UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

TO

Commission File Number 0-8084

Connecticut Water Service, Inc.

(860) 669-8636
(Registrant’s telephone number, including area code)

Not Applicable
(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. Yes (X)  No (  )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes (X)  No (  )

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.

8,003,328

Number of shares of common stock outstanding, June 30, 2004
(Includes 51,110 common stock equivalent shares awarded under the Performance
Stock Program)

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

Financial Report
June 30, 2004 and 2003

TABLE OF CONTENTS

Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

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

CONSOLIDATED STATEMENTS OF CAPITALIZATION

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

     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

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

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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 Six Months Ended June 30, 2004 and 2003

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

     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. 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 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. 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 or Form 10-K and as updated in the Company’s March 31, 2004 Form 10-Q.

     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. The Company has a Stock-Based Compensation Plan with two components: the Performance Stock Program and the Stock Option Program. Statement of Financial Accounting Standards (SFAS) No. 123 “Accounting for Stock-Based Compensation,” encourages entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB opinion No. 25 “Accounting for Stock Issued to Employees” and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants as if the fair-value-based method defined in SFAS No. 123 had been applied.

     The Company accounts for its Stock Option Program under the recognition and measurement principles of APB No. 25. As such, no compensation cost related to the Stock Option Program is reflected in Net Income, as all options under this program had an exercise price equal to market value of the underlying common stock on the date of grant. The following table illustrates the effect on Net Income and Earnings Per Share if the Company had applied the fair value recognition provisions of SFAS No. 123 to the Stock Option Program.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

3. Pension and Other Postretirement Benefits
Pension Benefits
Components of Net Periodic Cost

Other Postretirement Benefits
Components of Net Periodic Cost

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

Pension Benefits
Components of Net Periodic Cost

Other Postretirement Benefits
Components of Net Periodic Cost

     The Company expects to make a contribution of between $1.3 million and $3.1 million to its defined benefit pension plan during 2004. As of June 30, 2004 no contribution has been made.

     The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed December 8, 2003 to make additional voluntary benefits available through Medicare. As permitted by guidance issued by the Financial Accounting Standards Board, the Company has elected not to recognize the effects of the Act in these financial statements. The Company will reflect the implications of the Act during the remaining portion of 2004 and recognize expected financial effects as prescribed by accounting standards in effect for subsequent reporting periods.

4.    Earnings per average common share are calculated by dividing net income applicable to common stock by the average number of shares of common stock outstanding during the respective periods as detailed below:

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

5. 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 of dollars:

Three Months Ended June 30, 2004

Three Months Ended June 30, 2003

Six Months Ended June 30, 2004

Six Months Ended June 30, 2003

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

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

Regulatory Matters and Inflation

     During the quarter ended June 30, 2004, there were no changes to any items previously disclosed under this subsection by the Company in its Annual Report on Form 10-K for the period ended December 31, 2003 and as updated on Form 10-Q for the period ended March 31, 2004.

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 regulatory commissions to which the Company’s subsidiaries are 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.

     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 Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation"(FAS 71), revenue recognition, and pension plan accounting. Each of these accounting policies and the application of critical accounting policies and estimates was discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. There were no significant changes in the application of critical accounting policies or estimates during the first two quarters of 2004. 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.

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 capital resources.

     Interim Bank Loans Payable at June 30, 2004 was $8,700,000.

     We consider the current $15,500,000 lines of credit with four banks adequate to finance any expected short-term borrowing requirements that may arise from operations during 2004. The bank lines of credit have expiration dates ranging from October 2004 through January 2006. Interest expense charged on interim bank loans will fluctuate based on financial market conditions.

     On June 4, 2004, one of the Company’s subsidiaries, The Unionville Water Company, borrowed $1,646,970 from the State of Connecticut Clean Water Fund. The 19-year loan carries a 3.56% interest rate and requires sinking fund payments of $4,726 per month for the first 24 months of the loan. The loan proceeds were used to pay off the short-term borrowings, which financed the construction of Unionville’s water interconnection with a neighboring water supply.

     The fair value of the interest rate swap, included in the Company’s Consolidated Balance Sheet in “Deferred Charges and Other Costs”, was approximately $336,000 at June 30, 2004. Changes in the fair value of this derivative instrument are recorded in “Accumulated Other Comprehensive Income” in Common Stock Equity.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

     The Company recently submitted an application to the Connecticut Department of Public Utility Control (DPUC) for the refunding of $9,550,000 of Series T and Series U First Mortgage Bonds previously issued by The Connecticut Water Company. The Company has not yet received a final decision from the DPUC on the application. Any refunding transaction involving the Series T and Series U debt will depend upon the receipt of a final decision of the DPUC with terms acceptable to the Company, which has not yet been issued, and is subject to the negotiation and completion of adequate replacement financing.

Off-Balance Sheet Arrangements and Contractual Obligations

     During the six months ended June 30, 2004, 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, 2003.

Results of Operations

     The following factors had a significant effect upon the Company’s net income for the three months ended June 30, 2004 as compared with the net income for the same period last year.

     Net income applicable to common stock for the three months ended June 30, 2004 increased from that of June 30, 2003 by $904,000, or $.11 per basic average common share. This increase is broken down by business segment as follows:

     The increase in the Water Activities segment’s net income is primarily due to a $715,000 increase in Utility Operating Income and a $150,000 decrease in Interest and Debt Expense, partially offset by a $33,000 decrease in Net Other Income (Deductions).

     The increase in Utility Operating Income was primarily due to the following:

  - a $1,118,000 increase in Operating Revenue primarily due to the weather returning to a more normal pattern than in 2003. In 2003, it was unusually cool and rainy which caused customer water consumption to decline.

  - a $119,000 decrease in Operation and Maintenance Expense primarily due to fewer main breaks in 2004 as compared to 2003.

Partially offset by

  - a $494,000 increase in Income Tax Expense primarily due to higher taxable income.

  - a $35,000 increase in Taxes Other Than Income Taxes, primarily property taxes related to the Company’s increased investment in utility plant.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

     The reduction in Interest and Debt Expense is primarily due to the October 2003 and March 2004 bond refinancings.

     The reduction in Other Income (Deductions) is partially due to less interest being capitalized in 2004 due to the Unionville Water interconnection construction project being completed and placed in service during the second quarter of 2003.

     The 43% increase in the Services and Rentals segment’s net income is primarily due to higher revenues from the Company’s LinebackerTM Service Line Maintenance program and antenna site leases.

     There was no activity in the Real Estate Transactions segment in either the three months ended June 30, 2004 or 2003.

     The following factors had a significant effect upon the Company’s net income for the six months ended June 30, 2004 as compared with the net income for the same period last year.

     Net income applicable to common stock for the six months ended June 30, 2004 increased from that of June 30, 2003 by $769,000, or $.09 per basic average common share. This increase is broken down by business segment as follows:

     The increase in the Water Activities segment’s net income is primarily due to a $605,000 increase in Utility Operating Income and a $366,000 decrease in Interest and Debt Expense partially offset by a $60,000 decrease in Net Other Income (Deductions).

     The increase in Utility Operating Income was primarily due to the following:

  - a $1,136,000 increase in Operating Revenue primarily due to the weather returning to a more normal pattern than we experienced in 2003. In 2003, it was unusually cool and rainy which caused customer water consumption to decline.

  - a $109,000 decrease in Operation and Maintenance Expense primarily due to fewer water main breaks in 2004 as compared to 2003.

Partially offset by

  - a $542,000 increase in Income Tax Expense primarily due to higher taxable income.

  - a $68,000 increase in Taxes Other Than Income Taxes, primarily property taxes related to the Company’s increased investment in utility plant.

     The reduction in Interest and Debt Expense is primarily due to the October 2003 and March 2004 bond refinancings.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

     The reduction in Other Income (Deductions) is primarily due to less interest being capitalized in 2004 due to the Unionville Water interconnection construction project being completed and placed in service during the second quarter of 2003.

     The 33% increase in the Services and Rentals segment’s net income is primarily due to higher revenues from the Company’s LinebackerTM Service Line Maintenance program and antenna site leases.

     The decline in 2004 net income associated with the Real Estate segment was expected due to the smaller relative size of land donated in the first quarter of 2004 verses the first quarter of 2003, leading to a lower income tax deduction in 2004. Both years’ land donations were to the Town of Killingly, CT and were part of a three-year (2002-2004) phased plan for land donations in Connecticut.

Commitments and Contingencies

Land Dispositions

     During the quarter ended March 31, 2004, the Company received notice from the State of Connecticut Department of Environmental Protection (DEP) that its review of our approximately 7,600 acres of Class I, II, and III land was complete. The DEP notice indicated that the DEP had identified 240 parcels representing 6,823 acres of land and land underwater as land that the DEP would be interested in acquiring as open space, by either fee ownership or a conservation easement. Any possible land dispositions by the Company to the State of Connecticut will depend upon the availability of sufficient State funding for open space land purchases, as well as the successful negotiation by the parties of the terms and conditions, including price, for such dispositions. Accordingly, there can be no assurance that any purchases or other acquisitions of Company owned land will be made by the State of Connecticut.

     In the past, the Company has engaged in a program of land donations to municipalities in Connecticut which has resulted in net profits (tax benefits) to the Company of approximately $3.7 million. As previously disclosed, the land donation program under the Company’s agreement with the Town of Killingly, CT was completed in January 2004 with the donation of the remaining parcel to the Town. The donation of this final parcel resulted in a net profit (tax benefit) to the Company of $706,000 during the first quarter of 2004.

     The Company and its subsidiaries own additional parcels of land in Connecticut and Massachusetts which may be suitable in the future for disposition, either by sale or by donation to municipalities, other local governments or private charitable entities. These additional parcels would include certain Class I and II parcels previously identified by the Connecticut DEP in the DEP notice noted above, as well as certain lands owned by BARLACO in Barnstable, Massachusetts. The Company is unable to predict if and when any sales or donations of some or all of these parcels may occur in the future and, if so, what amount of net profits (tax benefits) may result from any such sales or donations.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

Reverse Privatization

     The Town of Barnstable, Massachusetts has advised the Company that it intends to pursue the acquisition of the Company’s wholly-owned subsidiaries, The Barnstable Water Company and BARLACO. The Town takes the position that it has the right to acquire The Barnstable Water Company and BARLACO pursuant to the provisions of Massachusetts legislation passed in 1911. The Company has previously advised the Town that the Company does not believe the Town has any statutory right to acquire either The Barnstable Water Company or BARLACO. By letter dated May 3, 2004, the Town advised the Company that the Town’s Manager has been directed to enter into acquisition negotiations with the Company. The Company recently entered into negotiations with the Town regarding a possible sale of The Barnstable Water Company and/or BARLACO. The Town’s initial offer was substantially below what the Company believes to be the fair market value of the companies. Although negotiations are continuing at an appreciably higher offering price, there can be no assurances that these negotiations will result in a sale price and other terms acceptable to both the Company and the Town. Any transaction would also require the parties’ successful negotiation and execution of a definitive transaction agreement, and would be subject to the receipt of any required regulatory approvals and the satisfaction of other customary conditions to closing. In the event that negotiations are not successful, the Company believes that the Town may pursue through the courts its claim that it is entitled to acquire the companies at a price substantially below what the Company believes to be the fair market value of the companies.

     There were no other 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, 2003 and as updated on Form 10-Q for the period ended March 31, 2004.

Forward Looking Information

     This report, including management’s discussion and analysis, contains certain forward-looking statements regarding the Company’s results of operations and financial position. These forward-looking statements are based on current information and expectations, and are subject to risks and uncertainties, which could cause the Company’s actual results to differ materially from expected results.

     Our water companies are subject to various federal and state regulatory agencies concerning water quality and environmental standards. Generally, the water industry is materially dependent on the adequacy of approved rates to allow for a fair rate of return on the investment in utility plant. The ability to maintain our operating costs at the lowest possible level, while providing good quality water service, is beneficial to customers and stockholders. Profitability is also dependent on the timeliness of rate relief, when necessary, and numerous factors over which we have little or no control, such as the quantity of rainfall and temperature, industrial demand, financing costs, energy rates, tax rates, and stock market trends which may affect the return earned on pension assets, and compliance with environmental and water quality regulations. The profitability of our other revenue sources is subject to the amount of land we have available for sale and/or donation, the demand for the land, the continuation of the current state tax benefits relating to the donation of land for open space purposes, regulatory approval of land dispositions, the demand for telecommunications antenna site leases and the successful extensions and expansion of our service contract work. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

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 exposure to derivative financial instruments through an interest rate swap agreement. The Company has no other financial instruments with significant credit risk or off-balance sheet risks and 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 (and variable rate borrowings) under financing arrangements entered into by the Company and its subsidiaries and its use of the interest rate swap agreement discussed below. The Company has $15,500,000 current lines of credit with four banks, under which interim bank loans payable at June 30, 2004 were $8,700,000. Management believes that any near-term change in interest rates should not materially affect the consolidated financial position, results of operations or cash flows of the Company.

     During March 2004, The Connecticut Water Company entered into a five-year interest rate swap transaction in connection with the refunding of its First Mortgage Bonds (Series V). The swap agreement provides for The Connecticut Water Company’s exchange of floating rate interest payment obligations for fixed rate interest payment obligations on a notional principal amount of $12,500,000. The purpose of the interest rate swap is to manage the Company’s exposure to fluctuations in prevailing interest rates. The Company does not enter into derivative financial contracts for trading or speculative purposes and does not use leveraged instruments.

     Management does not believe that changes in interest rates will have a material effect on income or cash flow during 2004, although there can be no assurances that interest rates will not significantly change.

Part I, Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures

     As of June 30, 2004, 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 Rule 13a-14(c) and 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 disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 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 to be made within the time periods specified in the SEC’s rules and forms. Further, there were no changes in the Company’s internal controls over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) that occurred during the Company’s most recent fiscal quarter 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. 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.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

Part II, Item 6: Exhibits and Reports on Form 8-K

(a)

Exhibits Required by Item 601 of Regulation S-K.

*

filed herewith

(b)		Reports on Form 8-K
		On April 15, 2004, the Company filed a Form 8-K to report a notice to Directors and Executive Officers informing them of an eight day Blackout Period related to changes to the investment options available to participants in the Savings Plan of the Connecticut Water Company, a wholly owned subsidiary of Connecticut Water Service, Inc.

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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: August 9, 2004	By	/s/ David C. Benoit
		David C. Benoit
		Vice President - Finance

Date: August 9, 2004	By:	/s/ Peter J. Bancroft
		Peter J. Bancroft
		Assistant Treasurer

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