ctws-form10q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2011 or

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM

Commission File Number 0-8084

Connecticut Water Service, Inc.

(Exact name of registrant as specified in its charter)

Connecticut (State or other jurisdiction of incorporation or organization)	06-0739839 (I.R.S. Employer Identification No.)

93 West Main Street, Clinton, CT (Address of principal executive office)	06413 (Zip Code)

(Registrant’s telephone number, including area code)

(Former name, address and former fiscal year, if changed since last report)

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 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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One).

Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o	Smaller Reporting Company o

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

Number of shares of common stock outstanding, March 31, 2011

(Includes 115,585 common stock equivalent shares awarded under the Performance Stock Programs)

Connecticut Water Service, Inc. and Subsidiaries

March 31, 2011 and 2010


Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
At March 31, 2011 and December 31, 2010
(Unaudited)
(In thousands)

	March 31,			December 31,
ASSETS	2011			2010

Utility Plant	$	469,384		$	467,589
Construction Work in Progress		3,998			4,013
		473,382			471,602
Accumulated Provision for Depreciation		(128,876	)		(127,383	)
Net Utility Plant		344,506			344,219

Other Property and Investments		5,814			5,568

Cash and Cash Equivalents		1,200			952
Accounts Receivable (Less Allowance, 2011 - $1,221; 2010 - $1,061)		9,465			10,135
Accrued Unbilled Revenues		5,905			6,344
Materials and Supplies, at Average Cost		1,188			1,248
Prepayments and Other Current Assets		3,447			1,749
Total Current Assets		21,205			20,428

Restricted Cash		1,226			1,226
Unamortized Debt Issuance Expense		7,205			7,334
Unrecovered Income Taxes		25,938			24,696
Pension Benefits		6,091			6,296
Post-Retirement Benefits Other Than Pension		5,335			5,451
Goodwill		3,608			3,608
Deferred Charges and Other Costs		6,121			6,385
Total Regulatory and Other Long-Term Assets		55,524			54,996

Total Assets	$	427,049		$	425,211

CAPITALIZATION AND LIABILITIES

Common Stockholders' Equity	$	113,916		$	113,191
Preferred Stock		772			772
Long-Term Debt		111,485			111,675
Total Capitalization		226,173			225,638

Interim Bank Loans Payable		26,297			26,342
Accounts Payable and Accrued Expenses		4,607			6,552
Accrued Taxes		965			598
Accrued Interest		1,306			993
Other Current Liabilities		925			617
Total Current Liabilities		34,100			35,102

Advances for Construction		36,740			36,719
Contributions in Aid of Construction		55,822			55,761
Deferred Federal and State Income Taxes		34,722			34,246
Unfunded Future Income Taxes		20,741			19,474
Long-Term Compensation Arrangements		17,250			16,747
Unamortized Investment Tax Credits		1,361			1,376
Other Long-Term Liabilities		140			148
Total Long-Term Liabilities		166,776			164,471

Commitments and Contingencies

Total Capitalization and Liabilities	$	427,049		$	425,211

The accompanying notes are an integral part of these financial statements.

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CAPITALIZATION
At March 31, 2011 and December 31, 2010
(Unaudited)
(In thousands, except share data)

	March 31,			December 31,
	2011			2010

Common Stockholders' Equity
Common Stock Without Par Value Authorized - 25,000,000 Shares;	$	72,126		$	71,636
Shares Issued and Outstanding: 2011 - 8,704,500 ; 2010 - 8,676,849
Stock Issuance Expense		(1,612	)		(1,612	)
Retained Earnings		43,841			43,603
Accumulated Other Comprehensive Loss		(439	)		(436	)
Total Common Stockholders' Equity		113,916			113,191

Preferrred Stock
Cumulative Preferred Stock of Connecticut Water Service, Inc.
Series A Voting, $20 Par Value; Authorized, Issued and
Outstanding 15,000 Shares, Redeemable at $21.00 Per Share		300			300
Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares
Issued and Outstanding 29,499 Shares, Redeemable at $16.00 Per Share		472			472
Total Preferred Stock of Connecticut Water Service, Inc.		772			772

Long-Term Debt
The Connecticut Water Company
Unsecured Water Facilities Revenue Refinancing Bonds
5.05% 1998 Series A, due 2028		9,570			9,580
5.125% 1998 Series B, due 2028		7,505			7,530
4.40% 2003A Series, due 2020		8,000			8,000
5.00% 2003C Series, due 2022		14,795			14,795
Var. 2004 Series Variable Rate, due 2029		12,500			12,500
Var. 2004 Series A, due 2028		5,000			5,000
Var. 2004 Series B, due 2028		4,550			4,550
5.00% 2005 A Series, due 2040		14,885			14,885
5.00% 2007 A Series, due 2037		14,680			14,835
5.10% 2009 A Series, due 2039		20,000			20,000
Total The Connecticut Water Company		111,485			111,675


Total Capitalization	$	226,173		$	225,638

The accompanying notes are an integral part of these financial statements.

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands, except per share amounts)

	2011			2010


Operating Revenues	$	15,989		$	13,801

Operating Expenses
Operation and Maintenance		8,010			8,090
Depreciation		1,872			1,681
Income Taxes		1,102			409
Taxes Other Than Income Taxes		1,645			1,518
Total Operating Expenses		12,629			11,698

Net Operating Revenues		3,360			2,103

Other Utility Income, Net of Taxes		178			180

Total Utility Operating Income		3,538			2,283

Other Income (Deductions), Net of Taxes
Non-Water Sales Earnings		193			236
Allowance for Funds Used During Construction		31			31
Other		(134	)		(113	)
Total Other Income, Net of Taxes		90			154

Interest and Debt Expense
Interest on Long-Term Debt		1,149			1,167
Other Interest Charges		105			86
Amortization of Debt Expense		106			114
Total Interest and Debt Expense		1,360			1,367

Net Income		2,268			1,070

Preferred Stock Dividend Requirement		9			9
Net Income Applicable to Common Stock	$	2,259		$	1,061

Weighted Average Common Shares Outstanding:
Basic		8,579			8,502
Diluted		8,694			8,599

Earnings Per Common Share:
Basic	$	0.26		$	0.12
Diluted	$	0.26		$	0.12

Dividends Per Common Share	$	0.2325		$	0.2275

The accompanying notes are an integral part of these financial statements.

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands)

	2011			2010


Net Income Applicable to Common Stock	$	2,259		$	1,061

Other Comprehensive Income, net of tax
Qualified Cash Flow Hedging Instrument Income,
net of tax expense of $0 in 2011 and $0 in 2010		1			1
Adjustment to Pension and Post-Retirement Benefits Other
Than Pension, net of tax income of $4 in 2011 and $0 in 2010		(6	)		(1	)
Unrealized Gain on Investments, net of tax expense of $1 in 2011 and $14 in 2010		2			22

Comprehensive Income	$	2,256		$	1,083

The accompanying notes are an integral part of these financial statements.

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands, except per share amounts)

	2011		2010


Balance at Beginning of Period	$	43,603	$	41,785
Net Income Before Preferred Dividends		2,268		1,070
		45,871		42,855

Dividends Declared:
Cumulative Preferred, Class A, $0.20 per share		3		3
Cumulative Preferred, Series $0.90, $0.225 per share		6		6
Common Stock - 2011 $0.2325 per share; 2010 $0.2275 per share		2,021		1,956
		2,030		1,965

Balance at End of Period	$	43,841	$	40,890

The accompanying notes are an integral part of these financial statements.

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands)

	2011			2010
Operating Activities:
Net Income	$	2,268		$	1,070

Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Deferred Revenues		60			60
Allowance for Funds Used During Construction		(31	)		(52	)
Depreciation (including $201 in 2011 and 2010 charged to other accounts)		2,073			1,882
Change in Assets and Liabilities:
Decrease in Accounts Receivable and Accrued Unbilled Revenues		1,108			1,273
Increase in Prepayments and Other Current Assets		(1,637	)		(1,831	)
Decrease in Other Non-Current Items		1,050			979
(Decrease) Increase in Accounts Payable, Accrued Expenses and Other
Current Liabilities		(301	)		431
Increase in Deferred Income Taxes and Investment Tax Credits, Net		486			405
Total Adjustments		2,808			3,147
Net Cash and Cash Equivalents Provided by Operating Activities		5,076			4,217

Investing Activities:
Company Financed Additions to Utility Plant		(2,895	)		(4,248	)
Advances from Others for Construction		(70	)		(32	)
Net Additions to Utility Plant Used in Continuing Operations		(2,965	)		(4,280	)
Purchase of Customer Contracts		--			(900	)
Purchase of water systems, net of cash acquired		--			(297	)
Release of restricted cash		--			1,084
Net Cash and Cash Equivalents Used in Investing Activities		(2,965	)		(4,393	)

Financing Activities:
Proceeds from Interim Bank Loans		26,297			22,170
Repayment of Interim Bank Loans		(26,342	)		(25,000	)
Proceeds from Issuance of Common Stock		332			242
Proceeds from the Exercise of Stock Options		--			20
Repayment of Long-Term Debt Including Current Portion		(190	)		(175	)
Advances from Others for Construction		70			32
Cash Dividends Paid		(2,030	)		(1,966	)
Net Cash and Cash Equivalents Used in Financing Activities		(1,863	)		(4,677	)
Net (Decrease) Increase in Cash and Cash Equivalents		248			(4,853	)
Cash and Cash Equivalents at Beginning of Period		952			5,437
Cash and Cash Equivalents at End of Period	$	1,200		$	584

Non-Cash Investing and Financing Activities:
Non-Cash Contributed Utility Plant	$	112		$	43
Short-term Investment of Bond Proceeds Held in Restricted Cash	$	1,226		$	11,611

Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest	$	1,066		$	980
State and Federal Income Taxes	$	1,225		$	481

The accompanying notes are an integral part of these financial statements.

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Connecticut Water Service, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

The consolidated financial statements included herein have been prepared by CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that are of a normal recurring nature which are, in the opinion of management, necessary to a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Balance Sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2010.

The results for interim periods are not necessarily indicative of results to be expected for the year since the consolidated earnings are subject to seasonal factors.

2. Pension and Other Post-Retirement Benefits

The following tables set forth the components of pension and other post-retirement benefit costs for the three months ended March 31, 2011 and 2010.

Pension Benefits

Components of Net Periodic Cost (in thousands):

	Three Months
Period ended March 31,	2011			2010
Service Cost	$	443		$	409
Interest Cost		545			542
Expected Return on Plan Assets		(675	)		(639	)
Amortization of:
Transition Obligation		--			1
Prior Service Cost		17			17
Net Loss		188			138
Net Periodic Benefit Cost	$	518		$	468

The Company expects to make contributions totaling $1.2 million throughout 2011 for the 2010 plan year.

Post-Retirement Benefits Other Than Pension (PBOP)

Components of Net Periodic Cost (in thousands):

	Three Months
Period ended March 31,	2011			2010
Service Cost	$	187		$	141
Interest Cost		179			135
Expected Return on Plan Assets		(75	)		(77	)
Other		56			56
Amortization of:
Prior Service Cost		(101	)		(101	)
Recognized Net Loss		160			66
Net Periodic Benefit Cost	$	406		$	220

3. Earnings per Share

Earnings per weighted average common share are calculated by dividing net income applicable to common stock by the weighted average number of shares of common stock outstanding during the respective periods as detailed below (diluted shares include the effect of unexercised stock options):

Three months ended March 31,	2011		2010

Common Shares Outstanding End of Period:		8,704,500		8,614,234
Weighted Average Shares Outstanding (Days Outstanding Basis):
Basic		8,578,873		8,502,293
Diluted		8,694,036		8,599,387

Basic Earnings per Share	$	0.26	$	0.12
Dilutive Effect of Unexercised Stock Options		--		--
Diluted Earnings per Share	$	0.26	$	0.12

Total unrecognized compensation expense for all stock awards was approximately $1.0 million as of March 31, 2011 and will be recognized over the next three years.

4. New Accounting Pronouncements

There were no recently issued accounting standards that could potentially have a significant impact on our financial statement or the notes thereto.

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Connecticut Water Service, Inc. and Subsidiaries

5. Fair Value Disclosures

FASB Accounting Standards Codifications (“ASC”) 820, “Fair Value Measurements and Disclosures” (“FASB ASC 820”) provides enhanced guidance for using fair value to measure assets and liabilities and expands disclosure with respect to fair value measurements.

FASB ASC 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels, as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are either directly or indirectly observable.

Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the Company believes market participants would use.

The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of March 31, 2011:

(in thousands)	Level 1		Level 2		Level 3
Asset Type:
Money Market Fund	$	53	$	--	$	--
Mutual Funds:
Equity Funds (1)		856		--		--
Total	$	909	$	--	$	--

The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2010:

(in thousands)	Level 1		Level 2		Level 3
Asset Type:
Money Market Fund	$	107	$	--	$	--
Mutual Funds:
Equity Funds (1)		494		--		--
Index Funds (2)		160		--		--
Total	$	761	$	--	$	--

(1)	Mutual funds consisting primarily of equity securities.

(2)	Mutual funds consisting primarily of funds linked to indices.

The following methods and assumptions were used to estimate the fair value of each of the following financial instruments, which are not reported at market value on the financial statements.

Cash and cash equivalents – Cash equivalents consist of highly liquid instruments with original maturities at the time of purchase of three months or less. The carrying amount approximates fair value.

Restricted Cash – As part of the Company’s December 2009 bond offering, the Company recorded unused proceeds from this bond issuance as restricted cash as the funds can only be used for certain capital expenditures. The Company expects to use the remainder of the proceeds during 2011, as the approved capital expenditures are completed. The carrying amount approximates fair value.

Long-Term Debt – The fair value of the Company's fixed rate long-term debt is based upon borrowing rates currently available to the Company. As of March 31, 2011 and December 31, 2010, the estimated fair value of the Company's long-term debt was $103,524,000 and $105,713,000, respectively, as compared to the carrying amounts of $111,485,000 and $111,675,000, respectively.

The fair values shown above have been reported to meet the disclosure requirements of accounting principles generally accepted in the United States and do not purport to represent the amounts at which those obligations would be settled.

6. Segment Reporting

The Company operates principally in three business segments: Water Activities, Real Estate Transactions, and Services and Rentals. Financial data for the segments is as follows (in thousands):

Three Months Ended March 31, 2011
Segment	Revenues		Pre-Tax Income		Income Tax Expense		Net Income
Water Activities	$	16,323	$	3,257	$	1,182	$	2,075
Real Estate Transactions		--		--		--		--
Services and Rentals		1,167		329		136		193
Total	$	17,490	$	3,586	$	1,318	$	2,268

Three Months Ended March 31, 2010
Segment	Revenues		Pre-Tax Income		Income Tax Expense		Net Income
Water Activities	$	14,132	$	1,289	$	455	$	834
Real Estate Transactions		--		--		--		--
Services and Rentals		1,080		394		158		236
Total	$	15,212	$	1,683	$	613	$	1,070

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Connecticut Water Service, Inc. and Subsidiaries

The Revenues shown in Water Activities above consist of revenues from water customers of $15,989,000 and $13,801,000 for the three months ended March 31, 2011 and 2010, respectively. Additionally, there were revenues associated with utility plant leased to others of $334,000 and $331,000 for the three months ended March 31, 2011 and 2010, respectively.

The Company owns various small, discrete parcels of land that are no longer required for water supply purposes. From time to time, the Company may sell or donate these parcels, depending on various factors, including the current market for land, the amount of tax benefits received for donations and the Company’s ability to use any benefits received from donations. During the three months ended March 31, 2011 and 2010, the Company did not engage in any such transactions.

Assets by segment (in thousands):

	March 31, 2011		December 31, 2010
Total Plant and Other Investments:
Water Activities	$	349,703	$	349,221
Non-Water		617		566
		350,320		349,787
Other Assets:
Water Activities		74,284		72,600
Non-Water		2,445		2,824
		76,729		75,424
Total Assets	$	427,049	$	425,211

7. Income Taxes

FASB ASC 740 “Income Taxes” (“FASB ASC 740”) addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FASB ASC 740, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The reassessment of the Company’s tax positions in accordance with FASB ASC 740 did not have an impact on the Company’s results of operations, financial condition or liquidity.

From time to time, the Company may be assessed interest and penalties by taxing authorities. In those cases, the charges would appear on the Other line item on the Income Statement. There were no such charges for the three month periods ended March 31, 2011 and 2010. Additionally, there were no accruals relating to interest or penalties as of March 31, 2011 and December 31, 2010. The Company remains subject to examination by state and federal authorities for the 2007 through 2009 tax years.

The Company’s estimated annual effective income tax rate for the first three months of 2011 and 2010, exclusive of discrete items, was 36.7% and 36.5%, respectively. The statutory income tax rates during the same periods were 39%. In determining its annual estimated effective tax rate for interim periods, the Company reflects its estimated permanent and flow-through tax differences for the taxable year. The primary flow-through difference causing the effective rate to be less than the statutory rate in 2011 and 2010 is the difference between book and tax depreciation.

8. Lines of Credit

In November 2008, the Company was authorized by its Board of Directors to increase the available lines of credit from $21 million to $40 million. On June 30, 2009, the Company let expire one line of credit totaling $6 million and entered into a new $15 million line of credit agreement, which was to expire on June 25, 2010. In May 2010, the Company extended the maturity date of this line to June 25, 2011. On August 12, 2009, the Company replaced an existing $3 million line of credit with a $10 million line of credit, which expires on August 10, 2011. Finally, on September 15, 2009, the Company increased a third line of credit from $12 million to $15 million, with an expiration date of June 1, 2011. The Company expects to renew the lines of credit as they expire in 2011. The outstanding aggregate balance on these lines of credit was $26.3 million as of March 31, 2011 and December 31, 2010, respectively, and are included in the Interim Bank Loans Payable line of the Balance Sheet. Interest expense charged on interim bank loans will fluctuate based on market interest rates.

Part I, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying unaudited financial statements and related notes thereto and the audited financial statements and the notes thereto contained in our 2010 Annual Report on Form 10-K.

Regulatory Matters and Inflation

During the three months ended March 31, 2011, there were no material changes under this subheading to any items previously disclosed by the Company in its Annual Report on Form 10-K for the period ended December 31, 2010.

Department of Public Utility Control Matters

On July 14, 2010, the Department of Public Utility Control (DPUC) issued its Final Decision in a rate case filed by the Company on January 6, 2010, granting an increase in revenues of $8.0 million, or approximately 13%, over pro forma test year revenues. The DPUC approved a return on equity of 9.75%. The new rates became effective for services rendered on or after July 14, 2010, at which point all previously approved Water Infrastructure Conservation Act (WICA) surcharges were folded into customers’ base charges. Connecticut Water is not precluded from seeking increased rates for future years as part of a new general rate filing should it choose to do so.

On October 29, 2010, Connecticut Water filed a WICA application with the DPUC requesting a 1.58% surcharge to customer bills representing investments of approximately $9.4 million in WICA related projects. On December 28, 2010, the DPUC approved the 1.58% surcharge effective for all bills issued after January 1, 2011. Additionally, due to under-collection of previously approved WICA surcharges during 2010, the Company was granted a 0.11% additional surcharge on bills issued after April 1, 2011 to make up the short-fall. It should be noted if the Company were to over-collect on WICA surcharges, the Company would be required to include a surcredit on customer bills.

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Connecticut Water Service, Inc. and Subsidiaries

Organizational Review

As part of an organizational review, beginning in July 2010, the Company examined both its regulated and unregulated operations to ensure that it is maximizing the Company’s financial results while maintaining the high quality water and service our customers have come to expect. During the third quarter of 2010, the Company determined that a targeted reduction in workforce was appropriate. The Company eliminated approximately 15 positions that centered on traditional managerial, officer and overhead positions. The Company did not eliminate positions in direct service of its customers. The Company recorded a one-time charge of approximately $786,000 related to this organizational review during 2010. This charge represents the aggregate severance benefit provided to the employees leaving the Company, legal costs associated with the review and out placement services provided to the effected employees. The Company will continue to evaluate both active segments of its business and will make additional changes as warranted.

Acquisitions

The Company has previously announced that it had reached an agreement to acquire a water system in Old Lyme, Connecticut for $216,000. It is expected, if approved by the DPUC, that this acquisition will add approximately 100 customers and additional water supply to the Company. Hearings related to this acquisition were held most recently in April 2011. The Company expects the DPUC to issue a final decision on the acquisition in July 2011. Additionally, during the first quarter of 2011, the Company completed the acquisition of a water company serving approximately 25 customers in the Town of Madison, Connecticut for a nominal amount.

Critical Accounting Policies and Estimates

The Company maintains its accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the DPUC to which Connecticut Water, the Company’s regulated water utility subsidiary, is subject. Significant accounting policies employed by the Company, including the use of estimates, were presented in the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K filed on March 11, 2011.

Critical accounting policies are those that are the most important to the presentation of the Company’s financial condition and results of operations. The application of such accounting policies requires management’s most difficult, subjective, and complex judgments and involves uncertainties and assumptions. The Company’s most critical accounting policies pertain to public utility regulation related to FASB ASC 980 “Regulated Operations”, revenue recognition, and accounting for pension and other post-retirement benefit plans. Each of these accounting policies and the application of critical accounting policies and estimates were discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. There were no significant changes in the application of critical accounting policies or estimates during the three months ended March 31, 2011. Please see Note 4 of the financial statements for newly adopted and recently announced accounting standards.

Management must use informed judgments and best estimates to properly apply these critical accounting policies. Because of the uncertainty in these estimates, actual results could differ from estimates used in applying the critical accounting policies. The Company is not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect its financial condition or results of operations.

Outlook

The following modifies and updates the “Outlook” section of the Company’s 2010 Annual Report on Form 10-K filed on March 11, 2011.

The Company’s earnings and profitability are primarily dependent upon the sale and distribution of water, the amount of which is dependent on seasonal weather fluctuations, particularly during the summer months when water demand will vary with rainfall and temperature levels. The Company’s earnings and profitability in future years will also depend upon a number of other factors, such as the ability to maintain our operating costs at current or lower levels, customer growth in the Company’s core regulated water utility business, growth in revenues attributable to non-water sales operations, and the timing and adequacy of rate relief when requested, from time to time, by our regulated water company.

As noted above, the DPUC, in July 2010, authorized a revenue increase equating to approximately 13%. Based on the allowed increase and continued cost-cutting measures in Operation and Maintenance expenses, including the Organizational Review discussed above, the Company expects its earnings from its Water Activities segment to be higher for the fiscal year ended December 31, 2011 than 2010. Income from our Services and Rentals segment is not expected to be materially different in 2011 than it was in 2010. The Company is in discussions with the Town of Plymouth, Connecticut to sell approximately 175 acres of land for open space purposes, upon approval from the DPUC and the Town of Plymouth. If approved, the Company expects the transaction to be completed in late 2011 or early 2012.

During 2011 and subsequent years, the ability of the Company to maintain and increase its Net Income will principally depend upon the effect on the Company of the factors described above in this “Outlook” section, those factors described in the sections entitled Item 1A – Risk Factors, “Commitments and Contingencies” in Item 7 of the Company’s Annual Report on Form 10-K and the risks and uncertainties described in the “Forward-Looking Information” section below.

Liquidity and Capital Resources

The Company is not aware of demands, events, or uncertainties that will result in a decrease of liquidity or a material change in the mix or relative cost of its capital resources, other than those outlined below.

With the implementation of the Company’s new Enterprise Resource Planning System (ERP), the Company delayed customer billings in order to verify the integrity of the system and the accuracy of those bills prior to mailing. As a result, some billings and consequently, cash receipts and collection efforts were delayed. The Company has increased its utilization of its lines of credit during this period. Its operations, including plans to continue investment in new infrastructure, are not impacted.

The delay in collection efforts contributed to the increase in the Company’s bad debt expense for the quarter of approximately $107,000, when compared to the first quarter of 2010, based upon aging of the receivables. The Company has seen progress towards resolving the collection issues during the first quarter of 2011 and expects continued progress throughout the remainder of the year. The Company fully anticipates that the reserve will return to more historical levels by the end of 2011.

In November 2008, the Company was authorized by its Board of Directors to increase the available lines of credit from $21 million to $40 million. On June 30, 2009, the Company let expire one line of credit totaling $6 million and entered into a new $15 million line of credit agreement, which was to expire on June 25, 2010. In May 2010, the Company extended the maturity date of this line to June 25, 2011. On August 12, 2009, the Company replaced an existing $3 million line of credit with a $10 million line of credit, which expires on August 10, 2011. Finally, on September 15, 2009, the Company increased a third line of credit from $12 million to $15 million, with an expiration date of June 1, 2011. The Company expects to renew the lines of credit as they expire in 2011. The outstanding aggregate balance on these lines of credit was $26.3 million as of March 31, 2011 and December 31, 2010, respectively, and are included in the Interim Bank Loans Payable line of the Balance Sheet. As of March 31, 2011, the Company had $13.7 million in unused lines of credit. Interest expense charged on interim bank loans will fluctuate based on market interest rates.

- 12 -

Connecticut Water Service, Inc. and Subsidiaries

The Board of Directors approved a $23.0 million construction budget for 2011, net of amounts to be financed by customer advances and contributions in aid of construction. The Company is using a combination of its internally generated funds, borrowing under its available lines of credit, and the funds remaining under our 2010 debt issuance to fund this construction budget. The Company has obtained authorization through the Connecticut Development Authority to issue up to $24 million in private activity bonds in 2011. The Company expects to conduct a bond offering late in 2011 or early in 2012.

Standard and Poor’s, on April 28, 2011, affirmed their 'A' corporate credit rating on the Company with a stable outlook. The affirmation of the corporate credit rating follows their annual review of the Company and incorporates their expectation of adequate and timely rate relief and maintenance of our current financial risk profile. The stable outlook reflects improving regulation and timely rate relief in Connecticut.

The Company offers a dividend reinvestment plan (DRIP) to all registered shareholders, whereby shareholders can opt to have dividends directly reinvested into additional shares of the Company. During the three months ended March 31, 2011 and 2010, shareholders reinvested $332,000 and $242,000, respectively, in additional shares as part of the DRIP.

From 1999 through 2003, the Company issued stock options to certain employees of the Company. No stock options have been issued by the Company since 2003. During the three months ended March 31, 2011, no stock options were exercised. During the three months ended March 31, 2010, 809 stock options were exercised, resulting in approximately $20,000 in proceeds to the Company.

As the Company looks forward to 2011 and 2012, it anticipates continued reinvestment to replace aging infrastructure and to seek recovery through periodic WICA applications. The total cost of that investment is expected to exceed the amount of internally generated funds. The Company expects that it will require external financings over the next two years. In order to maintain a balanced capital structure, we expect to consider both debt and equity issuances. As the capital investment planning process is completed in the coming periods, the Company expects to provide a reasonable range of these potential financings.

Results of Operations

Three Months Ended March 31

Net Income for the three months ended March 31, 2011 increased from the same period in the prior year by $1,198,000 to $2,268,000, which increased earnings per basic average common share by $0.14, to $0.26.

This increase in Net Income is broken down by business segment as follows:

Business Segment	March 31, 2011		March 31, 2010		Increase/(Decrease)
Water Activities	$	2,075,000	$	834,000	$	1,241,000
Real Estate Transactions		--		--		--
Services and Rentals		193,000		236,000		(43,000	)
Total	$	2,268,000	$	1,070,000	$	1,198,000

The increase in the Water Activity segment’s Net Income was primarily due to the net effects of the variances listed below:

Revenue

Revenue from our water customers increased by $2,188,000, or 15.9%, to $15,989,000 for the three months ended March 31, 2011 when compared to the same period in 2010. The primary reasons for the increase in revenues were an approximate 13% increase in rates as approved by the DPUC in July 2010 and an approximate 1.58% WICA surcharge effective January 1, 2011. Additionally, the Company saw a modest increase of approximately 1.0% in the amount of water produced at its treatment plants and pump stations.

Operation and Maintenance Expense

Operation and Maintenance expense decreased by $80,000 primarily due to the following components:

Expense Components	March 31, 2011		March 31, 2010		Increase/(Decrease)
Post retirement medical	$	406,000	$	220,000	$	186,000
Regulatory commission expense		124,000		38,000		86,000
Labor		2,920,000		2,836,000		84,000
Pension		518,000		468,000		50,000
Investor relations		167,000		137,000		30,000
Purchased water		272,000		290,000		(18,000	)
Utility costs		923,000		988,000		(65,000	)
Property and liability insurance		240,000		323,000		(83,000	)
Medical		341,000		432,000		(91,000	)
Outside services		207,000		458,000		(251,000	)
Other		1,892,000		1,900,000		(8,000	)
Total	$	8,010,000	$	8,090,000	$	(80,000	)

- 13 -

Connecticut Water Service, Inc. and Subsidiaries

-	Operation and Maintenance expenses decreased approximately 1.0% due largely to cost containment efforts by our employees, including the following:

Outside services decreased by $251,000 primarily due to a reduction in consulting, legal and temporary labor costs. The reduction in consulting is primarily due to training services provided prior to the launch of the Company’s Enterprise Resource Planning (ERP) system early in 2010. Since the organizational review undertaken by the Company in the third quarter of 2010, the Company has reduced its use of temporary labor;

Property and liability insurance decreased $83,000 in 2011 primarily due to cost reductions in our package and workers’ compensation policies. The package policy, which covers our fleet of vehicles, decreased primarily to a reduction in our fleet levels. Workers’ compensation decreased due to a reduction in headcount in the third quarter of 2010; and

Utility costs were down $65,000 when compared to the same period of 2010 due principally to reduced electrical power costs. During 2010, the Company received lower rates on its electricity through new suppliers and improved efficiency at several of the Company’s locations as a result of energy audits. To date, energy audits have been performed at many of our facilities and we expect to further improve efficiency.

-	Non-cost containment decreases to O&M expense include the following:

Medical costs decreased $91,000 over the prior year primarily due to reimbursement payments received from our insurance administrator relating to a stop-loss provision in our agreement. The Company has individual claim and whole-year stop-loss coverage agreements which limit the Company’s self-funded plan’s exposure from large individual or cumulative claims.

-	The decreases described above were partially offset by the following:

·	Post retirement medical and Pension costs increased by a combined $236,000 over 2010 levels primarily due to a decrease in the discount rate used to determine the future liabilities of the plans and to a decline in the market value of the plans’ assets in prior years; and

Regulatory commission expense increased $86,000 over prior year due to costs associated with the rate case filed in 2010. Per DPUC regulations, costs associated with general rate cases are captured on the balance sheet and amortized over an approved period. During 2010, costs associated with the 2006 rate case became fully amortized; and

Labor increased approximately $84,000 when compared to 2010 primarily due to normal wage increases. Additionally, as the Company prepared to implement its ERP system during 2010, more employees were allocating their time to this large capital project. The Company expects that the Organization Review, described above, will provide savings in future periods related to Labor costs.

The Company saw an approximate 11.4% increase in its Depreciation expense from 2010 to 2011. The primary driver of this increase was due to an increase in the Company’s Utility Plant investment. A portion of the higher Utility Plant balance was related to the implementation of the Company’s ERP system that went into service in the first quarter of 2010 which is depreciated at a higher rate than our typical water delivery infrastructure. The Company’s prior ERP system was fully depreciated prior to the implementation of the new system.

-	Income Tax expense associated with Water Activities increased to $1,102,000 due to an increase in pre-tax income.

Commitments and Contingencies

There were no material changes under this subheading to any of the other items previously disclosed by the Company in its Annual Report on Form 10-K for the period ended December 31, 2010.

Forward-Looking Information

Certain statements made in this Form 10-Q, (“10-Q”) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”) that are made based upon, among other things, our current assumptions, expectations and beliefs concerning future developments and their potential effect on us. These forward-looking statements involve risks, uncertainties and other factors, many of which are outside our control, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases you can identify forward-looking statements where statements are preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,” “continue” or the negative of such terms or similar expressions. Forward-looking statements included in this 10-Q, include, but are not limited to, statements regarding:

·	projected capital expenditures and related funding requirements;

·	the availability and cost of capital;

·	developments, trends and consolidation in the water and wastewater utility industries;

·	dividend payment projections;

·	our ability to successfully acquire and integrate regulated water and wastewater systems, as well as unregulated businesses, that are complementary to our operations and the growth of our business;

·	the capacity of our water supplies, water facilities and wastewater facilities;

·	the impact of limited geographic diversity on our exposure to unusual weather;

·	the impact of conservation awareness of customers and more efficient plumbing fixtures and appliances on water usage per customer;

·	our capability to pursue rate increase requests on a timely successful basis;

·	our authority to carry on our business without unduly burdensome restrictions;

·	our ability to maintain our operating costs at the lowest possible level, while providing good quality water service;

·	our ability to obtain fair market value for condemned assets;

·	the impact of fines and penalties;

·	changes in laws, governmental regulations and policies, including environmental, health and water quality and public utility regulations and policies;

·	the decisions of governmental and regulatory bodies, including decisions to raise or lower rates;

·	our ability to successfully extend and expand our service contract work within our Service and Rentals Segment;

·	the development of new services and technologies by us or our competitors;

·	the availability of qualified personnel;

·	the condition of our assets;

·	the impact of legal proceedings;

·	general economic conditions;

the profitability of our Real Estate Segment, which is subject to the amount of land we have available for sale and/or donation, the demand for any available land, the continuation of the current state tax benefits relating to the donation of land for open space purposes and regulatory and local government/town approvals for land dispositions; and

·	acquisition-related costs and synergies.

- 14 -

Connecticut Water Service, Inc. and Subsidiaries

Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including but not limited to:

·	changes in general economic, business, credit and financial market conditions;

·	changes in government regulations and policies, including environmental and public utility regulations and policies;

·	changes in environmental conditions, including those that result in water use restrictions;

·	unusual weather conditions;

·	increases in energy and fuel costs;

·	unfavorable changes to the federal and/or state tax codes;

·	significant changes in, or unanticipated, capital requirements;

·	significant changes in our credit rating or the market price of our common stock;

·	our ability to integrate businesses, technologies or services which we have acquired or may acquire;

·	our ability to manage the expansion of our business;

·	the extent to which we are able to develop and market new and improved services;

·	the continued demand by telecommunication companies for antenna site leases on our property;

·	the effect of the loss of major customers;

·	our ability to retain the services of key personnel and to hire qualified personnel;

·	labor disputes;

·	increasing difficulties in obtaining insurance and increased cost of insurance;

·	cost overruns relating to improvements or the expansion of our operations;

·	increases in the costs of goods and services;

·	civil disturbance or terroristic threats or acts; and

·	changes in accounting pronouncements.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this 10-Q, the 2010 Annual Report on Form 10-K (“10-K”) and the documents that we incorporate by reference into the 10-K completely and with the understanding that our actual future results, performance and achievements may be materially different from what we expect. These forward-looking statements represent our assumptions, expectations and beliefs only as of the date of this 10-Q. Except for our ongoing obligations to disclose certain information under the federal securities laws, we are not obligated, and assume no obligation, to update these forward-looking statements, even though our situation may change in the future. For further information or other factors which could affect our financial results and such forward-looking statements, see Part I, Item 1A“Risk Factors” found in the 10-K. We qualify all of our forward-looking statements by these cautionary statements.

Part I, Item 3: Quantitative and Qualitative Disclosure About Market Risk

The primary market risk faced by the Company is interest rate risk. The Company has no exposure to derivative financial instruments or financial instruments with significant credit risk or off-balance-sheet risks. In addition, the Company is not subject, in any material respect, to any currency or other commodity risk.

The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company’s exposure to interest fluctuations is managed at the Company and subsidiary operations levels through the use of a combination of fixed rate long-term debt, variable long-term debt and short-term variable borrowings under financing arrangements entered into by the Company and its subsidiaries. The Company has $40.0 million of variable rate lines of credit with three banks, under which the interim bank loans payable at March 31, 2011 were approximately $26.3 million.

As of March 31, 2011, the Company had $22.05 million of variable-rate long-term debt outstanding. Holding other variables constant, including levels of indebtedness, a one-percentage point change in interest rates would impact pre-tax earnings by approximately $0.2 million, annually. The Company monitors its exposure to variable rate debt and will make future financing decisions as the need arises.

Part I, Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, 2011, management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II, Item 1: Legal Proceedings

We are involved in various legal proceedings from time to time. Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our properties is the subject that presents a reasonable likelihood of a material adverse impact on the Company.

Part II, Item 1A: Risk Factors

Information regarding risk factors appeared in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

- 15 -

Connecticut Water Service, Inc. and Subsidiaries

Part II, Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

No stock repurchases were made during the quarter ended March 31, 2011.

Part II, Item 6: Exhibits

Exhibit Number			Description

	3.1		Certificate of Incorporation of Connecticut Water Service, Inc. amended and restated as of April, 1998. (Exhibit 3.1 to Form 10-K for the year ended 12/31/98).

	3.2		By Laws, as amended, of Connecticut Water Service, Inc. as amended and restated as of August 12, 1999. (Exhibit 3.2 to Form 10-K for the year ended 12/31/99).

	3.3		Certification of Incorporation of The Connecticut Water Company effective April, 1998. (Exhibit 3.3 to Form 10-K for the year ended 12/31/98).

	3.4		Certificate of Amendment to the Certificate of Incorporation of Connecticut Water Service, Inc. dated August 6, 2001 (Exhibit 3.4 to Form 10-K for the year ended 12/31/01).

	3.5		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Connecticut Water Service, Inc. dated April 23, 2004. (Exhibit 3.5 to Form 10-Q for the quarter ended March 31, 2003).

	10.1	*	Nonstandardized Adoption Agreement Prototype Cash or Deferred Profit-Sharing Plan, effective as of January 1, 2010.

	31.1	*	Rule 13a-14 Certification of Eric W. Thornburg, Chief Executive Officer.

	31.2	*	Rule 13a-14 Certification of David C. Benoit, Chief Financial Officer.

	32	**	Certification of Eric W. Thornburg, Chief Executive Officer, and David C. Benoit, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* filed herewith
** furnished herewith

- 16 -

SIGNATURES

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

	Connecticut Water Service, Inc. (Registrant)
Date: May 6, 2011	By: /s/ David C. Benoit David C. Benoit Vice President – Finance and Chief Financial Officer
Date: May 6, 2011	By: /s/ Nicholas A. Rinaldi Nicholas A. Rinaldi Controller

- 17 -

Certification of Chief Executive Officer

I, Eric W. Thornburg, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Connecticut Water Service, Inc. (the “registrant”).

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.

The registrant’s other certifying officer(s) 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 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 change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal 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(s) 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 the 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/ Eric W. Thornburg

President and Chief Executive Officer

Certification of Chief Financial Officer

I, David C. Benoit, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Connecticut Water Service, Inc. (the “registrant”).

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.

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

5.	The registrant’s other certifying officer(s) 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 the 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.

Chief Financial Officer and Vice President – Finance

CERTIFICATION PURSUANT TO

18 U.S.C. Section 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Connecticut Water Service, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Eric W. Thornburg, the Chief Executive Officer of the Company, and David C. Benoit, the Chief Financial Officer of the Company, do each hereby certify, to the best of his knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Eric W. Thornburg

NONSTANDARDIZED ADOPTION AGREEMENT

PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN

Wachovia Bank, National Association

The Employer named below hereby establishes a Cash or Deferred Profit-Sharing Plan for eligible Employees as provided in this Adoption Agreement and the accompanying Basic Plan Document #01.

I. EMPLOYER INFORMATION

If more than one Employer is adopting the Plan, complete this section based on the lead Employer. Additional Employers who are members of the same controlled group or affiliated service group may adopt this Plan by completing and executing a Participation Agreement that, once executed, will become part of this Adoption Agreement.

A. Name And Address:

Connecticut Water Company

Clinton, CT 06413-1600

B. Telephone Number: 860-669-8630

C. Employer’s Tax ID Number: 06-0713930

Form Of Business:

[ ] 1. Sole Proprietor [ ] 5. Limited Liability Company

[ ] 2. Partnership [ ] 6. Limited Liability Partnership

[x] 3. Corporation [ ] 7.

[ ] 4. S Corporation

E. Is The Employer Part Of A Controlled Group? [x] YES [ ] NO

Part Of An Affiliated Service Group? [ ] YES [x] NO

F. Name Of Plan: Savings Plan of the Connecticut Water Company

G. Three Digit Plan Number: 003

H. Employer’s Tax Year End: December 31

I. Employer’s Business Code: 221300

This is a new Plan having an Effective Date of __________________________. The Effective Date may be no earlier than the Plan Year beginning after December 31, 2001 or if later, the first day of the Plan Year in which it is adopted.

B.	Amended and Restated Plans:

This is an amendment and/or restatement of an existing Plan. The initial Effective Date of the Plan was ________________________________________. The Effective Date of this amendment and/or restatement is __________________________. The Effective Date of the restated Plan may be no earlier than for Plan Years beginning after December 31, 2001.

C.	Amended or Restated Plans for EGTRRA:

This is an amendment and/or restatement of an existing Plan to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-17 (EGTRRA)]. The initial Effective Date of the Plan was January 1, 1985. Except as provided for in the Plan, the Effective Date of this amendment and/or restatement is January 1, 2010. (The restatement date should be no earlier than the first day of the current Plan Year. The Plan contains appropriate retroactive Effective Dates with respect to provisions of EGTRRA.)

Except to the extent permitted under Code Section 411(d)(6) and the Regulations issued thereunder, an Employer cannot reduce, eliminate or make subject to Employer discretion any Code Section 411(d)(6) protected benefit. Where this Plan document is being adopted to amend another plan that contains a protected benefit not provided for in the Basic Plan Document #01, the Employer may complete Schedule A as an addendum to this Adoption Agreement. Schedule A describes such protected benefits and shall become part of this Plan. If a prior plan document contains a plan feature not provided for in the Basic Plan Document #01, the Employer may attach Schedule B describing such feature. Provisions listed on Schedule B may not be covered by the IRS Opinion Letter issued with respect to the Basic Plan Document #01.

D. Effective Date for Elective Deferrals:

If different from above, the Elective Deferral provisions shall be effective __________________________.

E. Effective Date for Safe Harbor 401(k) Contributions:

If different from above, this provision shall be effective January 1, 2009. This provision must be adopted prior to the first day of the Plan Year and remain in effect for an entire twelve (12) month period.

F. Effective Date for Roth Elective Deferrals:

If different from above, Roth Elective Deferral provisions shall be effective __________________________. The Effective Date of this provision cannot be earlier than January 1, 2006.

This Plan was frozen effective __________________________. For any period following this Effective Date, neither the Employer nor any Participant may contribute to this Plan, and no otherwise eligible Employee shall become a Participant in this Plan. All existing account balances will become fully vested as of the date specified above.

“Compensation”

Select the definition of Compensation, the Compensation Computation Period, any Compensation Dollar Limitation and Exclusions from Compensation for each contribution type from the options listed below. Enter the letter of the option selected on the lines provided below. Leave the line blank if no election needs to be made. The Compensation Computation Period must be the same as the Limitation Year defined at Section III(E).

Employer Contribution Type	Compensation Definition	Compensation Computation Period	Compensation Dollar Limitation	Exclusions From Compensation
All Contributions	d	a	$	b, c, d, g, j
Elective Deferrals (including Roth Elective Deferrals, if applicable)			$

Employer Contribution Type	Compensation Definition	Compensation Computation Period	Compensation Dollar Limitation	Exclusions From Compensation
Voluntary After-tax			$
Required After-tax			$
Matching Contribution (Formula 1)			$
Matching Contribution (Formula 2)			$
Non-Elective Contribution (Formula 1)			$
Non-Elective Contribution (Formula 2)			$
Safe Harbor Contribution			N/A	N/A
QNEC			$
QMAC			$
ADP/ACP Tests			N/A	N/A

1. Compensation Definition:

Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions excluded.

Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions included [Plan defaults to this election].

c.	Code Section 6041/6051 - Income reportable on Form W-2, with all pre-tax contributions excluded.

Code Section 6041/6051 - Income reportable on Form W-2, with all pre-tax contributions included.

Code Section 415 - All income received for services performed for the Employer, with all pre-tax contributions excluded.

Code Section 415 - All income received for services performed for the Employer, with all pre-tax contributions included.

The selection of any of the above definitions of Compensation meets the Code Section 414(s) definition of Compensation. The Code Section 415 definition shall always apply with respect to sole proprietors and partners.

[ ]

Deemed Compensation from permitted waiver of group health coverage under a Cafeteria Plan Arrangement: The Employer elects to include deemed Code Section 125 Compensation not available to a Participant in cash in lieu of group health coverage in the Plan’s definition of Compensation.

Compensation Computation Period:

Compensation paid during a Plan Year while a Participant [Plan defaults to this election].

b. Compensation paid during the entire Plan Year.

c. Compensation paid during the Employer's fiscal year.

d.	Compensation paid during the calendar year.

Compensation Dollar Limitation: The dollar limitation section does not need to be completed unless Compensation of less than the Code Section 401(a)(17) limit of $200,000 is to be used. When an integrated allocation formula in Section VI is selected, Compensation cannot be limited to an amount less than the maximum amount under Code Section 401(a)(17).

5. Exclusions from Compensation (non-integrated plans only):

There will be no exclusions from Compensation under the Plan [Plan defaults to this safe harbor election].

e.	Exclusion applies only to Participants who are Highly Compensated Employees [safe harbor].

f.	Holiday and vacation pay

g.	Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation, and welfare benefits [safe harbor].

h.	Post-severance payments, as described in paragraph 1.17(c)(6) of Basic Plan Document #01. (This exclusion may apply no earlier than the 2005 Limitation Year.)

i.	Compensation in excess of $__________________________ for Highly Compensated Employees [safe harbor].

j.	Other: Employer’s cost for any public or private employee benefit plan

Any exclusion of Compensation except (a), (e), (g), (h) and (i) must satisfy the requirements of Section 1.401(a)(4) of the Income Tax Regulations and Code Section 414(s) and the Regulations thereunder. These exclusions do not fall under the “safe harbor” modifications to Compensation and therefore must be tested to determine if the modified definition of Compensation satisfies Code Section 414(s).

“Disability”

[x]

As defined in the Basic Plan Document #01 [Plan defaults to this election].

[ ]

As defined in the Employer’s Disability Insurance Plan.

[ ]

An individual will be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. An individual shall not be considered to be disabled unless he or she furnishes proof of the existence thereof in such form and manner as the Secretary of the Treasury may prescribe.

“Highly Compensated Employees – Top-Paid Group Election”

Top-Paid Group Election: In determining who is a Highly Compensated Employee, the Employer may make the Top-Paid Group election. The effect of this election is that an Employee (who is not a 5% owner at any time during the determination year or the look-back year) who earned more than $95,000, as indexed for the look-back year, is a Highly Compensated Employee if the Employee was in the Top-Paid Group for the look-back year. This election is applicable for the Plan Year in which this Plan is effective.

[x] a. The Employer does not make the Top-Paid Group election.

[ ]

The Employer makes the Top-Paid Group election [Plan defaults to this election].

[ ]

Calendar Year Data Election: If the Plan Year is not the calendar year, the prior year computation period for purposes of determining if an Employee earned more than $95,000, as indexed, is the calendar year beginning in the prior Plan Year. This election is applicable for the Plan Year in which this Plan is effective.

“Hours Of Service”

Hours shall be determined by the method selected below. The method selected shall be applied to all Employees:

[ ]

Not applicable. A Year of Service (Period of Service) is defined using the Elapsed Time method.

[x]

On the basis of actual hours for which an Employee is paid or entitled to payment [Plan defaults to this election].

[ ]

On the basis of days worked. An Employee shall be credited with ten (10) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the day.

[ ]

On the basis of weeks worked. An Employee shall be credited with forty-five (45) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the week.

[ ]

On the basis of semi-monthly payroll periods. An Employee shall be credited with ninety-five (95) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the semi-monthly payroll period.

[ ]

On the basis of months worked. An Employee shall be credited with one-hundred-ninety (190) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the month.

“Integration Level”

[x]

Not applicable. Either the Plan's allocation formula is not integrated with Social Security or there are no Non-Elective Employer Contributions being made to the Plan [Plan defaults to this election].

[ ]

The Taxable Wage Base.

[ ]

________% (not more than 100%) of the Taxable Wage Base.

[ ]

$________, provided that such amount is not in excess of the amount determined under paragraph (E)(2) above.

[ ]

One dollar over 80% of the Taxable Wage Base.

[ ]

20% of the Taxable Wage Base.

F. “Limitation Year”

Unless elected otherwise below, the Limitation Year shall be the Plan Year.

The twelve (12) consecutive month period commencing on January 1 and ending on December 31.

If applicable, there will be a short Limitation Year commencing on ___________________________ and ending on ___________________________. Thereafter, the Limitation Year shall end on the date specified above.

G.	“Net Profit”

[x]

Not applicable. Employer contributions to the Plan are not conditioned on profits [Plan defaults to this election].

[ ]

Net Profits are required for making Employer contributions and are defined as follows:

[ ]

As defined in the Basic Plan Document #01.

[ ]

Net Profits will be defined in a uniform and nondiscriminatory manner which will not result in a deprivation of an eligible Participant of any Employer Contribution.

Net Profits are required for the following types of contributions:

[ ] i. Employer Matching Contributions (Formula 1).

[ ] ii. Employer Matching Contributions (Formula 2).

[ ]

iii.

Employer QNEC and QMAC Contributions.

[ ] iv. Non-Elective Employer Contributions (Formula 1).

[ ] v. Non-Elective Employer Contributions (Formula 2).

Elective Deferrals, Top-Heavy minimums (if required), and Safe Harbor Contributions (if applicable) must be contributed regardless of profits.

The 12-consecutive month period commencing on January 1 and ending on December 31.

If applicable, there will be a short Plan Year commencing on ___________________________ and ending on ___________________________. Thereafter, the Plan Year shall end on the date specified above.

I. “QDRO Payment Date”

[x]

The date the QDRO is determined to be qualified [Plan defaults to this election].

[ ]

The statutory age fifty (50) requirement applies for purposes of making distribution to an alternate payee under the provisions of a QDRO.

“Qualified Joint and Survivor Annuity”

[x]

Not applicable. The Plan is not subject to Qualified Joint and Survivor Annuity rules. The safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 apply. The normal form of payment is a lump sum. No annuities are offered under the Plan [Plan defaults to this election].

[ ]

The normal form of payment is a lump sum. The Plan does provide for annuities as an optional form of payment at Section XVI(D) of the Adoption Agreement. The Plan’s Joint and Survivor Annuity rules are avoided and the safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 will apply, unless the Participant elects to receive his or her distribution in the form of an annuity. If this option is selected, Section III(K) below must also be completed.

[ ]

The Joint and Survivor Annuity rules are applicable and the survivor annuity will be ________% (50%, 66-2/3%, 75% or 100%) of the annuity payable during the lives of the Participant and his or her Spouse. If no selection is specified, 50% shall be deemed elected.

K.	“Qualified Pre-Retirement Survivor Annuity”

Do not complete this section if paragraph (J)(1) was elected.

[ ]

The Qualified Pre-Retirement Survivor Annuity shall be 100% of the Participant’s Vested Account Balance in the Plan as of the date of the Participant’s death.

[ ]

The Qualified Pre-Retirement Survivor Annuity shall be 50% of the Participant’s Vested Account Balance in the Plan as of the date of the Participant’s death.

If this provision applies but no selection is made, the Qualified Pre-Retirement Survivor Annuity shall be 50%.

L. “Valuation of Plan Assets”

The assets of the Plan shall be valued on the last day of the Plan Year and on the following Valuation Date(s):

[ ] 1. There are no other mandatory Valuation Dates.

[x] 2. The Valuation Dates are applicable for the contribution type specified below:

Contribution Type Valuation Date	Valuation Date
All Contributions	a
Elective Deferrals (including Roth Elective Deferrals, if applicable)
Voluntary After-tax Contributions
Required After-tax Contributions
Deemed IRA Contribution
Matching Contributions (Formula 1)
Matching Contributions (Formula 2)
Non-Elective Contributions (Formula 1)
Non-Elective Contributions (Formula 2)
Safe Harbor Contributions
QNEC
QMAC

b. The last day of each month.

c. The last day of each quarter in the Plan Year.

d. The last day of each semi-annual period in the Plan Year.

(Note: Date must be at least once during the Plan Year.)

IV. ELIGIBILITY REQUIREMENTS

Complete the following using the eligibility requirements as specified for each contribution type. To become a Participant in the Plan, the Employee must satisfy the following eligibility requirements.

Contribution Type	Minimum Age	Service Requirement	Class Exclusions	Eligibility Computation Period	Entry Date
All Contributions
Elective Deferrals (including Roth Elective Deferrals, if applicable)	1	3	6, 10 (a)		5
Voluntary After-tax Contributions
Required After-tax Contributions
Matching Contributions (Formula 1)
Matching Contributions (Formula 2)
Non-Elective Contributions (Formula 1)	1	3	6, 10 (a) + (b)		5
Non-Elective Contributions (Formula 2)
Safe Harbor Contributions*	1	3	6, 10 (a)		5
QNECs
QMACs

*If any age or Service requirement selected is more restrictive than that which is imposed on any Employee contribution, that group of Employees will be subject to the ADP and/or ACP testing as prescribed under applicable IRS Regulations

1. No age requirement.

Insert the applicable age in the chart above. The age may not be more than twenty-one (21).

The maximum Service requirement for Elective Deferrals is one (1) year. For all other contributions, the maximum is two (2) years. If a Service requirement greater than one (1) year is selected, Participants must be 100% vested in that contribution.

No Service requirement.

Completion of _______ Days of Service. [No more than 730 Days of Service may be required; if more than 365 days are entered here, Participants must be 100% vested upon entering the Plan.]

Completion of 6 months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]

Completion of _______ months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]

One (1) Year of Service or Period of Service.

Part I, Item 1: Financial Statements (Unaudited)

Consolidated Balance Sheets at March 31, 2011 and December 31, 2010	Page 3

Consolidated Statements of Capitalization at March 31, 2011 and December 31, 2010	Page 4

Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010	Page 5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and 2010	Page 6

Consolidated Statements of Retained Earnings for the Three Months Ended March 31, 2011 and 2010	Page 7

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	Page 8

Notes to Consolidated Financial Statements	Page 9

Part I, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 11

Part I, Item 3: Quantitative and Qualitative Disclosures About Market Risk	Page 15

Part I, Item 4: Controls and Procedures	Page 15

Part II, Item 1: Legal Proceedings	Page 15

Part II, Item 1A: Risk Factors	Page 15

Part II, Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	Page 16

Part II, Item 6: Exhibits	Page 16

Signature Page Exhibit 31.1 Exhibit 31.2 Exhibit 32	Page 17

Type of Contribution	Matching Contribution (Formula 1)	Matching Computation Period	Limitations	Matching Contribution (Formula 2)	Matching Computation Period	Limitations
Elective Deferrals (including Roth Elective Deferrals, if applicable)
Voluntary After-tax
Required After-tax
403(b) Deferrals

Type of Contribution	Allocation Method
Non-Elective Formula 1	3
Non-Elective Formula 2

Waiver Date	Waiver of Age Requirement	Waiver of Service Requirement	Contribution Type
			All Contributions
			Elective Deferrals (including Roth Elective Deferrals, if applicable)
			Matching Contribution (Formula 1)
			Matching Contribution (Formula 2)
			Non-Elective Contribution (Formula 1)
			Non-Elective Contribution (Formula 2)
			Safe Harbor Contribution
			QNEC
			QMAC

Contribution Type	Hours
All contributions
Matching Contribution (Formula 1)
Matching Contribution (Formula 2)
Non-Elective Contribution (Formula 1)
Non-Elective Contribution (Formula 2)
QNEC
QMAC

The Gallup Water Service, Inc.	[x]	[ ]	[x]
The Barnstable Water Company	[x]	[ ]	[x]
The Crystal Water Company	[x]	[ ]	[x]
	[ ]	[ ]	[ ]
	[ ]	[ ]	[ ]