UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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 þ    No o

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

Yes þ    No o

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.

8,067,704

Number of shares of common stock outstanding, March 31, 2005
(Includes 48,697 common stock equivalent shares awarded under the Performance Stock Program)

CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

Financial Report
March 31, 2005 and 2004

TABLE OF CONTENTS

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Connecticut Water Service, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
At March 31, 2005 and December 31, 2004
(In thousands)

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, 2005 and December 31, 2004
(In thousands, except share data)

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, 2005 and 2004
(In thousands, except per share amounts)

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
For the Three Months Ended March 31, 2005 and 2004
(In thousands)

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, 2005 and 2004
(In thousands, except per share amounts)

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, 2005 and 2004
(In thousands)

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 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. 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 period ended December 31, 2004.

     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.       Stock-Based Compensation

     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

     The Company has concluded that the postretirement welfare plan’s benefits will be considered actuarially equivalent to the benefits provided by Medicare Part D. The Company does not intend to apply for the government subsidy for postretirement prescription drug benefits, even though it expects to be eligible. Therefore, the impact of the subsidy on the plan’s liabilities are not reflected in the March 31, 2005 disclosure.

4.       Earnings per Share

     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 (fully diluted shares include the effect of unexercised stock options):

5.       Accounting Pronouncements

     Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory (an amendment to ARB No. 43)” was issued in November 2004 and is effective for inventory costs incurred during fiscal years beginning after June 15, 2005 with prospective application. The Company has analyzed the potential effect of the provisions of SFAS No. 151 and does not expect any significant impact.

     Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations (an interpretation of FASB Statement No. 143)” was issued in March 2005. This Interpretation provides clarification with respect to the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived assets when the timing and/or method of settlement of the obligation are conditional on a future event. The Company is currently evaluating the potential impact of this Interpretation.

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

     In April 2005, the Securities and Exchange Commission issued a rule that amends the implementation dates for SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”). The new rule calls for the implementation of SFAS 123R at the beginning of the first quarter of 2006, instead of the third quarter of 2005. Although the compensation expense required under the revised statement differs slightly, the impacts on the Company’s quarterly financial statements in 2006 are expected to be similar to the pro forma disclosures included in Note 2 above.

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 of dollars:

Three Months Ended March 31, 2005

Three Months Ended March 31, 2004

7.       Assets Held for Sale

     On March 31, 2005, the Barnstable Town Council approved the agreement the Town had entered into with the Company to purchase the assets of the Barnstable Water Company for $10,000,000 and all the land owned by BARLACO for an additional $1,000,000. The sale of the water company assets is expected to close in the second or third quarter of 2005 and the sale of the BARLACO land is expected to close early in 2006. The Town and the Company have agreed to enter into a one year management contract for the Company to provide the Town with full operating and management services for the water system operations beginning upon the sale of the water company’s assets to the Town. This management contract may be terminated within the 12 month period by 30 days written notice by either party.

     The pending sale of Barnstable’s assets has not been classified as ‘Discontinued Operations’ in the Consolidated Statements of Income because we anticipate that our ongoing cash flows from the management contract after the sale will be material in relation to the current cash flows generated from these assets. Currently we are recording the Barnstable operations in our ‘Water Activities’ business segment. After the sale, we will record the results of the management contract in our ‘Services and Rentals’ segment.

     The following is a breakdown of the consolidated book basis of the assets and related advances and CIAC being held for sale as of March 31, 2005:

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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES

     The Company will pay off Barnstable’s $1,225,000 long-term debt balance with Indianapolis Life Insurance Company when the sale of the Barnstable assets is closed. As part of this transaction, the Company expects to pay a prepayment fee of approximately $300,000.

     The Company expects to record an after-tax gain of approximately $2.7 million in 2005 relating to the sale of the water company assets and an after-tax gain of $1.4 million (including of tax benefits due to the sale of the land to the Town being a bargain sale) in 2006 relating to the sale of the BARLACO land.

     The revenues and net income generated from the Barnstable operations were:

The contract with the Town provides the Company with a fee of $130,000 a month for operations and maintenance labor and specific non-labor expenses.

     BARLACO is a real estate company which holds its land for sale. BARLACO did not sell any land in 2005 or 2004.

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

Regulatory Matters and Inflation

     During the three months ended March 31, 2005, 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, 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, 2004. There were no significant changes in the application of critical accounting policies or estimates during the first quarter of 2005.

     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

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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 March 31, 2005 was $8,650,000.

     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 in 2005. The bank lines of credit have expiration dates ranging from October 2005 through May 2006. Interest expense charged on interim bank loans will fluctuate based on market interest rates.

     The Company is currently in the process of negotiating additional fixed-rate, long-term borrowings from the Connecticut Development Authority to fund ongoing and planned capital improvement projects. The Company plans to submit applications to the Connecticut Department of Public Utility Control (DPUC) with respect to these anticipated borrowings in the near future. The ability of the Company to complete these borrowing transactions will depend upon the receipt of final decisions of the DPUC with terms acceptable to the Company, which have not yet been issued, and the successful completion of negotiations with the Authority and the execution of definitive borrowing agreements.

Off-Balance Sheet Arrangements and Contractual Obligations

     During the three months ended March 31, 2005, 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, 2004.

Results of Operations

     The following factors had a significant effect upon the Company’s net income for the three months ended March 31, 2005 as compared with the net income for the same period last year.

     Net income applicable to common stock for the three months ended March 31, 2005 increased from that of the prior year by $1,000, which resulted in the same earnings per basic average common share for the same period ended due to an increased number of common shares outstanding. This increase in net income broken down by business segment is as follows:

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     The $353,000 increase in the Water Activity segment’s net income was primarily due to the net effects of several large variances listed below.

     -  a $503,000 increase in Operating Revenue primarily due to a 1.4% increase in the number of metered customers served, a 11.8% increase in revenues from our industrial customers due to increased consumption and a 1.9% increase in fire protection revenues due to system expansion which increased the number of fire hydrants and revenue generating mains upon which these charges are based.

     -  a $63,000 decrease in Operation and Maintenance Expense, primarily due to decreases in labor costs.

     -  a $226,000 increase in Income Tax Expense primarily due a 36% increase in pre-tax net income and a 2% higher effective income tax rate due to flow through accounting related to book/tax timing differences.

     -  a $22,000 increase in Allowance for Funds Used for Construction related to a dam reconstruction project.

     The decrease in the Real Estate segment’s net income was a result of a sale of small parcel of land (74 acres) in the first quarter of 2005 which resulted in a net profit of $261,000 compared with a donation of 133 acres of land in the first quarter of 2004 which generated a net profit of $706,000.

     The 63% increase in the Services and Rentals segment’s net income was primarily due to higher revenues from the Company’s Linebacker^TM Service Line Maintenance program and from antenna site leases and increased net income from contracted services.

Commitments and Contingencies

Reverse Privatization

     On March 31, 2005, the Barnstable Town Council approved the agreement the Town had entered into with the Company to purchase the assets of the Barnstable Water Company for $10,000,000 and all the land owned by BARLACO for an additional $1,000,000. The sale of the water company assets is expected to close in the second or third quarter of 2005 and the sale of the BARLACO land is expected to close early in 2006. See Footnote 7 for further details.

     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, 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, 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

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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.

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, variable long-term debt and short-term variable 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 of variable rate lines of credit with four banks, under which interim bank loans payable at March 31, 2005 were $8,650,000. In the third quarter 2004, the Company refinanced $9,550,000 of fixed rate bonds with variable rate bonds.

     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 2005, 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 March 31, 2005, 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.

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 ending March 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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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.

Part II, Item 5:       Other Information

     On April 8, 2005, the Company was notified by the National Labor Relations Board that the International Union of Operating Engineers, Local 478 (“Union”) has petitioned the NLRB to organize a vote by the Company’s employees to authorize the Union to represent a portion of the Company’s employees for purposes of collective bargaining with the Company. A representation hearing was conducted before the NLRB on April 18, 2005 in Hartford, Connecticut. A vote concerning representation by the Union of the Company’s 99 employees eligible to be in the proposed bargaining unit will be held on May 19, 2005.

     On April 27, 2005 the Connecticut Department of Public Utility Control granted its approval for the Company to merge two of its Connecticut operating subsidiaries (Gallup with and into Crystal). The Company expects to complete the merger in the second quarter of 2005. The merger is a prelude to the Company seeking rate relief for the combined entity later this year.

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Part II, Item 6:       Exhibits

     • filed herewith

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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: May 10, 2005	By	/s/ David C. Benoit
	David C. Benoit
	Vice President - Finance
Date: May 10, 2005	By	/s/ Peter J. Bancroft
	Peter J. Bancroft
	Assistant Treasurer