentures, dated September 1, 1993, (Series S &
                  T) and  January 1, 1994,  (Series  V),  between the New Jersey
                  Economic Development Authority and First Fidelity Bank (Series
                  S & T), as Trustee, and Midlantic National Bank (Series V), as
                  Trustee, filed as Exhibit No. 10.23 of 1993 Form 10-K.

   10.17          Copy of Supplemental  Indenture dated October 15, 1998 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee. Copy of Loan Agreement dated November 1, 1998 between
                  the New Jersey and Middlesex  Water Company  (Series X), filed
                  as Exhibit No. 10.22 of the 1998 Third Quarter Form 10-Q.

   10.18          Copy of Supplemental  Indenture dated October 15, 1998 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee. Copy of Loan Agreement dated November 1, 1998 between
                  the State of New Jersey Environmental Infrastructure Trust and
                  Middlesex Water Company (Series Y), filed as Exhibit No. 10.23
                  of the 1998 Third Quarter Form 10-Q.

   10.19          Copy  of  Operation,   Maintenance  and  Management   Services
                  Agreement  dated  January 1, 1999  between the Company City of
                  Perth  Amboy,   Middlesex  County  Improvement  Authority  and
                  Utility Service Affiliates, Inc.                                       333-66727        10.24

   10.20          Copy of Supplemental  Indenture dated October 15, 1999 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee  and copy of Loan  Agreement  dated  November  1, 1999
                  between the State of New Jersey and  Middlesex  Water  Company
                  (Series Z), filed as Exhibit No. 10.25 of the 1999 Form 10-K.

   10.21          Copy of Supplemental  Indenture dated October 15, 1999 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee  and copy of Loan  Agreement  dated  November  1, 1999
                  between the New Jersey Environmental  Infrastructure Trust and
                  Middlesex  Water  Company  (Series  AA),  filed as Exhibit No.
                  10.26 of the 1999 Form 10-K.
</TABLE>


                                       57
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                         Previous        Filing's
                                                                                       Registration      Exhibit
Exhibit No.                              Document Description                               No.             No.
=================================================================================================================
<S>               <C>                                                                    <C>            <C>
    10.22         Copy of Supplemental  Indenture dated October 15, 2001 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee  and copy of Loan  Agreement  dated  November  1, 2001
                  between the State of New Jersey and  Middlesex  Water  Company
                  (Series BB). Filed as Exhibit No. 10.22 of the 2001 Form 10-K.

    10.23         Copy of Supplemental  Indenture dated October 15, 2001 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee  and copy of Loan  Agreement  dated  November  1, 2001
                  between the New Jersey Environmental  Infrastructure Trust and
                  Middlesex  Water  Company  (Series  CC).  Filed as Exhibit No.
                  10.22 of the 2001 Form 10-K.

    10.24         Copy of Supplemental  Indenture dated January 15, 2002 between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee  and copy of Loan  Agreement  dated  January  1,  2002
                  between  the New Jersey  Economic  Development  Authority  and
                  Middlesex  Water  Company  (Series  DD),  filed as Exhibit No.
                  10.24 of the 2001 Form 10-K.

    10.25         Copy of  Supplemental  Indenture  dated March 1, 1998  between
                  Middlesex  Water  Company and First Union  National  Bank,  as
                  Trustee.  Copy of Trust  Indenture dated March 1, 1998 between
                  the New Jersey  Economic  Development  Authority and PNC Bank,
                  National Association,  as Trustee (Series W), filed as Exhibit
                  No. 10.21 of the 1998 Third Quarter Form 10-Q.

   *10.26         Copy of Supplemental  Indenture dated October 15, 2004 between
                  Middlesex Water Company and Wachovia Bank, as Trustee and copy
                  of Loan Agreement  dated November 1, 2004 between the State of
                  New Jersey and Middlesex Water Company (Series EE).

   *10.27         Copy of Supplemental  Indenture dated October 15, 2004 between
                  Middlesex Water Company and Wachovia Bank, as Trustee and copy
                  of Loan  Agreement  dated  November  1, 2004  between  the New
                  Jersey Environmental  Infrastructure Trust and Middlesex Water
                  Company (Series FF).

     *21          Middlesex Water Company Subsidiaries.

     *23          Consent of Independent Registered Public Accounting Firm.

     *31          Section 302  Certification  by Dennis G. Sullivan  pursuant to
                  Rules  13a-14 and  15d-14 of the  Securities  Exchange  Act of
                  1934.

    *31.1         Section 302  Certification  by A. Bruce  O'Connor  pursuant to
                  Rules  13a-14 and  15d-14 of the  Securities  Exchange  Act of
                  1934.
</TABLE>


                                       58
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                         Previous        Filing's
                                                                                       Registration      Exhibit
Exhibit No.                              Document Description                               No.             No.
=================================================================================================================
<S>               <C>                                                                    <C>            <C>
     *32          Section 906 Certification by Dennis G. Sullivan pursuant to 18
                  U.S.C. ss.1350.

    *32.1         Section 906  Certification by A. Bruce O'Connor pursuant to 18
                  U.S.C. ss.1350.
</TABLE>


                                       59

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13H
<SEQUENCE>2
<FILENAME>ex10-13h.txt
<TEXT>
                                                                Exhibit 10.13(h)

                     CHANGE IN CONTROL TERMINATION AGREEMENT

      This Change in Control Termination Agreement (the "Agreement") is entered
into as of November 1, 2004, between Middlesex Water Company, a New Jersey
corporation, with its principal place of business located at 1500 Ronson Road,
P.O. Box 1500, Iselin, New Jersey 08830-0452, (the "Company"), and Dennis W.
Doll, residing at 15 Edward Avenue, Monroe Township, New Jersey 08831, (referred
to as "You" in this Agreement).

Recitals

A. The Company considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel. In this
connection, the Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held Companies, the possibility of a Change In
Control may exist. This possibility, and the uncertainty and questions that it
may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.

B. The Board has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of the Company's
management, including yourself, to the assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change In Control of the Company.

C. To induce you to remain in the employ of the Company, and in consideration of
your agreement set forth below, the Company agrees that you shall receive the
severance benefits set forth in this Agreement in the event your employment with
the Company is terminated or "constructively terminated" as defined herein in
connection with a "Change In Control of the Company" (as defined in Section 2
below) under the circumstances described below. This Agreement is meant to
supersede any other specific written agreements that may have been entered into
between yourself and the Company concerning termination of employment.

      Therefore, in consideration of your continued employment and the parties'
agreement to be bound by the terms contained in this Agreement, the parties
agree as follows:

      1. Term of Agreement. This Agreement shall commence as of November 1, 2004
and shall continue in effect through December 31, 2005. However, commencing on
December 31, 2005, and each December 31 afterwards, the term

<PAGE>

of this Agreement shall automatically be extended for one additional year
unless, no later than the preceding November 1, the Company shall have given
notice that it does not wish to extend this Agreement. Notwithstanding the
foregoing, if a Change In Control of the Company shall be proposed to occur or
have occurred during the original or any extended term of this Agreement, this
Agreement shall continue in effect until your termination of employment with the
Company or its successor or when all amounts due under this Agreement following
a termination have been paid, whichever is later.

      2. Change In Control. No benefits shall be payable under this Agreement
unless there shall have been a Change In Control of the Company, as set forth
below. For purposes of this Agreement, a "Change In Control" of the Company
shall be deemed to occur if any party or group acquires beneficial ownership of
20 percent or more of the voting shares of the Company; or if shareholder
approval is required for a transaction involving the acquisition of the Company
through the purchase or exchange of the stock or assets of the Company by merger
or otherwise; or if one-third or more of the Board elected in a 12-month period
or less are so elected without the approval of a majority of the Board as
constituted at the beginning of such period; or a liquidation or dissolution of
Company.

      3. Termination Following Change In Control. If any of the events described
in Section 2 above constituting a Change In Control of the Company shall have
occurred, unless the termination is (A) because of your death, Disability or
Retirement, (B) by the Company for Cause, or (C) by you other than for Good
Reason, on the subsequent termination or "Constructive Termination" of your
employment during the term of this Agreement: (i) you shall be entitled to the
benefits provided in subsection 4.3 below if such termination occurs on or
before the third anniversary of the Change in Control or (ii) you shall be
entitled to the benefits provided in subsection 4.4 below if such termination
occurs after the third anniversary of the Change in Control.

            3.1 Disability; Retirement. If, as a result of your incapacity due
to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for 6 consecutive months, and within
30 days after written notice of termination is given you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability." Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.

            3.2 Cause. Termination by the Company of your employment for "Cause"
shall mean termination on:



                                  Page 2 of 11
<PAGE>

            3.2.1 The willful and continued failure by you to substantially
            perform your duties with the Company as such employment was
            performed by you prior to the Change of Control (other than any such
            failure resulting from your incapacity due to physical or mental
            illness or any such actual or anticipated failure after the issuance
            by you of a Notice of Termination for Good Reason as defined in
            Subsections 3.4 and 3.3, respectively) after a written demand for
            substantial performance is delivered to you by the Board, which
            demand specifically identifies the manner in which the Board
            believes that you have not substantially performed your duties; or

            3.2.2 The willful act by you in conduct that is demonstrably and
            materially injurious to the Company, and which the Board deems to
            cause or will cause substantial economic damage to the Company or
            injury to the business reputation of the Company, monetarily or
            otherwise. For purposes of this Subsection, no act, or failure to
            act, on your part shall be deemed "willful" unless done, or omitted
            to be done, by you not in good faith and without a reasonable belief
            that your action or omission was in the best interest of the
            Company. Notwithstanding the foregoing, you shall not be deemed to
            have been terminated for Cause unless and until there shall have
            been delivered to you a copy of a resolution duly adopted by the
            affirmative vote of not less than three-quarters of the entire
            membership of the Board at a meeting of the Board called and held
            for such purpose (after reasonable notice to you and an opportunity
            for you, together with your counsel, to be heard before the Board),
            finding that in the good faith opinion of the Board you were guilty
            of conduct set forth above in clauses 3.2.1 or 3.2.2 of the first
            sentence of this Subsection and specifying the particulars in
            detail.

            3.3 Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence in connection with a Change
In Control of the Company of any of the following circumstances unless, in the
case of paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or 3.3.8, the circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as defined in Subsections 3.5 and 3.4, respectively, given in
respect of them. If you have Good Reason for your termination you shall be
considered to have been "Constructively Terminated" by the Company under the
following circumstances:

            3.3.1 The assignment to you of any duties inconsistent with your
            status and position (i) prior to the Change In Control where such
            change is a direct result of any pending Change in Control; or (ii)
            as such status exists immediately prior to the Change In Control of
            the


                                  Page 3 of 11
<PAGE>

            Company, or (iii) a substantial adverse alteration in the nature or
            status of your responsibilities from those in effect immediately
            prior to the Change In Control of the Company whichever is
            applicable;

            3.3.2 A reduction by the Company in your annual base salary as in
            effect on this date or as the same may be increased from time to
            time irrespective of future Company policies including any
            across-the-board salary reductions similarly affecting all key
            employees of the Company;

            3.3.3 Your relocation, without your consent, to a location not
            within twenty-five (25) miles of your present office or job
            location, except for required travel on the Company's business to an
            extent substantially consistent with your present business travel
            obligations;

            3.3.4 The failure by the Company, without your consent, to pay to
            you any part of your current compensation, or to pay to you any part
            of an installment of deferred compensation under any deferred
            compensation program of the Company, within fourteen (14) days of
            the date the compensation is due;

            3.3.5 The failure by the Company to continue in effect any bonus to
            which you were entitled, or any compensation plan in which you
            participate (i) prior to the Change in Control where such change is
            a direct result of any pending Change In Control, or (ii)
            immediately prior to the Change In Control of the Company that is
            material to your total compensation, including but not limited to
            the Company's Restricted Stock Plan, 401(k) Plan, and Benefit Plans,
            or any substitute plans adopted prior to the Change In Control of
            the Company, unless an equitable arrangement (embodied in an ongoing
            substitute or alternative plan) has been made with respect to the
            plan, or the failure by the Company to continue your participation
            in it (or in such substitute or alternative plan) on a basis not
            materially less favorable, both in terms of the amount of benefits
            provided and the level of your participation relative to other
            participants, as existed at the time of the Change In Control;

            3.3.6 The failure by the Company to continue to provide you with (i)
            benefits substantially similar to those enjoyed by you under any of
            the Company's life insurance, medical, health and accident, or
            disability plans in which you were participating at the time of the
            Change In Control of the Company was in effect for the employees of
            the Company generally at the time of the Change In Control, (ii) the
            failure to continue to provide you with a Company automobile or
            allowance in lieu of it at the time of the Change In Control of the


                                  Page 4 of 11
<PAGE>

            Company, (iii) the taking of any action by the Company that would
            directly or indirectly materially reduce any of such benefits or
            deprive you of any material fringe benefit enjoyed by you at the
            time of the Change In Control of the Company, or (iv) the failure by
            the Company to provide you with the number of paid vacation days to
            which you are entitled on the basis of years of service with the
            Company in accordance with the Company's normal vacation policy in
            effect at the time of the Change In Control of the Company;

            3.3.7 The failure of the Company to obtain a satisfactory agreement
            from any successor to assume and agree to perform this Agreement, as
            contemplated in Section 5 of this Agreement; or

            3.3.8 Any purported termination of your employment that is not
            effected pursuant to a Notice of Termination satisfying the
            requirements of Subsection 3.4 below (and, if applicable, the
            requirements of Subsection 3.2 above); for purposes of this
            Agreement, no such purported termination shall be effective.

            3.4 Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party to this Agreement in accordance with Section 6 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied on, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated. Your rights to terminate your employment
pursuant to this Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason under this Agreement. In the event you deliver Notice of Termination
based on circumstances set forth in Paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or
3.3.8 above, which are fully corrected prior to the Date of Termination set
forth in your Notice of Termination, the Notice of Termination shall be deemed
withdrawn and of no further force or effect.

            3.5 Date of Termination, etc. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsection 3.2 or 3.3 above or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3.2
above shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3.3 above shall not be less than 15 nor more than 60 days,
respectively, from the date


                                  Page 5 of 11
<PAGE>

the Notice of Termination is given). However, if within 15 days after any Notice
of Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this provision), the party receiving the Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order, or decree of a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal has expired and no appeal has been perfected). The Date of
Termination shall be extended by a notice of dispute only if the notice is given
in good faith and the party giving the notice pursues the resolution of the
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, benefit,
and insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.

      4. Compensation on Termination or During Disability. Following a Change In
Control of the Company, as defined by Section 2, on termination of your
employment or during a period of disability you shall be entitled to the
following benefits:

            4.1 During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all amounts payable to you under
any compensation plan of the Company during the period, until this Agreement is
terminated pursuant to section 3.1 above. Thereafter, or in the event your
employment shall be terminated by the Company or by you for Retirement, or by
reason of your death, your benefits shall be determined under the Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of those programs.

            4.2 If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, Disability, death, or Retirement, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which you are entitled under any compensation plan of
the Company at the time the payments are due. The Company shall have no
obligations to you under this Agreement.


                                  Page 6 of 11
<PAGE>


            4.3 On or before the third anniversary of the Change In Control, if
your employment by the Company shall be terminated (a) by the Company other than
for Cause, Retirement or Disability, or (b) by you for Good Reason (as defined
in Section 3.3 herein), then you shall be entitled to the benefits provided
below:

            4.3.1 The Company shall pay you your full salary through the Date of
            Termination at the rate in effect at the time notice of Termination
            is given, plus all other amounts and benefits to which you are
            entitled under any compensation plan of the Company, at the time the
            payments are due, except as otherwise provided below.

            4.3.2 In lieu of any further salary payments to you for periods
            subsequent to the Date of Termination, the Company shall pay to you,
            as severance pay the following: (i) a lump sum severance payment
            equal to three (3) times the average of your Compensation for the
            five (5) years prior to the occurrence of the circumstance giving
            rise to the notice of Termination (or if employed less than 5 years,
            the average annualized compensation of the period worked to date),
            plus (ii) the amounts in the forms set forth in paragraphs 4.3.3,
            4.3.4 and 4.3.5 (the "Severance Payments"). In addition to the
            Severance Payments, the Company shall pay to you an additional
            amount equal to the amount of the Excise Tax, if any, that is due or
            determined to be due under Section 4999 of the Internal Revenue Code
            of 1986, as amended, resulting from the Severance Payments or any
            other payments under this Agreement or any other agreement between
            you and the Company and an amount sufficient to pay the taxes on any
            such Excise Taxes (the "Gross-up").

            4.3.3 The Company shall continue coverage for you and your
            dependents under any health or welfare benefit plan under which you
            and your dependents were participating prior to the Change in
            Control for a period ending on the earlier to occur of (i) the date
            you become covered by a new employer's health and welfare benefit
            plan, (ii) the date you become covered by Medicare, or (iii) the
            date which is thirty-six (36) months from the date of Termination.
            The coverage for your dependents shall end earlier than (i), (ii) or
            (iii) if required by the health or welfare benefit plan due to age
            eligibility.

            4.3.4 The Company shall pay to you any deferred compensation,
            including, but not limited to deferred bonuses, allocated or
            credited to you or your account as of the Date of Termination.


                                  Page 7 of 11
<PAGE>

            4.3.5 Outstanding stock options or Restricted Stock grants, if any,
            granted to you under the Company's Stock Plans which are not vested
            on Termination shall immediately vest.

            4.3.6 Where you shall prevail in any such action, the Company shall
            also pay to you all legal and accounting fees and expenses incurred
            by you as a result of the termination (including all such fees and
            expenses incurred by you as a result of the termination (including
            all such fees and expenses, if any, incurred in contesting or
            disputing any termination or in seeking to obtain or enforce any
            right or benefit provided by this Agreement or in connection with
            any tax audit or proceeding to the extent attributable to the
            application of Code Section 4999 to any payment or benefit provided
            under this Agreement) or any other agreement with the Company.

            4.3.7 The amount of Severance Payments and any Gross-up due to you
            under this or any other relevant agreement with the Company shall be
            determined by a third party agreed to by you and the Company. If you
            cannot agree on a third party, then both third parties shall
            determine the amounts due under this Agreement. If the third parties
            do not agree on the amount to be paid to you, then either party may
            submit the calculation of the amounts which are in dispute to
            Arbitration in accordance with this Agreement. The payments provided
            for in Paragraphs 4.3.2, 4.3.4 and 4.3.5 above, shall be made no
            later than the thirtieth (30th) day following the Date of
            Termination. However, if the amounts of the payments cannot be
            finally determined on or before that day, the Company shall pay to
            you on that day an estimate, as determined in good faith by the
            Company, of the minimum amount of such payments and shall pay the
            remainder of those payments (together with interest at the rate
            provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
            can be determined but in no event later than the 30th day after the
            Date of Termination. In the event that the amount of the estimate
            payments exceeds the amount subsequently determined to have been
            due, the excess shall constitute a loan by the Company to you
            payable on the 30th day after demand by the Company (together with
            interest at the rate provided in Section 1274(b)(2)(B) of the Code).

            4.4 After the third anniversary of the Change In Control, if your
employment by the Company shall be terminated (a) by the Company other than for
Cause, Retirement or Disability, or (b) by you for Good Reason (as defined in
Section 3.3 herein), then you shall be entitled to the benefits provided in
Section 4.3 above and as otherwise provided under this Agreement except that sub
paragraph 4.3.2(i) shall read: (i) a lump sum severance payment equal to one and


                                  Page 8 of 11
<PAGE>

one half (1.5) times the average of your Compensation for the five (5) years
prior to the occurrence of the circumstance giving rise to the notice of
Termination (the "Termination Payment").

            4.5 For purposes of this Agreement, "Compensation" shall mean the
aggregate remuneration paid by the Company to you during a calendar year,
including bonuses, awards under the Company's Restricted Stock Plan, benefits
under employee benefit plans, automobile allowances or any fees paid to you as
remuneration for serving as a Director of the Company.

            4.6 You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise except as specifically provided in this
Section 4.

            4.7 In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all qualified benefits payable to
you under the Company's 401(k) Plan, Defined Benefit Plan and any other plan or
agreement relating to retirement benefits in accordance with the terms of those
plans.

      5. Successors; Binding Agreement.
         -----------------------------

            5.1 The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain the assumption and agreement
prior to the effectiveness of any succession shall be a breach of this agreement
and shall entitle you to compensation from the Company in the same amount and on
the same terms as you would have been entitled to under this Agreement if you
had terminated your employment for Good Reason following a Change In Control of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.

            5.2 This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators, heirs,
distributees, and legatees. If you should die while any amount would still be
payable to you if you had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in accordance with the terms of this


                                  Page 9 of 11
<PAGE>

Agreement to your legatee or other designee or, if there is no such designee, to
your estate.

      6. Notice. For the purpose of this Agreement, all notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance this Agreement, except that notice of a change of address shall be
effective only on receipt.

      7. Miscellaneous
         -------------

            7.1 No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board.

            7.2 No waiver by either party to this Agreement at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.

            7.3 No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Agreement have been made by
either party that are not expressly set forth in this Agreement.

            7.4 Nothing in this Agreement is intended to reduce any benefits
payable to you under any other agreement you may have with the Company or in any
Company plan in which you may participate.

            7.5 The validity, interpretation, construction, and performance of
this Agreement shall be governed by the law of New Jersey without reference to
its conflict of laws principles.

            7.6 All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for shall be paid net of any applicable withholding or
deduction required under federal, state or local law.

            7.7 The obligations of the Company under Section 4 shall survive the
expiration of the term of this Agreement.


                                 Page 10 of 11
<PAGE>

      8. Validity. The validity or enforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement, which shall remain in full force and effect.

      9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

      10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in New Jersey in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek specific performance of
your right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection this Agreement.

      11. Entire Agreement. This Agreement sets forth the entire understanding
of the parties with respect to its subject matter and supersedes all prior
written or oral agreements or understandings with respect to the subject matter.

      In witness whereof, the parties have executed this Agreement as of the day
and year first above written.


                                           MIDDLESEX WATER COMPANY


                                       By:   /s/Dennis G. Sullivan
                                          --------------------------------
                                                 Dennis G. Sullivan
                                                 President

ATTEST:


/s/ Kenneth J. Quinn
- ---------------------------
Kenneth J. Quinn
Vice President and
Secretary


                                                  /s/Dennis W. Doll
                                          ---------------------------------
                                                  Dennis W. Doll


                                 Page 11 of 11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>3
<FILENAME>ex10-26.txt
<TEXT>
                                                                   Exhibit 10.26

     [MASTER FUND LOAN AGREEMENT FOR MIDDLESEX WATER COMPANY - PRIVATE FORM]

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                            THE STATE OF NEW JERSEY,

                      ACTING BY AND THROUGH THE NEW JERSEY
                     DEPARTMENT OF ENVIRONMENTAL PROTECTION,

                                       AND

                             MIDDLESEX WATER COMPANY

                          DATED AS OF NOVEMBER 1, 2004

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.01.  Definitions......................................................

                                   ARTICLE II
                                   ----------

                    REPRESENTATIONS AND COVENANTS OF BORROWER

SECTION 2.01.  Representations of Borrower......................................
SECTION 2.02.  Particular Covenants of Borrower.................................

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

SECTION 3.01.  Loan; Loan Term..................................................
SECTION 3.02.  Disbursement of Loan Proceeds....................................
SECTION 3.03.  Amounts Payable..................................................
SECTION 3.04.  Unconditional Obligations........................................
SECTION 3.05.  Loan Agreement to Survive Bond Resolution and Trust Bonds........
SECTION 3.06.  Disclaimer of Warranties and Indemnification.....................
SECTION 3.07.  Option to Prepay Loan Repayments.................................
SECTION 3.08.  Priority of Loan and Fund Loan...................................
SECTION 3.09.  Approval of the New Jersey State Treasurer.......................

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

SECTION 4.01.  Assignment and Transfer by Trust.................................
SECTION 4.02.  Assignment by Borrower...........................................

                                    ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

SECTION 5.01.  Events of Default................................................
SECTION 5.02.  Notice of Default................................................
SECTION 5.03.  Remedies on Default..............................................
SECTION 5.04.  Attorneys' Fees and Other Expenses...............................
SECTION 5.05.  Application of Moneys............................................


                                      -i-
<PAGE>

SECTION 5.06.  No Remedy Exclusive; Waiver; Notice..............................
SECTION 5.07.  Retention of Trust's Rights......................................

                                   ARTICLE VI

                                  MISCELLANEOUS

SECTION 6.01.  Notices..........................................................
SECTION 6.02.  Binding Effect...................................................
SECTION 6.03.  Severability.....................................................
SECTION 6.04.  Amendments, Supplements and Modifications........................
SECTION 6.05.  Execution in Counterparts........................................
SECTION 6.06.  Applicable Law and Regulations...................................
SECTION 6.07.  Consents and Approvals...........................................
SECTION 6.08.  Captions.........................................................
SECTION 6.09.  Benefit of Loan Agreement; Compliance with Bond Resolution.......
SECTION 6.10.  Further Assurances...............................................

SCHEDULE A.Certain Additional Loan Agreement Provisions

EXHIBIT A   (1) Description of Project and Environmental Infrastructure
                System.....................................................A-1-1
            (2) Description of Loan........................................A-2-1

EXHIBIT B   Basis for Determination of Allowable Project Costs...............B-1

EXHIBIT C   Estimated Disbursement Schedule..................................C-1

EXHIBIT D   Specimen Borrower Bond...........................................D-1

EXHIBIT E   Opinions of Borrower's Bond and General Counsels.................E-1

EXHIBIT F   Additional Covenants and Requirements............................F-1

EXHIBIT G   General Administrative Requirements for the State
              Environmental Infrastructure Financing Program.................G-1

EXHIBIT H   Form of Continuing Disclosure Agreement..........................H-1


                                      -ii-
<PAGE>


           NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE FUND LOAN AGREEMENT

      THIS LOAN AGREEMENT,  made and entered into as of November 1, 2003, by and
between THE STATE OF NEW JERSEY, acting by and through the New Jersey Department
of Environmental  Protection,  and the Borrower  (capitalized terms used in this
Loan Agreement shall have, unless the context otherwise  requires,  the meanings
ascribed thereto in Section 1.01 hereof);

                                WITNESSETH THAT:

      WHEREAS, the Borrower has, in accordance with the Regulations, made timely
application  to the  State for a Loan to  finance  a portion  of the Cost of the
Project;

      WHEREAS, the State has approved the Borrower's application for a Loan from
Federal  Funds,  if and when received by and available to the State,  and moneys
from repayments of loans  previously made from such Federal Funds, in the amount
of the loan  commitment set forth in Exhibit A-2 attached hereto and made a part
hereof to finance a portion of the Cost of the Project;

      WHEREAS,  the New Jersey State  Legislature has approved an appropriations
act that  authorizes an expenditure  of said proceeds,  Federal Funds or related
moneys to finance a portion of the Cost of the Project;

      WHEREAS, the Borrower, in accordance with the Business Corporation Law and
all other  applicable  law, will issue a Borrower  Bond to the State  evidencing
said Loan at the Loan Closing; and

      WHEREAS,  in accordance with the New Jersey  Environmental  Infrastructure
Trust Act, P.L. 1985, c. 334, as amended, and the Regulations,  the Borrower has
been  awarded a Trust Loan for a portion  of the Cost of the  Project  plus,  if
applicable  to the  Borrower,  capitalized  interest on the Trust Loan,  certain
costs of issuance and bond insurance premium related thereto.

      NOW,  THEREFORE,  for and in consideration of the award of the Loan by the
State,  the Borrower  agrees to complete  the Project and to perform  under this
Loan Agreement in accordance with the  conditions,  covenants and procedures set
forth herein and attached hereto as part hereof, as follows:

<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

      SECTION  1.01.  Definitions.  The  following  terms  as used in this  Loan
Agreement  shall,  unless  the  context  clearly  requires  otherwise,  have the
following meanings:

      "Administrative  Fee" means an annual fee of up to one  percent  (1.0%) of
the initial  principal amount of the Loan or such lesser amount,  if any, as may
be  authorized by any act of the New Jersey State  Legislature  and as the State
may approve from time to time.

      "Authorized  Officer"  means,  in the case of the Borrower,  any person or
persons  authorized  pursuant to a  resolution  of the board of directors of the
Borrower to perform any act or execute any  document  relating to the Loan,  the
Borrower Bond or this Loan Agreement.

      "Borrower"  means the  corporation  that is a party to and is described in
Schedule A to this Loan Agreement, and its successors and assigns.

      "Borrower  Bond" means the general  obligation  bond,  note,  debenture or
other evidence of indebtedness authorized,  executed,  attested and delivered by
the Borrower to the State and  authenticated,  if  applicable,  on behalf of the
Borrower to evidence the Loan, a specimen of which is attached hereto as Exhibit
D and made a part hereof.

      "Borrowers"  means any other Local  Government  Unit or Private Entity (as
such terms are defined in the Regulations) authorized to construct,  operate and
maintain  Environmental  Infrastructure  Facilities  that have entered into Loan
Agreements  with the State  pursuant  to which the State will make Loans to such
recipients from Federal Funds.

      "Business  Corporation  Law" means the "New  Jersey  Business  Corporation
Act",  constituting  Chapter  263 of the  Pamphlet  Laws of  1968  of the  State
(codified  at  N.J.S.A.  14A:1-1 et seq.),  as the same may from time to time be
amended and supplemented.

      "Code" means the Internal  Revenue Code of 1986, as the same may from time
to time be amended  and  supplemented,  including  any  regulations  promulgated
thereunder,  any  successor  code  thereto  and any  administrative  or judicial
interpretations thereof.

      "Cost"  means  those  costs  that  are  eligible,  reasonable,  necessary,
allocable  to  the  Project  and  permitted  by  generally  accepted  accounting
principles,   including  Allowances  and  Building  Costs  (as  defined  in  the
Regulations),  as shall be determined on a project-specific  basis in accordance
with the  Regulations  as set  forth in  Exhibit  B  hereto,  as the same may be
amended  by  subsequent  eligible  costs as  evidenced  by a  certificate  of an
authorized officer of the State.

      "Environmental  Infrastructure  Facilities"  means Water Supply Facilities
(as such term is defined in the Regulations).


                                      -2-
<PAGE>

      "Environmental    Infrastructure    System"   means   the    Environmental
Infrastructure Facilities of the Borrower,  including the Project,  described in
Exhibit A-1  attached  hereto and made a part  hereof for which the  Borrower is
borrowing the Loan under this Loan Agreement.

      "Event of Default" means any occurrence or event specified in Section 5.01
hereof.

      "Federal  Funds"  means those funds  awarded to the State  pursuant to the
Clean Water Act (33 U.S.C.  ss.1251 et seq.) or the Safe Drinking  Water Act (42
U.S.C.  ss.300f  et  seq.),  as the same may from  time to time be  amended  and
supplemented.

      "Loan"  means the loan made by the State to the  Borrower  to  finance  or
refinance a portion of the Cost of the Project  pursuant to this Loan Agreement.
For all purposes of this Loan Agreement, the principal amount of the Loan at any
time  shall be the  amount  of the loan  commitment  set  forth in  Exhibit  A-2
attached  hereto and made a part hereof (such amount being also specified as the
initial aggregate principal amount of the Borrower Bond) less any amount of such
principal  amount that has been repaid by the Borrower under this Loan Agreement
and less any adjustment made for low bid or final building costs pursuant to the
provisions of N.J.A.C.  7:22-3.26 and the  appropriations  act of the New Jersey
State Legislature  authorizing the expenditure of moneys to finance a portion of
the Cost of the Project.

      "Loan  Agreement"  means  this  Loan  Agreement,  including  the  Exhibits
attached  hereto,  as it may be  supplemented,  modified or amended from time to
time in accordance with the terms hereof.

      "Loan  Agreements"  means any other loan  agreements  entered  into by and
between the State and one or more of the  Borrowers  pursuant to which the State
will make Loans to such Borrowers from Federal Funds.

      "Loan  Closing"  means the date upon which the Borrower  shall deliver its
Borrower Bond, as previously authorized,  executed, attested and, if applicable,
authenticated, to the State.

      "Loan  Repayments"  means the sum of (i) the  repayments  of the principal
amount of the Loan payable by the Borrower  pursuant to Section  3.03(a) of this
Loan  Agreement  and (ii) any late  charges  incurred  hereunder,  but shall not
include the Administrative Fee.

      "Loan  Term"  means the term of this Loan  Agreement  provided in Sections
3.01 and 3.03 hereof and in Exhibit A-2 attached hereto and made a part hereof.

      "Loans" means the loans made by the State to the Borrowers  under the Loan
Agreements from Federal Funds.

      "Master Program Trust  Agreement"  means that certain Master Program Trust
Agreement,  dated as of  November  1, 1995,  by and among the Trust,  the State,
United States Trust Company of New York, as Master Program  Trustee  thereunder,
The Bank of New York (NJ), in several capacities thereunder,  and First Fidelity
Bank, N.A.  (predecessor  to Wachovia Bank,  National  Association),  in several
capacities thereunder, as supplemented by that certain


                                      -3-
<PAGE>

Agreement of Resignation  of Outgoing  Master  Program  Trustee,  Appointment of
Successor Master Program Trustee and Acceptance Agreement,  dated as of November
1, 2001,  by and among  United  States  Trust  Company of New York,  as Outgoing
Master Program Trustee,  State Street Bank and Trust Company,  N.A. (predecessor
to U.S. Bank Trust National  Association),  as Successor Master Program Trustee,
and the Trust, as the same may be amended and supplemented  from time to time in
accordance with its terms.

      "Prime Rate" means the  prevailing  commercial  interest rate announced by
the Trustee from time to time in the State as its prime lending rate.

      "Project"  means  the  Environmental   Infrastructure  Facilities  of  the
Borrower described in Exhibit A-1 attached hereto and made a part hereof,  which
constitutes  a project  for which the State is  permitted  to make a loan to the
Borrower  pursuant to the Regulations,  all or a portion of the Cost of which is
financed or  refinanced  by the State  through the making of the Loan under this
Loan  Agreement and which may be identified  under either the Drinking  Water or
Clean Water  Project  Lists with the  Project  Number  specified  in Exhibit A-1
attached hereto.

      "Regulations" means the rules and regulations, as applicable, now or
hereafter promulgated under N.J.A.C. 7:22-3 et seq., 7:22-4 et seq., 7:22-5 et
seq., 7:22-9 et seq. and 7:22-10 et seq., as the same may from time to time be
amended and supplemented.

      "State"  means  the  State  of  New  Jersey,   acting,   unless  otherwise
specifically   indicated,   by  and  through  the  New  Jersey   Department   of
Environmental Protection, and its successors and assigns.

      "Trust" means the New Jersey Environmental  Infrastructure Trust, a public
body  corporate and politic with corporate  succession  duly created and validly
existing under and by virtue of P.L. 1985, c. 334, as amended (N.J.S.A. 58:11B-1
et seq.).

      "Trust Loan" means the loan made to the Borrower by the Trust  pursuant to
the Trust Loan Agreement.

      "Trust  Loan  Agreement"  means  the loan  agreement  by and  between  the
Borrower  and the Trust dated as of  November 1, 2003 to finance or  refinance a
portion of the Cost of the Project.

      "Trustee"  means,  initially,  Wachovia Bank,  National  Association,  the
Trustee  appointed  by the Trust and its  successors  as Trustee  under the Bond
Resolution, as provided in Article X of the Bond Resolution.

      (b) In addition to the capitalized terms defined in subsection (a) of this
Section 1.01, certain  additional  capitalized terms used in this Loan Agreement
shall, unless the context clearly requires otherwise, have the meanings ascribed
to such  additional  capitalized  terms in Schedule A attached hereto and made a
part hereof.


                                      -4-
<PAGE>

      (c) Except as  otherwise  defined  herein or where the  context  otherwise
requires,  words  importing the singular  number shall include the plural number
and vice versa, and words importing  persons shall include firms,  associations,
corporations,  agencies and districts.  Words importing one gender shall include
the other gender.


                                      -5-
<PAGE>

                                   ARTICLE II

                    REPRESENTATIONS AND COVENANTS OF BORROWER

      SECTION 2.01. Representations of Borrower. The Borrower represents for the
benefit of the State as follows:

      (a) Organization and Authority.
          --------------------------

            (i) The Borrower is a corporation  duly created and validly existing
      under  and  pursuant  to the laws of the  State,  including  the  Business
      Corporation Law.

            (ii) The acting  officers of the Borrower who are  contemporaneously
      herewith  performing or have previously  performed any action contemplated
      in this Loan  Agreement  either  are or, at the time any such  action  was
      performed,  were the duly  appointed or elected  officers of such Borrower
      empowered by applicable New Jersey law and, if  applicable,  authorized by
      resolution of the Borrower to perform such actions. To the extent any such
      action was  performed  by an officer no longer the duly acting  officer of
      such Borrower, all such actions previously taken by such officer are still
      in full force and effect.

            (iii)  The  Borrower  has full  legal  right and  authority  and all
      necessary  licenses  and  permits  required  as of the date hereof to own,
      operate and maintain its Environmental  Infrastructure System, to carry on
      its activities relating thereto, to execute,  attest and deliver this Loan
      Agreement and the Borrower  Bond, to authorize the  authentication  of the
      Borrower  Bond, to sell the Borrower  Bond to the State,  to undertake and
      complete  the Project  and to carry out and  consummate  all  transactions
      contemplated by this Loan Agreement.

            (iv) The proceedings of the Borrower's board of directors  approving
      this Loan  Agreement and the Borrower  Bond,  authorizing  the  execution,
      attestation  and delivery of this Loan  Agreement  and the Borrower  Bond,
      authorizing  the sale of the Borrower Bond to the State,  authorizing  the
      authentication  of  the  Borrower  Bond  on  behalf  of the  Borrower  and
      authorizing the Borrower to undertake and complete the Project, including,
      without  limitation,  the  Borrower  Bond  Resolution  (collectively,  the
      "Proceedings"), have been duly and lawfully adopted in accordance with the
      Business  Corporation Law and other applicable New Jersey law at a meeting
      or meetings that were duly called and held in accordance with the Borrower
      By-Laws and at which quorums were present and acting throughout.

            (v) By official  action of the Borrower taken prior to or concurrent
      with the execution and delivery hereof, including, without limitation, the
      Proceedings,  the Borrower has duly authorized,  approved and consented to
      all necessary  action to be taken by the Borrower for: (A) the  execution,
      attestation,  delivery  and  performance  of this Loan  Agreement  and the
      transactions  contemplated  hereby;  (B) the issuance of the Borrower Bond
      and the sale thereof to the State upon the terms set forth herein; and (C)


                                      -6-
<PAGE>

      the  execution,  delivery  and  due  performance  of  any  and  all  other
      certificates,  agreements  and  instruments  that  may be  required  to be
      executed,  delivered  and performed by the Borrower in order to carry out,
      give effect to and consummate the  transactions  contemplated by this Loan
      Agreement.

            (vi) This Loan  Agreement  and the Borrower Bond have each been duly
      authorized  by the Borrower and duly  executed,  attested and delivered by
      Authorized  Officers of the Borrower,  and the Borrower Bond has been duly
      sold by the Borrower to the State,  duly  authenticated  by the trustee or
      paying agent,  if applicable,  under the Borrower Bond Resolution and duly
      issued by the Borrower in  accordance  with the terms of the Borrower Bond
      Resolution;  and assuming that the State has all the  requisite  power and
      authority  to  authorize,  execute,  attest  and  deliver,  and  has  duly
      authorized,  executed,  attested and delivered,  this Loan Agreement,  and
      assuming further that this Loan Agreement is the legal,  valid and binding
      obligation of the State,  enforceable against the State in accordance with
      its terms, each of this Loan Agreement and the Borrower Bond constitutes a
      legal, valid and binding obligation of the Borrower,  enforceable  against
      the  Borrower  in  accordance  with its  respective  terms,  except as the
      enforcement  thereof may be affected by  bankruptcy,  insolvency  or other
      laws or the  application  by a court  of  legal  or  equitable  principles
      affecting   creditors'  rights;   and  the  information   contained  under
      "Description  of Loan" in  Exhibit  A-2  attached  hereto  and made a part
      hereof is true and accurate in all respects.

      (b) Full Disclosure.  There is no fact that the Borrower has not disclosed
to the State in writing on the Borrower's  application for the Loan or otherwise
that  materially  adversely  affects or (so far as the Borrower can now foresee)
that will materially adversely affect the properties,  activities,  prospects or
condition  (financial  or  otherwise)  of  the  Borrower  or  its  Environmental
Infrastructure  System,  or the  ability  of  the  Borrower  to  make  all  Loan
Repayments   or  otherwise  to  observe  and  perform  its  duties,   covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond.

      (c)  Pending  Litigation.  There  are no  proceedings  pending  or, to the
knowledge of the Borrower,  threatened  against or affecting the Borrower in any
court or before any  governmental  authority  or  arbitration  board or tribunal
that,  if  adversely  determined,  would  materially  adversely  affect  (i) the
undertaking  or  completion  of the Project,  (ii) the  properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System, (iii) the ability of the Borrower to make
all Loan Repayments, (iv) the authorization,  execution, attestation or delivery
of this Loan  Agreement or the Borrower  Bond,  (v) the issuance of the Borrower
Bond and the sale thereof to the State,  (vi) the adoption of the Borrower  Bond
Resolution, or (vii) the Borrower's ability otherwise to observe and perform its
duties, covenants,  obligations and agreements under this Loan Agreement and the
Borrower Bond, which  proceedings have not been previously  disclosed in writing
to the State either in the Borrower's application for the Loan or otherwise.

      (d) Compliance with Existing Laws and Agreements.  (i) The  authorization,
execution, attestation and delivery of this Loan Agreement and the Borrower Bond
by the Borrower,  (ii) the authentication of the Borrower Bond by the trustee or
paying agent under the


                                      -7-
<PAGE>

Borrower Bond Resolution,  as the case may be, and the sale of the Borrower Bond
to the State,  (iii) the  adoption of the  Borrower  Bond  Resolution,  (iv) the
observation  and   performance  by  the  Borrower  of  its  duties,   covenants,
obligations and agreements hereunder and thereunder, (v) the consummation of the
transactions  provided for in this Loan Agreement,  the Borrower Bond Resolution
and the Borrower  Bond, and (vi) the  undertaking  and completion of the Project
will not (A) other than the lien,  charge or encumbrance  created hereby, by the
Borrower Bond, by the Borrower Bond Resolution and by any other outstanding debt
obligations of the Borrower that are at parity with the Borrower Bond as to lien
on, and source and  security  for  payment  thereon  from,  the  revenues of the
Borrower's  Environmental  Infrastructure  System,  result  in the  creation  or
imposition of any lien,  charge or encumbrance  upon any properties or assets of
the  Borrower  pursuant  to,  (B)  result  in any  breach  of any of the  terms,
conditions or provisions  of, or (C)  constitute a default  under,  any existing
resolution,  outstanding debt or lease obligation,  trust agreement,  indenture,
mortgage,  deed of  trust,  loan  agreement  or other  instrument  to which  the
Borrower is a party or by which the Borrower,  its Environmental  Infrastructure
System or any of its  properties  or assets may be bound,  nor will such  action
result in any  violation  of the  provisions  of the  charter or other  document
pursuant  to  which  the  Borrower  was  established  or any  laws,  ordinances,
injunctions,  judgments,  decrees, rules,  regulations or existing orders of any
court or governmental or administrative agency, authority or person to which the
Borrower,   its  Environmental   Infrastructure  System  or  its  properties  or
operations is subject.

      (e) No Defaults.  No event has occurred and no condition exists that, upon
the  authorization,  execution,  attestation and delivery of this Loan Agreement
and the Borrower Bond, the issuance of the Borrower Bond and the sale thereof to
the State,  the adoption of the Borrower  Bond  Resolution or the receipt of the
amount of the Loan, would constitute an Event of Default hereunder. The Borrower
is not in violation of, and has not received notice of any claimed violation of,
any term of any agreement or other instrument to which it is a party or by which
it, its  Environmental  Infrastructure  System or its  properties  may be bound,
which violation would materially  adversely  affect the properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System or the ability of the Borrower to make all
Loan Repayments,  to pay all other amounts due hereunder or otherwise to observe
and perform its duties,  covenants,  obligations and agreements  under this Loan
Agreement and the Borrower Bond.

      (f)  Governmental  Consent.  The  Borrower  has  obtained  all permits and
approvals  required  to  date  by any  governmental  body  or  officer  for  the
authorization,  execution,  attestation  and delivery of this Loan Agreement and
the Borrower Bond, for the issuance of the Borrower Bond and the sale thereof to
the State,  for the adoption of the Borrower  Bond  Resolution,  for the making,
observance and performance by the Borrower of its duties, covenants, obligations
and  agreements  under this Loan  Agreement  and the  Borrower  Bond and for the
undertaking  or  completion  of the Project  and the  financing  or  refinancing
thereof,  including,  but not limited to, if  required,  the approval by the New
Jersey Board of Public  Utilities (the "BPU") of the issuance by the Borrower of
the Borrower Bond to the State and any other approvals  required therefor by the
BPU;  and the  Borrower  has  complied  with all  applicable  provisions  of law
requiring  any  notification,  declaration,  filing  or  registration  with  any
governmental  body or officer in  connection  with the  making,  observance  and
performance by the Borrower of its duties, covenants, obligations and agreements
under this Loan Agreement and the Borrower Bond or


                                      -8-
<PAGE>

with  the  undertaking  or  completion  of the  Project  and  the  financing  or
refinancing  thereof.  No  consent,  approval  or  authorization  of, or filing,
registration or qualification  with, any  governmental  body or officer that has
not been  obtained is required on the part of the Borrower as a condition to the
authorization,  execution,  attestation  and delivery of this Loan Agreement and
the Borrower Bond, the issuance of the Borrower Bond and the sale thereof to the
State,  the undertaking or completion of the Project or the  consummation of any
transaction herein contemplated.

      (g) Compliance with Law. The Borrower:
          -------------------

            (i) is in compliance with all laws,  ordinances,  governmental rules
      and  regulations to which it is subject,  the failure to comply with which
      would  materially  adversely  affect (A) the  ability of the  Borrower  to
      conduct its  activities  or to undertake or complete the Project,  (B) the
      ability of the Borrower to make the Loan  Repayments  and to pay all other
      amounts due  hereunder,  or (C) the condition  (financial or otherwise) of
      the Borrower or its Environmental Infrastructure System; and

            (ii)  has  obtained  all  licenses,  permits,  franchises  or  other
      governmental  authorizations  presently necessary for the ownership of its
      properties  or for the conduct of its  activities  that,  if not obtained,
      would  materially  adversely  affect (A) the  ability of the  Borrower  to
      conduct its  activities  or to undertake or complete the Project,  (B) the
      ability of the Borrower to make the Loan  Repayments  and to pay all other
      amounts due  hereunder,  or (C) the condition  (financial or otherwise) of
      the Borrower or its Environmental Infrastructure System.

      (h) Use of Proceeds. The Borrower will apply the proceeds of the Loan from
the State as described  in Exhibit B attached  hereto and made a part hereof (i)
to finance or  refinance a portion of the Cost of the  Borrower's  Project;  and
(ii) where  applicable,  to reimburse  the Borrower for a portion of the Cost of
the Borrower's  Project,  which portion was paid or incurred in  anticipation of
reimbursement  by the State and is  eligible  for such  reimbursement  under and
pursuant to the Regulations,  the Code and any other applicable law. All of such
costs  constitute  Costs for which the State is  authorized to make Loans to the
Borrower pursuant to the Regulations.

      SECTION 2.02. Particular Covenants of Borrower.

      (a) Promise to Pay. The Borrower  unconditionally  promises, in accordance
with the terms of and to the extent provided in the Borrower Bond Resolution, to
make punctual payment of the principal of the Loan and the Borrower Bond and all
other amounts due under this Loan  Agreement and the Borrower Bond  according to
their respective terms.

      (b) Performance  Under Loan Agreement;  Rates. The Borrower  covenants and
agrees (i) to comply  with all  applicable  State and  federal  laws,  rules and
regulations  in the  performance  of this Loan  Agreement;  (ii) to maintain its
Environmental  Infrastructure  System in good  repair and  operating  condition;
(iii) to  cooperate  with the State in the  observance  and  performance  of the
respective duties, covenants, obligations and agreements of the Borrower and the
State under


                                      -9-
<PAGE>

this Loan Agreement;  and (iv) to establish,  levy and collect rents,  rates and
other  charges for the  products  and  services  provided  by its  Environmental
Infrastructure  System,  which rents,  rates and other charges shall be at least
sufficient to comply with all covenants pertaining thereto contained in, and all
other  provisions  of, any bond  resolution,  trust  indenture or other security
agreement,  if  any,  relating  to  any  bonds,  notes  or  other  evidences  of
indebtedness  issued  or  to  be  issued  by  the  Borrower,  including  without
limitation rents, rates and other charges, together with other available moneys,
sufficient to pay the principal of and Interest on the Borrower  Bond,  plus all
other amounts due hereunder.

      (c)  Revenue  Obligation;  No Prior  Pledges.  The  Borrower  shall not be
required to make payments under this Loan Agreement  except from the revenues of
its  Environmental  Infrastructure  System  and from  such  other  funds of such
Environmental  Infrastructure  System  legally  available  therefor and from any
other sources pledged to such payment pursuant to subsection (a) of this Section
2.02.  In no event shall the  Borrower be required to make  payments  under this
Loan Agreement from any revenues or receipts not derived from its  Environmental
Infrastructure  System or pledged  pursuant to  subsection  (a) of this  Section
2.02.  Except for (i) loan  repayments  required with respect to the Trust Loan,
(ii) the debt  service on any future  bonds or notes of the  Borrower  issued at
parity with the Borrower Bond under the Borrower Bond Resolution,  and (iii) the
debt service on any bonds, notes or evidences of indebtedness of the Borrower at
parity with the Borrower Bond under the Borrower Bond  Resolution  and currently
outstanding or issued on the date hereof,  the revenues  derived by the Borrower
from its Environmental  Infrastructure System, after the payment of all costs of
operating and maintaining the Environmental  Infrastructure System, are and will
be free and clear of any pledge,  lien,  charge or  encumbrance  thereon or with
respect  thereto prior to, or of equal rank with, the obligation of the Borrower
to make Loan Repayments under this Loan Agreement and the Borrower Bond, and all
corporate  or other  action on the part of the Borrower to that end has been and
will be duly and validly taken.

      (d) Completion of Project and Provision of Moneys  Therefor.  The Borrower
covenants and agrees (i) to exercise its best efforts in accordance with prudent
environmental  infrastructure  utility  practice to complete  the Project and to
accomplish  such completion on or before the estimated  Project  completion date
set forth in Exhibit G hereto and made a part  hereof;  (ii) to comply  with the
terms and  provisions  contained in Exhibit G hereto;  and (iii) to provide from
its own  fiscal  resources  all  moneys,  in excess of the total  amount of loan
proceeds it receives  under the Loan and Trust  Loan,  required to complete  the
Project.

      (e) See Section 2.02(e) as set forth in Schedule A attached hereto, made a
part hereof and  incorporated  in this  Section  2.02(e) by  reference as if set
forth in full herein.

      (f) Reserved.

      (g) Operation and Maintenance of Environmental  Infrastructure System. The
Borrower  covenants  and  agrees  that it  shall,  in  accordance  with  prudent
environmental  infrastructure  utility  practice,  (i) at all times  operate the
properties  of its  Environmental  Infrastructure  System  and any  business  in
connection  therewith in an efficient  manner,  (ii) maintain its  Environmental
Infrastructure System in good repair, working order and operating


                                      -10-
<PAGE>

condition,  and (iii) from time to time make all necessary  and proper  repairs,
renewals, replacements,  additions, betterments and improvements with respect to
its  Environmental  Infrastructure  System  so that at all  times  the  business
carried  on  in  connection  therewith  shall  be  properly  and  advantageously
conducted.

      (h) Records and Accounts.  The Borrower  shall keep  accurate  records and
accounts for its Environmental  Infrastructure  System specifically  relating to
the project (the "System Records")  separate and distinct from its other records
and accounts  (the  "General  Records").  Such System  Records  shall be audited
annually by an independent certified public accountant, which may be part of the
annual audit of the General  Records of the  Borrower.  Such System  Records and
General  Records  shall be made  available  for  inspection  by the State at any
reasonable  time upon prior written  notice,  and a copy of such annual audit(s)
therefor, including all written comments and recommendations of such accountant,
shall be  furnished to the State within 150 days of the close of the fiscal year
being so audited or, with the consent of the State,  such  additional  period as
may be provided by law.

      (i) Inspections;  Information. The Borrower shall permit the State and any
party  designated  by  the  State,  at  any  and  all  reasonable  times  during
construction  of the  Project  and  thereafter  upon prior  written  notice,  to
examine, visit and inspect the property, if any, constituting the Project and to
inspect and make copies of any accounts,  books and records,  including (without
limitation)   its  records   regarding   receipts,   disbursements,   contracts,
investments  and  any  other  matters  relating  thereto  and to  its  financial
standing,  and  shall  supply  such  reports  and  information  as the State may
reasonably require in connection therewith.

      (j) Insurance.  The Borrower shall maintain or cause to be maintained,  in
force,  insurance policies with responsible insurers or self-insurance  programs
providing  against risk of direct  physical  loss,  damage or destruction of its
Environmental  Infrastructure  System  at  least  to  the  extent  that  similar
insurance  is  usually   carried  by  utilities   constructing,   operating  and
maintaining  Environmental  Infrastructure  Facilities  of  the  nature  of  the
Borrower's  Environmental  Infrastructure System,  including liability coverage,
all to the extent  available  at  reasonable  cost but in no case less than will
satisfy all applicable regulatory requirements.

      (k) Cost of Project.  The Borrower certifies that the building cost of the
Project,  as listed in Exhibit B hereto and made a part hereof,  is a reasonable
and accurate estimation  thereof,  and it will supply to the State a certificate
from a  licensed  professional  engineer  authorized  to  practice  in the State
stating that such building cost is a reasonable and accurate estimation and that
the useful life of the Project exceeds the maturity date of the Borrower Bond.

      (l)  Delivery of  Documents.  Concurrently  with the delivery of this Loan
Agreement (as previously authorized, executed and attested) at the Loan Closing,
the  Borrower  will cause to be  delivered  to the State  each of the  following
items:

            (i) an opinion of the Borrower's bond counsel  substantially  in the
      form of  Exhibit E hereto;  provided,  however,  that the State may permit
      portions of such opinion to be rendered by general counsel to the Borrower
      and may  permit  variances  in such  opinion  from the  form set  forth in
      Exhibit E if such variances are acceptable to the State;


                                      -11-
<PAGE>

            (ii) counterparts of this Loan Agreement as previously  executed and
      attested by the parties hereto;

            (iii) copies of those  resolutions  finally  adopted by the board of
      directors of the Borrower and requested by the State,  including,  without
      limitation,  (A) the resolution of the Borrower authorizing the execution,
      attestation  and delivery of this Loan  Agreement,  (B) the Borrower  Bond
      Resolution,  as  amended  and  supplemented  as of the  date  of the  Loan
      Closing, authorizing the execution, attestation,  authentication, sale and
      delivery of the  Borrower  Bond to the State,  (C) the  resolution  of the
      Borrower  confirming  the details of the sale of the Borrower  Bond to the
      State,  each of said  resolutions  of the Borrower  being  certified by an
      Authorized Officer of the Borrower as of the date of the Loan Closing, (D)
      the  resolution  of the BPU  approving the issuance by the Borrower of the
      Borrower Bond to the State and setting forth any other approvals  required
      therefor by the BPU, if applicable, and (E) any other Proceedings; and

            (iv) the certificates of insurance  coverage as required pursuant to
      the  terms  of  Section  3.06(c)  hereof  and  such  other   certificates,
      documents,  opinions and information as the State may require in Exhibit F
      hereto, if any.

      (m)  Execution  and  Delivery  of  Borrower  Bond.  Concurrently  with the
delivery of this Loan  Agreement at the Loan  Closing,  the Borrower  shall also
deliver to the State the Borrower Bond, as previously executed, attested and, if
applicable, authenticated.

      (n) Notice of Material Adverse Change.  The Borrower shall promptly notify
the  State  of  any  material  adverse  change  in the  properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System, or in the ability of the Borrower to make
all Loan Repayments and otherwise to observe and perform its duties,  covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond.

      (o)  Continuing  Representations.  The  representations  of  the  Borrower
contained  herein  shall  be true  at the  time of the  execution  of this  Loan
Agreement and at all times during the term of this Loan Agreement.

      (p)  Additional  Covenants  and  Requirements.  (i) No later than the Loan
Closing and, if necessary, in connection with the making of the Loan, additional
covenants  and  requirements  have been  included in Exhibit F hereto and made a
part hereof.  Such  covenants  and  requirements  may  include,  but need not be
limited to, the maintenance of specified levels of Environmental  Infrastructure
System rates,  the issuance of additional  debt of the Borrower and the transfer
of  revenues  and  receipts  from the  Borrower's  Environmental  Infrastructure
System.  The  Borrower  agrees to observe and comply  with each such  additional
covenant and requirement,  if any, included in Exhibit F hereto. (ii) Additional
defined terms, covenants, representations and requirements have been included in
Schedule  A attached  hereto and made a part  hereof.  Such  additional  defined
terms, covenants, representations and requirements are incorporated in this Loan
Agreement by reference thereto as if set forth in full herein and the


                                      -12-
<PAGE>

Borrower  hereby  agrees to observe and comply with each such  additional  term,
covenant,  representation and requirement  included in Schedule A as if the same
were set forth in its  entirety  where  reference  thereto  is made in this Loan
Agreement.


                                      -13-
<PAGE>

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

      SECTION 3.01. Loan; Loan Term. The State hereby agrees to make the Loan as
described  in Exhibit  A-2 hereof and to  disburse  proceeds  of the Loan to the
Borrower in accordance with Section 3.02 and Exhibit C hereof,  and the Borrower
hereby  agrees to borrow  and  accept the Loan from the State upon the terms set
forth in Exhibit A-2 attached hereto and made a part hereof; provided,  however,
that the State shall be under no  obligation to make the Loan if (a) at the Loan
Closing,  the  Borrower  does not deliver to the State a Borrower  Bond and such
other  documents  required  under  Section  2.02(l)  hereof,  or (b) an Event of
Default has occurred and is continuing  under this Loan Agreement.  Although the
State intends to disburse  proceeds of the Loan to the Borrower at the times and
up to the  amounts  set forth in  Exhibit C to pay a portion  of the Cost of the
Project,  due to unforeseen  circumstances  there may not be sufficient  Federal
Funds  on  deposit  on any  date  to  make  the  disbursement  in  such  amount.
Nevertheless,  the Borrower agrees that the aggregate principal amount set forth
in Exhibit A-2 hereto shall constitute the initial  principal amount of the Loan
(as the  same  may be  adjusted  downward  in  accordance  with  the  definition
thereof),  and  the  State  shall  have no  obligation  thereafter  to loan  any
additional amounts to the Borrower.

      The  Borrower  shall have no legal or  equitable  interest  in the Federal
Funds  received by and  available to the State or in moneys from  repayments  of
loans previously made from Federal Funds by the State.

      The  Borrower  shall use the proceeds of the Loan  strictly in  accordance
with Section 2.01(h) hereof.

      The  payment  obligations  created  under  this  Loan  Agreement  and  the
obligations  to pay the  principal  of and other  amounts due under the Borrower
Bond are each direct, general,  irrevocable and unconditional obligations of the
Borrower payable from any source legally available to the Borrower in accordance
with the terms of and to the extent provided in the Borrower Bond Resolution.

      SECTION 3.02.  Disbursement of Loan Proceeds. (a) The State shall disburse
Federal  Funds  earmarked  for the Loan to the Borrower in  accordance  with the
terms hereof.  Before each and every disbursement of the proceeds of the Loan by
the State to the Borrower,  the Borrower shall in accordance with the procedures
set forth in the  Regulations  submit to the State a requisition  executed by an
Authorized Officer of the Borrower.

      (b) The State  shall  not be under any  obligation  to  disburse  any Loan
proceeds to the Borrower under this Loan Agreement, unless:

            (i) the Loan  Closing  shall have  occurred on the date  established
      therefor by the State;


                                      -14-
<PAGE>

            (ii) there  shall be Federal  Funds  available  from time to time to
      fund the Loan, as determined solely by the State;

            (iii)   in   accordance   with   the   "New   Jersey   Environmental
      Infrastructure  Trust  Act",  P.L.  1985,  c. 334,  as  amended  (N.J.S.A.
      58:11B-1 et seq.),  and the  Regulations,  the Borrower  shall have timely
      applied for, shall have been awarded and, prior to or simultaneously  with
      the Loan  Closing,  shall  have  closed a Trust  Loan for a portion of the
      Allowable  Costs (as  defined in such  Regulations)  of the  Project in an
      amount  not in excess  of the  amount of  Allowable  Costs of the  Project
      financed by the Loan from the State,  plus the amount of: (i)  capitalized
      interest during the Project  construction period, if any, (ii) the cost of
      funding reserve capacity for the Project,  if any, as well as that portion
      of the Debt Service  Reserve Fund (as defined in the Trust Loan Agreement)
      attributable to the cost of funding such reserve capacity for the Project,
      and  (iii)  certain  issuance  expenses  related  thereto,  including,  if
      applicable, a municipal bond insurance policy premium;

            (iv) the  Borrower  shall have on hand moneys to pay for the greater
      of (A) that  portion of the total cost of the Project that is not eligible
      to be funded from the Loan or the Trust Loan,  or (B) that  portion of the
      total cost of the  Project  that  exceeds  the actual  amounts of the loan
      commitments  made by the State and the Trust,  respectively,  for the Loan
      and the Trust Loan; and

            (v) no Event of Default nor any event that, with the passage of time
      or service of notice or both,  would  constitute an Event of Default shall
      have occurred and be continuing hereunder.

      SECTION 3.03.  Amounts  Payable.  (a) The Borrower shall repay the Loan at
zero-interest in principal  installments  payable to the Trustee semiannually on
the  Principal  Payment  Dates,  in  accordance  with the  schedule set forth in
Exhibit A-2 attached  hereto and made a part hereof,  as the same may be amended
or  modified  by the  State,  in  particular,  without  limitation,  to make any
adjustments to the amount of the Loan in accordance with the definition thereof;
provided,  however,  that the amount of any reduction in the principal amount of
the Loan  pursuant to  N.J.A.C.  7:22-3.26  shall be  credited to the  principal
payments  set forth in  Exhibit  A-2 in  inverse  order of their  maturity.  The
obligations  of the  Borrower  under  the  Borrower  Bond  shall be deemed to be
amounts  payable  under this  Section  3.03.  Each  payment  made to the Trustee
pursuant  to the  Borrower  Bond  shall be  deemed  to be a credit  against  the
corresponding  obligation of the Borrower  under this Section 3.03, and any such
payment made to the Trustee shall fulfill the Borrower's  obligation to pay such
amount  hereunder and under the Borrower Bond.  Each payment made to the Trustee
pursuant to this Section 3.03 shall be applied to the principal of the Loan.

      (b) In  addition  to  the  principal  payments  on the  Loan  required  by
subsection  (a) of this Section 3.03,  the Borrower  shall pay a late charge for
any such payment that is received by the Trustee later than the tenth (10th) day
following its due date in an amount equal to the greater of twelve percent (12%)
per annum or the Prime Rate plus one half of one percent per annum on


                                      -15-
<PAGE>

such  late  payment  from  its due  date to the date  actually  paid;  provided,
however, that such late charge payable on the Loan shall not be in excess of the
maximum interest rate permitted by law.

      (c) In addition to the Loan Repayments  payable under  subsections (a) and
(b) of this Section 3.03, the Borrower shall pay one-half of the  Administrative
Fee,  if any,  to the  Trustee  semiannually  on each  Principal  Payment  Date,
commencing with the first Principal Payment Date subsequent to the Loan Closing.

      SECTION 3.04. Unconditional Obligations. The obligation of the Borrower to
make the Loan  Repayments  and all other  payments  required  hereunder  and the
obligation to perform and observe the other duties,  covenants,  obligations and
agreements on its part contained herein shall be absolute and unconditional, and
shall not be abated, rebated, set-off, reduced, abrogated,  terminated,  waived,
diminished,  postponed  or  otherwise  modified  in any  manner or to any extent
whatsoever while any Loan Repayments remain unpaid,  for any reason,  regardless
of any contingency,  act of God, event or cause whatsoever,  including  (without
limitation)  any  acts  or   circumstances   that  may  constitute   failure  of
consideration,  eviction or constructive  eviction, the taking by eminent domain
or  destruction  of or damage to the  Project  or  Environmental  Infrastructure
System,  commercial  frustration  of the purpose,  any change in the laws of the
United States of America or of the State or any political  subdivision of either
or in the rules or regulations of any governmental authority, any failure of the
State to perform and observe any agreement,  whether express or implied,  or any
duty,  liability or obligation  arising out of or connected  with the Project or
this  Loan  Agreement,  or any  rights  of  set-off,  recoupment,  abatement  or
counterclaim  that the Borrower  might  otherwise  have  against the State,  the
Trustee  or any  other  party  or  parties;  provided,  however,  that  payments
hereunder  shall not constitute a waiver of any such rights.  The Borrower shall
not be obligated to make any payments required to be made by any other Borrowers
under separate Loan Agreements.

      SECTION 3.05.  Loan Agreement to Survive Loan.  The Borrower  acknowledges
that its duties,  covenants,  obligations  and  agreements set forth in Sections
3.06(a) and (b) hereof shall survive the payment in full of the Loan.

      SECTION  3.06.  Disclaimer  of  Warranties  and  Indemnification.  (a) The
Borrower  acknowledges and agrees that: (i) the State does not make any warranty
or  representation,  either  express  or  implied,  as  to  the  value,  design,
condition,  merchantability or fitness for particular purpose or fitness for any
use of the  Environmental  Infrastructure  System or the Project or any portions
thereof or any other warranty or representation with respect thereto; (ii) in no
event shall the State or its agents be liable or responsible for any incidental,
indirect,  special or consequential damages in connection with or arising out of
this Loan Agreement or the Project or the existence, furnishing,  functioning or
use of the  Environmental  Infrastructure  System or the  Project or any item or
products  or  services  provided  for in this Loan  Agreement;  and (iii) to the
fullest extent permitted by law, the Borrower shall indemnify and hold the State
harmless against, and the Borrower shall pay any and all, liability, loss, cost,
damage,  claim,  judgment  or expense of any and all kinds or nature and however
arising and  imposed by law,  which the State may  sustain,  be subject to or be
caused to incur by reason of any  claim,  suit or  action  based  upon  personal
injury, death or damage to property, whether real, personal or mixed, or upon or
arising


                                      -16-
<PAGE>

out of contracts entered into by the Borrower,  the Borrower's  ownership of the
Environmental   Infrastructure  System  or  the  Project,  or  the  acquisition,
construction or installation of the Project.

      (b) It is mutually agreed by the Borrower and the State that the State and
its commissioners,  officers,  agents, servants or employees shall not be liable
for, and shall be  indemnified  and saved  harmless by the Borrower in any event
from,  any action  performed  under this Loan Agreement and any claim or suit of
whatsoever  nature,  except in the event of loss or damage  resulting from their
own negligence or willful misconduct.

      (c) In connection  with its  obligation to provide the insurance  required
under Section  2.02(j)  hereof:  (i) the Borrower shall include,  or cause to be
included,  the  State  and its  employees  and  officers  as  additional  "named
insureds" on (A) any certificate of liability insurance procured by the Borrower
(or other similar document  evidencing the liability insurance coverage procured
by the Borrower) and (B) any certificate of liability  insurance procured by any
contractor or subcontractor for the Project,  and from the latter of the date of
the Loan Closing or the date of the  initiation of  construction  of the Project
until  the date  the  Borrower  receives  the  written  certificate  of  Project
completion from the State, the Borrower shall maintain said liability  insurance
covering the State and said  employees and officers in good  standing;  and (ii)
the Borrower  shall  include the State as an additional  "named  insured" on any
certificate of insurance  providing against risk of direct physical loss, damage
or destruction of the Environmental  Infrastructure  System, and during the Loan
Term the  Borrower  shall  maintain  said  insurance  covering the State in good
standing.

      The  Borrower  shall  provide  the  State  with a copy of each of any such
original,  supplemental,  amendatory or reissued  certificates  of insurance (or
other similar documents  evidencing the insurance coverage) required pursuant to
this Section 3.06(c).

      SECTION 3.07.  Option to Prepay Loan  Repayments.  The Borrower may prepay
the Loan  Repayments,  in whole or in part, upon not less than ninety (90) days'
prior  written  notice to the State;  provided,  however,  that any such full or
partial  prepayment  may only be made (i) if the Borrower is not then in arrears
on its Trust Loan,  (ii) if the Borrower is  contemporaneously  making a full or
partial prepayment of the Trust Loan such that, after the prepayment of the Loan
and the Trust Loan, the Trust gives its consent required under Section 3.07(iii)
of the Trust Loan  Agreement,  and (iii) upon the prior written  approval of the
State.  Prepayments shall be applied to the principal payments on the portion of
the Loan to be prepaid in inverse order of their maturity.

      SECTION  3.08.  Priority of Loan and Trust Loan.  (a) The Borrower  hereby
agrees that, to the extent allowed by law, including,  without  limitation,  the
appropriations  act  of  the  New  Jersey  State  Legislature   authorizing  the
expenditure  of Trust  bond  proceeds  to  finance a portion  of the Cost of the
Project,  or the Borrower  Bond  Resolution,  any loan  repayments  then due and
payable  on the  Borrower's  Trust  Loan,  including,  without  limitation,  any
administrative  fees and any late payment charges then due and payable under the
Trust  Loan  Agreement,  shall be  satisfied  by the  Borrower  before  any Loan
Repayments then due and payable  hereunder on the Loan shall be satisfied by the
Borrower.


                                      -17-
<PAGE>

      (b) The Borrower hereby  acknowledges that in the event the Borrower fails
or is unable to pay  promptly  to the Trust in full any loan  repayments  on the
Trust Loan, then any Loan Repayments paid by the Borrower on the Loan under this
Loan  Agreement  and  received by the  Trustee  during the time of any such loan
repayment  deficiency  under the Trust  Loan  Agreement  shall be applied by the
Trustee first to satisfy such Trust Loan Agreement loan repayment  deficiency as
a credit against the obligations of the Borrower to make loan repayments of that
portion of interest  under the Trust Loan  Agreement  that is  allocable  to the
interest payable on the Trust Bonds (as defined in the Trust Loan Agreement) and
to make  payments of that  portion of interest  under the bond or note issued by
the Borrower to the Trust that is allocable to the interest payable on the Trust
Bonds,  second,  to the extent  available,  to make loan repayments of principal
under the Trust Loan  Agreement  and  payments of  principal on the bond or note
issued by the Borrower to the Trust pursuant to the Trust Loan Agreement, third,
to the extent available,  to the payment of the administrative fee payable under
the Trust Loan  Agreement and to make payments of that portion of interest under
the bond or note issued by the  Borrower to the Trust that is  allocable  to the
administrative fee payable under the Trust Loan Agreement, fourth, to the extent
available, to the payment of late charges payable under the Trust Loan Agreement
and to make  payments of that portion of interest  under the bond or note issued
by the Borrower to the Trust that is allocable to the late charges payable under
the Trust Loan Agreement,  and finally,  to the extent  available,  to make Loan
Repayments on the Loan.

      (c) The Borrower hereby further acknowledges that any Loan Repayments paid
by the Borrower on the Loan under this Loan Agreement shall be applied according
to the provisions of the Master Program Trust Agreement.

      SECTION 3.09. Approval of the New Jersey State Treasurer. The Borrower and
the State  hereby  acknowledge  that  prior to or  simultaneously  with the Loan
Closing the New Jersey State  Treasurer,  in satisfaction of the requirements of
Section 9a of the Act, issued the "Certificate of the New Jersey State Treasurer
Regarding  the  Approval of the Trust Loan and the Fund Loan" (the  "Treasurer's
Certificate").  Pursuant to the terms of the  Treasurer's  Certificate,  the New
Jersey State Treasurer approved the Loan and the terms and conditions thereof as
established by the provisions of this Loan Agreement.


                                      -18-
<PAGE>

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

      SECTION  4.01.  Assignment  and  Transfer by State.  The  Borrower  hereby
approves and consents to any  assignment or transfer of this Loan  Agreement and
the Borrower  Bond that the State deems to be necessary in  connection  with the
environmental infrastructure loan program of the State under the Regulations.

      SECTION 4.02. Assignment by Borrower.  Neither this Loan Agreement nor the
Borrower  Bond may be  assigned  by the  Borrower  for any  reason,  unless  the
following conditions shall be satisfied:  (i) the State shall have approved said
assignment in writing; (ii) the assignee shall have expressly assumed in writing
the full and faithful  observance  and  performance  of the  Borrower's  duties,
covenants,  obligations  and  agreements  under this Loan  Agreement and, to the
extent permitted under applicable law, the Borrower Bond; and (iii)  immediately
after such assignment, the assignee shall not be in default in the observance or
performance of any duties, covenants,  obligations or agreements of the Borrower
under this Loan Agreement or the Borrower Bond.


                                      -19-
<PAGE>

                                    ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

      SECTION 5.01. Events of Default. If any of the following events occur, it
is hereby defined as and declared to be and to constitute an "Event of Default":

      (a)  failure  by the  Borrower  to pay,  or  cause  to be  paid,  any Loan
Repayment  required to be paid  hereunder when due, which failure shall continue
for a period of fifteen (15) days;

      (b) failure by the  Borrower to make,  or cause to be made,  any  required
payments of principal,  redemption  premium,  if any, and interest on any bonds,
notes or other  obligations  of the  Borrower  issued  under the  Borrower  Bond
Resolution  (other than the Loan and the Borrower Bond) or otherwise  secured by
all or a portion of the property  pledged  under the Borrower  Bond  Resolution,
after giving effect to the applicable grace period;

      (c) failure by the Borrower to pay, or cause to be paid,  any late charges
incurred hereunder or any portion thereof when due or to observe and perform any
duty, covenant,  obligation or agreement on its part to be observed or performed
under this Loan  Agreement,  other than as referred to in subsection (a) of this
Section 5.01 or other than the obligations of the Borrower  contained in Section
2.02(d)(ii)  hereof and in Exhibit F hereto,  which failure shall continue for a
period of thirty (30) days after  written  notice,  specifying  such failure and
requesting  that it be remedied,  is given to the Borrower by the State,  unless
the State  shall  agree in  writing  to an  extension  of such time prior to its
expiration;  provided,  however,  that if the  failure  stated in such notice is
correctable but cannot be corrected within the applicable  period, the State may
not  unreasonably  withhold  its consent to an  extension of such time up to 120
days from the  delivery of the written  notice  referred to above if  corrective
action is instituted by the Borrower within the applicable period and diligently
pursued until the Event of Default is corrected;

      (d) any  representation  made by or on behalf of the Borrower contained in
this Loan Agreement,  or in any instrument  furnished in compliance with or with
reference to this Loan  Agreement  or the Loan,  is false or  misleading  in any
material respect;

      (e) a petition  is filed by or against the  Borrower  under any federal or
state bankruptcy or insolvency law or other similar law in effect on the date of
this  Loan  Agreement  or  thereafter  enacted,  unless  in the case of any such
petition  filed  against the Borrower such  petition  shall be dismissed  within
thirty  (30) days after such  filing and such  dismissal  shall be final and not
subject to appeal;  or the Borrower shall become  insolvent or bankrupt or shall
make an assignment for the benefit of its creditors;  or a custodian (including,
without limitation, a receiver, liquidator or trustee) of the Borrower or any of
its  property  shall be  appointed  by court  order  or take  possession  of the
Borrower  or its  property  or assets if such  order  remains  in effect or such
possession continues for more than thirty (30) days;

      (f) the  Borrower  shall  generally  fail to pay its  debts as such  debts
become due; and


                                      -20-
<PAGE>

      (g) failure of the Borrower to observe or perform such additional  duties,
covenants,  obligations,  agreements  or conditions as are required by the State
and specified in Exhibit F attached hereto and made a part hereof.

      SECTION 5.02. Notice of Default.  The Borrower shall give the State prompt
telephonic  notice of the  occurrence  of any Event of  Default  referred  to in
Section  5.01(d)  or (e)  hereof  and of the  occurrence  of any other  event or
condition  that  constitutes  an Event of  Default  at such  time as any  senior
administrative  or  financial  officer  of the  Borrower  becomes  aware  of the
existence thereof.

      SECTION 5.03.  Remedies on Default.  Whenever an Event of Default referred
to in Section 5.01 hereof shall have occurred and be continuing, the State shall
have the right to take whatever action at law or in equity may appear  necessary
or  desirable  to collect  the  amounts  then due and  thereafter  to become due
hereunder or to enforce the  observance and  performance of any duty,  covenant,
obligation or agreement of the Borrower hereunder.

      In addition,  if an Event of Default referred to in Section 5.01(a) hereof
shall have occurred and be continuing, the State shall, to the extent allowed by
applicable  law,  have the right to declare  all Loan  Repayments  and all other
amounts  due  hereunder  (including,  without  limitation,  payments  under  the
Borrower  Bond)  to be  immediately  due and  payable,  and upon  notice  to the
Borrower the same shall become due and payable without further notice or demand.

      SECTION 5.04.  Attorneys' Fees and Other  Expenses.  The Borrower shall on
demand pay to the State the reasonable  fees and expenses of attorneys and other
reasonable expenses  (including,  without limitation,  the reasonably  allocated
costs  of  in-house  counsel  and  legal  staff)  incurred  by the  State in the
collection  of  Loan  Repayments  or  any  other  sum  due  hereunder  or in the
enforcement of the  observation  or performance of any other duties,  covenants,
obligations or agreements of the Borrower upon an Event of Default.

      SECTION 5.05.  Application  of Moneys.  Any moneys  collected by the State
pursuant to Section 5.03 hereof shall be applied (a) first to pay any attorneys'
fees or other fees and expenses  owed by the  Borrower  pursuant to Section 5.04
hereof, (b) second, to the extent available, to pay principal due and payable on
the Loan, (c) third, to the extent  available,  to pay any other amounts due and
payable hereunder,  and (d) fourth, to the extent available, to pay principal on
the Loan and other  amounts  payable  hereunder as such  amounts  become due and
payable.

      SECTION  5.06.  No Remedy  Exclusive;  Waiver;  Notice.  No remedy  herein
conferred  upon or reserved to the State is intended to be exclusive,  and every
such remedy shall be  cumulative  and shall be in addition to every other remedy
given  under  this Loan  Agreement  or now or  hereafter  existing  at law or in
equity.  No delay or omission to exercise  any right,  remedy or power  accruing
upon any Event of Default shall impair any such right,  remedy or power or shall
be construed to be a waiver thereof,  but any such right, remedy or power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the State to exercise  any remedy  reserved to it in this  Article V, it
shall not be  necessary  to give any  notice  other  than such  notice as may be
required in this Article V.


                                      -21-
<PAGE>

      SECTION 5.07. Retention of State's Rights.  Notwithstanding any assignment
or  transfer  of this Loan  Agreement  pursuant  to the  provisions  hereof,  or
anything else to the contrary  contained herein,  the State shall have the right
upon the  occurrence  of an  Event of  Default  to take  any  action,  including
(without  limitation)  bringing  an action  against  the  Borrower  at law or in
equity,  as the State may,  in its  discretion,  deem  necessary  to enforce the
obligations of the Borrower to the State pursuant to Section 5.03 hereof.


                                      -22-
<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

      SECTION 6.01. Notices.  All notices,  certificates or other communications
hereunder  shall be  sufficiently  given  and shall be  deemed  given  when hand
delivered or mailed by registered or certified  mail,  postage  prepaid,  to the
Borrower at the address specified in Exhibit A-1 attached hereto and made a part
hereof and to the State and the Trustee at the following addresses:

      (a)   State:

                               New Jersey Department of Environmental Protection
                               Municipal Finance and Construction Element
                               401 East State Street - 3rd Floor
                               Trenton, New Jersey  08625-0425
                               Attention:  Assistant Director

                               New Jersey Department of the Treasury
                               Office of Public Finance
                               State Street Square - 5th Floor
                               Trenton, New Jersey  08625-0002
                               Attention:  Director

      (b)   Trustee:

                               Wachovia Bank, National Association
                               21 South Street, 3rd Floor
                               Morristown, New Jersey  07960
                               Attention:  Corporate Trust Department

      Any of the  foregoing  parties  may  designate  any  further or  different
addresses to which  subsequent  notices,  certificates  or other  communications
shall be sent by notice in writing given to the others.

      SECTION  6.02.  Binding  Effect.  This Loan  Agreement  shall inure to the
benefit  of and  shall be  binding  upon the State  and the  Borrower  and their
respective successors and assigns.

      SECTION  6.03.  Severability.  In the  event  any  provision  of this Loan
Agreement  shall be held  illegal,  invalid  or  unenforceable  by any  court of
competent jurisdiction,  such holding shall not invalidate, render unenforceable
or otherwise affect any other provision hereof.

      SECTION  6.04.  Amendments,   Supplements  and  Modifications.  This  Loan
Agreement may not be amended, supplemented or modified without the prior written
consent of the State and the Borrower.


                                      -23-
<PAGE>

      SECTION  6.05.  Execution  in  Counterparts.  This Loan  Agreement  may be
executed in several counterparts,  each of which shall be an original and all of
which shall constitute but one and the same instrument.

      SECTION 6.06. Applicable Law and Regulations. This Loan Agreement shall be
governed by and  construed in accordance  with the laws of the State,  including
the Regulations,  which Regulations are, by this reference thereto, incorporated
herein as part of this Loan Agreement.

      SECTION  6.07.  Consents and  Approvals.  Whenever the written  consent or
approval  of the  State  shall be  required  under the  provisions  of this Loan
Agreement, such consent or approval may only be given by the State.

      SECTION 6.08.  Captions.  The captions or headings in this Loan  Agreement
are for convenience only and shall not in any way define,  limit or describe the
scope or intent of any provisions or sections of this Loan Agreement.

      SECTION 6.09.  Further  Assurances.  The Borrower shall, at the request of
the State,  authorize,  execute,  attest,  acknowledge  and deliver such further
resolutions,  conveyances, transfers, assurances, financing statements and other
instruments  as may be necessary or desirable  for better  assuring,  conveying,
granting, assigning and confirming the rights, security interests and agreements
granted or intended to be granted by this Loan Agreement and the Borrower Bond.


                                      -24-
<PAGE>


      IN WITNESS  WHEREOF,  the State and the  Borrower  have  caused  this Loan
Agreement  to be  executed,  sealed and  delivered  as of the date  first  above
written.

                                       THE STATE OF NEW JERSEY,
                                       ACTING BY AND THROUGH THE
                                       NEW JERSEY DEPARTMENT OF
                                       ENVIRONMENTAL PROTECTION

[SEAL]

                                       By:_____________________________
ATTEST:                                      Bradley M. Campbell
                                             Commissioner, Department of
                                             Environmental Protection

- -----------------------------
Stanley V. Cach, Jr. P.E., P.P.
Assistant Director,
Municipal Finance and Construction Element,
Department of Environmental Protection

                                       MIDDLESEX WATER COMPANY

[SEAL]

                                       By: /s/Dennis G. Sullivan
                                           ---------------------------
ATTEST:                                 Dennis G. Sullivan
                                                  President

/s/Kenneth J. Quinn
- ---------------------------
    Kenneth J. Quinn
    Secretary


                                [Signature Page]

<PAGE>

                                   SCHEDULE A

                  Certain Additional Loan Agreement Provisions
                  --------------------------------------------


                                      S-1
<PAGE>

                                   EXHIBIT A-1

         Description of Project and Environmental Infrastructure System
         --------------------------------------------------------------

                                      A-1-1


<PAGE>

                                   EXHIBIT A-2

                               Description of Loan
                               -------------------


                                      A-2-1

<PAGE>

                                    EXHIBIT B

               Basis for Determination of Allowable Project Costs
               --------------------------------------------------


                                       B-1

<PAGE>

                                    EXHIBIT C

                         Estimated Disbursement Schedule
                         -------------------------------


                                       C-1

<PAGE>

                                    EXHIBIT D

                             Specimen Borrower Bond
                             ----------------------

                                       D-1

<PAGE>

                          (To be supplied by Borrower's
                bond counsel in substantially the following form)

      IMPORTANT NOTE: The next two pages set forth the form of the Borrower Bond
prepared by the Trust's Bond Counsel for  municipal/county  Borrowers.  Although
the Trust  recognizes  that  each  corporate  Borrower  has its own bond form as
required  pursuant to its Borrower Bond  Resolution,  please  incorporate in the
bond form the pertinent  information from this municipal/county bond form (e.g.,
include the concept of principal  amount or lesser  amount under  Section  3.01,
reference  to  payments  to the  Trustee,  disbursement  process,  unconditional
nature,  prepayment,  security and date).  To the extent that you do not have an
existing  Bond  Resolution,  the  pledge  under your Bond  Resolution  should be
drafted to constitute a general  obligation pledge of (i) all the gross revenues
of the company and (ii) any specific property (e.g.  mortgage) or other security
pledged for this transaction (e.g. letter of credit).


                                      D-2
<PAGE>

                        SEE IMPORTANT NOTE ON PRIOR PAGE

      FOR VALUE  RECEIVED,  [NAME OF BORROWER],  a corporation  duly created and
validly existing under the Constitution and laws of the State of New Jersey (the
"Borrower"), hereby promises to pay to the order of the State of New Jersey (the
"State") the principal amount of ___________________  Dollars ($__________),  or
such lesser amount as shall be determined in accordance with Section 3.01 of the
Loan  Agreement  (as  hereinafter  defined),  at the  times  and in the  amounts
determined  as provided in the Loan  Agreement,  plus any other  amounts due and
owing  under the Loan  Agreement  at the times and in the  amounts  as  provided
therein.  The  Borrower  irrevocably  pledges  its full faith and credit for the
punctual  payment of the  principal  of, and all other  amounts due under,  this
Borrower Bond and the Loan Agreement according to their respective terms.

      This Borrower Bond is issued  pursuant to the Loan  Agreement  dated as of
November 1, 2003 by and between the State,  acting by and through the New Jersey
Department of Environmental Protection, and the Borrower (the "Loan Agreement").
This  Borrower Bond is issued in  consideration  of the loan made under the Loan
Agreement  (the "Loan") to evidence the payment  obligations of the Borrower set
forth  therein.  Payments  under this Borrower  Bond shall,  except as otherwise
provided in the Loan  Agreement,  be made directly to the Trustee (as defined in
the Loan Agreement) for the account of the State.  This Borrower Bond is subject
to assignment or endorsement in accordance with the terms of the Loan Agreement.
All of the terms,  conditions  and provisions of the Loan Agreement are, by this
reference thereto, incorporated herein as part of this Borrower Bond.

      Pursuant to the Loan Agreement,  disbursements  shall be made by the State
to the  Borrower  upon  receipt by the State of  requisitions  from the Borrower
executed and delivered in accordance with the  requirements set forth in Section
3.02 of the Loan Agreement.

      This  Borrower  Bond is  entitled  to the  benefits  and is subject to the
conditions of the Loan  Agreement.  The  obligations of the Borrower to make the
payments  required  hereunder shall be absolute and  unconditional,  without any
defense or right of set-off, counterclaim or recoupment by reason of any default
by the State under the Loan Agreement or under any other  agreement  between the
Borrower and the State or out of any indebtedness or liability at any time owing
to the Borrower by the State or for any other reason.

      This Borrower Bond is subject to optional  prepayment  under the terms and
conditions,  and in the amounts, provided in Section 3.07 of the Loan Agreement.
To the extent  allowed by  applicable  law, this Borrower Bond may be subject to
acceleration  under the terms and  conditions,  and in the amounts,  provided in
Section 5.03 of the Loan Agreement.

      To  the  extent  provided  by  law,  this  Borrower  Bond  is  junior  and
subordinate in all respects to any bonds or notes of the Borrower issued on even
date herewith to the New Jersey  Environmental  Infrastructure  Trust as to lien
on, and source and security for payment from, the revenues of the Borrower.


                                      D-3
<PAGE>

      IN WITNESS WHEREOF,  the Borrower has caused this Borrower Bond to be duly
executed, sealed and delivered as of October 15, 2003.

                                     [NAME OF BORROWER]

[SEAL]

                                     By:_____________________________________
ATTEST:                                  Mayor

_______________________              By:_____________________________________
Clerk                                    Chief Financial Officer/Treasurer


                                      D-4
<PAGE>

                                    EXHIBIT E

                Opinions of Borrower's Bond and General Counsels
                ------------------------------------------------


                                      E-1
<PAGE>

                       [LETTERHEAD OF COUNSEL TO BORROWER]

                                                           November 6, 2003

State of New Jersey
Department of Environmental Protection
401 East State Street
Trenton, New Jersey  08625

Ladies and Gentlemen:

      We have  acted as  counsel  to  [Name of  Borrower],  a  corporation  duly
organized  and validly  existing  under the laws of the State of New Jersey (the
"Borrower"),  which has entered into a Loan Agreement (as  hereinafter  defined)
with the State of New Jersey, acting by and through the New Jersey Department of
Environmental  Protection  (the  "State"),  and have acted as such in connection
with the authorization,  execution,  attestation and delivery by the Borrower of
its Loan Agreement and Borrower Bond (as  hereinafter  defined)  pursuant to the
New Jersey  Business  Corporation  Act,  P.L.  1968,  c. 263,  as  amended  (the
"Business Corporation Law"), and a [bond resolution] [indenture] of the Borrower
[adopted on] [dated] [DATE] and entitled "[TITLE]", as amended and supplemented,
including by a supplemental [resolution] [indenture] [adopted on] [dated] [DATE]
and entitled  "[TITLE]" (such  [resolutions]  [indentures] shall be collectively
referred  to herein as the  "Resolution").  All  capitalized  terms used but not
defined  herein  shall  have the  meanings  ascribed  to such  terms in the Loan
Agreement.

      In so acting,  we have examined the  Constitution and laws of the State of
New Jersey, including, without limitation, the Business Corporation Law, and the
certificate of incorporation and by-laws of the Borrower.  We have also examined
originals,  or copies certified or otherwise identified to our satisfaction,  of
the following:

      (a) the Loan Agreement dated as of November 1, 2003 (the "Loan Agreement")
by and between the State and the Borrower;

      (b) the proceedings of the board of directors of the Borrower  relating to
the approval of the Loan Agreement and the execution,  attestation  and delivery
thereof on behalf of the Borrower and the  authorization  of the undertaking and
completion of the Project;

      (c) the Borrower Bond dated as of October 15, 2003 (the  "Borrower  Bond")
issued by the Borrower to the State to evidence the Loan; and

      (d) the proceedings  (together with the proceedings  referred to in clause
(b) above and Section 5 below, the  "Proceedings")  of the board of directors of
the Borrower,  including,  without limitation,  the Resolution,  relating to the
authorization  of the  Borrower  Bond  and  the  sale,  execution,  attestation,
authentication  and delivery  thereof to the State (the Loan  Agreement  and the
Borrower Bond are referred to herein collectively as the "Loan Documents").


                                      E-2
<PAGE>

      We have also examined and relied upon  originals,  or copies  certified or
otherwise authenticated to our satisfaction,  of such other records,  documents,
certificates and other  instruments,  and have made such investigation of law as
in our judgment we have deemed necessary or appropriate,  to enable us to render
the opinions expressed below.

      We are of the opinion that:

      1. The Borrower is a corporation  duly created and validly  existing under
and  pursuant  to the  Constitution  and  statutes  of the State of New  Jersey,
including  the Business  Corporation  Law,  with the legal right to carry on the
business of its Environmental Infrastructure System as currently being conducted
and as proposed to be conducted.

      2. The Borrower has full legal right and authority to execute,  attest and
deliver the Loan Documents, to sell the Borrower Bond to the State, to cause the
authentication  of the  Borrower  Bond,  to  observe  and  perform  its  duties,
covenants,  obligations and agreements under the Loan Documents and to undertake
and complete the Project.

      3. The acting officers of the Borrower who are contemporaneously  herewith
performing  or have  previously  performed any action  contemplated  in the Loan
Agreement  are,  and at the time any such action was  performed  were,  the duly
appointed or elected officers of the Borrower empowered by applicable New Jersey
law and authorized by resolution of the Borrower to perform such actions.

      4. In  accordance  with the  terms  of the  Resolution  and to the  extent
provided therein, the Borrower has irrevocably pledged its full faith and credit
for the punctual  payment of the Loan Repayments and all other amounts due under
the Loan Documents according to their respective terms.

      5. The proceedings of the Borrower's  board of directors (i) approving the
Loan Documents,  (ii) authorizing  their execution,  attestation and delivery on
behalf  of  the  Borrower,  (iii)  with  respect  to  the  Borrower  Bond  only,
authorizing  its  sale  by  the  Borrower  to  the  State  and  authorizing  its
authentication  on behalf of the  Borrower,  (iv)  authorizing  the  Borrower to
consummate the transactions  contemplated by the Loan Documents, (v) authorizing
the Borrower to undertake  and complete the Project,  and (vi)  authorizing  the
execution  and delivery of all other  certificates,  agreements,  documents  and
instruments in connection  with the execution,  attestation  and delivery of the
Loan  Documents,  have each been duly and  lawfully  adopted and  authorized  in
accordance  with  applicable  law and  applicable  resolutions  of the Borrower,
including,  without  limitation,  the Resolution,  the other Proceedings and the
Business  Corporation  Law,  which  Proceedings  constitute  all of the  actions
necessary to be taken by the Borrower to authorize its actions  contemplated  by
clauses  (i)  through  (vi)  above and  which  Proceedings,  including,  without
limitation, the Resolution,  were duly adopted in accordance with applicable New
Jersey law at a meeting or  meetings  duly  called and held in  accordance  with
applicable  New  Jersey  law  and at  which  quorums  were  present  and  acting
throughout.

      6. The Loan Documents have been duly  authorized,  executed,  attested and
delivered by the Authorized Officers of the Borrower, the Borrower Bond has been
duly sold by the


                                      E-3
<PAGE>

Borrower to the State, and the Borrower Bond has been duly  authenticated by the
trustee or paying agent under the Resolution, if applicable; and assuming in the
case of the Loan Agreement that the State has the requisite  power and authority
to authorize,  execute,  attest and deliver, and has duly authorized,  executed,
attested and delivered,  the Loan Agreement,  the Loan Documents  constitute the
legal, valid and binding  obligations of the Borrower,  enforceable  against the
Borrower in accordance with their respective  terms,  subject,  however,  to the
effect of, and to  restrictions  and  limitations  imposed by or resulting from,
bankruptcy,  insolvency,  moratorium,   reorganization  or  other  similar  laws
affecting  creditors'  rights  generally.  No  opinion  is  rendered  as to  the
availability of any particular remedy.

      7. The  authorization,  execution,  attestation  and  delivery of the Loan
Documents  by the  Borrower  and,  in the case of the  Borrower  Bond only,  the
authentication  thereof by the trustee or paying agent under the  Resolution and
the sale thereof to the State,  the  observation and performance by the Borrower
of  its  duties,   covenants,   obligations  and  agreements   thereunder,   the
consummation of the transactions  contemplated  therein, and the undertaking and
completion of the Project do not and will not (i) other than the lien, charge or
encumbrance  created by the Loan  Documents,  by the Resolution and by any other
outstanding  debt  obligations  of the  Borrower  that  are at  parity  with the
Borrower  Bond as to lien on, and source and security for payment  thereon from,
the revenues of the Borrower,  result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Borrower pursuant to,
(ii) result in any breach of any of the terms,  conditions or provisions  of, or
(iii) constitute a default under, any existing  resolution,  outstanding debt or
lease  obligation,  trust agreement,  indenture,  mortgage,  deed of trust, loan
agreement or other  instrument  to which the Borrower is a party or by which the
Borrower,  its Environmental  Infrastructure  System or any of its properties or
assets  may be  bound,  nor will such  action  result  in any  violation  of the
provisions of the charter or other  document  pursuant to which the Borrower was
established or any laws, ordinances,  injunctions,  judgments,  decrees,  rules,
regulations or existing orders of any court or  governmental  or  administrative
agency,   authority  or  person  to  which  the  Borrower,   its   Environmental
Infrastructure System or its properties or operations is subject.

      8. All approvals,  consents or  authorizations  of, or registrations of or
filings with, any governmental or public agency, authority or person required to
date  on  the  part  of the  Borrower  in  connection  with  the  authorization,
execution, attestation, delivery and performance of the Loan Documents, the sale
of the Borrower Bond and the undertaking and completion of the Project have been
obtained or made.

      9.  There  is no  litigation  or  other  proceeding  pending  or,  to  our
knowledge,  after due  inquiry,  threatened  in any court or other  tribunal  of
competent  jurisdiction  (either State or federal) (i) questioning the creation,
organization  or existence  of the  Borrower,  (ii)  questioning  the  validity,
legality or  enforceability  of the Resolution,  the Loan or the Loan Documents,
(iii)  questioning the undertaking or completion of the Project,  (iv) otherwise
challenging the Borrower's  ability to consummate the transactions  contemplated
by the Loan or the Loan Documents, or (v) that, if adversely decided, would have
a materially adverse impact on the financial condition of the Borrower.


                                      E-4
<PAGE>

      10. Other than its bond or note dated as of October 15, 2003 issued to the
New Jersey Environmental  Infrastructure Trust, the Borrower has no bonds, notes
or other  debt  obligations  outstanding  that are  superior  or  senior  to the
Borrower  Bond as to lien on, and source and security for payment  thereof from,
the revenues of the Borrower.

      [11.  To  the  best  of  our   knowledge,   upon  due  inquiry,   (i)  all
representations  made by the  Borrower  contained  within  Exhibit F of the Loan
Agreement are true, accurate and complete,  and (ii) all expectations  contained
therein  are  reasonable,  and we know of no reason  why the  Borrower  would be
unable to comply on a  continuing  basis  with the  covenants  contained  within
Exhibit F of the Loan Agreement.]

      We hereby authorize McCarter & English, LLP, acting as bond counsel to the
State in connection with the Loan, and the Attorney  General of the State of New
Jersey,  acting as general  counsel to the State in connection with the Loan, to
rely on this opinion as if we had addressed  this opinion to them in addition to
you.

                                                            Very truly yours,


                                      E-5
<PAGE>

                                    EXHIBIT F

                      Additional Covenants and Requirements
                      -------------------------------------


                                      F-1
<PAGE>

                                    EXHIBIT G

                   General Administrative Requirements for the
              State Environmental Infrastructure Financing Program
              ----------------------------------------------------


                                      G-1
<PAGE>

                                 M O R T G A G E

                        THIRTIETH SUPPLEMENTAL INDENTURE

                             MIDDLESEX WATER COMPANY

                                       TO

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                                     Trustee

                          Dated as of October 15, 2004

                                           Record and Return to:

                                           Peter D. Hutcheon, Esq.
                                           Norris, McLaughlin & Marcus, P.A.
                                           721 Route 202/206
                                           P.O. Box 1018
                                           Somerville, NJ  08876
                                           (908) 722-0700

Prepared By:_______________________
                Peter D. Hutcheon, Esq.

<PAGE>

            THIS THIRTIETH SUPPLEMENTAL  INDENTURE,  dated as of the 15th day of
October,  2004,  between  MIDDLESEX WATER COMPANY,  a corporation  organized and
existing under the laws of the State of New Jersey,  having its principal office
in the Township of Iselin,  New Jersey (herein called the "Water Company"),  and
WACHOVIA BANK, NATIONAL  ASSOCIATION (as successor to First Union National Bank,
the successor to Meridian Bank,  the successor to United  Counties Trust Company
in turn  the  successor  to the  Union  County  Trust  Company),  a  corporation
organized and existing under the laws of the United States, having its principal
New Jersey  corporate  trust office in the Town of  Morristown,  New Jersey,  as
Trustee under the Indenture of Mortgage hereinafter mentioned (herein called the
"Trustee"):

            WHEREAS,  on April 1, 1927,  Water Company executed and delivered to
the Trustee an Indenture of Mortgage  (herein  called the  "Mortgage") to secure
its First and Refunding Mortgage Gold Bonds, Series A, 5-1/2%,  which bonds have
since been redeemed by Water Company,  and which Mortgage provides that bonds of
other  series may be issued  under and  pursuant  to an  indenture  supplemental
thereto; and

            WHEREAS,  on May 14, 1935,  Water Company  executed and delivered to
the Trustee a Supplemental  Indenture to secure its First and Refunding Mortgage
Bonds, Series B, 4-1/2%,  which Supplemental  Indenture,  prior to the execution
and delivery  hereof,  was satisfied and  discharged of record,  no bonds having
been issued thereunder; and

            WHEREAS, as of October 1, 1939, Water Company executed and delivered
to the Trustee a Second  Supplemental  Indenture of Mortgage  (herein called the
"Second  Supplemental  Indenture")  to secure its First and  Refunding  Mortgage
3-3/4% Bonds,  Series C (herein  called the "Series C Bonds"),  which bonds were
paid at  maturity  by Water  Company,  and  otherwise  modifying,  amending  and
supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1946,  Water Company executed and delivered
to the Trustee a Third  Supplemental  Indenture of Mortgage  (herein  called the
"Third  Supplemental  Indenture") to secure its First and Refunding  Mortgage 3%
Bonds,  Series D (herein called the "Series D Bonds"),  which bonds were paid at
maturity by Water Company, and otherwise  modifying,  amending and supplementing
the Mortgage; and

            WHEREAS,  as of April 1, 1949,  Water Company executed and delivered
to the Trustee a Fourth  Supplemental  Indenture of Mortgage  (herein called the
"Fourth  Supplemental  Indenture")  to secure its First  Mortgage  3-1/2% Bonds,
Series E (herein called the "Series E Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

            WHEREAS,  as  of  February  1,  1955,  Water  Company  executed  and
delivered  to the Trustee a Fifth  Supplemental  Indenture  of Mortgage  (herein
called the "Fifth  Supplemental  Indenture") to secure its First Mortgage 3-5/8%
Bonds,  Series F (herein called the "Series F

<PAGE>

Bonds"),  which  bonds were paid at  maturity by Water  Company,  and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  December  1,  1959,  Water  Company  executed  and
delivered  to the Trustee a Sixth  Supplemental  Indenture  of Mortgage  (herein
called the "Sixth  Supplemental  Indenture") to secure its First Mortgage 5-3/4%
Bonds,  Series G (herein  called the  "Series G Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  January  15,  1963,  Water  Company  executed  and
delivered to the Trustee a Seventh  Supplemental  Indenture of Mortgage  (herein
called the "Seventh Supplemental Indenture") to secure its First Mortgage 4-1/2%
Bonds,  Series H (herein called the "Series H Bonds"),  which bonds were paid at
maturity by Water Company and otherwise supplementing the Mortgage; and

            WHEREAS, as of July 1, 1964, Water Company executed and delivered to
the Trustee,  an Eighth  Supplemental  Indenture of Mortgage  (herein called the
"Eighth  Supplemental  Indenture")  to secure its First  Mortgage 4 3/4%  Bonds,
Series I (herein  called  the  "Series I  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS, as of June 1, 1965, Water Company executed and delivered to
the Trustee a Ninth Supplemental Indenture of Mortgage (herein called the "Ninth
Supplemental  Indenture")  to secure its First Mortgage  4-3/4% Bonds,  Series J
(herein  called the "Series J Bonds"),  which bonds have since been  redeemed by
Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  February  1,  1968,  Water  Company  executed  and
delivered  to the Trustee a Tenth  Supplemental  Indenture  of Mortgage  (herein
called the "Tenth  Supplemental  Indenture") to secure its First Mortgage 6-3/4%
Bonds,   Series  K  (herein   called  the  "Series  K  Bonds"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  December  1,  1968,  Water  Company  executed  and
delivered to the Trustee an Eleventh Supplemental  Indenture of Mortgage (herein
called the  "Eleventh  Supplemental  Indenture")  to secure  its First  Mortgage
6-7/8% Bonds,  Series L (herein  called the "Series L Bonds"),  which bonds have
since been redeemed by Water Company, and otherwise  supplementing the Mortgage;
and

            WHEREAS,  as  of  December  1,  1970,  Water  Company  executed  and
delivered to the Trustee a Twelfth  Supplemental  Indenture of Mortgage  (herein
called the "Twelfth  Supplemental  Indenture")  to secure its First Mortgage 10%
Bonds,  Series M (herein  called the  "Series M Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

<PAGE>

            WHEREAS,  as  of  December  1,  1972,  Water  Company  executed  and
delivered to the Trustee a Thirteenth Supplemental Indenture of Mortgage (herein
called the  "Thirteenth  Supplemental  Indenture")  to secure its First Mortgage
8-1/8% Bonds,  Series N (herein  called the "Series N Bonds"),  which bonds have
since been redeemed by Water Company, and otherwise  supplementing the Mortgage;
and

            WHEREAS,  as of April 1, 1979,  Water Company executed and delivered
to the Trustee a Fourteenth  Supplemental  Indenture of Mortgage  (herein called
the "Fourteenth  Supplemental Indenture") to secure its First Mortgage 7% Bonds,
Series 0 (herein  called  the  "Series 0  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1983,  Water Company executed and delivered
to the Trustee a Fifteenth Supplemental Indenture of Mortgage (herein called the
"Fifteenth Supplemental  Indenture") to secure its First Mortgage 10-1/2% Bonds,
Series P (herein  called  the  "Series P  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of August 1, 1988, Water Company executed and delivered
to the Trustee a Sixteenth Supplemental Indenture of Mortgage (herein called the
"Sixteenth  Supplemental  Indenture")  to secure  its First  Mortgage  8% Bonds,
Series Q (herein  called  the  "Series Q  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of June 15, 1991,  Water Company executed and delivered
to the Trustee a Seventeenth  Supplemental  Indenture of Mortgage (herein called
the  "Seventeenth  Supplemental  Indenture")  to secure its First Mortgage 7.25%
Bonds,  Series R (herein  called the  "Series R Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of March 1, 1993,  Water Company executed and delivered
to  the  Trustee  a  Supplementary   Indenture  of  Mortgage  to  the  Fifteenth
Supplemental  Indenture of Mortgage (herein called the "Supplementary  Indenture
to the Fifteenth  Supplemental  Indenture") to secure its First Mortgage 2 7/8%,
Series P-1 (herein  called the "Series P-1 Bonds"),  which bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage.

            WHEREAS,  as of  September  1,  1993,  Water  Company  executed  and
delivered  to the  Trustee an  Eighteenth  Supplemental  Indenture  of  Mortgage
(herein  called the  "Eighteenth  Supplemental  Indenture")  to secure its First
Mortgage  5.20%  Bonds,  Series S (herein  called  the  "Series S  Bonds"),  and
otherwise supplementing the Mortgage; and

            WHEREAS,  as of  September  1,  1993,  Water  Company  executed  and
delivered to the Trustee a Nineteenth

<PAGE>

Supplemental  Indenture of Mortgage (herein called the "Nineteenth  Supplemental
Indenture") to secure its First  Mortgage  5.25% Bonds,  Series T (herein called
the "Series T Bonds"), and otherwise supplementing the Mortgage; and

            WHEREAS, as of January 1, 1994, Water Company executed and delivered
to Trustee a Twentieth  Supplemental  Indenture of Mortgage  (herein  called the
"Twentieth  Supplemental  Indenture")  to secure its First  Mortgage 6.4% Bonds,
Series U (herein called the "Series U Bonds"),  and otherwise  supplementing the
Mortgage; and

            WHEREAS, as of January 1, 1994, Water Company executed and delivered
to Trustee a Twenty-First  Supplemental Indenture of Mortgage (herein called the
"Twenty-First Supplemental Indenture") to secure its First Mortgage 5.25% Bonds,
Series V (herein called the "Series V Bonds"),  and otherwise  supplementing the
Mortgage; and

            WHEREAS,  as of March 1, 1998,  Water Company executed and delivered
to Trustee a Twenty-Second Supplemental Indenture of Mortgage (herein called the
"Twenty-Second  Supplemental  Indenture")  to secure  its First  Mortgage  5.35%
Bonds,   Series  W  (herein   called  the  "Series  W  Bonds"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1998,  Water  Company  executed  and
delivered to Trustee a Twenty-Third  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Third  Supplemental  Indenture") to secure its First Mortgage
0%  Bond,  Series  X  (herein  called  the  "Series  X  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1998,  Water  Company  executed  and
delivered to Trustee a Twenty-Fourth  Supplemental Indenture of Mortgage (herein
called the "Twenty-Fourth  Supplemental Indenture") to secure its First Mortgage
Scheduled  Interest Rate Bond, Series Y (herein called the "Series Y Bond"), and
otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1999,  Water  Company  executed  and
delivered to Trustee a Twenty-Fifth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Fifth  Supplemental  Indenture") to secure its First Mortgage
0%  Bond,  Series  Z  (herein  called  the  "Series  Z  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1999,  Water  Company  executed  and
delivered to Trustee a Twenty-Sixth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Sixth  Supplemental  Indenture") to secure its First Mortgage
Scheduled  Interest Rate Bond,  Series AA (herein  called the "Series AA Bond"),
and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  2001,  Water  Company  executed  and
delivered to Trustee a Twenty-Seventh Supplemental Indenture of Mortgage (herein
called the "Twenty-Seventh Supplemental Indenture") to secure its First Mortgage
0% Bond,  Series  BB  (herein  called  the  "Series  BB  Bond"),  and  otherwise
supplementing the Mortgage; and

<PAGE>

            WHEREAS,  as  of  October  15,  2001,  Water  Company  executed  and
delivered to Trustee a Twenty-Eighth  Supplemental Indenture of Mortgage (herein
called the "Twenty-Eighth  Supplemental Indenture") to secure its First Mortgage
Scheduled  Interest Rates Bond,  Series CC (herein called the "Series CC Bond"),
and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  January  15,  2002,  Water  Company  executed  and
delivered to Trustee a Twenty-Ninth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Ninth  Supplemental  Indenture") to secure its First Mortgage
5.10%  Bonds,  Series DD (herein  called the  "Series DD Bond"),  and  otherwise
supplementing the Mortgage; and

            WHEREAS,  Water  Company  deems it  necessary to borrow money and to
issue its bonds therefor, to be secured by the Mortgage, the Second Supplemental
Indenture,  the Third Supplemental Indenture, the Fourth Supplemental Indenture,
the Fifth Supplemental Indenture,  the Sixth Supplemental Indenture, the Seventh
Supplemental   Indenture,   the  Eighth   Supplemental   Indenture,   the  Ninth
Supplemental  Indenture,   the  Tenth  Supplemental   Indenture,   the  Eleventh
Supplemental  Indenture,  the Twelfth  Supplemental  Indenture,  the  Thirteenth
Supplemental Indenture,  the Fourteenth  Supplemental  Indenture,  the Fifteenth
Supplemental Indenture,  the Sixteenth Supplemental  Indenture,  the Seventeenth
Supplemental   Indenture,   the   Supplementary   Indenture  to  the   Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth   Supplemental   Indentures  and  by  this  Thirtieth  Supplemental
Indenture;

            WHEREAS,  Water Company  desires to authorize and create a series of
bonds  under  which a  single  bond  shall be  issued  limited  to an  aggregate
principal  amount  of  $7,715,909  designated  Series  EE and to be known as its
"First  Mortgage 0% Bond,  Series EE" (herein  called the "Series EE Bond"),  it
being the intention of the parties that the Series EE Bond shall,  together with
all other  Bonds  issued  under the  Mortgage  and all  indentures  supplemental
thereto, be entitled to priority over all other obligations of the Water Company
and  shall be  secured  by a prior  first  lien on all the  mortgaged  property,
subject  only to the prior liens  specifically  permitted  under the Mortgage or
under any indenture supplemental thereto; and

            WHEREAS,  Water  Company  desires  that the  Series EE Bond shall be
issued to fund  payment of the  principal of  $7,715,909  the amount of the Loan
borrowed  from the from the State of New  Jersey,  acting by and through the New
Jersey  Department of  Environmental  Protection  (the  "State")  under the Loan
Agreement dated as of November 1, 2004 the "Loan  Agreement") by and between the
State and the Water  Company,  or such lesser  amount as shall be  determined in
accordance with Section 3.01 of the Loan  Agreement,  plus any other amounts due
and owing  under the Loan  Agreement  at the time and in the amounts as provided
therein,  which principal amount is to be applied for the cleaning and lining of
certain  pipes and  mains and the spot  replacement  of water  mains,  hydrants,
service lines and valves which are utilized by Water Company for the  furnishing
of water in its New Jersey service area and  construction  of a six thousand two
hundred fifty linear foot,  sixty inch  diameter  ductile iron pipeline from its
raw

<PAGE>

water pump  station in the City of New  Brunswick,  New  Jersey,  to the Carl J.
Olsen Water Treatment Plant in the Township of Edison, New Jersey; and

            WHEREAS,  the State  requires  as a  condition  of  making  the loan
documented by the Loan Agreement,  that a single Series EE Bond be issued to the
State,  that such Bond  evidence the payment  obligations  of the Water  Company
under Section 2.02(m) of the Loan  Agreement,  that payments under the Series EE
Bond be made to the Loan  Servicer  (as defined in the Loan  Agreement)  for the
account of the  State,  that the  Series EE Bond be  subject  to  assignment  or
transfer in  accordance  with the terms of the Loan  Agreement,  that all of the
terms, conditions and provisions of the Loan Agreement be expressly incorporated
by reference into the Series EE Bond,  that the obligations of the Water Company
under the  Series EE Bond  shall be  absolute  and  unconditional,  without  any
defense or right of set-off,  counterclaim or recoupment by reason of default by
the State  under the Loan  Agreement  or under any other  agreement  between the
Water Company and the State or out of any  indebtedness or liability at any time
owing to the Water Company or for any other  reason,  that the Series EE Bond be
subject to optional prepayment under the terms and conditions and in the amounts
provided in Section 3.07 of the Loan Agreement,  and that the Series EE Bond may
be subject to  acceleration  under the terms and  conditions and in the amounts,
provided in Section 5.03 of the Loan Agreement; and

            WHEREAS,  Water  Company  represents  that all acts and  proceedings
required  by law and by the Charter  and  By-Laws of Water  Company,  and by the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture,  and the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  and the  Twenty-Ninth  Supplemental  Indentures  (to the  extent
applicable)  necessary  to make the  Series  EE  Bond,  when  executed  by Water
Company, authenticated and delivered by the Trustee, and duly issued, the valid,
binding and legal  obligations of Water Company and to constitute this Thirtieth
Supplemental  Indenture a valid and binding  supplement  to the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  and  the  Twenty-Ninth
Supplemental Indentures in accordance with its and their terms, for the security
of all bonds issued and which may  hereafter be issued  pursuant to the Mortgage
and all indentures  supplemental thereto, have been done and performed;  and the
execution and delivery of this Thirtieth Supplemental Indenture have been in all
respects duly authorized;

            NOW  THEREFORE,   THIS  INDENTURE   WITNESSETH,   that  for  and  in
consideration  of the  premises,  and of the sum of One Dollar  ($1.00),  lawful
money of the United States of America, by each of the parties paid to the other,
at or before the delivery  hereof,  and for other  valuable  consideration,  the
receipt  and  sufficiency  whereof is hereby  acknowledged,

<PAGE>

Water Company has executed and delivered this Thirtieth Supplemental  Indenture,
and has granted,  bargained, sold, aliened,  enfeoffed,  conveyed and confirmed,
and by these presents does grant,  bargain,  sell,  alien,  enfeoff,  convey and
confirm,  unto to the Trustee,  its  successors  and assigns  forever,  all real
property  of Water  Company,  together  with all  appurtenances  and  contracts,
rights, privileges, permits and franchises used or useful in connection with the
business of the Water  Company as a water  company or as a water utility or used
directly for the purpose of supplying water, granted,  bargained, sold, aliened,
enfeoffed,  conveyed  and  confirmed  unto the Trustee by the  Mortgage  and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  and  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
Indenture and the Eighteenth,  the Nineteenth,  the Twentieth, the Twenty-First,
the Twenty-Second,  the Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth, the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  and  the  Twenty-Ninth
Supplemental  Indentures,  or intended to be (including  without  limitation all
such property  acquired by Water  Company  since January 15, 2002,  and all such
property  which Water  Company may  hereafter  acquire),  subject,  however,  to
Permissible  Encumbrances,  and excepting all Property  heretofore released from
the lien of the Mortgage and the indentures  supplemental thereto, and excepting
all property of Water Company which is not used or useful in connection with its
business  as a water  company  or as a  water  utility  as well as all  personal
property (both tangible and intangible) as to which a security  interest may not
be perfected by a filing under the Uniform  Commercial  Code as in effect in the
State of New Jersey;

            TO HAVE AND TO HOLD all and  singular  the above  granted  property,
unto the Trustee,  its successors and assigns forever,  IN TRUST,  nevertheless,
for the equal and proportionate  use, benefit,  security and protection of those
who from  time to time  shall  hold any bonds  which  have been or may be issued
under  the  Mortgage  or  any  indenture   supplemental  thereto,   without  any
discrimination,  preference or priority of any one bond over any other by reason
of  priority in the time of issue,  sale or  negotiation  thereof or  otherwise,
except as  otherwise in the Mortgage or in any  indenture  supplemental  thereto
provided;  and in trust for  enforcing  the payment of the  principal of and the
interest on such bonds,  according to the tenor, purport and effect of the bonds
and of the Mortgage and all  indentures  supplemental  thereto and for enforcing
the terms,  provisions,  covenants and stipulations therein and in the bonds set
forth;  and upon the trust,  uses and  purposes  and  subject to the  covenants,
agreements  and  conditions  set forth and declared in the Mortgage as modified,
amended and supplemented by all indentures supplemental thereto;

            AND the parties do hereby  covenant  and agree that the Mortgage and
the  Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth,  Tenth,
Eleventh, Twelfth, Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth,  Seventeenth
Supplemental   Indentures,   the   Supplementary   Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the Twenty-Seventh,  the Twenty-Eighth and the
Twenty-Ninth   Supplemental   Indentures  be  and  hereby  are  supplemented  as
hereinafter  provided,  and that the above  granted  property  is to be held and
applied subject to the covenants,  conditions,  uses and

<PAGE>

trusts set forth in the Mortgage, as modified,  amended and supplemented by such
Supplemental  Indentures and this Thirtieth  Supplemental  Indenture;  and Water
Company for itself and its successors does hereby covenant and agree to and with
the Trustee,  and its  successors  in said trust,  for the equal  benefit of all
present and future holders and  registered  owners of the bonds issued under the
Mortgage and all indentures supplemental thereto, as follows:

                                    ARTICLE I

                       First Mortgage 0% Bonds, Series EE

            Section  1.  Water  Company  hereby  creates a series of bonds to be
issued under and secured by the  Mortgage,  the Second,  Third,  Fourth,  Fifth,
Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth,
Fifteenth, Sixteenth, and Seventeenth Supplemental Indentures, the Supplementary
Indenture  to  the  Fifteenth  Supplemental  Indenture,   the  Eighteenth,   the
Nineteenth,   the  Twentieth,   the   Twenty-First,   the   Twenty-Second,   the
Twenty-Third,  the  Twenty-Fourth,   the  Twenty-Fifth,  the  Twenty-Sixth,  the
Twenty-Seventh,  the Twenty-Eighth and the Twenty-Ninth  Supplemental Indentures
and by this Thirtieth Supplemental Indenture, and to be designated as, and to be
distinguished  from the bonds of all other series by the title,  "First Mortgage
0%  Bonds,  Series  EE".  The  Series EE Bond  shall be issued  only as a single
registered  bond without  coupons in the principal  amount of the Loan under the
Loan  Agreement;  shall be dated as of November 1, 2004;  and shall be issued in
non-negotiable  form to the State.  The Series EE Bond shall bear  interest from
the date of issuance  of the Series EE Bond,  computed on the basis of a 360-day
year composed of twelve 30-day months until the obligations of the Water Company
with  respect to the payment of  principal  shall be  discharged,  in the dollar
amount set forth for each  respective  payment  period under the column  heading
"Interest" in Exhibit A-2 to the Loan  Agreement,  shall be payable as set forth
below,  shall state that, subject to certain  limitations,  the Mortgage and all
indentures  supplemental  thereto may be modified,  amended or  supplemented  as
provided in the Mortgage as heretofore supplemented; shall mature on November 1,
2024, and shall be earlier  redeemable (i) under the terms and conditions and in
the amounts  provided in Section 3.07 of the Loan Agreement at the option of the
Water Company with, to the extent required by the July 8, 2004 Order (Docket No.
WF04050341 of the Board of Public  Utilities of the State of New Jersey  ("BPU")
and/or  required by then applicable law and  regulations,  the prior approval of
the BPU,  (ii) as, when and to the extent  mandated  pursuant to subsection B of
Section 4 of Article  VIII of the Second  Supplemental  Indenture;  and shall be
subject to, entitled to the benefit of, and expressly  incorporate by reference,
all of the terms, conditions and provisions of the Loan Agreement.

            The Series EE Bond shall evidence the obligation to pay to the order
of the State the principal amount of the Loan (as defined in the Loan Agreement)
made by the State under the Loan Agreement  which shall be  $7,715,909,  or such
lesser  amount  as  determined  in  accordance  with  Section  3.01 of the  Loan
Agreement,  at the times and in the amounts  determined  as provided in the Loan
Agreement,  plus any other amounts due and owing under the Loan Agreement at the
times and in the  amounts as  provided  therein.  The  obligations  of the Water

<PAGE>

Company  to  make   payments   under  the  Series  EE  Bond  are   absolute  and
unconditional,  without  any  defense  or  right  of  set-off,  counterclaim  or
recoupment  by reason of any  default by the State under the Loan  Agreement  or
under any other agreement  between the Water Company and the State or out of any
indebtedness or liability at any time owing to the Water Company by the State or
for any other reason. The Series EE Bond is subject to assignment or transfer in
accordance with the terms of the Loan  Agreement.  The Series EE Bond is subject
to acceleration under the terms and conditions,  and in the amounts, provided in
Section  5.03 of the Loan  Agreement.  Payments  under the Series EE Bond shall,
except as otherwise provided in the Loan Agreement, be made directly to the Loan
Servicer (as defined in the Loan Agreement), for the account of the State.

      In addition to any other  default  provided for under the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth,   Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth  and  Seventeenth,
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,   the   Twenty-Second,   the  Twenty-Third,   Twenty-Fourth,   the
Twenty-Fifth, the Twenty-Sixth, the Twenty-Seventh,  the Twenty-Eighth,  and the
Twenty-Ninth Supplemental Indentures, it shall be a default under this Thirtieth
Supplemental  Indenture if payment of any of the principal or of the Interest on
the Loan constituting the Interest Portion,  the Administrative Fee and any late
charges incurred under the Loan Agreement (as such terms are defined in the Loan
Agreement)  is  not  made  when  the  same  shall  become  due  and  payable  in
installments, at maturity, upon redemption or otherwise.

            Section 2.  Disbursements of the proceeds of the Loan from the State
under the Loan  Agreement  evidenced  by the Series EE Bond shall be made by the
State to the Water  Company upon receipt by the State of  requisitions  from the
Water Company  executed and delivered in accordance  with the  requirements  set
forth in Section 3.02 of the Loan Agreement.

            Section 3. The Series EE Bond and the certificate of  authentication
of the  Trustee  to be  executed  thereon  shall  be  substantially  in the form
prescribed  for  registered  bonds  without  coupons in the Second  Supplemental
Indenture  (except that there may be deleted  therefrom  all  references  to the
issuance of coupon bonds in exchange therefor); shall be in the form attached to
this  Thirtieth   Supplemental   Indenture  as  Exhibit  A;  and  shall  contain
appropriate  references to this Thirtieth  Supplemental Indenture in addition to
the Mortgage and the Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth
and Seventeenth  Supplemental  Indentures and the Supplementary Indenture to the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  and the  Twenty-Ninth  Supplemental  Indentures and  appropriate
changes  with  respect  to  the  aggregate  principal  amount,   interest  rate,
redemption  dates and  provisions,  and maturity date of the Series EE Bond, and
with appropriate reference to the provision of the Fourth Supplemental Indenture
that,  subject  to  certain   limitations,   the  Mortgage  and  all  indentures
supplemental  thereto may be modified,  amended or supplemented

<PAGE>

only as  provided in the  Mortgage  and except that the Series EE Bond shall not
contain any references to a sinking fund.

            Section 4. Subject to the provisions of the Mortgage and the Second,
Third, Fourth, Fifth, Sixth, Seventh,  Eighth, Ninth, Tenth, Eleventh,  Twelfth,
Thirteenth,   Fourteenth,  Fifteenth,  Sixteenth  and  Seventeenth  Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  and  the  Twenty-Ninth
Supplemental  Indentures,  forthwith  upon the  execution  and  delivery of this
Thirtieth  Supplemental  Indenture,  or from time to time thereafter,  Series EE
Bond in an aggregate  principal  amount of  $7,715,909  may be executed by Water
Company and delivered to the Trustee for  authentication  and shall thereupon be
authenticated  and  delivered  by the Trustee  upon the  written  order of Water
Company,  signed by its  President  or a Vice  President  and its  Treasurer  or
Assistant Treasurer,  in such denominations and registered in such name or names
as may be specified in such written order.

            Section 5. Sections 4(A)(iii) and (iv) of Article VIII of the Second
Supplemental  Indenture shall not be available to the Water Company with respect
to the Series EE Bond.  The Water  Company  shall issue its written  order under
Section 4(a)(i) or (ii), as the case may be,  reasonably  promptly after receipt
by the Trustee of proceeds of sale,  eminent  domain or insurance (not otherwise
to be paid  directly to the Company  under the Mortgage as  supplemented  by the
Supplemental Indentures including this Thirtieth Supplemental Indenture).

                                   ARTICLE II
                                  Miscellaneous
                                  -------------

Section 1. The provisions of the Mortgage as modified,  amended and supplemented
                  by the Second, Third, Fourth,  Fifth, Sixth, Seventh,  Eighth,
                  Ninth,  Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,
                  Fifteenth,  Sixteenth and Seventeenth Supplemental Indentures,
                  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
                  Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,
                  the Twenty-First,  the  Twenty-Second,  the Twenty-Third,  the
                  Twenty-Fourth,   the  Twenty-Fifth,   the  Twenty-Sixth,   the
                  Twenty-Seventh,   the  Twenty-Eighth,   and  the  Twenty-Ninth
                  Supplemental Indentures,  and as modified and extended by this
                  Thirtieth Supplemental Indenture are hereby reaffirmed. Except
                  insofar as they are inconsistent  with the provisions  hereof,
                  the provisions of the Mortgage and the Second,  Third, Fourth,
                  Fifth,  Sixth,  Seventh,   Eighth,  Ninth,  Tenth,   Eleventh,
                  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth  and
                  Seventeenth  Supplemental  Indentures  and  the  Supplementary
                  Indenture  to the  Fifteenth  Supplemental  Indenture  and the
                  Eighteenth,  the Nineteenth,  the Twentieth, the

<PAGE>

                  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
                  Twenty-Fourth,   the  Twenty-Fifth,   the  Twenty-Sixth,   the
                  Twenty-Seventh,   the  Twenty-Eighth,   and  the  Twenty-Ninth
                  Supplemental  Indentures  with respect to the Series C, Series
                  D, Series E, Series F, Series G, Series H, Series I, Series J,
                  Series K,  Series L,  Series M,  Series N, Series O, Series P,
                  Series Q, Series R, Series P-1,  Series S, Series T, Series U,
                  Series V,  Series W,  Series X, Series Y, Series Z, Series AA,
                  Series BB,  Series CC and Series DD Bonds  shall  apply to the
                  Series  EE Bond to the same  extent  as if they were set forth
                  herein in full.  Unless  there is  something in the subject or
                  context repugnant to such construction,  each reference in the
                  Mortgage and the Second, Third, Fourth, Fifth, Sixth, Seventh,
                  Eighth,   Ninth,   Tenth,   Eleventh,   Twelfth,   Thirteenth,
                  Fourteenth,  Fifteenth, Sixteenth and Seventeenth Supplemental
                  Indentures,  the  Supplementary  Indenture  to  the  Fifteenth
                  Supplemental Indenture and the Eighteenth, the Nineteenth, the
                  Twentieth,   the   Twenty-First,   the   Twenty-Second,    the
                  Twenty-Third,   the  Twenty-Fourth,   the  Twenty-Fifth,   the
                  Twenty-Sixth, the Twenty-Seventh,  the Twenty-Eighth,  and the
                  Twenty-Ninth Supplemental Indentures to the Mortgage or any of
                  such  Supplemental  Indentures  shall  be  construed  as  also
                  referring  to  this  Thirtieth  Supplemental  Indenture.   The
                  Mortgage  and  all  indentures  supplemental  thereto  may  be
                  modified,  amended or supplemented by Water Company with prior
                  notice by the Water  Company to but without the consent of any
                  of the bondholders to accomplish any more of the following:

            (1)   to cure any ambiguity, supply any omission, or cure or correct
                  any defect or  inconsistent  provision  in the Mortgage or any
                  indenture supplemental thereto;

            (2)   to cure any ambiguity, supply any omission, or cure or correct
                  any defect in any  description of the Mortgaged  Property,  if
                  such action is not adverse to the interests of the bondholder;

            (3)   to insert  such  provisions  clarifying  matters or  questions
                  arising  under  the  Mortgage  or any  indenture  supplemental
                  thereto as are  necessary or desirable and are not contrary to
                  or   inconsistent   with  the   Mortgage   or  any   indenture
                  supplemental thereto as in effect; or

            (4)   to restate the Mortgage as  supplemented  by the  Supplemental
                  Indentures  as a  single  integrated  document  which  may add
                  headings, an index and other provisions aiding the convenience
                  of use.

<PAGE>

The terms and  provisions of the Series EE Bond shall not be amended by, and the
Series EE Bond shall not be  entitled to the  benefit of any  covenant,  term or
condition contained in any subsequent supplemental indenture without the express
written concurrence of the Water Company.

            Section  2. The  Trustee  shall  not be  responsible  in any  manner
whatsoever  for or in respect of the validity and  sufficiency of this Thirtieth
Supplemental  Indenture or the due execution  hereof by Water Company or for the
recitals  contained  herein,  all of which  recitals  are made by Water  Company
solely.

            Section 3. The Trustee hereby accepts the trusts hereby declared and
provided  and agrees to perform  the same upon the terms and  conditions  in the
Mortgage,  the Second,  Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth Supplemental Indenture, the Eighteenth, the Nineteenth, Twentieth, the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth  and this Thirtieth  Supplemental  Indenture set forth. The Trustee
also hereby  agrees to execute and deliver the Escrow  Agreement  (as defined in
the Loan Agreement).

            Section 4. The Trustee hereby authorizes the Loan Servicer to accept
payments  made by Water  Company  of  principal  of the  Series  EE Bond for the
account of the State.

            Section 5. This Thirtieth  Supplemental  Indenture has been executed
simultaneously in several counterparts and all of said counterparts executed and
delivered, each as an original, shall constitute one and the same instrument.

            Section 6.  Although  this  Thirtieth  Supplemental  Indenture,  for
convenience  and for the purpose of reference,  is dated as of October 15, 2004,
the actual  date of  execution  by Water  Company and the Trustee is as shown by
their respective acknowledgments hereto annexed, and the actual date of delivery
hereof by Water  Company  and the Trustee is the date of the closing of the sale
of the Series EE Bonds by Water Company.

            Section 7. In any case where the payment of  principal of the Series
EE Bond or the date  fixed  for  redemption  of any  Series  EE Bond  shall be a
Saturday or Sunday or a legal holiday or a day on which banking  institutions in
the City of the principal corporate trust office of the Loan Servicer is located
are  authorized  by law to close,  then  payment of  interest  or  principal  or
redemption  price  need  not be made on such  date  but may be made on the  next
proceeding business day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest on such payment shall
accrue after such date.

            THE MORTGAGOR HEREBY DECLARES AND ACKNOWLEDGES THAT IT HAS RECEIVED,
WITHOUT CHARGE, A TRUE COPY OF THIS MORTGAGE.

<PAGE>

                  [remainder of page intentionally left blank]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27
<SEQUENCE>4
<FILENAME>ex10-27.txt
<TEXT>
                                                                   Exhibit 10.27

             [MASTER TRUST LOAN AGREEMENT FOR MIDDLESEX WATER CO. -
                                  PRIVATE FORM]

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                  NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST

                                       AND

                             MIDDLESEX WATER COMPANY

                          DATED AS OF NOVEMBER 1, 2004

<PAGE>

                               TABLE OF CONTENTS
                                                                            Page
                                                                            ----

                                    ARTICLE I

DEFINITIONS

SECTION 1.01.  Definitions......................................................

                                   ARTICLE II

REPRESENTATIONS AND COVENANTS OF BORROWER

SECTION 2.01.  Representations of Borrower......................................
SECTION 2.02.  Particular Covenants of Borrower.................................

                                   ARTICLE III

LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

SECTION 3.01.  Loan; Loan Term..................................................
SECTION 3.02.  Disbursement of Loan Proceeds....................................
SECTION 3.03.  Amounts Payable..................................................
SECTION 3.04.  Unconditional Obligations........................................
SECTION 3.05.  Loan Agreement to Survive Bond Resolution and Trust Bonds........
SECTION 3.06.  Disclaimer of Warranties and Indemnification.....................
SECTION 3.07.  Option to Prepay Loan Repayments.................................
SECTION 3.08.  Priority of Loan and Trust Loan..................................
SECTION 3.09.  Approval of the New Jersey State Treasurer.......................

                                   ARTICLE IV

ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

SECTION 4.01.  Assignment and Transfer by State.................................
SECTION 4.02.  Assignment by Borrower...........................................

                                    ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

SECTION 5.01.  Events of Default................................................
SECTION 5.02.  Notice of Default................................................
SECTION 5.03.  Remedies on Default..............................................
SECTION 5.04.  Attorneys' Fees and Other Expenses...............................
SECTION 5.05.  Application of Moneys............................................


                                      -i-
<PAGE>

SECTION 5.06.  No Remedy Exclusive; Waiver; Notice..............................
SECTION 5.07.  Retention of State's Rights......................................

                                   ARTICLE VI

MISCELLANEOUS

SECTION 6.01.  Notices..........................................................
SECTION 6.02.  Binding Effect...................................................
SECTION 6.03.  Severability.....................................................
SECTION 6.04.  Amendments, Supplements and Modifications........................
SECTION 6.05.  Execution in Counterparts........................................
SECTION 6.06.  Applicable Law and Regulations...................................
SECTION 6.07.  Consents and Approvals...........................................
SECTION 6.08.  Captions.........................................................
SECTION 6.09.  Further Assurances...............................................

SCHEDULE A.Certain Additional Loan Agreement Provisions

EXHIBIT A  (1) Description of Project and Environmental Infrastructure
               System......................................................A-1-1
           (2) Description of Loan.........................................A-2-1

EXHIBIT B  Basis for Determination of Allowable Project Costs................B-1

EXHIBIT C  Estimated Disbursement Schedule...................................C-1

EXHIBIT D  Specimen Borrower Bond............................................D-1

EXHIBIT E  Opinions of Borrower's Bond and General Counsels..................E-1

EXHIBIT F  Additional Covenants and Requirements.............................F-1

EXHIBIT G  General Administrative Requirements for the State
             Environmental Infrastructure Financing Program..................G-1

EXHIBIT H  Form of Continuing Disclosure Agreement...........................H-1


                                      -ii-
<PAGE>

          NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST LOAN AGREEMENT

      THIS LOAN AGREEMENT, made and entered into as of this November 1, 2004, by
and between the NEW JERSEY  ENVIRONMENTAL  INFRASTRUCTURE  TRUST,  a public body
corporate and politic with corporate  succession,  and the Borrower (capitalized
terms used in this Loan  Agreement  shall  have,  unless the  context  otherwise
requires, the meanings set forth in said Section 1.01);

                                WITNESSETH THAT:

      WHEREAS,  the Trust, in accordance with the Act, the Bond Resolution and a
financial plan approved by the State  Legislature in accordance with Sections 22
and 22.1 of the Act,  will issue its Trust Bonds on or prior to the Loan Closing
for the  purpose  of  making  the  Loan to the  Borrower  and the  Loans  to the
Borrowers from the proceeds of the Trust Bonds to finance a portion of the Costs
of Environmental Infrastructure Facilities;

      WHEREAS, the Borrower has, in accordance with the Act and the Regulations,
made  timely  application  to the Trust for a Loan to  finance a portion  of the
Costs of the Project;

      WHEREAS, the State Legislature, in accordance with Sections 20 and 20.1 of
the Act, has in the form of an  appropriations  act approved a project  priority
list that includes the Project and that authorizes an expenditure of proceeds of
the Trust Bonds to finance a portion of the Costs of the Project;

      WHEREAS, the Trust has approved the Borrower's application for a Loan from
available  proceeds  of the Trust Bonds to finance a portion of the Costs of the
Project;

      WHEREAS,  in accordance  with the  applicable  Bond Act (as defined in the
Fund Loan Agreement), and the Regulations,  the Borrower has been awarded a Fund
Loan for a portion of the Costs of the Project; and

      WHEREAS,  the Borrower,  in accordance with the Act, the Regulations,  the
Business  Corporation  Law and all other  applicable  law, will issue a Borrower
Bond to the Trust evidencing said Loan at the Loan Closing.

      NOW,  THEREFORE,  for and in consideration of the award of the Loan by the
Trust,  the Borrower  agrees to complete  the Project and to perform  under this
Loan Agreement in accordance with the  conditions,  covenants and procedures set
forth herein and attached hereto as part hereof, as follows:

<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

      SECTION 1.01.  Definitions.  (a) The following  terms as used in this Loan
Agreement  shall,  unless  the  context  clearly  requires  otherwise,  have the
following meanings:

      "Act"  means the "New  Jersey  Environmental  Infrastructure  Trust  Act",
constituting  Chapter 334 of the Pamphlet Laws of 1985 of the State (codified at
N.J.S.A.  58:11B-1  et seq.),  as the same may from time to time be amended  and
supplemented.

      "Administrative  Fee"  means  that  portion  of  Interest  on the  Loan or
Interest  on the  Borrower  Bond  payable  hereunder  as an annual  fee of up to
four-tenths of one percent (.40%) of the initial principal amount of the Loan or
such  lesser  amount,  if any,  as may be  authorized  by any  act of the  State
Legislature and as the Trust may approve from time to time.

      "Authorized  Officer"  means,  in the case of the Borrower,  any person or
persons  authorized  pursuant to a  resolution  of the board of directors of the
Borrower to perform any act or execute any  document  relating to the Loan,  the
Borrower Bond or this Loan Agreement.

      "Bond Counsel" means a law firm appointed or approved by the Trust, as the
case may be, having a reputation  in the field of municipal  law whose  opinions
are generally acceptable by purchasers of municipal bonds.

      "Borrower"  means the  corporation  that is a party to and is described in
Schedule A to this Loan Agreement, and its successors and assigns.

      "Borrower  Bond" means the general  obligation  bond,  note,  debenture or
other evidence of indebtedness authorized,  executed,  attested and delivered by
the  Borrower to the Trust and, if  applicable,  authenticated  on behalf of the
Borrower to evidence the Loan, a specimen of which is attached hereto as Exhibit
D and made a part hereof.

      "Borrowers"  means any other Local  Government  Unit or Private Entity (as
such terms are defined in the Regulations) authorized to construct,  operate and
maintain  Environmental  Infrastructure  Facilities  that have entered into Loan
Agreements  with the Trust  pursuant  to which the Trust will make Loans to such
recipients  from moneys on deposit in the Project  Fund,  excluding  the Project
Loan Account.

      "Business  Corporation  Law" means the "New  Jersey  Business  Corporation
Act",  constituting  Chapter  263 of the  Pamphlet  Laws of  1968  of the  State
(codified  at  N.J.S.A.  14A:1-1 et seq.),  as the same may from time to time be
amended and supplemented.

      "Code" means the Internal  Revenue Code of 1986, as the same may from time
to time be amended  and  supplemented,  including  any  regulations  promulgated
thereunder,  any  successor  code  thereto  and any  administrative  or judicial
interpretations thereof.


                                      -2-
<PAGE>

      "Cost"  means  those  costs  that  are  eligible,  reasonable,  necessary,
allocable  to  the  Project  and  permitted  by  generally  accepted  accounting
principles,   including  Allowances  and  Building  Costs  (as  defined  in  the
Regulations),  as shall be determined on a project-specific  basis in accordance
with the  Regulations  as set  forth in  Exhibit  B  hereto,  as the same may be
amended  by  subsequent  eligible  costs as  evidenced  by a  certificate  of an
authorized officer of the Trust.

      "Debt Service Reserve Fund" means the Debt Service Reserve Fund as defined
in the Bond Resolution.

      "Environmental   Infrastructure  Facilities"  means  Wastewater  Treatment
Facilities, Stormwater Management Facilities or Water Supply Facilities (as such
terms are defined in the Regulations).

      "Environmental    Infrastructure    System"   means   the    Environmental
Infrastructure Facilities of the Borrower,  including the Project,  described in
Exhibit A-1  attached  hereto and made a part  hereof for which the  Borrower is
borrowing the Loan under this Loan Agreement.

      "Event of Default" means any occurrence or event specified in Section 5.01
hereof.

      "Fund  Loan" means the loan made to the  Borrower by the State,  acting by
and through the New Jersey Department of Environmental  Protection,  pursuant to
the Fund Loan Agreement dated as of November 1, 2004 by and between the Borrower
and the State,  acting by and through the New Jersey Department of Environmental
Protection, to finance or refinance a portion of the Costs of the Project.

      "Fund Loan  Agreement"  means the loan  agreement  dated as of November 1,
2004 by and between the  Borrower  and the State,  acting by and through the New
Jersey  Department  of  Environmental   Protection,   regarding  the  terms  and
conditions of the Fund Loan.

      "Interest on the Loan" or "Interest on the Borrower Bond" means the sum of
(i) the  Interest  Portion,  (ii) the  Administrative  Fee,  and  (iii) any late
charges incurred hereunder.

      "Interest  Portion" means that portion of Interest on the Loan or Interest
on the Borrower Bond payable  hereunder  that is necessary to pay the Borrower's
proportionate  share of  interest on the Trust Bonds (i) as set forth in Exhibit
A-2 hereof under the column heading entitled "Interest", or (ii) with respect to
any prepayment of Trust Bond Loan  Repayments in accordance with Section 3.07 or
5.03 hereof,  to accrue on any principal amount of Trust Bond Loan Repayments to
the date of the optional redemption or acceleration,  as the case may be, of the
Trust Bonds allocable to such prepaid or accelerated Trust Bond Loan Repayment.

      "Loan"  means the loan made by the Trust to the  Borrower  to  finance  or
refinance a portion of the Costs of the Project pursuant to this Loan Agreement.

      "Loan  Agreement"  means  this  Loan  Agreement,  including  the  Exhibits
attached  hereto,  as it may be  supplemented,  modified or amended from time to
time in accordance with the terms hereof and of the Bond Resolution.


                                      -3-
<PAGE>

      "Loan  Agreements"  means any other loan  agreements  entered  into by and
between the Trust and one or more of the  Borrowers  pursuant to which the Trust
will make Loans to such  Borrowers  from moneys on deposit in the Project  Fund,
excluding  the Project  Loan  Account,  financed  with the proceeds of the Trust
Bonds.

      "Loan Closing" means the date upon which the Trust shall issue and deliver
the Trust Bonds and the Borrower  shall deliver its Borrower Bond, as previously
authorized, executed, attested and, if applicable, authenticated, to the Trust.

      "Loan  Repayments"  means the sum of (i) Trust Bond Loan Repayments,  (ii)
the Administrative Fee, and (iii) any late charges incurred hereunder.

      "Loan  Term"  means the term of this Loan  Agreement  provided in Sections
3.01 and 3.03 hereof and in Exhibit A-2 attached hereto and made a part hereof.

      "Loans" means the loans made by the Trust to the Borrowers  under the Loan
Agreements  from moneys on deposit in the Project  Fund,  excluding  the Project
Loan Account.

      "Master Program Trust  Agreement"  means that certain Master Program Trust
Agreement,  dated as of  November  1, 1995,  by and among the Trust,  the State,
United States Trust Company of New York, as Master Program  Trustee  thereunder,
The Bank of New York (NJ), in several capacities thereunder,  and First Fidelity
Bank, N.A.  (predecessor  to Wachovia Bank,  National  Association),  in several
capacities thereunder,  as supplemented by that certain Agreement of Resignation
of Outgoing  Master Program  Trustee,  Appointment  of Successor  Master Program
Trustee and  Acceptance  Agreement,  dated as of November 1, 2001,  by and among
United  States Trust Company of New York, as Outgoing  Master  Program  Trustee,
State  Street  Bank and Trust  Company,  N.A.  (predecessor  to U.S.  Bank Trust
National  Association),  as Successor Master Program Trustee,  and the Trust, as
the same may be amended and  supplemented  from time to time in accordance  with
its terms.

      "Official Statement" means the Official Statement relating to the issuance
of the Trust Bonds.

      "Preliminary  Official Statement" means the Preliminary Official Statement
relating to the issuance of the Trust Bonds.

      "Prime Rate" means the  prevailing  commercial  interest rate announced by
the Trustee from time to time in the State as its prime lending rate.

      "Project"  means  the  Environmental   Infrastructure  Facilities  of  the
Borrower described in Exhibit A-1 attached hereto and made a part hereof,  which
constitutes  a project  for which the Trust is  permitted  to make a loan to the
Borrower pursuant to the Act, the Regulations and the Bond Resolution,  all or a
portion of the Costs of which is financed or refinanced by the Trust through the
making of the Loan under this Loan Agreement and which may be identified under


                                      -4-
<PAGE>

either the Drinking  Water or Clean Water Project Lists with the Project  Number
specified in Exhibit A-1 attached hereto.

      "Project Fund" means the Project Fund as defined in the Bond Resolution.

      "Project  Loan  Account"  means the project  loan account  established  on
behalf  of the  Borrower  in the  Project  Fund  in  accordance  with  the  Bond
Resolution to finance all or a portion of the Costs of the Project.

      "Regulations"  means the  rules and  regulations,  as  applicable,  now or
hereafter  promulgated under N.J.A.C.  7:22-3 et seq., 7:22-4 et seq., 7:22-5 et
seq., 7:22-6 et seq., 7:22-7 et seq., 7:22-8 et seq., 7:22-9 et seq. and 7:22-10
et seq., as the same may from time to time be amended and supplemented.

      "State" means the State of New Jersey.

      "Trust" means the New Jersey Environmental  Infrastructure Trust, a public
body  corporate and politic with corporate  succession  duly created and validly
existing under and by virtue of the Act.

      "Trust Bond Loan Repayments"  means the repayments of the principal amount
of the Loan plus the  payment  of any  premium  associated  with  prepaying  the
principal  amount of the Loan in  accordance  with  Section 3.07 hereof plus the
Interest Portion.

      "Trust  Bonds"  means  bonds  authorized  by  Section  2.03  of  the  Bond
Resolution,  together with any refunding bonds authenticated, if applicable, and
delivered  pursuant to Section 2.04 of the Bond Resolution,  in each case issued
in order to finance (i) the portion of the Loan  deposited  in the Project  Loan
Account,  (ii) the portion of the Loans  deposited in the balance of the Project
Fund, (iii) any capitalized  interest  related to such bonds,  (iv) a portion of
the costs of issuance  related to such bonds,  and (v) that  portion of the Debt
Service  Reserve Fund, if any,  allocable to the Loan or Loans,  as the case may
be, a portion of which includes the funding of reserve capacity,  if applicable,
for the Environmental Infrastructure Facilities of the Borrower or Borrowers, as
the case may be, or to refinance any or all of the above.

      "Trustee"  means,  initially,  Wachovia Bank,  National  Association,  the
Trustee  appointed  by the Trust and its  successors  as Trustee  under the Bond
Resolution, as provided in Article X of the Bond Resolution.

      (b) In addition to the capitalized terms defined in subsection (a) of this
Section 1.01, certain  additional  capitalized terms used in this Loan Agreement
shall, unless the context clearly requires otherwise, have the meanings ascribed
to such  additional  capitalized  terms in Schedule A attached hereto and made a
part hereof.

      (c) Except as  otherwise  defined  herein or where the  context  otherwise
requires,  words  importing the singular  number shall include the plural number
and vice versa, and words


                                      -5-
<PAGE>

importing persons shall include firms, associations,  corporations, agencies and
districts. Words importing one gender shall include the other gender.


                                      -6-
<PAGE>

                                   ARTICLE II

                    REPRESENTATIONS AND COVENANTS OF BORROWER

      SECTION 2.01. Representations of Borrower. The Borrower represents for the
benefit of the Trust, the Trustee and the holders of the Trust Bonds as follows:

      (a)   Organization and Authority.
            --------------------------

            (i) The Borrower is a corporation  duly created and validly existing
      under  and  pursuant  to the laws of the  State,  including  the  Business
      Corporation Law.

            (ii) The acting  officers of the Borrower who are  contemporaneously
      herewith  performing or have previously  performed any action contemplated
      in this Loan  Agreement  either  are or, at the time any such  action  was
      performed,  were the duly  appointed or elected  officers of such Borrower
      empowered  by  applicable  State law and,  if  applicable,  authorized  by
      resolution of the Borrower to perform such actions. To the extent any such
      action was  performed  by an officer no longer the duly acting  officer of
      such Borrower, all such actions previously taken by such officer are still
      in full force and effect.

            (iii)  The  Borrower  has full  legal  right and  authority  and all
      necessary  licenses  and  permits  required  as of the date hereof to own,
      operate and maintain its Environmental  Infrastructure System, to carry on
      its activities relating thereto, to execute,  attest and deliver this Loan
      Agreement and the Borrower  Bond, to authorize the  authentication  of the
      Borrower  Bond, to sell the Borrower  Bond to the Trust,  to undertake and
      complete  the Project  and to carry out and  consummate  all  transactions
      contemplated by this Loan Agreement.

            (iv) The proceedings of the Borrower's board of directors  approving
      this Loan  Agreement and the Borrower  Bond,  authorizing  the  execution,
      attestation  and delivery of this Loan  Agreement  and the Borrower  Bond,
      authorizing  the sale of the Borrower Bond to the Trust,  authorizing  the
      authentication  of  the  Borrower  Bond  on  behalf  of the  Borrower  and
      authorizing the Borrower to undertake and complete the Project, including,
      without  limitation,  the  Borrower  Bond  Resolution  (collectively,  the
      "Proceedings"), have been duly and lawfully adopted in accordance with the
      Business  Corporation Law and other  applicable  State law at a meeting or
      meetings  that were duly called and held in  accordance  with the Borrower
      By-Laws and at which quorums were present and acting throughout.

            (v) By official  action of the Borrower taken prior to or concurrent
      with the execution and delivery hereof, including, without limitation, the
      Proceedings,  the Borrower has duly authorized,  approved and consented to
      all necessary  action to be taken by the Borrower for: (A) the  execution,
      attestation,  delivery  and  performance  of this Loan  Agreement  and the
      transactions  contemplated  hereby;  (B) the issuance of the Borrower Bond
      and the sale thereof to the Trust upon the terms set forth herein; (C) the


                                      -7-
<PAGE>

      approval of the inclusion,  if such  inclusion is deemed  necessary in the
      sole discretion of the Trust, in the  Preliminary  Official  Statement and
      the Official  Statement of all statements and information  relating to the
      Borrower set forth in "APPENDIX B" thereto (the "Borrower Appendices") and
      any  amendment  thereof  or  supplement  thereto;  and (D) the  execution,
      delivery and due performance of any and all other certificates, agreements
      and  instruments  that  may be  required  to be  executed,  delivered  and
      performed  by the  Borrower  in order to carry  out,  give  effect  to and
      consummate  the   transactions   contemplated   by  this  Loan  Agreement,
      including,  without limitation, the designation of the Borrower Appendices
      portion of the Preliminary  Official Statement,  if any, as "deemed final"
      for the purposes and within the meaning of Rule 15c2-12  ("Rule  15c2-12")
      of the Securities and Exchange  Commission  ("SEC")  promulgated under the
      Securities Exchange Act of 1934, as amended or supplemented, including any
      successor regulation or statute thereto.

            (vi) This Loan  Agreement  and the Borrower Bond have each been duly
      authorized  by the Borrower and duly  executed,  attested and delivered by
      Authorized  Officers of the Borrower,  and the Borrower Bond has been duly
      sold by the Borrower to the Trust,  duly  authenticated  by the trustee or
      paying agent,  if applicable,  under the Borrower Bond Resolution and duly
      issued by the Borrower in  accordance  with the terms of the Borrower Bond
      Resolution;  and assuming that the Trust has all the  requisite  power and
      authority  to  authorize,  execute,  attest  and  deliver,  and  has  duly
      authorized,  executed,  attested and delivered,  this Loan Agreement,  and
      assuming further that this Loan Agreement is the legal,  valid and binding
      obligation of the Trust,  enforceable against the Trust in accordance with
      its terms, each of this Loan Agreement and the Borrower Bond constitutes a
      legal, valid and binding obligation of the Borrower,  enforceable  against
      the  Borrower  in  accordance  with its  respective  terms,  except as the
      enforcement  thereof may be affected by  bankruptcy,  insolvency  or other
      laws or the  application  by a court  of  legal  or  equitable  principles
      affecting   creditors'  rights;   and  the  information   contained  under
      "Description  of Loan" in  Exhibit  A-2  attached  hereto  and made a part
      hereof is true and accurate in all respects.

      (b) Full Disclosure.  There is no fact that the Borrower has not disclosed
to the Trust in writing on the Borrower's  application for the Loan or otherwise
that  materially  adversely  affects or (so far as the Borrower can now foresee)
that will materially adversely affect the properties,  activities,  prospects or
condition  (financial  or  otherwise)  of  the  Borrower  or  its  Environmental
Infrastructure  System,  or the  ability  of  the  Borrower  to  make  all  Loan
Repayments  and any  other  payments  required  under  this  Loan  Agreement  or
otherwise  to  observe  and  perform  its  duties,  covenants,  obligations  and
agreements under this Loan Agreement and the Borrower Bond.

      (c)  Pending  Litigation.  There  are no  proceedings  pending  or, to the
knowledge of the Borrower,  threatened  against or affecting the Borrower in any
court or before any  governmental  authority  or  arbitration  board or tribunal
that,  if  adversely  determined,  would  materially  adversely  affect  (i) the
undertaking  or  completion  of the Project,  (ii) the  properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System, (iii) the ability of the Borrower to make
all Loan Repayments or any other


                                      -8-
<PAGE>

payments required under this Loan Agreement, (iv) the authorization,  execution,
attestation  or delivery of this Loan  Agreement or the Borrower  Bond,  (v) the
issuance  of the  Borrower  Bond and the sale  thereof  to the  Trust,  (vi) the
adoption  of the  Borrower  Bond  Resolution,  or (vii) the  Borrower's  ability
otherwise  to  observe  and  perform  its  duties,  covenants,  obligations  and
agreements  under this Loan Agreement and the Borrower Bond,  which  proceedings
have not been  previously  disclosed  in  writing  to the  Trust  either  in the
Borrower's application for the Loan or otherwise.

      (d) Compliance with Existing Laws and Agreements.  (i) The  authorization,
execution, attestation and delivery of this Loan Agreement and the Borrower Bond
by the Borrower,  (ii) the authentication of the Borrower Bond by the trustee or
paying agent under the  Borrower  Bond  Resolution,  as the case may be, and the
sale of the Borrower Bond to the Trust,  (iii) the adoption of the Borrower Bond
Resolution,  (iv) the observation and performance by the Borrower of its duties,
covenants,   obligations  and  agreements  hereunder  and  thereunder,  (v)  the
consummation  of the  transactions  provided  for in this  Loan  Agreement,  the
Borrower Bond  Resolution and the Borrower Bond,  and (vi) the  undertaking  and
completion  of the  Project  will  not  (A)  other  than  the  lien,  charge  or
encumbrance  created  hereby,  by  the  Borrower  Bond,  by  the  Borrower  Bond
Resolution and by any other  outstanding  debt  obligations of the Borrower that
are at parity with the Borrower  Bond as to lien on, and source and security for
payment   thereon   from,   the   revenues  of  the   Borrower's   Environmental
Infrastructure  System, result in the creation or imposition of any lien, charge
or encumbrance  upon any  properties or assets of the Borrower  pursuant to, (B)
result in any breach of any of the terms,  conditions or  provisions  of, or (C)
constitute a default under, any existing  resolution,  outstanding debt or lease
obligation, trust agreement,  indenture, mortgage, deed of trust, loan agreement
or other  instrument  to which the Borrower is a party or by which the Borrower,
its Environmental  Infrastructure  System or any of its properties or assets may
be bound,  nor will such action result in any violation of the provisions of the
charter or other document  pursuant to which the Borrower was established or any
laws,  ordinances,   injunctions,  judgments,  decrees,  rules,  regulations  or
existing orders of any court or governmental or administrative agency, authority
or person to which the Borrower, its Environmental  Infrastructure System or its
properties or operations is subject.

      (e) No Defaults.  No event has occurred and no condition exists that, upon
the  authorization,  execution,  attestation and delivery of this Loan Agreement
and the Borrower Bond, the issuance of the Borrower Bond and the sale thereof to
the Trust,  the adoption of the Borrower  Bond  Resolution or the receipt of the
amount of the Loan, would constitute an Event of Default hereunder. The Borrower
is not in violation of, and has not received notice of any claimed violation of,
any term of any agreement or other instrument to which it is a party or by which
it, its  Environmental  Infrastructure  System or its  properties  may be bound,
which violation would materially  adversely  affect the properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System or the ability of the Borrower to make all
Loan Repayments,  to pay all other amounts due hereunder or otherwise to observe
and perform its duties,  covenants,  obligations and agreements  under this Loan
Agreement and the Borrower Bond.

      (f)  Governmental  Consent.  The  Borrower  has  obtained  all permits and
approvals  required  to  date  by any  governmental  body  or  officer  for  the
authorization, execution, attestation


                                      -9-
<PAGE>

and delivery of this Loan  Agreement and the Borrower  Bond, for the issuance of
the  Borrower  Bond and the sale  thereof to the Trust,  for the adoption of the
Borrower Bond  Resolution,  for the making,  observance  and  performance by the
Borrower of its duties,  covenants,  obligations and agreements  under this Loan
Agreement  and the Borrower  Bond and for the  undertaking  or completion of the
Project and the financing or refinancing thereof, including, but not limited to,
if  required,  the  approval by the New Jersey  Board of Public  Utilities  (the
"BPU") of the  issuance by the Borrower of the  Borrower  Bond to the Trust,  as
required by Section 9a of the Act, and any other approvals  required therefor by
the BPU; and the Borrower has complied  with all  applicable  provisions  of law
requiring  any  notification,  declaration,  filing  or  registration  with  any
governmental  body or officer in  connection  with the  making,  observance  and
performance by the Borrower of its duties, covenants, obligations and agreements
under this Loan  Agreement  and the  Borrower  Bond or with the  undertaking  or
completion of the Project and the financing or refinancing  thereof. No consent,
approval or authorization of, or filing, registration or qualification with, any
governmental  body or officer that has not been obtained is required on the part
of the Borrower as a condition to the authorization,  execution, attestation and
delivery of this Loan  Agreement  and the  Borrower  Bond,  the  issuance of the
Borrower Bond and the sale thereof to the Trust,  the  undertaking or completion
of the Project or the consummation of any transaction herein contemplated.

      (g) Compliance with Law. The Borrower:
          -------------------

            (i) is in compliance with all laws,  ordinances,  governmental rules
      and  regulations to which it is subject,  the failure to comply with which
      would  materially  adversely  affect (A) the  ability of the  Borrower  to
      conduct its  activities  or to undertake or complete the Project,  (B) the
      ability of the Borrower to make the Loan  Repayments  and to pay all other
      amounts due  hereunder,  or (C) the condition  (financial or otherwise) of
      the Borrower or its Environmental Infrastructure System; and

            (ii)  has  obtained  all  licenses,  permits,  franchises  or  other
      governmental  authorizations  presently necessary for the ownership of its
      properties  or for the conduct of its  activities  that,  if not obtained,
      would  materially  adversely  affect (A) the  ability of the  Borrower  to
      conduct its  activities  or to undertake or complete the Project,  (B) the
      ability of the Borrower to make the Loan  Repayments  and to pay all other
      amounts due  hereunder,  or (C) the condition  (financial or otherwise) of
      the Borrower or its Environmental Infrastructure System.

      (h) Use of Proceeds. The Borrower will apply the proceeds of the Loan from
the Trust as described  in Exhibit B attached  hereto and made a part hereof (i)
to finance or refinance a portion of the Costs of the  Borrower's  Project;  and
(ii) where  applicable,  to reimburse the Borrower for a portion of the Costs of
the Borrower's  Project,  which portion was paid or incurred in  anticipation of
reimbursement  by the Trust and is  eligible  for such  reimbursement  under and
pursuant to the Regulations,  the Code and any other applicable law. All of such
costs  constitute  Costs for which the Trust is  authorized to make Loans to the
Borrower pursuant to the Act and the Regulations.


                                      -10-
<PAGE>

      (i) Official Statement.  The descriptions and information set forth in the
Borrower Appendices, if any, contained in the Official Statement relating to the
Borrower,  its operations and the transactions  contemplated  hereby,  as of the
date of the Official Statement, were and, as of the date of delivery hereof, are
true and correct in all  material  respects,  and did not and do not contain any
untrue  statement  of a material  fact or omit to state a material  fact that is
necessary  to  make  the  statements   contained   therein,   in  light  of  the
circumstances under which they were made, not misleading.

      (j)  Preliminary  Official  Statement.  As of the date of the  Preliminary
Official  Statement,  the descriptions and information set forth in the Borrower
Appendices,  if any, contained in the Preliminary Official Statement relating to
the Borrower,  its operations and the transactions  contemplated hereby (i) were
"deemed  final" by the  Borrower for the purposes and within the meaning of Rule
15c2-12 and (ii) were true and  correct in all  material  respects,  and did not
contain any untrue statement of a material fact or omit to state a material fact
necessary  to  make  the  statements   contained   therein,   in  light  of  the
circumstances under which they were made, not misleading.

      SECTION 2.02. Particular Covenants of Borrower.

      (a) Promise to Pay. The Borrower unconditionally and irrevocably promises,
in accordance  with the terms of and to the extent provided in the Borrower Bond
Resolution, to make punctual payment of the principal and redemption premium, if
any, of the Loan and the Borrower  Bond,  the Interest on the Loan, the Interest
on the Borrower Bond and all other amounts due under this Loan Agreement and the
Borrower Bond according to their respective terms.

      (b) Performance  Under Loan Agreement;  Rates. The Borrower  covenants and
agrees (i) to comply  with all  applicable  State and  federal  laws,  rules and
regulations  in the  performance  of this Loan  Agreement;  (ii) to maintain its
Environmental  Infrastructure  System in good  repair and  operating  condition;
(iii) to  cooperate  with the Trust in the  observance  and  performance  of the
respective duties, covenants, obligations and agreements of the Borrower and the
Trust under this Loan Agreement; and (iv) to establish,  levy and collect rents,
rates  and  other  charges  for  the  products  and  services  provided  by  its
Environmental  Infrastructure System, which rents, rates and other charges shall
be at least sufficient to comply with all covenants pertaining thereto contained
in, and all other provisions of, any bond  resolution,  trust indenture or other
security  agreement,  if any, relating to any bonds, notes or other evidences of
indebtedness  issued  or  to  be  issued  by  the  Borrower,  including  without
limitation rents, rates and other charges, together with other available moneys,
sufficient to pay the principal of and Interest on the Borrower  Bond,  plus all
other amounts due hereunder.

      (c) Borrower Bond; No Prior Liens.  Except for (i) the Borrower Bond, (ii)
any bonds or notes at parity with the Borrower Bond and currently outstanding or
issued on the date  hereof,  (iii)  any  future  bonds or notes of the  Borrower
issued under the Borrower Bond  Resolution at parity with the Borrower Bond, and
(iv) any Permitted  Encumbrances  (as defined in the Borrower Bond  Resolution),
the assets of the Borrower that are subject to the Borrower Bond  Resolution are
and will be free and clear of any pledge, lien, charge or encumbrance thereon or


                                      -11-
<PAGE>

with respect thereto prior to, or of equal rank with, the Borrower Bond, and all
corporate  or other  action on the part of the Borrower to that end has been and
will be duly and validly taken.

      (d) Completion of Project and Provision of Moneys  Therefor.  The Borrower
covenants and agrees (i) to exercise its best efforts in accordance with prudent
environmental  infrastructure  utility  practice to complete  the Project and to
accomplish  such completion on or before the estimated  Project  completion date
set forth in Exhibit G hereto and made a part  hereof;  (ii) to comply  with the
terms and  provisions  contained in Exhibit G hereto;  and (iii) to provide from
its own  fiscal  resources  all  moneys,  in excess of the total  amount of loan
proceeds it  receives  under the Loan and Fund Loan,  required  to complete  the
Project.

      (e) See Section 2.02(e) as set forth in Schedule A attached hereto, made a
part hereof and  incorporated  in this  Section  2.02(e) by  reference as if set
forth in full herein.

      (f) Exclusion of Interest from Federal  Gross Income and  Compliance  with
          ----------------------------------------------------------------------
Code.
- ----

            (i) The  Borrower  covenants  and agrees  that it shall not take any
      action or omit to take any  action  that  would  result in the loss of the
      exclusion of the interest on any Trust Bonds now or hereafter  issued from
      gross  income for  purposes of federal  income  taxation as that status is
      governed by Section 103(a) of the Code.

            (ii) The Borrower shall not directly or indirectly use or permit the
      use of any  proceeds  of the Trust Bonds (or  amounts  replaced  with such
      proceeds) or any other funds or take any action or omit to take any action
      that would cause the Trust Bonds  (assuming  solely for this  purpose that
      the proceeds of the Trust Bonds loaned to the  Borrower  represent  all of
      the  proceeds  of the Trust  Bonds) to be  "arbitrage  bonds"  within  the
      meaning of Section 148(a) of the Code.

            (iii) The Borrower  shall not directly or  indirectly  use or permit
      the use of any proceeds of the Trust Bonds to pay the  principal of or the
      interest or redemption  premium on or any other amount in connection  with
      the  retirement or redemption of any issue of state or local  governmental
      obligations ("refinancing of indebtedness"), unless the Borrower shall (A)
      establish to the  satisfaction of the Trust,  prior to the issuance of the
      Trust Bonds,  that such  refinancing  of  indebtedness  will not adversely
      affect the exclusion  from gross income for federal income tax purposes of
      the interest on the Trust  Bonds,  and (B) provide to the Trust an opinion
      of Bond Counsel to that effect in form and substance  satisfactory  to the
      Trust.

            (iv) The Borrower shall not directly or indirectly use or permit the
      use of any  proceeds of the Trust Bonds to  reimburse  the Borrower for an
      expenditure with respect to a Costs of the Borrower's  Project paid by the
      Borrower  prior  to the  issuance  of the  Trust  Bonds,  unless  (A)  the
      allocation by the Borrower of the proceeds of the Trust Bonds to reimburse
      such expenditure  complies with the  requirements of Treasury  Regulations
      ss.1.150-2 necessary to enable the reimbursement  allocation to be treated
      as an  expenditure  of the  proceeds  of the Trust  Bonds for  purposes of
      applying  Sections 103 and 141-150,  inclusive,  of the Code,  or (B) such
      proceeds of the Trust Bonds will be used for


                                      -12-
<PAGE>

      refinancing of  indebtedness  that was used to pay Costs of the Borrower's
      Project or to  reimburse  the Borrower  for  expenditures  with respect to
      Costs of the Borrower's Project paid by the Borrower prior to the issuance
      of such  indebtedness in accordance  with a  reimbursement  allocation for
      such   expenditures  that  complies  with  the  requirements  of  Treasury
      Regulations ss.1.150-2.

            (v) The Borrower  shall not directly or indirectly use or permit the
      use of any proceeds of the Trust Bonds to pay any Costs of the  Borrower's
      Project  that does not  constitute  a  "capital  expenditure"  within  the
      meaning of Treasury Regulations ss.1.150-1.

            (vi) The  Borrower  shall not use the  proceeds  of the Trust  Bonds
      (assuming  solely for this  purpose  that the  proceeds of the Trust Bonds
      loaned to the Borrower  represent  all of the proceeds of the Trust Bonds)
      in any manner that would cause the Trust Bonds to be considered "federally
      guaranteed"  within the  meaning  of Section  149(b) of the Code or "hedge
      bonds" within the meaning of Section 149(g) of the Code.

            (vii) The Borrower shall not issue any debt obligations that (A) are
      sold at  substantially  the same time as the Trust  Bonds and  finance  or
      refinance the Loan made to the Borrower, (B) are sold pursuant to the same
      plan of  financing  as the Trust Bonds and finance or  refinance  the Loan
      made to the Borrower,  and (C) are  reasonably  expected to be paid out of
      substantially  the same  source of funds as the Trust Bonds and finance or
      refinance the Loan made to the Borrower.

            (viii)  Neither the  Borrower nor any  "related  party"  (within the
      meaning of Treasury Regulations  ss.1.150-1) shall purchase Trust Bonds in
      an amount related to the amount of the Loan.

            (ix) The Borrower will not issue or permit to be issued  obligations
      that will  constitute  an "advance  refunding" of the Borrower Bond within
      the meaning of Section  149(d)(5) of the Code without the express  written
      consent of the Trust,  which  consent may only be  delivered  by the Trust
      after the Trust has received notice from the Borrower of such contemplated
      action  no later  than  sixty  (60)  days  prior to any such  contemplated
      action, and which consent is in the sole discretion of the Trust.

            (x) See  Section  2.02(f)(x)  as set forth in  Schedule  A  attached
      hereto,  made a part hereof and incorporated in this Section 2.02(f)(x) by
      reference as if set forth in full herein.

            (xi) No "gross  proceeds"  of the Trust  Bonds held by the  Borrower
      (other than amounts in a "bona fide debt service  fund") will be held in a
      "commingled  fund" (as such  terms are  defined  in  Treasury  Regulations
      ss.1.148-1(b)).

            (xii) Based upon all of the  objective  facts and  circumstances  in
      existence  on the date of  issuance of the Trust Bonds used to finance the
      Project,  (A) within six months of the date of issuance of the Trust Bonds
      used to finance the Project, the Borrower will incur a substantial binding
      obligation to a third party to expend on the Project at least five


                                      -13-
<PAGE>

      percent  (5%) of the "net sale  proceeds"  (within the meaning of Treasury
      Regulations  ss.1.148-1) of the Loan used to finance the Project (treating
      an  obligation  as not being  binding if it is  subject  to  contingencies
      within the control of the Borrower, the Trust or a "related party" (within
      the meaning of Treasury  Regulations  ss.1.150-1)),  (B) completion of the
      Project and the allocation to  expenditures  of the "net sale proceeds" of
      the Loan used to finance the Project will proceed with due diligence,  and
      (C) all of the  proceeds of the Loan used to finance  the  Project  (other
      than amounts  deposited  into the Debt Service  Reserve Fund  allocable to
      that  portion of the Loan used to finance  reserve  capacity,  if any) and
      investment earnings thereon will be spent prior to the period ending three
      (3) years  subsequent  to the date of  issuance of the Trust Bonds used to
      finance the Project.  Accordingly,  the proceeds of the Loan  deposited in
      the Project  Loan Account used to finance the Project will be eligible for
      the 3-year  arbitrage  temporary  period since the expenditure  test, time
      test  and  due  diligence  test,  as set  forth  in  Treasury  Regulations
      ss.1.148-2(e)(2), will be satisfied.

            (xiii) The  weighted  average  maturity  of the Loan does not exceed
      120% of the  average  reasonably  expected  economic  life of the  Project
      financed or  refinanced  with the Loan,  determined  in the same manner as
      under Section 147(b) of the Code.  Accordingly,  the term of the Loan will
      not be longer than is reasonably  necessary for the governmental  purposes
      of the Loan within the meaning of Treasury Regulations ss.1.148-1(c)(4).

      For purposes of this  subsection  and subsection (h) of this Section 2.02,
quoted terms shall have the meanings  given  thereto by Section 148 of the Code,
including,  particularly,  Treasury Regulations  ss.ss.1.148-1 through 1.148-11,
inclusive,  as  supplemented or amended,  to the extent  applicable to the Trust
Bonds, and any successor Treasury Regulations applicable to the Trust Bonds.

      (g) Operation and Maintenance of Environmental  Infrastructure System. The
Borrower  covenants  and  agrees  that it  shall,  in  accordance  with  prudent
environmental  infrastructure  utility  practice,  (i) at all times  operate the
properties  of its  Environmental  Infrastructure  System  and any  business  in
connection  therewith in an efficient  manner,  (ii) maintain its  Environmental
Infrastructure System in good repair, working order and operating condition, and
(iii)  from  time to time  make all  necessary  and  proper  repairs,  renewals,
replacements,  additions,  betterments  and  improvements  with  respect  to its
Environmental Infrastructure System so that at all times the business carried on
in connection therewith shall be properly and advantageously conducted.

      (h) Records and Accounts.
          --------------------

            (i) The Borrower  shall keep  accurate  records and accounts for its
      Environmental  Infrastructure  System specifically relating to the Project
      (the "System  Records")  separate and distinct  from its other records and
      accounts (the  "General  Records").  Such System  Records shall be audited
      annually by an independent certified public accountant,  which may be part
      of the annual audit of the General  Records of the  Borrower.  Such System
      Records and General  Records shall be made available for inspection by the
      Trust at any reasonable time upon prior written notice, and a copy of


                                      -14-
<PAGE>

      such  annual  audit(s)  therefor,   including  all  written  comments  and
      recommendations of such accountant, shall be furnished to the Trust within
      150 days of the close of the fiscal  year being so  audited  or,  with the
      consent of the Trust, such additional period as may be provided by law.

            (ii)  Unless   otherwise   advised  in  writing  by  the  Trust,  in
      furtherance of the covenant of the Borrower contained in subsection (f) of
      this Section 2.02 not to cause the Trust Bonds to be arbitrage  bonds, the
      Borrower  shall  keep,  or  cause  to be kept,  accurate  records  of each
      investment  it makes in any  "nonpurpose  investment"  acquired  with,  or
      otherwise  allocated to,  "gross  proceeds" of the Trust Bonds not held by
      the Trustee and each  "expenditure" it makes allocated to "gross proceeds"
      of the Trust  Bonds.  Such  records  shall  include  the  purchase  price,
      including  any  constructive  "payments"  (or in the  case of a  "payment"
      constituting a deemed  acquisition of a "nonpurpose  investment"  (e.g., a
      "nonpurpose  investment"  first allocated to "gross proceeds" of the Trust
      Bonds after it is actually  acquired  because it is deposited in a sinking
      fund for the Trust  Bonds)),  the "fair market  value" of the  "nonpurpose
      investment"  on the date first  allocated  to the "gross  proceeds" of the
      Trust Bonds,  nominal  interest rate,  dated date,  maturity date, type of
      property, frequency of periodic payments, period of compounding,  yield to
      maturity, amount actually or constructively received on disposition (or in
      the case of a "receipt" constituting a deemed disposition of a "nonpurpose
      investment"  (e.g., a "nonpurpose  investment" that ceases to be allocated
      to the "gross  proceeds"  of the Trust Bonds  because it is removed from a
      sinking  fund for the  Trust  Bonds)),  the  "fair  market  value"  of the
      "nonpurpose  investment"  on the date it  ceases  to be  allocated  to the
      "gross  proceeds" of the Trust Bonds,  the purchase  date and  disposition
      date of the  "nonpurpose  investment"  and  evidence  of the "fair  market
      value" of such  property on the  purchase  date and  disposition  date (or
      deemed   purchase  or   disposition   date)  for  each  such   "nonpurpose
      investment".   The  purchase  date,  disposition  date  and  the  date  of
      determination of "fair market value" shall be the date on which a contract
      to purchase or sell the "nonpurpose investment" becomes binding, i.e., the
      trade  date  rather  than  the  settlement   date.  For  purposes  of  the
      calculation of purchase price and disposition price,  brokerage or selling
      commissions,   administrative  expenses  or  similar  expenses  shall  not
      increase  the  purchase  price of an item and shall not  reduce the amount
      actually or constructively received upon disposition of an item, except to
      the extent such costs constitute "qualified administrative costs".

            (iii) Within  thirty (30) days of the last day of the fifth and each
      succeeding  fifth  "bond year"  (which,  unless  otherwise  advised by the
      Trust,  shall  be the  five-year  period  ending  on the date  five  years
      subsequent to the date  immediately  preceding the date of issuance of the
      Trust Bonds and each succeeding  fifth "bond year") and within thirty (30)
      days of the  date  the  last  bond  that is part  of the  Trust  Bonds  is
      discharged  (or on any other  periodic  basis  requested in writing by the
      Trust), the Borrower shall (A) calculate,  or cause to be calculated,  the
      "rebate amount" as of the "computation  date" or "final  computation date"
      attributable to any "nonpurpose  investment"  made by the Borrower and (B)
      remit the  following to the Trust:  (1) an amount of money that when added
      to  the  "future  value"  as of the  "computation  date"  of any  previous
      payments  made to the  Trust on  account  of  rebate  equals  the  "rebate
      amount", (2) the calculations


                                      -15-
<PAGE>

      supporting the "rebate amount" attributable to any "nonpurpose investment"
      made by the Borrower allocated to "gross proceeds" of the Trust Bonds, and
      (3) any other  information  requested by the Trust  relating to compliance
      with Section 148 of the Code (e.g., information related to any "nonpurpose
      investment"  of the Borrower for purposes of application of the "universal
      cap").

            (iv) The  Borrower  covenants  and agrees  that it will  account for
      "gross  proceeds" of the Trust Bonds,  investments  allocable to the Trust
      Bonds  and  expenditures  of  "gross  proceeds"  of  the  Trust  Bonds  in
      accordance with Treasury Regulations ss.1.148-6. All allocations of "gross
      proceeds" of the Trust Bonds to expenditures will be recorded on the books
      of the Borrower kept in  connection  with the Trust Bonds no later than 18
      months after the later of the date the particular  Costs of the Borrower's
      Project is paid or the date the  portion of the  project  financed  by the
      Trust Bonds is placed in service. All allocations of proceeds of the Trust
      Bonds to expenditures  will be made no later than the date that is 60 days
      after the fifth  anniversary of the date the Trust Bonds are issued or the
      date 60 days after the  retirement  of the Trust Bonds,  if earlier.  Such
      records and accounts will include the  particular  Cost paid,  the date of
      the payment and the party to whom the payment was made.

      (i) Inspections;  Information. The Borrower shall permit the Trust and the
Trustee  and  any  party  designated  by any of  such  parties,  at any  and all
reasonable  times during  construction  of the Project and thereafter upon prior
written notice, to examine, visit and inspect the property, if any, constituting
the Project and to inspect and make copies of any  accounts,  books and records,
including (without  limitation) its records regarding  receipts,  disbursements,
contracts,  investments  and  any  other  matters  relating  thereto  and to its
financial  standing,  and shall supply such reports and information as the Trust
and the Trustee may reasonably require in connection therewith.

      (j) Insurance.  The Borrower shall maintain or cause to be maintained,  in
force,  insurance policies with responsible insurers or self-insurance  programs
providing  against risk of direct  physical  loss,  damage or destruction of its
Environmental  Infrastructure  System  at  least  to  the  extent  that  similar
insurance  is  usually   carried  by  utilities   constructing,   operating  and
maintaining  Environmental  Infrastructure  Facilities  of  the  nature  of  the
Borrower's  Environmental  Infrastructure System,  including liability coverage,
all to the extent  available  at  reasonable  cost but in no case less than will
satisfy all applicable regulatory requirements.

      (k) Costs of Project. The Borrower certifies that the building cost of the
Project,  as listed in Exhibit B hereto and made a part hereof,  is a reasonable
and accurate estimation  thereof,  and it will supply to the Trust a certificate
from a  licensed  professional  engineer  authorized  to  practice  in the State
stating that such building cost is a reasonable and accurate estimation and that
the useful life of the Project exceeds the maturity date of the Borrower Bond.

      (l)  Delivery of  Documents.  Concurrently  with the delivery of this Loan
Agreement (as previously authorized, executed and attested) at the Loan Closing,
the Borrower will cause to be delivered to the Trust and the Trustee each of the
following items:


                                      -16-
<PAGE>

            (i) an opinion of the Borrower's bond counsel  substantially  in the
      form of  Exhibit E hereto;  provided,  however,  that the Trust may permit
      portions of such opinion to be rendered by general counsel to the Borrower
      and may  permit  variances  in such  opinion  from the  form set  forth in
      Exhibit E if, in the opinion of the Trust,  such  variances are not to the
      material detriment of the interests of the holders of the Trust Bonds;

            (ii) counterparts of this Loan Agreement as previously  executed and
      attested by the parties hereto;

            (iii) copies of those  resolutions  finally  adopted by the board of
      directors of the Borrower and requested by the Trust,  including,  without
      limitation,  (A) the resolution of the Borrower authorizing the execution,
      attestation  and delivery of this Loan  Agreement,  (B) the Borrower  Bond
      Resolution,  as  amended  and  supplemented  as of the  date  of the  Loan
      Closing, authorizing the execution, attestation,  authentication, sale and
      delivery of the  Borrower  Bond to the Trust,  (C) the  resolution  of the
      Borrower,  if any, confirming the details of the sale of the Borrower Bond
      to the Trust,  (D) the resolution of the Borrower,  if any,  declaring its
      official  intent to  reimburse  expenditures  for the Costs of the Project
      from the  proceeds of the Trust  Bonds,  each of said  resolutions  of the
      Borrower  being  certified by an Authorized  Officer of the Borrower as of
      the date of the Loan Closing,  (E) the resolution of the BPU approving the
      issuance  by the  Borrower of the  Borrower  Bond to the Trust and setting
      forth any other approvals required therefor by the BPU, if applicable, and
      (F) any other Proceedings;

            (iv) if the Loan is being made to reimburse  the Borrower for all or
      a  portion  of  the  Costs  of  the  Borrower's  Project  or to  refinance
      indebtedness  or reimburse the Borrower for the repayment of  indebtedness
      previously  incurred  by the  Borrower  to finance all or a portion of the
      Costs of the Borrower's  Project,  an opinion of Bond Counsel, in form and
      substance satisfactory to the Trust, to the effect that such reimbursement
      or refinancing  will not adversely  affect the exclusion from gross income
      for federal income tax purposes of the interest on the Trust Bonds; and

            (v) the certificates of insurance  coverage as required  pursuant to
      the  terms  of  Section  3.06(d)  hereof  and  such  other   certificates,
      documents,  opinions and information as the Trust may require in Exhibit F
      hereto, if any.

      (m)  Execution  and  Delivery  of  Borrower  Bond.  Concurrently  with the
delivery of this Loan  Agreement at the Loan  Closing,  the Borrower  shall also
deliver to the Trust the Borrower Bond, as previously executed, attested and, if
applicable,  authenticated,  upon the receipt of a written  certification of the
Trust that a portion of the net  proceeds of the Trust Bonds shall be  deposited
in the Project  Loan  Account  simultaneously  with the delivery of the Borrower
Bond.

      (n) Notice of Material Adverse Change.  The Borrower shall promptly notify
the  Trust  of  any  material  adverse  change  in the  properties,  activities,
prospects  or  condition  (financial  or  otherwise)  of  the  Borrower  or  its
Environmental  Infrastructure  System, or in the ability of the Borrower to make
all Loan Repayments and otherwise to observe and perform its


                                      -17-
<PAGE>

duties, covenants,  obligations and agreements under this Loan Agreement and the
Borrower Bond.

      (o)  Continuing  Representations.  The  representations  of  the  Borrower
contained  herein  shall  be true  at the  time of the  execution  of this  Loan
Agreement and at all times during the term of this Loan Agreement.

      (p) Continuing  Disclosure Covenant.  To the extent that the Trust, in its
sole  discretion,  determines,  at any time prior to the termination of the Loan
Term, that the Borrower is a material "obligated person", as the term "obligated
person" is defined in Rule 15c2-12,  with  materiality  being  determined by the
Trust pursuant to criteria  established,  from time to time, by the Trust in its
sole discretion and set forth in a bond resolution or official  statement of the
Trust,  the Borrower hereby  covenants that it will authorize and provide to the
Trust, for inclusion in any preliminary official statement or official statement
of the Trust,  all statements and  information  relating to the Borrower  deemed
material by the Trust for the purpose of satisfying Rule 15c2-12 as well as Rule
10b-5 promulgated pursuant to the Securities Exchange Act of 1934, as amended or
supplemented,  including any  successor  regulation  or statute  thereto  ("Rule
10b-5"),  including  certificates  and written  representations  of the Borrower
evidencing  its  compliance  with Rule 15c2-12 and Rule 10b-5;  and the Borrower
hereby  further  covenants  that the  Borrower  shall  execute  and  deliver the
Continuing  Disclosure  Agreement,  in substantially the form attached hereto as
Exhibit H, with such revisions  thereto prior to execution and delivery  thereof
as the Trust shall  determine to be necessary,  desirable or convenient,  in its
sole discretion, for the purpose of satisfying Rule 15c2-12 and the purposes and
intent  thereof,  as Rule  15c2-12,  its  purposes  and intent may  hereafter be
interpreted from time to time by the SEC or any court of competent jurisdiction;
and pursuant to the terms and provisions of the Continuing Disclosure Agreement,
the Borrower shall thereafter  provide  on-going  disclosure with respect to all
statements  and  information  relating to the  Borrower in  satisfaction  of the
requirements  set  forth in Rule  15c2-12  and Rule  10b-5,  including,  without
limitation,  the provision of certificates  and written  representations  of the
Borrower evidencing its compliance with Rule 15c2-12 and Rule 10b-5.

      (q)  Additional  Covenants  and  Requirements.  (i) No later than the Loan
Closing and, if necessary,  in connection with the Trust's issuance of the Trust
Bonds or the making of the Loan, additional covenants and requirements have been
included  in  Exhibit  F  hereto  and made a part  hereof.  Such  covenants  and
requirements  may  include,  but need not be  limited  to,  the  maintenance  of
specified levels of Environmental  Infrastructure  System rates, the issuance of
additional  debt of the  Borrower,  the use by or on behalf of the  Borrower  of
certain  proceeds of the Trust Bonds as such use relates to the  exclusion  from
gross income for federal income tax purposes of the interest on any Trust Bonds,
the  transfer  of  revenues  and  receipts  from  the  Borrower's  Environmental
Infrastructure  System,  compliance with Rule 15c2-12,  Rule 10b-5 and any other
applicable  federal or State securities laws, and matters in connection with the
appointment of the Trustee under the Bond Resolution and any successors thereto.
The  Borrower  hereby  agrees to observe  and comply  with each such  additional
covenant and requirement,  if any, included in Exhibit F hereto. (ii) Additional
defined terms, covenants, representations and requirements have been included in
Schedule  A attached  hereto and made a part  hereof.  Such  additional  defined
terms, covenants, representations and requirements are


                                      -18-
<PAGE>

incorporated in this Loan Agreement by reference thereto as if set forth in full
herein  and the  Borrower  hereby  agrees to observe  and comply  with each such
additional term, covenant, representation and requirement included in Schedule A
as if the same were set forth in its entirety where reference thereto is made in
this Loan Agreement.


                                      -19-
<PAGE>

                                   ARTICLE III

              LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS

      SECTION 3.01. Loan; Loan Term. The Trust hereby agrees to make the Loan as
described  in Exhibit  A-2 hereof and to  disburse  proceeds  of the Loan to the
Borrower in accordance with Section 3.02 and Exhibit C hereof,  and the Borrower
hereby  agrees to borrow  and  accept the Loan from the Trust upon the terms set
forth in Exhibit A-2 attached hereto and made a part hereof; provided,  however,
that the Trust shall be under no  obligation to make the Loan if (a) at the Loan
Closing,  the  Borrower  does not deliver to the Trust a Borrower  Bond and such
other  documents  required  under  Section  2.02(l)  hereof,  or (b) an Event of
Default has occurred and is  continuing  under the Bond  Resolution or this Loan
Agreement.  Although the Trust  intends to disburse  proceeds of the Loan to the
Borrower  at the times  and up to the  amounts  set forth in  Exhibit C to pay a
portion of the Costs of the Project,  due to unforeseen  circumstances there may
not be a  sufficient  amount on deposit in the Project  Fund on any date to make
the  disbursement  in such amount.  Nevertheless,  the Borrower  agrees that the
amount  actually  deposited in the Project Loan Account at the Loan Closing plus
the   Borrower's   allocable   share  of  (i)  certain  costs  of  issuance  and
underwriter's  discount  for all Trust Bonds  issued to finance  the Loan;  (ii)
capitalized interest during the Project construction period, if applicable;  and
(iii) that portion of the Debt Service Reserve Fund  attributable to the cost of
funding reserve  capacity for the Project,  if applicable,  shall constitute the
initial  principal  amount of the Loan (as the same may be adjusted  downward in
accordance with the definition  thereof),  and neither the Trust nor the Trustee
shall  have any  obligation  thereafter  to loan any  additional  amounts to the
Borrower.

      The  Borrower  shall use the proceeds of the Loan  strictly in  accordance
with Section 2.01(h) hereof.

      The  payment  obligations  created  under  this  Loan  Agreement  and  the
obligations to pay the principal of the Borrower Bond,  Interest on the Borrower
Bond and other  amounts due under the Borrower  Bond are each  direct,  general,
irrevocable  and  unconditional  obligations  of the  Borrower  payable from any
source legally  available to the Borrower in accordance with the terms of and to
the extent provided in the Borrower Bond Resolution.

      SECTION 3.02. Disbursement of Loan Proceeds. (a) The Trustee, as the agent
of the Trust,  shall disburse the amounts on deposit in the Project Loan Account
to the Borrower upon receipt of a requisition  executed by an Authorized Officer
of the Borrower,  and approved by the Trust, in a form meeting the  requirements
of Section 5.02(3) of the Bond Resolution.

      (b) The Trust and  Trustee  shall not be  required  to  disburse  any Loan
proceeds to the Borrower under this Loan Agreement, unless:

            (i)  the  proceeds  of  the  Trust  Bonds  shall  be  available  for
      disbursement, as determined solely by the Trust;


                                      -20-
<PAGE>

            (ii) in  accordance  with the Bond  Act,  and the  Regulations,  the
      Borrower shall have timely applied for, shall have been awarded and, prior
      to or simultaneously with the Loan Closing,  shall have closed a Fund Loan
      for a portion of the Allowable  Costs (as defined in such  Regulations) of
      the Project in an amount not in excess of the amount of Allowable Costs of
      the Project financed by the Loan from the Trust;

            (iii) the Borrower  shall have on hand moneys to pay for the greater
      of (A) that portion of the total Costs of the Project that is not eligible
      to be funded  from the Fund Loan or the Loan,  or (B) that  portion of the
      total Costs of the  Project  that  exceeds the actual  amounts of the loan
      commitments  made by the State and the Trust,  respectively,  for the Fund
      Loan and the Loan; and

            (iv) no Event of Default  nor any event  that,  with the  passage of
      time or service of notice or both,  would  constitute  an Event of Default
      shall have occurred and be continuing hereunder.

      SECTION 3.03.  Amounts  Payable.  (a) The Borrower shall repay the Loan in
installments payable to the Trustee as follows:

            (i) the  principal  of the Loan  shall  be  repaid  annually  on the
      Principal  Payment  Dates,  in  accordance  with the schedule set forth in
      Exhibit A-2  attached  hereto and made a part  hereof,  as the same may be
      amended or modified by any credits applicable to the Borrower as set forth
      in the Bond Resolution;

            (ii) the Interest Portion  described in clause (i) of the definition
      thereof  shall be paid  semiannually  on the Interest  Payment  Dates,  in
      accordance  with the schedule set forth in Exhibit A-2 attached hereto and
      made a part hereof,  as the same may be amended or modified by any credits
      applicable to the Borrower as set forth in the Bond Resolution; and

            (iii)  the  Interest  Portion   described  in  clause  (ii)  of  the
      definition  thereof shall be paid upon the date of optional  redemption or
      acceleration,  as the case may be, of the  Trust  Bonds  allocable  to any
      prepaid or accelerated Trust Bond Loan Repayment.

      The obligations of the Borrower under the Borrower Bond shall be deemed to
be amounts  payable  under  this  Section  3.03.  Each Loan  Repayment,  whether
satisfied  through a direct  payment  by the  Borrower  to the  Trustee or (with
respect to the  Interest  Portion)  through the use of Trust Bond  proceeds  and
income  thereon on  deposit  in the  Interest  Account  (as  defined in the Bond
Resolution)  to pay interest on the Trust Bonds,  shall be deemed to be a credit
against the corresponding obligation of the Borrower under this Section 3.03 and
shall fulfill the Borrower's  obligation to pay such amount  hereunder and under
the Borrower  Bond.  Each  payment made to the Trustee  pursuant to this Section
3.03 shall be applied first to the Interest Portion then due and payable, second
to the  principal of the Loan then due and payable,  third to the payment of the
Administrative Fee, and finally to the payment of any late charges hereunder.


                                      -21-
<PAGE>

      (b) The Interest on the Loan  described in clause (iii) of the  definition
thereof  shall (i)  consist of a late  charge for any Trust Bond Loan  Repayment
that is received by the Trustee  later than the tenth (10th) day  following  its
due date and (ii) be payable  immediately  thereafter  in an amount equal to the
greater of twelve percent (12%) per annum or the Prime Rate plus one half of one
percent  per  annum  on such  late  payment  from its due date to the date it is
actually  paid;  provided,  however,  that the  rate of  Interest  on the  Loan,
including,  without  limitation,  any late payment charges  incurred  hereunder,
shall not exceed the maximum interest rate permitted by law.

      (c) The Borrower shall receive, as a credit against its semiannual payment
obligations of the Interest Portion, the amounts certified by the Trust pursuant
to  Section  5.10 of the Bond  Resolution.  Such  amounts  shall  represent  the
Borrower's  allocable  share of the  interest  earnings  on  certain  funds  and
accounts  established  under the Bond Resolution,  calculated in accordance with
Section 5.10 of the Bond Resolution.

      (d) In accordance with the provisions of the Bond Resolution, the Borrower
shall receive,  as a credit against its Trust Bond Loan Repayments,  the amounts
set forth in the  certificate  of the Trust filed with the  Trustee  pursuant to
Section 5.02(4) of the Bond Resolution.

      (e) The Interest on the Loan  described  in clause (ii) of the  definition
thereof  shall  be  paid  by the  Borrower  in the  amount  of  one-half  of the
Administrative  Fee,  if any,  to the  Trustee on each  Interest  Payment  Date,
commencing with the first Interest Payment Date subsequent to the Loan Closing.

      (f) The Borrower  hereby  agrees to pay to the Trust at the Loan Closing a
"Security  Review Fee" in the amount necessary to reimburse the Trust for all of
its costs and expenses  incurred in connection  with  reviewing  the  additional
security  securing  the  Trust  Loan as set forth in  Exhibit F hereto,  if any,
including without limitation the fees and expenses of any professional  advisers
hired by the Trust in connection therewith.

      SECTION 3.04. Unconditional Obligations. The obligation of the Borrower to
make the Loan  Repayments  and all other  payments  required  hereunder  and the
obligation to perform and observe the other duties,  covenants,  obligations and
agreements on its part contained herein shall be absolute and unconditional, and
shall not be abated, rebated, set-off, reduced, abrogated,  terminated,  waived,
diminished,  postponed  or  otherwise  modified  in any  manner or to any extent
whatsoever  while any Trust  Bonds  remain  outstanding  or any Loan  Repayments
remain unpaid, for any reason, regardless of any contingency,  act of God, event
or cause whatsoever,  including  (without  limitation) any acts or circumstances
that may constitute failure of consideration, eviction or constructive eviction,
the  taking by  eminent  domain or  destruction  of or damage to the  Project or
Environmental  Infrastructure System, commercial frustration of the purpose, any
change  in the laws of the  United  States  of  America  or of the  State or any
political  subdivision  of  either  or  in  the  rules  or  regulations  of  any
governmental  authority,  any failure of the Trust or the Trustee to perform and
observe any agreement,  whether  express or implied,  or any duty,  liability or
obligation arising out of or connected with the Project,  this Loan Agreement or
the  Bond  Resolution,  or any  rights  of  set-off,  recoupment,  abatement  or
counterclaim  that the Borrower  might  otherwise  have  against the Trust,  the
Trustee or any other party or parties; provided,


                                      -22-
<PAGE>

however,  that  payments  hereunder  shall not  constitute  a waiver of any such
rights.  The Borrower shall not be obligated to make any payments required to be
made  by any  other  Borrowers  under  separate  Loan  Agreements  or  the  Bond
Resolution.

      The  Borrower  acknowledges  that payment of the Trust Bonds by the Trust,
including payment from moneys drawn by the Trustee from the Debt Service Reserve
Fund,  does not constitute  payment of the amounts due under this Loan Agreement
and the Borrower  Bond.  If at any time the amount in the Debt  Service  Reserve
Fund shall be less than the Debt Service  Reserve  Requirement  as the result of
any  transfer of moneys from the Debt  Service  Reserve Fund to the Debt Service
Fund (as all such terms are defined in the Bond  Resolution)  as the result of a
failure  by the  Borrower  to make  any  Trust  Bond  Loan  Repayments  required
hereunder,  the Borrower  agrees to replenish (i) such moneys so transferred and
(ii) any deficiency  arising from losses incurred in making such transfer as the
result of the  liquidation by the Trust of Investment  Securities (as defined in
the Bond  Resolution)  acquired as an  investment  of moneys in the Debt Service
Reserve Fund, by making payments to the Trust in equal monthly  installments for
the lesser of six (6) months or the  remaining  term of the Loan at an  interest
rate to be determined by the Trust  necessary to make up any loss caused by such
deficiency.

      The Borrower acknowledges that payment of the Trust Bonds from moneys that
were  originally  received by the Trustee from  repayments  by the  Borrowers of
loans made to the  Borrowers by the State,  acting by and through the New Jersey
Department of Environmental Protection,  pursuant to loan agreements dated as of
November  1, 2004 by and  between  the  Borrowers  and the State,  acting by and
through the New Jersey  Department of  Environmental  Protection,  to finance or
refinance a portion of the Costs of the Environmental  Infrastructure Facilities
of the  Borrowers,  and  which  moneys  were upon such  receipt  by the  Trustee
deposited  in  the  Trust  Bonds  Security  Account  (as  defined  in  the  Bond
Resolution),  does not  constitute  payment of the  amounts  due under this Loan
Agreement and the Borrower Bond.

      SECTION 3.05.  Loan Agreement to Survive Bond  Resolution and Trust Bonds.
The Borrower acknowledges that its duties, covenants, obligations and agreements
hereunder shall survive the discharge of the Bond  Resolution  applicable to the
Trust  Bonds and shall  survive  the  payment of the  principal  and  redemption
premium,  if any, of and the  interest on the Trust Bonds until the Borrower can
take no  action or fail to take any  action  that  could  adversely  affect  the
exclusion  from gross  income of the interest on the Trust Bonds for purposes of
federal income taxation, at which time such duties,  covenants,  obligations and
agreements  hereunder shall,  except for those set forth in Sections 3.06(a) and
(b) hereof, terminate.

      SECTION  3.06.  Disclaimer  of  Warranties  and  Indemnification.  (a) The
Borrower  acknowledges  and agrees  that (i)  neither  the Trust nor the Trustee
makes any  warranty or  representation,  either  express or  implied,  as to the
value, design,  condition,  merchantability or fitness for particular purpose or
fitness for any use of the Environmental Infrastructure System or the Project or
any  portions  thereof or any other  warranty  or  representation  with  respect
thereto;  (ii) in no event  shall the Trust or the  Trustee or their  respective
agents  be  liable or  responsible  for any  incidental,  indirect,  special  or
consequential  damages in connection  with or arising out of this Loan Agreement
or  the  Project  or  the  existence,  furnishing,  functioning  or  use  of the
Environmental  Infrastructure  System or the  Project or any item or products or
services provided


                                      -23-
<PAGE>

for in this Loan  Agreement;  and (iii) to the fullest extent  permitted by law,
the  Borrower  shall  indemnify  and hold the  Trust  and the  Trustee  harmless
against, and the Borrower shall pay any and all, liability,  loss, cost, damage,
claim,  judgment or expense of any and all kinds or nature and  however  arising
and imposed by law,  which the Trust and the Trustee may sustain,  be subject to
or be caused to incur by reason of any claim, suit or action based upon personal
injury, death or damage to property, whether real, personal or mixed, or upon or
arising out of contracts entered into by the Borrower,  the Borrower's ownership
of the Environmental  Infrastructure  System or the Project, or the acquisition,
construction or installation of the Project.

      (b) It is mutually agreed by the Borrower,  the Trust and the Trustee that
the Trust and its officers,  agents,  servants or employees  shall not be liable
for, and shall be  indemnified  and saved  harmless by the Borrower in any event
from,  any action  performed  under this Loan Agreement and any claim or suit of
whatsoever  nature,  except in the event of loss or damage  resulting from their
own negligence or willful misconduct.  It is further agreed that the Trustee and
its directors,  officers, agents, servants or employees shall not be liable for,
and shall be  indemnified  and saved harmless by the Borrower in any event from,
any action  performed  pursuant to this Loan  Agreement,  except in the event of
loss or damage resulting from their own negligence or willful misconduct.

      (c) The  Borrower  and the Trust agree that all claims shall be subject to
and governed by the  provisions  of the New Jersey  Contractual  Liability  Act,
N.J.S.A.  59:13-1 et seq. (except for N.J.S.A.  59:13-9 thereof),  although such
Act by its express terms does not apply to claims  arising  under  contract with
the Trust.

      (d) In connection  with its  obligation to provide the insurance  required
under Section  2.02(j)  hereof:  (i) the Borrower shall include,  or cause to be
included,  the Trust and its  directors,  employees  and officers as  additional
"named insureds" on (A) any certificate of liability  insurance  procured by the
Borrower (or other similar document  evidencing the liability insurance coverage
procured  by the  Borrower)  and  (B) any  certificate  of  liability  insurance
procured by any contractor or subcontractor for the Project, and from the latter
of the date of the Loan Closing or the date of the initiation of construction of
the Project  until the date the  Borrower  receives the written  certificate  of
Project  completion  from the Trust,  the Borrower shall maintain said liability
insurance covering the Trust and said directors,  employees and officers in good
standing;  and (ii) the Borrower shall include the Trust as an additional "named
insured"  on any  certificate  of  insurance  providing  against  risk of direct
physical loss, damage or destruction of the Environmental Infrastructure System,
and during the Loan Term the Borrower shall maintain said insurance covering the
Trust in good standing.

      The  Borrower  shall  provide  the  Trust  with a copy of each of any such
original,  supplemental,  amendatory or reissued  certificates  of insurance (or
other similar documents  evidencing the insurance coverage) required pursuant to
this Section 3.06(d).

      SECTION 3.07.  Option to Prepay Loan  Repayments.  The Borrower may prepay
the Trust  Bond  Loan  Repayments,  in whole or in part (but if in part,  in the
amount of $100,000 or any integral multiple thereof),  upon prior written notice
to the Trust and the  Trustee  not less than ninety (90) days in addition to the
number of days' advance notice to the Trustee required for any


                                      -24-
<PAGE>

optional  redemption of the Trust Bonds, and upon payment by the Borrower to the
Trustee of amounts that,  together with  investment  earnings  thereon,  will be
sufficient to pay the principal  amount of the Trust Bond Loan  Repayments to be
prepaid plus the  Interest  Portion  described in clause (ii) of the  definition
thereof on any such date of redemption; provided, however, that any such full or
partial  prepayment  may only be made (i) if the Borrower is not then in arrears
on its Fund Loan,  (ii) if the  Borrower is  contemporaneously  making a full or
partial  prepayment of the Fund Loan such that, after the prepayment of the Loan
and the Fund  Loan,  the  Trust,  in its sole  discretion,  determines  that the
interests  of the owners of the Trust Bonds are not  adversely  affected by such
prepayments,  and  (iii)  upon the  prior  written  approval  of the  Trust.  In
addition, if at the time of such prepayment the Trust Bonds may only be redeemed
at the option of the Trust upon payment of a premium,  the Borrower shall add to
its  prepayment of Trust Bond Loan  Repayments  an amount,  as determined by the
Trust,  equal to such  premium  allocable to the Trust Bonds to be redeemed as a
result of the Borrower's  prepayment.  Prepayments shall be applied first to the
Interest  Portion  that  accrues on the portion of the Loan to be prepaid  until
such prepayment  date as described in clause (ii) of the definition  thereof and
then to principal payments  (including  premium,  if any) on the Loan in inverse
order of their maturity.

      SECTION  3.08.  Priority of Loan and Fund Loan.  (a) The  Borrower  hereby
agrees that, to the extent allowed by law or the Borrower Bond  Resolution,  any
Loan  Repayments  then due and  payable  on the Loan shall be  satisfied  by the
Borrower  before  any loan  repayments  on the  Borrower's  Fund  Loan  shall be
satisfied by the Borrower.

      (b) The Borrower hereby  acknowledges that in the event the Borrower fails
or is unable to pay promptly to the Trust in full any Trust Bond Loan Repayments
under  this  Loan  Agreement  when  due,  then any (i)  Administrative  Fee paid
hereunder,  (ii) late charges paid hereunder,  and (iii) loan repayments paid by
the Borrower on its Fund Loan under the related loan agreement therefor,  any of
which  payments  shall be received  by the  Trustee  during the time of any such
Trust Bond Loan Repayment  deficiency,  shall be applied by the Trustee first to
satisfy  such Trust  Bond Loan  Repayment  deficiency  as a credit  against  the
obligations  of the Borrower to make payments of the Interest  Portion under the
Loan and the Borrower Bond, second, to the extent available,  to make Trust Bond
Loan  Repayments  of principal  hereunder  and  payments of principal  under the
Borrower Bond, third, to the extent available,  to pay the  Administrative  Fee,
fourth, to the extent available,  to pay any late charges  hereunder,  fifth, to
the extent available, to satisfy the repayment of the Borrower's Fund Loan under
its related loan agreement therefor,  and finally,  to the extent available,  to
satisfy the  repayment  of the  administrative  fee under any such  related loan
agreement.

      (c) The Borrower hereby further acknowledges that any loan repayments paid
by the Borrower on its Fund Loan under the related loan agreement therefor shall
be applied according to the provisions of the Master Program Trust Agreement.

      SECTION 3.09. Approval of the New Jersey State Treasurer. The Borrower and
the Trust  hereby  acknowledge  that  prior to or  simultaneously  with the Loan
Closing the New Jersey State  Treasurer,  in satisfaction of the requirements of
Section 9a of the Act, issued the "Certificate of the New Jersey State Treasurer
Regarding  the  Approval of the Trust Loan and the Fund Loan" (the  "Treasurer's
Certificate"). Pursuant to the terms of the Treasurer's Certificate,


                                      -25-
<PAGE>

the New Jersey State  Treasurer  approved the Loan and the terms and  conditions
thereof as established by the provisions of this Loan Agreement.


                                      -26-
<PAGE>

                                   ARTICLE IV

                 ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND

      SECTION 4.01.  Assignment and Transfer by Trust.  (a) The Borrower  hereby
expressly  acknowledges  that, other than the provisions of Section  2.02(d)(ii)
hereof,  the  Trust's  right,  title and  interest  in,  to and under  this Loan
Agreement  and the Borrower  Bond have been  assigned to the Trustee as security
for the Trust Bonds as provided in the Bond Resolution, and that if any Event of
Default  shall  occur,  the  Trustee  or any Bond  Insurer  (as such term may be
defined in the Bond Resolution), if applicable, pursuant to the Bond Resolution,
shall be  entitled  to act  hereunder  in the place and stead of the Trust.  The
Borrower hereby acknowledges the requirements of the Bond Resolution  applicable
to the Trust Bonds and consents to such  assignment and  appointment.  This Loan
Agreement and the Borrower Bond,  including,  without  limitation,  the right to
receive payments required to be made by the Borrower  hereunder and to compel or
otherwise  enforce  observance  and  performance  by the  Borrower  of its other
duties,  covenants,   obligations  and  agreements  hereunder,  may  be  further
transferred,  assigned  and  reassigned  in  whole  or in  part  to one or  more
assignees  or  subassignees  by the  Trustee  at any  time  subsequent  to their
execution  without the  necessity of obtaining  the consent of, but after giving
prior written notice to, the Borrower.

      The Trust shall retain the right to compel or otherwise enforce observance
and  performance  by the  Borrower of its  duties,  covenants,  obligations  and
agreements under Section 2.02(d)(ii) hereof; provided, however, that in no event
shall the Trust have the right to  accelerate  the Borrower  Bond in  connection
with the enforcement of Section 2.02(d)(ii) hereof.

      (b) The  Borrower  hereby  approves  and  consents  to any  assignment  or
transfer of this Loan Agreement and the Borrower Bond that the Trust deems to be
necessary in connection with any refunding of the Trust Bonds or the issuance of
additional bonds under the Bond Resolution or otherwise,  all in connection with
the pooled loan program of the Trust.

      SECTION 4.02. Assignment by Borrower.  Neither this Loan Agreement nor the
Borrower  Bond may be  assigned  by the  Borrower  for any  reason,  unless  the
following  conditions  shall be  satisfied:  (i) the Trust and the Trustee shall
have approved said assignment in writing; (ii) the assignee shall have expressly
assumed in writing  the full and  faithful  observance  and  performance  of the
Borrower's  duties,  covenants,  obligations  and  agreements  under  this  Loan
Agreement and, to the extent  permitted under applicable law, the Borrower Bond;
(iii) immediately after such assignment, the assignee shall not be in default in
the  observance  or  performance  of  any  duties,  covenants,   obligations  or
agreements of the Borrower  under this Loan  Agreement or the Borrower Bond; and
(iv) the Trust shall have received an opinion of Bond Counsel to the effect that
such  assignment  will not  adversely  affect the security of the holders of the
Trust  Bonds or the  exclusion  of the  interest  on the Trust  Bonds from gross
income for purposes of federal income taxation under Section 103(a) of the Code.


                                      -27-
<PAGE>

                                    ARTICLE V

                         EVENTS OF DEFAULT AND REMEDIES

      SECTION 5.01. Events of Default.  If any of the following events occur, it
is hereby defined as and declared to be and to constitute an "Event of Default":

      (a) failure by the  Borrower  to pay, or cause to be paid,  any Trust Bond
Loan  Repayment  required to be paid  hereunder  when due,  which  failure shall
continue for a period of fifteen (15) days;

      (b) failure by the  Borrower to make,  or cause to be made,  any  required
payments of principal,  redemption  premium,  if any, and interest on any bonds,
notes or other  obligations  of the  Borrower  issued  under the  Borrower  Bond
Resolution  (other than the Loan and the Borrower Bond) or otherwise  secured by
all or a portion of the property  pledged  under the Borrower  Bond  Resolution,
after giving effect to the applicable grace period;

      (c)  failure  by  the   Borrower  to  pay,  or  cause  to  be  paid,   the
Administrative Fee or any late charges incurred hereunder or any portion thereof
when due or to observe and perform any duty,  covenant,  obligation or agreement
on its part to be observed or performed under this Loan Agreement, other than as
referred to in subsection (a) of this Section 5.01 or other than the obligations
of the Borrower contained in Section 2.02(d)(ii) hereof and in Exhibit F hereto,
which  failure  shall  continue  for a period of thirty (30) days after  written
notice,  specifying such failure and requesting that it be remedied, is given to
the  Borrower by the  Trustee,  unless the Trustee  shall agree in writing to an
extension of such time prior to its expiration;  provided,  however, that if the
failure stated in such notice is correctable but cannot be corrected  within the
applicable period,  the Trustee may not unreasonably  withhold its consent to an
extension  of such time up to 120 days from the  delivery of the written  notice
referred to above if corrective  action is instituted by the Borrower within the
applicable  period  and  diligently  pursued  until  the  Event  of  Default  is
corrected;

      (d) any  representation  made by or on behalf of the Borrower contained in
this Loan Agreement,  or in any instrument  furnished in compliance with or with
reference to this Loan  Agreement  or the Loan,  is false or  misleading  in any
material respect;

      (e) a petition  is filed by or against the  Borrower  under any federal or
state bankruptcy or insolvency law or other similar law in effect on the date of
this  Loan  Agreement  or  thereafter  enacted,  unless  in the case of any such
petition  filed  against the Borrower such  petition  shall be dismissed  within
thirty  (30) days after such  filing and such  dismissal  shall be final and not
subject to appeal;  or the Borrower shall become  insolvent or bankrupt or shall
make an assignment for the benefit of its creditors;  or a custodian (including,
without limitation, a receiver, liquidator or trustee) of the Borrower or any of
its  property  shall be  appointed  by court  order  or take  possession  of the
Borrower  or its  property  or assets if such  order  remains  in effect or such
possession continues for more than thirty (30) days;

      (f) the  Borrower  shall  generally  fail to pay its  debts as such  debts
become due; and


                                      -28-
<PAGE>

      (g) failure of the Borrower to observe or perform such additional  duties,
covenants,  obligations,  agreements  or conditions as are required by the Trust
and specified in Exhibit F attached hereto and made a part hereof.

      SECTION 5.02.  Notice of Default.  The Borrower shall give the Trustee and
the Trust prompt  telephonic  notice of the  occurrence  of any Event of Default
referred to in Section  5.01(d) or (e) hereof and of the occurrence of any other
event or  condition  that  constitutes  an Event of  Default at such time as any
senior  administrative or financial officer of the Borrower becomes aware of the
existence thereof.

      SECTION 5.03.  Remedies on Default.  Whenever an Event of Default referred
to in Section 5.01 hereof shall have  occurred and be  continuing,  the Borrower
acknowledges the rights of the Trustee and of any Bond Insurer to direct any and
all  remedies  in  accordance  with the  terms of the Bond  Resolution,  and the
Borrower  also  acknowledges  that the Trust shall have the right to take, or to
direct the Trustee to take,  any action  permitted  or required  pursuant to the
Bond Resolution and to take whatever other action at law or in equity may appear
necessary or desirable to collect the amounts then due and  thereafter to become
due  hereunder  or to  enforce  the  observance  and  performance  of any  duty,
covenant, obligation or agreement of the Borrower hereunder.

      In addition,  if an Event of Default referred to in Section 5.01(a) hereof
shall have occurred and be continuing, the Trust shall, to the extent allowed by
applicable  law and to the  extent  and in the  manner  set  forth  in the  Bond
Resolution,  have the right to declare, or to direct the Trustee to declare, all
Loan  Repayments  and  all  other  amounts  due  hereunder  (including,  without
limitation,  payments  under the Borrower  Bond)  together  with the  prepayment
premium,  if any,  calculated  pursuant to Section 3.07 hereof to be immediately
due and  payable,  and upon notice to the Borrower the same shall become due and
payable without further notice or demand.

      SECTION 5.04.  Attorneys' Fees and Other  Expenses.  The Borrower shall on
demand pay to the Trust or the  Trustee  the  reasonable  fees and  expenses  of
attorneys and other reasonable  expenses  (including,  without  limitation,  the
reasonably  allocated  costs of in-house  counsel and legal  staff)  incurred by
either of them in the collection of Trust Bond Loan  Repayments or any other sum
due hereunder or in the  enforcement  of the  observation  or performance of any
other duties, covenants, obligations or agreements of the Borrower upon an Event
of Default.

      SECTION 5.05.  Application of Moneys. Any moneys collected by the Trust or
the Trustee  pursuant to Section  5.03 hereof  shall be applied (a) first to pay
any attorneys' fees or other fees and expenses owed by the Borrower  pursuant to
Section 5.04 hereof,  (b) second, to the extent  available,  to pay the Interest
Portion then due and payable,  (c) third,  to the extent  available,  to pay the
principal due and payable on the Loan, (d) fourth, to the extent  available,  to
pay the  Administrative  Fee, any late charges  incurred  hereunder or any other
amounts due and payable under this Loan Agreement,  and (e) fifth, to the extent
available,  to pay the Interest  Portion and the principal on the Loan and other
amounts payable hereunder as such amounts become due and payable.


                                      -29-
<PAGE>

      SECTION  5.06.  No Remedy  Exclusive;  Waiver;  Notice.  No remedy  herein
conferred  upon or  reserved  to the  Trust or the  Trustee  is  intended  to be
exclusive, and every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Loan Agreement or now or hereafter  existing
at law or in equity. No delay or omission to exercise any right, remedy or power
accruing upon any Event of Default shall impair any such right,  remedy or power
or shall be  construed  to be a waiver  thereof,  but any such right,  remedy or
power  may be  exercised  from  time  to  time  and as  often  as may be  deemed
expedient.  In order to entitle the Trust or the Trustee to exercise  any remedy
reserved to it in this  Article V, it shall not be  necessary to give any notice
other than such notice as may be required in this Article V.

      SECTION 5.07. Retention of Trust's Rights.  Notwithstanding any assignment
or transfer of this Loan Agreement  pursuant to the provisions  hereof or of the
Bond Resolution,  or anything else to the contrary  contained herein,  the Trust
shall  have the right  upon the  occurrence  of an Event of  Default to take any
action,  including (without  limitation) bringing an action against the Borrower
at law or in equity,  as the Trust may, in its  discretion,  deem  necessary  to
enforce the  obligations  of the Borrower to the Trust  pursuant to Section 5.03
hereof.


                                      -30-
<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

      SECTION 6.01. Notices.  All notices,  certificates or other communications
hereunder  shall be  sufficiently  given  and shall be  deemed  given  when hand
delivered or mailed by registered or certified  mail,  postage  prepaid,  to the
Borrower at the address specified in Exhibit A-1 attached hereto and made a part
hereof and to the Trust and the Trustee at the following addresses:

      (a)   Trust:

                               New Jersey Environmental Infrastructure Trust
                               P.O. Box 440
                               Trenton, New Jersey  08625
                               Attention:  Executive Director

      (b)   Trustee:

                               Wachovia Bank, National Association
                               21 South Street, 3rd Floor
                               Morristown, New Jersey  07960
                               Attention:  Corporate Trust Department

      Any of the  foregoing  parties  may  designate  any  further or  different
addresses to which  subsequent  notices,  certificates  or other  communications
shall be sent by notice in writing given to the others.

      SECTION  6.02.  Binding  Effect.  This Loan  Agreement  shall inure to the
benefit  of and  shall be  binding  upon the Trust  and the  Borrower  and their
respective successors and assigns.

      SECTION  6.03.  Severability.  In the  event  any  provision  of this Loan
Agreement  shall be held  illegal,  invalid  or  unenforceable  by any  court of
competent jurisdiction,  such holding shall not invalidate, render unenforceable
or otherwise affect any other provision hereof.

      SECTION  6.04.  Amendments,  Supplements  and  Modifications.   Except  as
otherwise provided in this Section 6.04, this Loan Agreement may not be amended,
supplemented or modified  without the prior written consent of the Trust and the
Borrower and without the  satisfaction  of all  conditions  set forth in Section
11.12  of the Bond  Resolution.  Notwithstanding  the  conditions  set  forth in
Section 11.12 of the Bond Resolution, (i) Section 2.02(p) hereof may be amended,
supplemented  or modified upon the written consent of the Trust and the Borrower
and without the consent of the  Trustee,  any Bond Insurer or any holders of the
Trust Bonds, and (ii) Exhibit H hereto may be amended,  supplemented or modified
prior  to the  execution  and  delivery  thereof  as  the  Trust,  in  its  sole
discretion,  shall  determine to be necessary,  desirable or convenient  for the
purpose of  satisfying  Rule 15c2-12 and the purpose and intent  thereof as Rule
15c2-12,  its purpose and intent may hereafter be interpreted  from time to time
by the SEC or any


                                      -31-
<PAGE>

court of competent jurisdiction, and such amendment,  supplement or modification
shall not require the consent of the Borrower,  the Trustee, any Bond Insurer or
any holders of the Trust Bonds.

      SECTION  6.05.  Execution  in  Counterparts.  This Loan  Agreement  may be
executed in several counterparts,  each of which shall be an original and all of
which shall constitute but one and the same instrument.

      SECTION 6.06. Applicable Law and Regulations. This Loan Agreement shall be
governed by and  construed in accordance  with the laws of the State,  including
the Act and the Regulations,  which Regulations are, by this reference  thereto,
incorporated herein as part of this Loan Agreement.

      SECTION  6.07.  Consents and  Approvals.  Whenever the written  consent or
approval  of the  Trust  shall be  required  under the  provisions  of this Loan
Agreement,  such  consent  or  approval  may only be given by the  Trust  unless
otherwise  provided by law or by rules,  regulations or resolutions of the Trust
or unless expressly delegated to the Trustee and except as otherwise provided in
Section 6.09 hereof.

      SECTION 6.08.  Captions.  The captions or headings in this Loan  Agreement
are for convenience only and shall not in any way define,  limit or describe the
scope or intent of any provisions or sections of this Loan Agreement.

      SECTION 6.09. Benefit of Loan Agreement;  Compliance with Bond Resolution.
This Loan Agreement is executed,  among other reasons, to induce the purchase of
the Trust Bonds. Accordingly, all duties, covenants,  obligations and agreements
of the Borrower  herein  contained are hereby  declared to be for the benefit of
and are  enforceable  by the  Trust,  the  holders  of the  Trust  Bonds and the
Trustee.  The Borrower  covenants and agrees to observe and comply with,  and to
enable the Trust to observe and comply with, all duties, covenants,  obligations
and agreements contained in the Bond Resolution.

      SECTION 6.10.  Further  Assurances.  The Borrower shall, at the request of
the Trust,  authorize,  execute,  attest,  acknowledge  and deliver such further
resolutions,  conveyances, transfers, assurances, financing statements and other
instruments  as may be necessary or desirable  for better  assuring,  conveying,
granting, assigning and confirming the rights, security interests and agreements
granted or intended to be granted by this Loan Agreement and the Borrower Bond.


                                      -32-
<PAGE>


      IN WITNESS  WHEREOF,  the Trust and the  Borrower  have  caused  this Loan
Agreement  to be  executed,  sealed and  delivered  as of the date  first  above
written.

                                               NEW JERSEY ENVIRONMENTAL
                                                 INFRASTRUCTURE TRUST

[SEAL]

                                               By:________________________
ATTEST:                                           Robert A. Briant, Sr.
                                                  Chairman

- -----------------------------
Eileen Swan
Secretary

                                               MIDDLESEX WATER COMPANY
[SEAL]

                                               By: /s/ Dennis G. Sullivan
                                                   ---------------------------
ATTEST:                                            Dennis G. Sullivan
                                                   President

/s/ Kenneth J. Quinn
- ----------------------------------
     Kenneth J. Quinn
     Secretary

                                [Signature Page]

<PAGE>

                                   SCHEDULE A

                  Certain Additional Loan Agreement Provisions
                  --------------------------------------------


                                      S-1
<PAGE>

                                   EXHIBIT A-1

         Description of Project and Environmental Infrastructure System
         --------------------------------------------------------------


                                      A-1-1

<PAGE>

                                   EXHIBIT A-2

                               Description of Loan
                               -------------------


                                      A-2-1

<PAGE>


                                    EXHIBIT B

               Basis for Determination of Allowable Project Costs
               --------------------------------------------------


                                      B-1
<PAGE>


                                    EXHIBIT C

                         Estimated Disbursement Schedule
                         -------------------------------


                                      C-1
<PAGE>


                                    EXHIBIT D

                             Specimen Borrower Bond
                             ----------------------


                                      D-1
<PAGE>

            (Except for assignment page, to be supplied by Borrower's
                bond counsel in substantially the following form)

      IMPORTANT  NOTE:  The next three pages set forth the form of the  Borrower
Bond  prepared  by the Trust's  Bond  Counsel  for  municipal/county  Borrowers.
Although the Trust recognizes that each corporate Borrower has its own bond form
as required pursuant to its Borrower Bond Resolution,  please incorporate in the
bond form the pertinent  information from this municipal/county bond form (e.g.,
amounts  payable  under the  Borrower  Bond set  forth in the  first  paragraph,
assignment  in  the  second  paragraph,   disbursement  language  in  the  third
paragraph, unconditional obligation in the fourth paragraph, optional prepayment
provisions  in the fifth  paragraph and the date of the Borrower  Bond).  To the
extent that you do not have an existing Bond  Resolution,  the pledge under your
Bond Resolution  should be drafted to constitute a general  obligation pledge of
(i) all the gross  revenues of the company and (ii) any specific  property (e.g.
mortgage)  or other  security  pledged  for this  transaction  (e.g.  letter  of
credit).


                                      D-2
<PAGE>

                        SEE IMPORTANT NOTE ON PRIOR PAGE

      FOR VALUE  RECEIVED,  [NAME OF BORROWER],  a corporation  duly created and
validly existing under the Constitution and laws of the State (the  "Borrower"),
hereby   promises  to  pay  to  the  order  of  the  New  Jersey   Environmental
Infrastructure    Trust   (the   "Trust")   (i)   the   principal    amount   of
__________________________ Dollars ($__________), or such lesser amount as shall
be  determined  in  accordance  with  Section  3.01 of the  Loan  Agreement  (as
hereinafter  defined), at the times and in the amounts determined as provided in
the Loan  Agreement,  together with (ii) Interest on the Loan  constituting  the
Interest Portion, the Administrative Fee and any late charges incurred under the
Loan  Agreement (as such terms are defined in the Loan  Agreement) in the amount
calculated  as  provided in the Loan  Agreement,  payable on the days and in the
amounts  and as  provided  in the Loan  Agreement,  which  principal  amount and
Interest Portion of the Interest on the Loan shall, unless otherwise provided in
the Loan Agreement,  be payable on the days and in the amounts as also set forth
in Exhibit A attached  hereto under the column  headings  respectively  entitled
"Principal" and "Interest", plus (iii) any other amounts due and owing under the
Loan Agreement at the times and in the amounts as provided therein. The Borrower
unconditionally and irrevocably promises, in accordance with the terms of and to
the extent  provided in the  Borrower  Bond  Resolution  (as defined in the Loan
Agreement) to pay in full and when due the principal of and the Interest on this
Borrower Bond (as defined in the Loan Agreement) and all other amounts due under
this Borrower Bond and the Loan Agreement according to their respective terms.

      This Borrower Bond is issued  pursuant to the Loan  Agreement  dated as of
November  1,  2004  by and  between  the  Trust  and  the  Borrower  (the  "Loan
Agreement").  This  Borrower  Bond is issued in  consideration  of the loan made
under the Loan Agreement (the "Loan") to evidence the payment obligations of the
Borrower  set  forth   therein.   This   Borrower  Bond  has  been  assigned  to
_____________________________,    as   trustee   (the   "Trustee")   under   the
"Environmental  Infrastructure Bond Resolution,  Series 2004[_]", adopted by the
Trust on September  __,  2004,  as the same may be amended and  supplemented  in
accordance  with  the  terms  thereof  (the  "Bond  Resolution"),  and  payments
hereunder  shall,  except as otherwise  provided in the Loan Agreement,  be made
directly  to  the  Trustee  for  the  account  of the  Trust  pursuant  to  such
assignment.  Such  assignment  has been made as security  for the payment of the
Trust Bonds (as defined in the Loan  Agreement)  issued to finance or  refinance
the Loan and as otherwise described in the Loan Agreement. This Borrower Bond is
subject to further assignment or endorsement in accordance with the terms of the
Bond  Resolution  and the  Loan  Agreement.  All of the  terms,  conditions  and
provisions of the Loan Agreement are, by this  reference  thereto,  incorporated
herein as part of this Borrower Bond.

      Pursuant to the Loan Agreement, disbursements shall be made by the Trustee
to the Borrower,  in accordance  with written  instructions  of the Trust,  upon
receipt by the Trust and the Trustee of requisitions  from the Borrower executed
and delivered in accordance with the  requirements  set forth in Section 3.02 of
the Loan Agreement.

      This  Borrower  Bond is  entitled  to the  benefits  and is subject to the
conditions of the Loan  Agreement.  The  obligations of the Borrower to make the
payments required hereunder shall be


                                      D-3
<PAGE>

absolute   and   unconditional,   without  any  defense  or  right  of  set-off,
counterclaim  or recoupment by reason of any default by the Trust under the Loan
Agreement or under any other agreement between the Borrower and the Trust or out
of any  indebtedness or liability at any time owing to the Borrower by the Trust
or for any other reason.

      This Borrower Bond is subject to optional  prepayment  under the terms and
conditions,  and in the amounts, provided in Section 3.07 of the Loan Agreement.
To the extent  allowed by  applicable  law, this Borrower Bond may be subject to
acceleration  under the terms and  conditions,  and in the amounts,  provided in
Section 5.03 of the Loan Agreement.

      IN WITNESS WHEREOF,  the Borrower has caused this Borrower Bond to be duly
executed, sealed and delivered as of October 15, 2004.

                                    [NAME OF BORROWER]

[SEAL]

                                    By:_______________________
ATTEST:                                Mayor

_____________________               By:_______________________
Clerk                                  [Treasurer] [Chief Financial Officer]


                                      D-4
<PAGE>

      New Jersey Environmental Infrastructure Trust hereby assigns the foregoing
Borrower Bond to _________________________,  as Trustee under the "Environmental
Infrastructure Bond Resolution,  Series 2004[_]", adopted on September __, 2004,
as  amended  and  supplemented,  all as of the date of this  Borrower  Bond,  as
security for the Trust Bonds issued or to be issued under the Bond Resolution to
finance or refinance the Project Fund (as defined in the Bond Resolution).

                                                 NEW JERSEY ENVIRONMENTAL
                                                   INFRASTRUCTURE TRUST

[SEAL]

                                                 By:____________________________
ATTEST:                                             Robert A. Briant, Sr.
                                                    Chairman

- -----------------------------
Eileen Swan
Secretary


                                      D-6
<PAGE>


                                    EXHIBIT E

                Opinions of Borrower's Bond and General Counsels
                ------------------------------------------------


                                      E-1
<PAGE>

                       [LETTERHEAD OF COUNSEL TO BORROWER]

                                                      November __, 2004

New Jersey Environmental Infrastructure Trust
P.O. Box 440
Trenton, New Jersey  08625

- --------------------------------

- --------------------------------

- --------------------------------

- --------------------------------

Ladies and Gentlemen:

      We have  acted as  counsel  to  [Name of  Borrower],  a  corporation  duly
organized  and validly  existing  under the laws of the State (the  "Borrower"),
which has entered into a Loan  Agreement (as  hereinafter  defined) with the New
Jersey Environmental  Infrastructure Trust (the "Trust"), and have acted as such
in connection with the authorization, execution, attestation and delivery by the
Borrower  of its Loan  Agreement  and  Borrower  Bond (as  hereinafter  defined)
pursuant to the New Jersey  Business  Corporation  Act,  P.L.  1968,  c. 263, as
amended (the "Business Corporation Law"), and a [bond resolution] [indenture] of
the Borrower [adopted on] [dated] [DATE] and entitled "[TITLE]",  as amended and
supplemented,  including by a supplemental [resolution] [indenture] [adopted on]
[dated] [DATE] and entitled "[TITLE]" (such [resolutions]  [indentures] shall be
collectively referred to herein as the "Resolution"). All capitalized terms used
but not defined  herein  shall have the  meanings  ascribed to such terms in the
Loan Agreement.

      In so acting,  we have examined the  Constitution and laws of the State of
New Jersey, including, without limitation, the Business Corporation Law, and the
certificate of incorporation and by-laws of the Borrower.  We have also examined
originals,  or copies certified or otherwise identified to our satisfaction,  of
the following:

      (a) the Trust's  "Environmental  Infrastructure  Bond  Resolution,  Series
2004[_]", adopted by the Board of Directors of the Trust on September __, 2004

      (b) the Loan Agreement dated as of November 1, 2004 (the "Loan Agreement")
by and between the Trust and the Borrower;

      (c) the proceedings of the board of directors of the Borrower  relating to
the approval of the Loan Agreement and the execution,  attestation  and delivery
thereof on behalf of the Borrower and the  authorization  of the undertaking and
completion of the Project;

      (d) the Borrower Bond dated as of October 15, 2004 (the  "Borrower  Bond")
issued by the Borrower to the Trust to evidence the Loan; and


                                      E-2
<PAGE>

      (e) the proceedings  (together with the proceedings  referred to in clause
(c) above and Section 5 below, the  "Proceedings")  of the board of directors of
the Borrower,  including,  without limitation,  the Resolution,  relating to the
authorization  of the  Borrower  Bond  and  the  sale,  execution,  attestation,
authentication  and delivery  thereof to the Trust (the Loan  Agreement  and the
Borrower Bond are referred to herein collectively as the "Loan Documents").

      We have also examined and relied upon  originals,  or copies  certified or
otherwise authenticated to our satisfaction,  of such other records,  documents,
certificates and other  instruments,  and have made such investigation of law as
in our judgment we have deemed necessary or appropriate,  to enable us to render
the opinions expressed below.

      We are of the opinion that:

      1. The Borrower is a corporation  duly created and validly  existing under
and  pursuant  to the  Constitution  and  statutes  of the State of New  Jersey,
including  the Business  Corporation  Law,  with the legal right to carry on the
business of its Environmental Infrastructure System as currently being conducted
and as proposed to be conducted.

      2. The Borrower has full legal right and authority to execute,  attest and
deliver the Loan Documents, to sell the Borrower Bond to the Trust, to cause the
authentication  of the  Borrower  Bond,  to  observe  and  perform  its  duties,
covenants,  obligations and agreements under the Loan Documents and to undertake
and complete the Project.

      3. The acting officers of the Borrower who are contemporaneously  herewith
performing  or have  previously  performed any action  contemplated  in the Loan
Agreement  are,  and at the time any such action was  performed  were,  the duly
appointed or elected officers of the Borrower empowered by applicable New Jersey
law and authorized by resolution of the Borrower to perform such actions.

      4. In  accordance  with the  terms  of the  Resolution  and to the  extent
provided in the  Resolution,  the Borrower has  unconditionally  and irrevocably
promised  to make the Loan  Repayments  and pay all other  amounts due under the
Loan Documents.

      5. The proceedings of the Borrower's  board of directors (i) approving the
Loan Documents,  (ii) authorizing  their execution,  attestation and delivery on
behalf  of  the  Borrower,  (iii)  with  respect  to  the  Borrower  Bond  only,
authorizing  its  sale  by  the  Borrower  to  the  Trust  and  authorizing  its
authentication  on behalf of the  Borrower,  (iv)  authorizing  the  Borrower to
consummate the transactions  contemplated by the Loan Documents, (v) authorizing
the Borrower to undertake and complete the Project,[(vi) authorizng the approval
of the inclusion in the Official Statement of the Borrower Appendices,] and (vi)
[(vii)]  authorizing  the  execution  and  delivery  of all other  certificates,
agreements,   documents  and  instruments  in  connection  with  the  execution,
attestation and delivery of the Loan Documents,  [including, without limitation,
the designation of the Borrower  Appendices portion of the Preliminary  Official
Statement  as "deemed  final" for the  purposes  and within the  meaning of Rule
15c2-12(b)(1) of the Securities Exchange Act of 1934, as amended, as promulgated
by the Securities and Exchange


                                      E-3
<PAGE>

Commission,]  have  each  been  duly and  lawfully  adopted  and  authorized  in
accordance  with  applicable  law and  applicable  resolutions  of the Borrower,
including,  without  limitation,  the Resolution,  the other Proceedings and the
Business  Corporation  Law,  which  Proceedings  constitute  all of the  actions
necessary to be taken by the Borrower to authorize its actions  contemplated  by
clauses (i) through (vi) [(vii)] above and which Proceedings, including, without
limitation, the Resolution,  were duly adopted in accordance with applicable New
Jersey law at a meeting or  meetings  duly  called and held in  accordance  with
applicable  New  Jersey  law  and at  which  quorums  were  present  and  acting
throughout.

      6. The Loan Documents have been duly  authorized,  executed,  attested and
delivered by the Authorized Officers of the Borrower, the Borrower Bond has been
duly sold by the  Borrower  to the Trust,  and the  Borrower  Bond has been duly
authenticated  by  the  trustee  or  paying  agent  under  the  Resolution,   if
applicable;  and assuming in the case of the Loan  Agreement  that the Trust has
the requisite power and authority to authorize, execute, attest and deliver, and
has duly authorized,  executed,  attested and delivered, the Loan Agreement, the
Loan  Documents  constitute  the legal,  valid and  binding  obligations  of the
Borrower,  enforceable  against the Borrower in accordance with their respective
terms,  subject,  however, to the effect of, and to restrictions and limitations
imposed by or resulting from, bankruptcy, insolvency, moratorium, reorganization
or other  similar laws  affecting  creditors'  rights  generally.  No opinion is
rendered as to the availability of any particular remedy.

      7. The  authorization,  execution,  attestation  and  delivery of the Loan
Documents  by the  Borrower  and,  in the case of the  Borrower  Bond only,  the
authentication  thereof by the trustee or paying agent under the  Resolution and
the sale thereof to the Trust,  the  observation and performance by the Borrower
of  its  duties,   covenants,   obligations  and  agreements   thereunder,   the
consummation of the transactions  contemplated  therein, and the undertaking and
completion of the Project do not and will not (i) other than the lien, charge or
encumbrance  created by the Loan  Documents,  by the Resolution and by any other
outstanding  debt  obligations  of the  Borrower  that  are at  parity  with the
Borrower  Bond as to lien on, and source and security for payment  thereon from,
the revenues of the Borrower,  result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Borrower pursuant to,
(ii) result in any breach of any of the terms,  conditions or provisions  of, or
(iii) constitute a default under, any existing  resolution,  outstanding debt or
lease  obligation,  trust agreement,  indenture,  mortgage,  deed of trust, loan
agreement or other  instrument  to which the Borrower is a party or by which the
Borrower,  its Environmental  Infrastructure  System or any of its properties or
assets  may be  bound,  nor will such  action  result  in any  violation  of the
provisions of the charter or other  document  pursuant to which the Borrower was
established or any laws, ordinances,  injunctions,  judgments,  decrees,  rules,
regulations or existing orders of any court or  governmental  or  administrative
agency,   authority  or  person  to  which  the  Borrower,   its   Environmental
Infrastructure System or its properties or operations is subject.

      8. All approvals,  consents or  authorizations  of, or registrations of or
filings with, any governmental or public agency, authority or person required to
date  on  the  part  of the  Borrower  in  connection  with  the  authorization,
execution, attestation, delivery and performance of the Loan Documents, the sale
of the Borrower Bond and the undertaking and completion of the Project have been
obtained or made.


                                      E-4
<PAGE>

      9.  There  is no  litigation  or  other  proceeding  pending  or,  to  our
knowledge,  after due  inquiry,  threatened  in any court or other  tribunal  of
competent  jurisdiction  (either State or federal) (i) questioning the creation,
organization  or existence  of the  Borrower,  (ii)  questioning  the  validity,
legality or  enforceability  of the Resolution,  the Loan or the Loan Documents,
(iii)  questioning the undertaking or completion of the Project,  (iv) otherwise
challenging the Borrower's  ability to consummate the transactions  contemplated
by the Loan or the Loan Documents, or (v) that, if adversely decided, would have
a materially adverse impact on the financial condition of the Borrower.

      10. The Borrower has no bonds, notes or other debt obligations outstanding
that are superior or senior to the  Borrower  Bond as to lien on, and source and
security for payment thereof from, the revenues of the Borrower.

      11.  To  the  best  of  our   knowledge,   upon  due   inquiry,   (i)  all
representations made by the Borrower contained within subsections (f) and (h) of
Section  2.02 and,  if  applicable,  Exhibit F of the Loan  Agreement  are true,
accurate  and  complete,   and  (ii)  all  expectations  contained  therein  are
reasonable,  and we know of no reason why the Borrower would be unable to comply
on a continuing basis with the covenants  contained  within  subsections (f) and
(h) of Section 2.02 and, if applicable, Exhibit F of the Loan Agreement.

      12. Assuming that (i) the Borrower complies on a continuing basis with the
covenants  contained  in  subsections  (f)  and  (h) of  Section  2.02  and,  if
applicable, Exhibit F of the Loan Agreement, (ii) interest on the Trust Bonds is
otherwise  excluded from gross income of the holders  thereof for federal income
tax purposes under the Internal Revenue Code of 1986, as amended,  and (iii) the
proceeds of the Trust Bonds loaned to the Borrower represent all of the proceeds
of the  Trust  Bonds,  the  application  of the  proceeds  of the Loan for their
intended  purposes will not adversely affect the exclusion from gross income for
federal income tax purposes of the interest on the Trust Bonds.

      We hereby authorize McCarter & English, LLP, acting as bond counsel to the
Trust,  and the Attorney  General of the State of New Jersey,  acting as general
counsel  to the  Trust,  to rely on this  opinion  as if we had  addressed  this
opinion to them in addition to you.

                                                             Very truly yours,


                                      E-5
<PAGE>

                                    EXHIBIT F

                      Additional Covenants and Requirements
                      -------------------------------------


                                      F-1
<PAGE>

                                    EXHIBIT G

                   General Administrative Requirements for the
              State Environmental Infrastructure Financing Program
              ----------------------------------------------------


                                      G-1
<PAGE>
                                     <PAGE>

                                    EXHIBIT H

                     Form of Continuing Disclosure Agreement
                     ---------------------------------------


                                      H-1
<PAGE>

                                 M O R T G A G E

                       THIRTY-FIRST SUPPLEMENTAL INDENTURE

                             MIDDLESEX WATER COMPANY

                                       TO

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                                     Trustee

                          Dated as of October 15, 2004

                                    Record and Return to:

                                    Peter D. Hutcheon, Esq.
                                    Norris, McLaughlin & Marcus
                                    721 Route 202/206
                                    P.O. Box 1018
                                    Somerville, NJ  08876
                                    (908) 722-0700

Prepared By: ________________________
               Peter D. Hutcheon, Esq.

<PAGE>

            THIS THIRTY-FIRST SUPPLEMENTAL INDENTURE,  dated as of the fifteenth
day of October,  2004, between MIDDLESEX WATER COMPANY, a corporation  organized
and  existing  under the laws of the State of New Jersey,  having its  principal
office  in the  Township  of  Iselin,  New  Jersey  (herein  called  the  "Water
Company"), and WACHOVIA BANK, NATIONAL ASSOCIATION, (as successor to First Union
National Bank, the successor to Meridian Bank, the successor to United  Counties
Trust  Company in turn the  successor  to the Union  County  Trust  Company),  a
corporation  organized and existing under the laws of the United States,  having
its principal New Jersey  corporate trust office in the Town of Morristown,  New
Jersey, as Trustee under the Indenture of Mortgage hereinafter mentioned (herein
called the "Trustee"):

            WHEREAS,  on April 1, 1927,  Water Company executed and delivered to
the Trustee an Indenture of Mortgage  (herein  called the  "Mortgage") to secure
its First and Refunding Mortgage Gold Bonds, Series A, 5-1/2%,  which bonds have
since been redeemed by Water Company,  and which Mortgage provides that bonds of
other  series may be issued  under and  pursuant  to an  indenture  supplemental
thereto; and

            WHEREAS,  on May 14, 1935,  Water Company  executed and delivered to
the Trustee a Supplemental  Indenture to secure its First and Refunding Mortgage
Bonds, Series B, 4-1/2%,  which Supplemental  Indenture,  prior to the execution
and delivery  hereof,  was satisfied and  discharged of record,  no bonds having
been issued thereunder; and

            WHEREAS, as of October 1, 1939, Water Company executed and delivered
to the Trustee a Second  Supplemental  Indenture of Mortgage  (herein called the
"Second  Supplemental  Indenture")  to secure its First and  Refunding  Mortgage
3-3/4% Bonds,  Series C (herein  called the "Series C Bonds"),  which bonds were
paid at  maturity  by Water  Company,  and  otherwise  modifying,  amending  and
supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1946,  Water Company executed and delivered
to the Trustee a Third  Supplemental  Indenture of Mortgage  (herein  called the
"Third  Supplemental  Indenture") to secure its First and Refunding  Mortgage 3%
Bonds,  Series D (herein called the "Series D Bonds"),  which bonds were paid at
maturity by Water Company, and otherwise  modifying,  amending and supplementing
the Mortgage; and

            WHEREAS,  as of April 1, 1949,  Water Company executed and delivered
to the Trustee a Fourth  Supplemental  Indenture of Mortgage  (herein called the
"Fourth  Supplemental  Indenture")  to secure its First  Mortgage  3-1/2% Bonds,
Series E (herein called the "Series E Bonds"), which bonds were paid at maturity
by Water  Company,  and  otherwise  modifying,  amending and  supplementing  the
Mortgage; and

            WHEREAS,  as  of  February  1,  1955,  Water  Company  executed  and
delivered  to the Trustee a Fifth  Supplemental  Indenture  of Mortgage  (herein
called the "Fifth  Supplemental  Indenture") to secure its First Mortgage 3-5/8%
Bonds,  Series F (herein called the "Series F Bonds"),  which bonds were paid at
maturity by Water Company, and otherwise supplementing the Mortgage; and

<PAGE>

            WHEREAS,  as  of  December  1,  1959,  Water  Company  executed  and
delivered  to the Trustee a Sixth  Supplemental  Indenture  of Mortgage  (herein
called the "Sixth  Supplemental  Indenture") to secure its First Mortgage 5-3/4%
Bonds,  Series G (herein  called the  "Series G Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  January  15,  1963,  Water  Company  executed  and
delivered to the Trustee a Seventh  Supplemental  Indenture of Mortgage  (herein
called the "Seventh Supplemental Indenture") to secure its First Mortgage 4-1/2%
Bonds,  Series H (herein called the "Series H Bonds"),  which bonds were paid at
maturity by Water Company and otherwise supplementing the Mortgage; and

            WHEREAS, as of July 1, 1964, Water Company executed and delivered to
the Trustee,  an Eighth  Supplemental  Indenture of Mortgage  (herein called the
"Eighth  Supplemental  Indenture")  to secure its First  Mortgage 4 3/4%  Bonds,
Series I (herein  called  the  "Series I  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS, as of June 1, 1965, Water Company executed and delivered to
the Trustee a Ninth Supplemental Indenture of Mortgage (herein called the "Ninth
Supplemental  Indenture")  to secure its First Mortgage  4-3/4% Bonds,  Series J
(herein  called the "Series J Bonds"),  which bonds have since been  redeemed by
Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  February  1,  1968,  Water  Company  executed  and
delivered  to the Trustee a Tenth  Supplemental  Indenture  of Mortgage  (herein
called the "Tenth  Supplemental  Indenture") to secure its First Mortgage 6-3/4%
Bonds,   Series  K  (herein   called  the  "Series  K  Bonds"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  December  1,  1968,  Water  Company  executed  and
delivered to the Trustee an Eleventh Supplemental  Indenture of Mortgage (herein
called the  "Eleventh  Supplemental  Indenture")  to secure  its First  Mortgage
6-7/8% Bonds,  Series L (herein  called the "Series L Bonds"),  which bonds have
since been redeemed by Water Company, and otherwise  supplementing the Mortgage;
and

            WHEREAS,  as  of  December  1,  1970,  Water  Company  executed  and
delivered to the Trustee a Twelfth  Supplemental  Indenture of Mortgage  (herein
called the "Twelfth  Supplemental  Indenture")  to secure its First Mortgage 10%
Bonds,  Series M (herein  called the  "Series M Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  December  1,  1972,  Water  Company  executed  and
delivered to the Trustee a Thirteenth Supplemental Indenture of Mortgage (herein
called the  "Thirteenth  Supplemental  Indenture")  to secure its First Mortgage
8-1/8% Bonds, Series N (herein called the

<PAGE>

"Series N Bonds"),  which bonds have since been redeemed by Water  Company,  and
otherwise supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1979,  Water Company executed and delivered
to the Trustee a Fourteenth  Supplemental  Indenture of Mortgage  (herein called
the "Fourteenth  Supplemental Indenture") to secure its First Mortgage 7% Bonds,
Series 0 (herein  called  the  "Series 0  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of April 1, 1983,  Water Company executed and delivered
to the Trustee a Fifteenth Supplemental Indenture of Mortgage (herein called the
"Fifteenth Supplemental  Indenture") to secure its First Mortgage 10-1/2% Bonds,
Series P (herein  called  the  "Series P  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of August 1, 1988, Water Company executed and delivered
to the Trustee a Sixteenth Supplemental Indenture of Mortgage (herein called the
"Sixteenth  Supplemental  Indenture")  to secure  its First  Mortgage  8% Bonds,
Series Q (herein  called  the  "Series Q  Bonds"),  which  bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of June 15, 1991,  Water Company executed and delivered
to the Trustee a Seventeenth  Supplemental  Indenture of Mortgage (herein called
the  "Seventeenth  Supplemental  Indenture")  to secure its First Mortgage 7.25%
Bonds,  Series R (herein  called the  "Series R Bonds"),  which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and

            WHEREAS,  as of March 1, 1993,  Water Company executed and delivered
to  the  Trustee  a  Supplementary   Indenture  of  Mortgage  to  the  Fifteenth
Supplemental  Indenture of Mortgage (herein called the "Supplementary  Indenture
to the Fifteenth  Supplemental  Indenture") to secure its First Mortgage 2 7/8%,
Series P-1 (herein  called the "Series P-1 Bonds"),  which bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage.

            WHEREAS,  as of  September  1,  1993,  Water  Company  executed  and
delivered  to the  Trustee an  Eighteenth  Supplemental  Indenture  of  Mortgage
(herein  called the  "Eighteenth  Supplemental  Indenture")  to secure its First
Mortgage  5.20%  Bonds,  Series S (herein  called  the  "Series S  Bonds"),  and
otherwise supplementing the Mortgage; and

            WHEREAS,  as of  September  1,  1993,  Water  Company  executed  and
delivered to the Trustee a Nineteenth Supplemental Indenture of Mortgage (herein
called the  "Nineteenth  Supplemental  Indenture")  to secure its First Mortgage
5.25%  Bonds,  Series T (herein  called  the  "Series T Bonds"),  and  otherwise
supplementing the Mortgage; and

<PAGE>

            WHEREAS, as of January 1, 1994, Water Company executed and delivered
to Trustee a Twentieth  Supplemental  Indenture of Mortgage  (herein  called the
"Twentieth  Supplemental  Indenture")  to secure its First  Mortgage 6.4% Bonds,
Series U (herein called the "Series U Bonds"),  and otherwise  supplementing the
Mortgage; and

            WHEREAS, as of January 1, 1994, Water Company executed and delivered
to Trustee a Twenty-First  Supplemental Indenture of Mortgage (herein called the
"Twenty-First Supplemental Indenture") to secure its First Mortgage 5.25% Bonds,
Series V (herein called the "Series V Bonds"),  and otherwise  supplementing the
Mortgage; and

            WHEREAS,  as of March 1, 1998,  Water Company executed and delivered
to Trustee a Twenty-Second Supplemental Indenture of Mortgage (herein called the
"Twenty-Second  Supplemental  Indenture")  to secure  its First  Mortgage  5.35%
Bonds,   Series  W  (herein   called  the  "Series  W  Bonds"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1998,  Water  Company  executed  and
delivered to Trustee a Twenty-Third  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Third  Supplemental  Indenture") to secure its First Mortgage
0%  Bond,  Series  X  (herein  called  the  "Series  X  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1998,  Water  Company  executed  and
delivered to Trustee a Twenty-Fourth  Supplemental Indenture of Mortgage (herein
called the "Twenty-Fourth  Supplemental Indenture") to secure its First Mortgage
Scheduled  Interest Rate Bond, Series Y (herein called the "Series Y Bond"), and
otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1999,  Water  Company  executed  and
delivered to Trustee a Twenty-Fifth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Fifth  Supplemental  Indenture") to secure its First Mortgage
0%  Bond,  Series  Z  (herein  called  the  "Series  Z  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  1999,  Water  Company  executed  and
delivered to Trustee a Twenty-Sixth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Sixth  Supplemental  Indenture") to secure its First Mortgage
Scheduled  Interest Rate Bond,  Series AA (herein  called the "Series AA Bond"),
and otherwise supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  2001,  Water  Company  executed  and
delivered to Trustee a Twenty-Seventh Supplemental Indenture of Mortgage (herein
called the "Twenty-Seventh Supplemental Indenture") to secure its First Mortgage
0% Bond,  Series  BB  (herein  called  the  "Series  BB  Bond"),  and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  2001,  Water  Company  executed  and
delivered to Trustee a Twenty-Eighth  Supplemental Indenture of Mortgage (herein
called the "Twenty-Eighth  Supplemental Indenture") to secure its First Mortgage
Scheduled  Interest Rates Bond,  Series CC (herein called the "Series CC Bond"),
and otherwise supplementing the Mortgage; and

<PAGE>

            WHEREAS,  as  of  January  15,  2002,  Water  Company  executed  and
delivered to Trustee a Twenty-Ninth  Supplemental  Indenture of Mortgage (herein
called the "Twenty-Seventh Supplemental Indenture") to secure its First Mortgage
5.10%  Bonds,  Series DD (herein  called the  "Series DD Bond"),  and  otherwise
supplementing the Mortgage; and

            WHEREAS,  as  of  October  15,  2004,  Water  Company  executed  and
delivered  to Trustee a Thirtieth  Supplemental  Indenture  of Mortgage  (herein
called the "Thirtieth  Supplemental  Indenture") to secure its First Mortgage 0%
Bond,   Series  EE  (herein   called  the  "Series  EE  Bond"),   and  otherwise
supplementing the Mortgage; and

            WHEREAS,  Water  Company  deems it  necessary to borrow money and to
issue its bonds therefor, to be secured by the Mortgage, the Second Supplemental
Indenture,  the Third Supplemental Indenture, the Fourth Supplemental Indenture,
the Fifth Supplemental Indenture,  the Sixth Supplemental Indenture, the Seventh
Supplemental   Indenture,   the  Eighth   Supplemental   Indenture,   the  Ninth
Supplemental  Indenture,   the  Tenth  Supplemental   Indenture,   the  Eleventh
Supplemental  Indenture,  the Twelfth  Supplemental  Indenture,  the  Thirteenth
Supplemental Indenture,  the Fourteenth  Supplemental  Indenture,  the Fifteenth
Supplemental Indenture,  the Sixteenth Supplemental  Indenture,  the Seventeenth
Supplemental   Indenture,   the   Supplementary   Indenture  to  the   Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth,  the Thirtieth  Supplemental  Indentures and by this  Thirty-First
Supplemental Indenture;

            WHEREAS,  Water Company  desires to authorize and create a series of
bonds  under  which a  single  bond  shall be  issued  limited  to an  aggregate
principal  amount  of  $8,920,000  designated  Series  FF and to be known as its
"First Mortgage  Scheduled  Interest Rates Bonds,  Series FF" (herein called the
"Series FF Bond"), it being the intention of the parties that the Series FF Bond
shall,  together  with  all  other  Bonds  issued  under  the  Mortgage  and all
indentures  supplemental  thereto,  be  entitled  to  priority  over  all  other
obligations  of the Water  Company and shall be secured by a prior first lien on
all the  mortgaged  property,  subject  only  to the  prior  liens  specifically
permitted under the Mortgage or under any indenture supplemental thereto; and

            WHEREAS,  Water  Company  desires  that the  Series FF Bond shall be
issued to fund payment of the  principal of  $8,920,000,  the amount of the Loan
borrowed from the New Jersey  Environmental  Infrastructure  Trust (the "Trust")
under the Loan Agreement dated as of November 1, 2004 (the "Loan  Agreement") by
and between the Trust and the Water  Company,  or such lesser amount as shall be
determined in accordance with Section 3.01 of the Loan Agreement, plus any other
amounts due and owing under the Loan Agreement at the time and in the amounts as
provided  therein,  which principal amount is to be applied for the cleaning and
lining of  certain  pipes and mains  and the spot  replacement  of water  mains,
hydrants,  service  lines and valves which are utilized by Water Company for the
furnishing of water in its New Jersey  service area, and  construction  of a six
thousand two hundred fifty linear foot, sixty inch diameter

<PAGE>

ductile  iron  pipe  line from its raw  water  pump  station  in the City of New
Brunswick,  New  Jersey,  to the  Carl J.  Olsen  Water  Treatment  Plant in the
Township of Edison, New Jersey; and

            WHEREAS,  the Trust  requires  as a  condition  of  making  the loan
documented by the Loan Agreement,  that a single Series FF Bond be issued to the
Trust,  that such Bond  evidence the payment  obligations  of the Water  Company
under Section 2.02(m) of the Loan  Agreement,  that payments under the Series FF
Bond be made to the Loan  Servicer  (as defined in the Loan  Agreement)  for the
account of the  Trust,  that the  Series FF Bond be  subject  to  assignment  or
transfer in  accordance  with the terms of the Loan  Agreement,  that all of the
terms, conditions and provisions of the Loan Agreement be expressly incorporated
by reference into the Series FF Bond,  that the obligations of the Water Company
under the  Series FF Bond  shall be  absolute  and  unconditional,  without  any
defense or right of set-off,  counterclaim or recoupment by reason of default by
the Trust  under the Loan  Agreement  or under any other  agreement  between the
Water Company and the Trust or out of any  indebtedness or liability at any time
owing to the Water Company or for any other  reason,  that the Series FF Bond be
subject to optional prepayment under the terms and conditions and in the amounts
provided in Section 3.07 of the Loan Agreement,  and that the Series FF Bond may
be subject to  acceleration  under the terms and  conditions and in the amounts,
provided in Section 5.03 of the Loan Agreement; and

            WHEREAS,  Water  Company  represents  that all acts and  proceedings
required  by law and by the Charter  and  By-Laws of Water  Company,  and by the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture,  and the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  the Twenty-Ninth,  and the Thirtieth Supplemental Indentures (to
the extent  applicable)  necessary to make the Series FF Bond,  when executed by
Water Company,  authenticated and delivered by the Trustee, and duly issued, the
valid,  binding and legal  obligations  of Water Company and to constitute  this
Thirty-First  Supplemental  Indenture  a valid  and  binding  supplement  to the
Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth, Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth,
Seventeenth  Supplemental   Indentures,   the  Supplementary  Indenture  to  the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  the Twenty-Ninth,  and the Thirtieth Supplemental  Indentures in
accordance  with its and their  terms,  for the security of all bonds issued and
which may  hereafter  be issued  pursuant  to the  Mortgage  and all  indentures
supplemental  thereto,  have  been done and  performed;  and the  execution  and
delivery of this Thirty-First  Supplemental  Indenture have been in all respects
duly authorized;

            NOW  THEREFORE,   THIS  INDENTURE   WITNESSETH,   that  for  and  in
consideration  of the  premises,  and of the sum of One Dollar  ($1.00),  lawful
money of the United States of America, by each of the parties paid to the other,
at or before the delivery  hereof,  and for other  valuable  consideration,  the
receipt and sufficiency whereof is hereby acknowledged,

<PAGE>

Water  Company  has  executed  and  delivered  this  Thirty-First   Supplemental
Indenture, and has granted,  bargained, sold, aliened,  enfeoffed,  conveyed and
confirmed,  and by these presents does grant,  bargain,  sell,  alien,  enfeoff,
convey and confirm, unto to the Trustee, its successors and assigns forever, all
real property of Water Company,  together with all  appurtenances and contracts,
rights, privileges, permits and franchises used or useful in connection with the
business of the Water  Company as a water  company or as a water utility or used
directly for the purpose of supplying water, granted,  bargained, sold, aliened,
enfeoffed,  conveyed  and  confirmed  unto the Trustee by the  Mortgage  and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth, Thirteenth,  Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures,  and  the  Supplementary  Indenture  to the  Fifteenth  Supplemental
Indenture and the Eighteenth,  the Nineteenth,  the Twentieth, the Twenty-First,
the Twenty-Second,  the Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth, the
Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the Twenty-Ninth,  the
Thirtieth  and the  Thirty-First  Supplemental  Indentures,  or  intended  to be
(including  without limitation all such property acquired by Water Company since
October  15,  2004,  and all such  property  which Water  Company may  hereafter
acquire),  subject,  however,  to  Permissible  Encumbrances,  and excepting all
Property  heretofore  released from the lien of the Mortgage and the  indentures
supplemental  thereto,  and excepting all property of Water Company which is not
used or useful in connection  with its business as a water company or as a water
utility as well as all personal  property (both  tangible and  intangible) as to
which a security  interest  may not be  perfected  by a filing under the Uniform
Commercial Code as in effect in the State of New Jersey;

            TO HAVE AND TO HOLD all and  singular  the above  granted  property,
unto the Trustee,  its successors and assigns forever,  IN TRUST,  nevertheless,
for the equal and proportionate  use, benefit,  security and protection of those
who from  time to time  shall  hold any bonds  which  have been or may be issued
under  the  Mortgage  or  any  indenture   supplemental  thereto,   without  any
discrimination,  preference or priority of any one bond over any other by reason
of  priority in the time of issue,  sale or  negotiation  thereof or  otherwise,
except as  otherwise in the Mortgage or in any  indenture  supplemental  thereto
provided;  and in trust for  enforcing  the payment of the  principal of and the
interest on such bonds,  according to the tenor, purport and effect of the bonds
and of the Mortgage and all  indentures  supplemental  thereto and for enforcing
the terms,  provisions,  covenants and stipulations therein and in the bonds set
forth;  and upon the trust,  uses and  purposes  and  subject to the  covenants,
agreements  and  conditions  set forth and declared in the Mortgage as modified,
amended and supplemented by all indentures supplemental thereto;

            AND the parties do hereby  covenant  and agree that the Mortgage and
the  Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth,  Tenth,
Eleventh, Twelfth, Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth,  Seventeenth
Supplemental   Indentures,   the   Supplementary   Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,  the  Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth,  and the  Thirtieth  Supplemental  Indentures  be and  hereby  are
supplemented as hereinafter provided,  and that the above granted property is to
be held and applied  subject to the covenants,  conditions,  uses and trusts set
forth  in  the  Mortgage,   as  modified,   amended  and  supplemented  by  such
Supplemental Indentures and this Thirty-First  Supplemental Indenture; and Water
Company for

<PAGE>

itself  and its  successors  does  hereby  covenant  and  agree  to and with the
Trustee,  and its successors in said trust, for the equal benefit of all present
and future holders and registered  owners of the bonds issued under the Mortgage
and all indentures supplemental thereto, as follows:

                                    ARTICLE I

             First Mortgage Scheduled Interest Rates Bond, Series FF

Section 1.  Water  Company  hereby  creates a series of bonds to be issued
      under and secured by the  Mortgage,  the  Second,  Third,  Fourth,  Fifth,
      Sixth,  Seventh,  Eighth,  Ninth, Tenth,  Eleventh,  Twelfth,  Thirteenth,
      Fourteenth, Fifteenth, Sixteenth, and Seventeenth Supplemental Indentures,
      the Supplementary Indenture to the Fifteenth Supplemental  Indenture,  the
      Eighteenth,   the  Nineteenth,   the  Twentieth,  the  Twenty-First,   the
      Twenty-Second,  the Twenty-Third, the Twenty-Fourth, the Twenty-Fifth, the
      Twenty-Sixth, the Twenty-Seventh,  the Twenty-Eighth, the Twenty-Ninth and
      the   Thirtieth   Supplemental   Indentures   and  by  this   Thirty-First
      Supplemental  Indenture,  and to be designated as, and to be distinguished
      from the bonds of all other series by the title, "First Mortgage Scheduled
      Interest  Rates Bond,  Series FF". The Series FF Bond shall be issued only
      as a single registered bond without coupons in the principal amount of the
      Loan under the Loan Agreement;  shall be dated as of November 1, 2004; and
      shall be issued in  non-negotiable  form to the Trust.  The Series FF Bond
      shall  bear  interest  from the date of  issuance  of the  Series FF Bond,
      computed on the basis of a 360-day year  composed of twelve  30-day months
      until the  obligations of the Water Company with respect to the payment of
      principal  shall be  discharged,  in the dollar  amount set forth for each
      respective  payment period under the column heading  "Interest" in Exhibit
      A-2 to the Loan  Agreement,  shall be  payable as set forth  below,  shall
      state  that,  subject  to  certain  limitations,   the  Mortgage  and  all
      indentures  supplemental thereto may be modified,  amended or supplemented
      as provided in the Mortgage as  heretofore  supplemented;  shall mature on
      November 1, 2024; and shall be earlier  redeemable (i) under the terms and
      conditions  and in the  amounts  provided  in  Section  3.07  of the  Loan
      Agreement at the option of the Water Company with, to the extent  required
      by the July 8, 2004 Order (Docket No.  WF04050341)  of the Board of Public
      Utilities  of the State of New  Jersey  ("BPU")  and/or  required  by then
      applicable  law and  regulations,  the prior approval of the BPU, (ii) as,
      when and to the extent  mandated  pursuant to subsection B of Section 4 of
      Article VIII of the Second  Supplemental  Indenture;  and shall be subject
      to,  entitled to the benefit of, and expressly  incorporate  by reference,
      all of the terms, conditions and provisions of the Loan Agreement.

      The Series FF Bond shall  evidence the  obligation  to pay to the order of
the Trust the  principal  amount of the Loan (as defined in the Loan  Agreement)
made by the Trust under the Loan  Agreement  which shall be  $8,920,000  or such
lesser  amount  as  determined  in  accordance  with  Section  3.01 of the  Loan
Agreement,  at the times and in the amounts  determined  as provided in the Loan
Agreement,  plus any other amounts due and owing under the Loan Agreement at the
times and in the amounts as provided therein. The obligations of the

<PAGE>

Water  Company  to make  payments  under  the  Series FF Bond are  absolute  and
unconditional,  without  any  defense  or  right  of  set-off,  counterclaim  or
recoupment  by reason of any  default by the Trust under the Loan  Agreement  or
under any other agreement  between the Water Company and the Trust or out of any
indebtedness or liability at any time owing to the Water Company by the Trust or
for any other reason. The Series FF Bond is subject to assignment or transfer in
accordance with the terms of the Loan  Agreement.  The Series FF Bond is subject
to acceleration under the terms and conditions,  and in the amounts, provided in
Section  5.03 of the Loan  Agreement.  Payments  under the Series FF Bond shall,
except as otherwise provided in the Loan Agreement, be made directly to the Loan
Servicer (as defined in the Loan Agreement), for the account of the Trust.

      In addition to any other  default  provided for under the Mortgage and the
Second, Third, Fourth, Fifth, Sixth,  Seventh,  Eighth, Ninth, Tenth,  Eleventh,
Twelfth,   Thirteenth,   Fourteenth,   Fifteenth,   Sixteenth  and  Seventeenth,
Supplemental  Indentures  and  the  Supplementary  Indenture  to  the  Fifteenth
Supplemental Indenture and the Eighteenth,  the Nineteenth,  the Twentieth,  the
Twenty-First,   the   Twenty-Second,   the  Twenty-Third,   Twenty-Fourth,   the
Twenty-Fifth,  the Twenty-Sixth,  the  Twenty-Seventh,  the  Twenty-Eighth,  the
Twenty-Ninth and the Thirtieth  Supplemental  Indentures,  it shall be a default
under  this  Thirty-First  Supplemental  Indenture  if  payment  of  any  of the
principal or of the Interest on the Loan constituting the Interest Portion,  the
Administrative  Fee and any late charges  incurred  under the Loan Agreement (as
such terms are  defined in the Loan  Agreement)  is not made when the same shall
become  due and  payable  in  installments,  at  maturity,  upon  redemption  or
otherwise.

            Section 2.  Disbursements of the proceeds of the Loan from the Trust
under the Loan  Agreement  evidenced  by the Series FF Bond shall be made by the
Trust to the Water  Company upon receipt by the Trust of  requisitions  from the
Water Company  executed and delivered in accordance  with the  requirements  set
forth in Section 3.02 of the Loan Agreement.

            Section 3. The Series FF Bond and the certificate of  authentication
of the  Trustee  to be  executed  thereon  shall  be  substantially  in the form
prescribed  for  registered  bonds  without  coupons in the Second  Supplemental
Indenture  (except that there may be deleted  therefrom  all  references  to the
issuance of coupon bonds in exchange therefor); shall be in the form attached to
this  Thirty-First  Supplemental  Indenture  as  Exhibit  A; and  shall  contain
appropriate  references to this Thirty-First  Supplemental Indenture in addition
to the Mortgage and the Second, Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth
and Seventeenth  Supplemental  Indentures and the Supplementary Indenture to the
Fifteenth  Supplemental  Indenture  and  the  Eighteenth,  the  Nineteenth,  the
Twentieth,   the  Twenty-First,   the  Twenty-Second,   the  Twenty-Third,   the
Twenty-Fourth,  the Twenty-Fifth,  the  Twenty-Sixth,  the  Twenty-Seventh,  the
Twenty-Eighth,  the Twenty-Ninth and the Thirtieth  Supplemental  Indentures and
appropriate  changes with respect to the aggregate  principal  amount,  interest
rate, redemption dates and provisions,  and maturity date of the Series FF Bond,
and with  appropriate  reference  to the  provision  of the Fourth  Supplemental
Indenture that, subject to certain limitations,  the Mortgage and all indentures
supplemental  thereto may be modified,  amended or supplemented only as provided
in the  Mortgage  and  except  that the  Series FF Bond  shall not  contain  any
references to a sinking fund.

<PAGE>

            Section 4. Subject to the provisions of the Mortgage and the Second,
Third, Fourth, Fifth, Sixth, Seventh,  Eighth, Ninth, Tenth, Eleventh,  Twelfth,
Thirteenth,   Fourteenth,  Fifteenth,  Sixteenth  and  Seventeenth  Supplemental
Indentures,  the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the  Eighteenth,  the  Nineteenth,  the  Twentieth,  the  Twenty-First,  the
Twenty-Second,  the  Twenty-Third,  the  Twenty-Fourth,  the  Twenty-Fifth,  the
Twenty-Sixth,  the Twenty-Seventh,  the Twenty-Eighth,  the Twenty-Ninth and the
Thirtieth Supplemental Indentures,  forthwith upon the execution and delivery of
this  Thirty-First  Supplemental  Indenture,  or from  time to time  thereafter,
Series FF Bond in an aggregate principal amount of $8,920,000 may be executed by
Water  Company  and  delivered  to the  Trustee  for  authentication  and  shall
thereupon be  authenticated  and delivered by the Trustee upon the written order
of Water Company,  signed by its President or a Vice President and its Treasurer
or Assistant  Treasurer,  in such  denominations  and registered in such name or
names as may be specified in such written order.

            Section 5. Sections 4(A)(iii) and (iv) of Article VIII of the Second
Supplemental  Indenture shall not be available to the Water Company with respect
to the Series FF Bond.  The Water  Company  shall issue its written  order under
Section 4(a)(i) or (ii), as the case may be,  reasonably  promptly after receipt
by the Trustee of proceeds of sale,  eminent  domain or insurance (not otherwise
to be paid  directly to the Company  under the Mortgage as  supplemented  by the
Supplemental Indentures including this Thirty-First Supplemental Indenture).

                                   ARTICLE II
                                  Miscellaneous
                                  -------------

Section  1. The  provisions  of the  Mortgage  as  modified,  amended  and
      supplemented by the Second, Third, Fourth, Fifth, Sixth, Seventh,  Eighth,
      Ninth,  Tenth,  Eleventh,  Twelfth,  Thirteenth,   Fourteenth,  Fifteenth,
      Sixteenth  and  Seventeenth  Supplemental  Indentures,  the  Supplementary
      Indenture to the Fifteenth Supplemental Indenture and the Eighteenth,  the
      Nineteenth,  the  Twentieth,  the  Twenty-First,  the  Twenty-Second,  the
      Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth, the Twenty-Sixth, the
      Twenty-Seventh,  the  Twenty-Eighth,  the  Twenty-Ninth  and the Thirtieth
      Supplemental Indentures, and as modified and extended by this Thirty-First
      Supplemental  Indenture are hereby reaffirmed.  Except insofar as they are
      inconsistent  with the provisions  hereof,  the provisions of the Mortgage
      and the Second,  Third,  Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth,
      Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth and
      Seventeenth Supplemental Indentures and the Supplementary Indenture to the
      Fifteenth Supplemental Indenture and the Eighteenth,  the Nineteenth,  the
      Twentieth,  the Twenty-First,  the  Twenty-Second,  the Twenty-Third,  the
      Twenty-Fourth, the Twenty-Fifth, the Twenty-Sixth, the Twenty-Seventh, the
      Twenty-Eighth,  the Twenty-Ninth and the Thirtieth Supplemental Indentures
      with  respect to the Series C,  Series D,  Series E,  Series F,  Series G,
      Series H,  Series I,  Series J,  Series K,  Series L,  Series M, Series N,
      Series O, Series P,  Series Q,  Series R, Series P-1,  Series S, Series T,
      Series U,  Series V,  Series W,  Series X,  Series Y, Series Z, Series AA,
      Series BB,  Series CC,  Series DD and Series EE Bonds  shall  apply to the
      Series FF Bond to the same extent as if they were set forth

<PAGE>

      herein in full.  Unless  there is  something  in the  subject  or  context
      repugnant  to such  construction,  each  reference in the Mortgage and the
      Second,  Third,  Fourth,  Fifth,  Sixth,  Seventh,  Eighth,  Ninth, Tenth,
      Eleventh,  Twelfth,  Thirteenth,   Fourteenth,  Fifteenth,  Sixteenth  and
      Seventeenth  Supplemental  Indentures,  the Supplementary Indenture to the
      Fifteenth Supplemental Indenture and the Eighteenth,  the Nineteenth,  the
      Twentieth,  the Twenty-First,  the  Twenty-Second,  the Twenty-Third,  the
      Twenty-Fourth, the Twenty-Fifth, the Twenty-Sixth, the Twenty-Seventh, the
      Twenty-Eighth,  the Twenty-Ninth and the Thirtieth Supplemental Indentures
      to the Mortgage or any of such Supplemental  Indentures shall be construed
      as  also  referring  to  this  Thirty-First  Supplemental  Indenture.  The
      Mortgage and all indentures supplemental thereto may be modified,  amended
      or supplemented by Water Company with prior notice by the Water Company to
      but without the consent of any of the  bondholders  to accomplish any more
      of the following:

            (1)   to cure any ambiguity, supply any omission, or cure or correct
                  any defect or  inconsistent  provision  in the Mortgage or any
                  indenture supplemental thereto;

            (2)   to cure any ambiguity, supply any omission, or cure or correct
                  any defect in any  description of the Mortgaged  Property,  if
                  such action is not adverse to the interests of the bondholder;

            (3)   to insert  such  provisions  clarifying  matters or  questions
                  arising  under  the  Mortgage  or any  indenture  supplemental
                  thereto as are  necessary or desirable and are not contrary to
                  or   inconsistent   with  the   Mortgage   or  any   indenture
                  supplemental thereto as in effect; or

            (4)   to restate the Mortgage as  supplemented  by the  Supplemental
                  Indentures  as a  single  integrated  document  which  may add
                  headings, an index and other provisions aiding the convenience
                  of use.

The terms and  provisions of the Series FF Bond shall not be amended by, and the
Series FF Bond shall not be  entitled to the  benefit of any  covenant,  term or
condition contained in any subsequent supplemental indenture without the express
written concurrence of the Water Company.

            Section  2. The  Trustee  shall  not be  responsible  in any  manner
whatsoever  for  or  in  respect  of  the  validity  and   sufficiency  of  this
Thirty-First Supplemental Indenture or the due execution hereof by Water Company
or for the recitals  contained  herein,  all of which recitals are made by Water
Company solely.

            Section 3. The Trustee hereby accepts the trusts hereby declared and
provided  and agrees to perform  the same upon the terms and  conditions  in the
Mortgage,  the Second,  Third, Fourth,  Fifth, Sixth,  Seventh,  Eighth,  Ninth,
Tenth,  Eleventh,  Twelfth,  Thirteenth,  Fourteenth,  Fifteenth,  Sixteenth and
Seventeenth Supplemental

<PAGE>

Indentures, the Supplementary Indenture to the Fifteenth Supplemental Indenture,
the Eighteenth, the Nineteenth,  Twentieth, the Twenty-First, the Twenty-Second,
the Twenty-Third,  the Twenty-Fourth,  the Twenty-Fifth,  the Twenty-Sixth,  the
Twenty-Seventh,  the  Twenty-Eighth,  the  Twenty-Ninth,  the Thirtieth and this
Thirty-First Supplemental Indenture set forth. The Trustee also hereby agrees to
execute and deliver the Escrow Agreement (as defined in the Loan Agreement).

            Section 4. The Trustee hereby authorizes the Loan Servicer to accept
payments  made by Water  Company  of  principal  of the  Series  FF Bond for the
account of the Trust.

            Section  5.  This  Thirty-First   Supplemental  Indenture  has  been
executed  simultaneously  in several  counterparts and all of said  counterparts
executed and delivered,  each as an original,  shall constitute one and the same
instrument.

            Section 6. Although this Thirty-First  Supplemental  Indenture,  for
convenience  and for the purpose of reference,  is dated as of October 15, 2004,
the actual  date of  execution  by Water  Company and the Trustee is as shown by
their respective acknowledgments hereto annexed, and the actual date of delivery
hereof by Water  Company  and the Trustee is the date of the closing of the sale
of the Series FF Bonds by Water Company.

            Section 7. In any case where the payment of  principal of the Series
FF Bond or the date  fixed  for  redemption  of any  Series  FF Bond  shall be a
Saturday or Sunday or a legal holiday or a day on which banking  institutions in
the City of the principal corporate trust office of the Loan Servicer is located
are  authorized  by law to close,  then  payment of  interest  or  principal  or
redemption  price  need  not be made on such  date  but may be made on the  next
proceeding business day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest on such payment shall
accrue after such date.

            THE MORTGAGOR HEREBY DECLARES AND ACKNOWLEDGES THAT IT HAS RECEIVED,
WITHOUT CHARGE, A TRUE COPY OF THIS MORTGAGE.

                  [remainder of page intentionally left blank]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>ex-21.txt
<TEXT>

                                                                      Exhibit 21

                             Middlesex Water Company

                                  Subsidiaries

                                                                 Jurisdiction of
                                                                   Organization
                                                                   ------------

Tidewater Utilities, Inc.                                           Delaware
Tidewater Environmental Services, Inc.                              Delaware
Pinelands Water Company                                             New Jersey
Pinelands Wastewater Company                                        New Jersey
Bayview Water Company                                               New Jersey
Utility Service Affiliates (Perth Amboy) Inc.                       New Jersey
Utility Service Affiliates, Inc.                                    New Jersey


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>ex-23.txt
<TEXT>

                                                                      Exhibit 23

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the  incorporation  by reference  in  Registration  Statement  No.
33-11717  on Form S-3 of our  reports  dated  March 15,  2005,  relating  to the
financial  statements of Middlesex Water Company and management's  report on the
effectiveness  of internal control over financial  reporting,  appearing in this
Annual  Report  on Form  10-K of  Middlesex  Water  Company  for the year  ended
December 31, 2004.


/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
March 16, 2005


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>7
<FILENAME>ex-31.txt
<TEXT>

                                                                      Exhibit 31

               SECTION 302 CERTIFICATION PURSUANT TO RULES 13a-14
                AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Dennis G. Sullivan, certify that:

1.    I have  reviewed  this  annual  report  on Form  10-K of  Middlesex  Water
      Company;

2.    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact or omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The  registrant's  other  certifying  officer  and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in  Exchange  Act Rules  13a-15(e)  and  15d-15(e))  and  internal
      control  over  financial  reporting  (as  defined  in  Exchange  Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and have;

      a)    Designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            registrant,  including its consolidated subsidiaries,  is made known
            to us by others  within  those  entities,  particularly  during  the
            period in which this report is being prepared;

      b)    Designed such internal control over financial  reporting,  or caused
            such internal control over financial  reporting to be designed under
            our  supervision,  to provide  reasonable  assurance  regarding  the
            reliability  of the  financial  reporting  and  the  preparation  of
            financial  statements  for  external  purposes  in  accordance  with
            generally accepted accounting principles;

      c)    Evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures and presented in this report our  conclusions  about
            the effectiveness of the disclosure  controls and procedures,  as of
            the  end  of the  period  covered  by  this  report  based  on  such
            evaluation; and

      d)    Disclosed  in this report any changes in the  registrant's  internal
            control  over   financial   reporting   that  occurred   during  the
            registrant's  most recent fiscal  quarter (the  registrant's  fourth
            quarter  in the  case  of an  annual  report)  that  has  materially
            affected,   or  is  reasonably  likely  to  materially  affect,  the
            registrant's internal control over financial reporting; and

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation of internal control over financial  reporting,
      to the registrant's auditors and the audit committee of registrant's board
      of directors (or persons performing the equivalent functions):

      a)    All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely affect the  registrant's  ability to
            record, process, summarize and report financial information; and

      b)    Any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal control over financial reporting.


                                        /s/ Dennis G. Sullivan
                                        ----------------------------
                                            Dennis G. Sullivan
                                            Chief Executive Officer

Date: March 16, 2005


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>ex31-1.txt
<TEXT>

                                                                    Exhibit 31.1

               SECTION 302 CERTIFICATION PURSUANT TO RULES 13a-14
                AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, A. Bruce O'Connor, certify that:

1.    I have  reviewed  this  annual  report  on Form  10-K of  Middlesex  Water
      Company;

2.    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact or omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The  registrant's  other  certifying  officer  and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in  Exchange  Act Rules  13a-15(e)  and  15d-15(e))  and  internal
      control  over  financial  reporting  (as  defined  in  Exchange  Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and have;

      a.    Designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            registrant,  including its consolidated subsidiaries,  is made known
            to us by others  within  those  entities,  particularly  during  the
            period in which this report is being prepared;

      b.    Designed such internal control over financial  reporting,  or caused
            such internal control over financial  reporting to be designed under
            our  supervision,  to provide  reasonable  assurance  regarding  the
            reliability  of the  financial  reporting  and  the  preparation  of
            financial  statements  for  external  purposes  in  accordance  with
            generally accepted accounting principles;

      c.    Evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures and presented in this report our  conclusions  about
            the effectiveness of the disclosure  controls and procedures,  as of
            the  end  of the  period  covered  by  this  report  based  on  such
            evaluation; and

      d.    Disclosed  in this report any changes in the  registrant's  internal
            control  over   financial   reporting   that  occurred   during  the
            registrant's  most recent fiscal  quarter (the  registrant's  fourth
            quarter  in the  case  of an  annual  report)  that  has  materially
            affected,   or  is  reasonably  likely  to  materially  affect,  the
            registrant's internal control over financial reporting; and

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation of internal control over financial  reporting,
      to the registrant's auditors and the audit committee of registrant's board
      of directors (or persons performing the equivalent functions):

      a.    All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely affect the  registrant's  ability to
            record, process, summarize and report financial information; and

      b.    Any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal control over financial reporting.


                                        /s/ A. Bruce O'Connor
                                        ------------------------
                                          A. Bruce O'Connor
                                        Chief Financial Officer

Date: March 16, 2005


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>9
<FILENAME>ex-32.txt
<TEXT>

                                                                      Exhibit 32

             SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350

I, Dennis G.  Sullivan,  hereby  certify that, to the best of my knowledge,  the
periodic  report being filed  herewith  containing  financial  statements  fully
complies  with the  requirements  of  section  13(a) or 15(d) of the  Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that information contained
in said periodic report fairly presents, in all material respects, the financial
condition and results of  operations  of Middlesex  Water Company for the period
covered by said periodic report.


                                        /s/ Dennis G. Sullivan
                                        ---------------------------
                                            Dennis G. Sullivan
                                            Chief Executive Officer

Date: March 16, 2005

A signed  original of this  written  statement  required by Section 906 has been
provided to  Middlesex  Water  Company and will be retained by  Middlesex  Water
Company and  furnished to the  Securities  and Exchange  Commission or its staff
upon request.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>10
<FILENAME>ex32-1.txt
<TEXT>

                                                                    Exhibit 32.1

             SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350

I, A. Bruce  O'Connor,  hereby  certify that,  to the best of my knowledge,  the
periodic  report being filed  herewith  containing  financial  statements  fully
complies  with the  requirements  of  section  13(a) or 15(d) of the  Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that information contained
in said periodic report fairly presents, in all material respects, the financial
condition and results of  operations  of Middlesex  Water Company for the period
covered by said periodic report.


                                        /s/ A. Bruce O'Connor
                                        ------------------------
                                          A. Bruce O'Connor
                                        Chief Financial Officer

Date: March 16, 2005

A signed  original of this  written  statement  required by Section 906 has been
provided to  Middlesex  Water  Company and will be retained by  Middlesex  Water
Company and  furnished to the  Securities  and Exchange  Commission or its staff
upon request.


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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