BAYCORP HOLDINGS LTD - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
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Commission file number 1-12527
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BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
------------------------------------------------------

Delaware 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1 New Hampshire Avenue, Suite 125 03801
Portsmouth, New Hampshire
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (603) 766-4990

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
--- ---

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

Yes No X
--- ---

Class Outstanding at November 1, 2004
- ----------------------------------------- ------------------------------
- --
Common Stock, $0.01 Par Value per Share 557,945

INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
- ----------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except per share data)

(The accompanying notes are an integral part of these consolidated statements.)

3

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands except per share data)

(The accompanying notes are an integral part of these consolidated statements.)

4

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)

(The accompanying notes are an integral part of these consolidated statements.)

5

NOTES TO FINANCIAL STATEMENTS

NOTE A - THE COMPANY

BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is an unregulated holding
company incorporated in Delaware in 1996. BayCorp currently owns three
subsidiaries including Great Bay Power Marketing, Inc., BayCorp Ventures, LLC
and Great Bay Hydro Corporation. BayCorp also holds a majority interest in
HoustonStreet Exchange, Inc.

Until January 1, 2003, BayCorp had two principal operating subsidiaries that
generated and marketed wholesale electricity, Great Bay Power Corporation
("Great Bay") and Little Bay Power Corporation ("Little Bay"). Their principal
asset was a combined 15% joint ownership interest in the Seabrook Nuclear Power
Project in Seabrook, New Hampshire (the "Seabrook Project" or "Seabrook") until
November 1, 2002, when BayCorp sold Great Bay's and Little Bay's interest in
Seabrook. That ownership interest entitled Great Bay and Little Bay to
approximately 174 megawatts of the Seabrook Project's power output. Great Bay
and Little Bay were each wholly-owned by BayCorp. In December 2002, BayCorp
legally dissolved Great Bay and Little Bay.

In October 2002, BayCorp created two subsidiaries, Great Bay Power Marketing,
Inc. ("Great Bay Power Marketing") and BayCorp Ventures, LLC ("BayCorp
Ventures"). Great Bay Power Marketing was created to hold the purchased power
agreement that Great Bay had with Unitil Power Corporation ("Unitil") and to
arrange for the power supply to satisfy the agreement. See "Note C. Commitments
and Contingencies. Purchased Power Agreements." Effective January 1, 2003,
Great Bay Power Marketing assumed the Unitil contract, previously held by Great
Bay, and holds the letter of credit established to secure Great Bay Power
Marketing's obligations under the Unitil contract. BayCorp created BayCorp
Ventures to serve as a vehicle through which the Company can make investments
following the Seabrook sale and the expiration of the Company's tender offer.

In September 2003, BayCorp created a third subsidiary, Great Bay Hydro
Corporation ("Great Bay Hydro"). Great Bay Hydro entered into a purchase and
sale agreement, dated as of October 30, 2003, with Citizens Communications
Company ("Citizens") to acquire the generating facilities in Vermont owned by
the Vermont Electric Division of Citizens. Great Bay Hydro completed the
acquisition of the Vermont generating facilities and assumed operating
responsibility of the generating facilities on April 1, 2004. The generating
facilities include an operating hydroelectric facility of approximately 4
megawatts located in Newport, Vermont, diesel engine generators totaling
approximately 7 megawatts located in Newport, Vermont and non-operating
hydroelectric facilities in Troy and West Charleston, Vermont. Great Bay Hydro
uses the output of the Newport plant as a physical hedge for a portion of
BayCorp's contractual obligation to supply 9.06 megawatts to Unitil through
2010. Great Bay Hydro paid a nominal purchase price to Citizens for the
generating facilities and 650 acres of real property associated with the
generating facilities and this amount is reflected in the Company's financial
statements. In addition, Citizens agreed to indemnify Great Bay Hydro for the
reasonably anticipated costs of complying with the requirements of the new
operating license issued by the Federal Energy Regulatory Commission ("FERC") on
November 21, 2003. On September 28, 2004, Great Bay Hydro agreed to terminate
Citizens' indemnification requirements in exchange for Citizens' payment to
Great Bay Hydro of approximately $4.4 million. These funds are being used to
pay for the repairs and capital improvements required by the FERC operating
license. Upon receipt of the settlement funds, Great Bay Hydro paid
approximately $676,000 for costs incurred and payable as of September 30, 2004.
The remaining cash of approximately $3.8 million is included in the

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Company's balance sheet as cash along with corresponding short term and long
term liabilities of $1.2 million and $2.6 million, respectively, for the
estimated remaining cost of FERC compliance.

BayCorp also owns shares representing approximately 59.7% of the outstanding
common shares of HoustonStreet Exchange, Inc. ("HoustonStreet"), which was
incorporated in Delaware in 1999. A recapitalization of HoustonStreet was
completed in the second quarter of 2004, and as a result, BayCorp's ownership
interest in HoustonStreet increased above 50%. As a result of this
recapitalization, BayCorp began consolidating HoustonStreet as of May 1, 2004.
Prior to May 1, 2004, BayCorp held a minority interest in HoustonStreet and
accounted for HoustonStreet under the equity method. HoustonStreet developed
and operates HoustonStreet.com, an Internet-based independent crude oil and
refined products trading exchange in the United States.

Sale of Seabrook Ownership
- --------------------------

In October 2000, the Company announced that it reached an agreement with
Northeast Utilities ("NU") under which the Company's generating subsidiaries,
Great Bay and Little Bay, would include their aggregate 15% ownership share of
the Seabrook Project in the auction of NU's subsidiaries' shares of the Seabrook
Project. As a result of the auction, which was conducted in 2001 and 2002, FPL
Energy Seabrook, LLC ("FPL Energy Seabrook"), a subsidiary of FPL Group, Inc.,
agreed to purchase 88.2% of the 1,161 MW Unit 1 and 88.2% of the partially
constructed Unit 2, for $836.6 million subject to certain adjustments, with
payment deliverable fully in cash at closing. FPL Energy Seabrook assumed
nearly all of the Company's Seabrook liabilities including the decommissioning
liability for the acquired portion of Seabrook. On November 1, 2002, the
Company closed the sale of its interests in Seabrook and received approximately
$113 million in cash for its interests in the Seabrook Project (the "Seabrook
Closing"). The Company funded certain escrows for potential closing adjustments
and paid other costs of approximately $4.3 million. The remaining escrow amounts
were included in prepayments and the potential closing adjustments were included
in other current liabilities. The amount escrowed was based on an estimate of
those expenses. The Company received a one-time payment following the final
reconciliation of and termination of all such escrow accounts in the second
quarter of 2004 in accordance with the terms of the Escrow Agreements among the
selling owners. As a result of the post-closing adjustments being settled for
less than the Company had previously estimated and accrued for, the Company
recorded other income of approximately $572,000 in the second quarter of 2004.
In the third quarter of 2004, the Company negotiated a final settlement of the
remaining accrued liability related to the sale of Seabrook and paid
approximately $168,000 in settlement of this liability. As a result of this
liability being settled for less than the Company had previously estimated and
accrued for, the Company recorded other income of approximately $634,000 in the
third quarter of 2004.

Enron Claim
- -----------

In January 2002, BayCorp reported that Great Bay received notice on December
21, 2001 from Enron Power Marketing, Inc. ("Enron") that Enron was terminating
its contracts with Great Bay. Enron owed Great Bay $1,075,200 for power
delivered prior to Enron's Chapter 11 bankruptcy filing on December 2, 2001.
Great Bay also had an unliquidated claim against Enron for damages resulting
from the termination of the contracts. During the fourth quarter of 2001,
BayCorp recorded an expense of $1,100,000 to establish a reserve for doubtful
accounts due to the uncertainty of collecting remaining amounts owed by Enron to
Great Bay for power delivered prior to Enron's Chapter 11 bankruptcy filing.
Enron filed a plan of reorganization on July 11, 2003, which was approved by the
bankruptcy court on July 15, 2004. In December 2003, BayCorp sold a $1,041,600
portion of its power delivery claim to an institutional investor

7

for $343,700. In September 2004, BayCorp sold the remaining $175,400 of the
power delivery claim, as well as the claim for damages, to the same
institutional investor for $77,200. The Company recorded each of these
transactions as a recovery of bad debt, reducing total administrative and
general expenses.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited financial statements included herein have been prepared on
behalf of the Company pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted or condensed
pursuant to such rules and regulations. The Company believes, however, its
disclosures herein, when read in conjunction with the Company's audited
financial statements for the year ended December 31, 2003 as filed in Form 10-K
on March 26, 2004, are adequate to make the information presented not
misleading. The Company's significant accounting policies are described in Note
1 of Notes to Consolidated Financial Statements included in the Company's 10-K.
The results for the interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.

The Company currently utilizes forward and spot market purchases to maximize
the value of its long-term power sales contract with Unitil (the "Unitil PPA").
Forward contracts (including the Unitil PPA) meeting the definition of a
derivative and not designated and qualifying for the normal purchases and normal
sales exception under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) are
recorded at fair value. In accordance with FASB's Emerging Issues Task Force
Issue No. 02-03, Issues Involved in Accounting for Derivative Contracts Held for
Trading Purposes and Contracts Involved in Energy Trading and Risk Management
Activities (EITF Issue No. 02-03), revenues related to derivative instruments
classified as trading are reported net of related cost of sales.

NOTE C - COMMITMENTS AND CONTINGENCIES

Purchased Power Agreements
- --------------------------

In anticipation of the Seabrook sale, the Unitil PPA was amended as of
November 1, 2002. The amendment primarily modified the existing PPA to reduce
the amount of power delivered to 9.06 megawatts and the price that Unitil pays
for power to $50.34 per megawatt hour, and provided that Great Bay would supply
the power regardless of whether the power is provided from Seabrook. The
amendment also provided alternative security for Unitil's benefit, to replace
and discharge the Third Mortgage on Seabrook that secured Great Bay's
performance of the PPA. In connection with the amended PPA, the Company was
required to deposit $2.5 million into a restricted account for the benefit of
Unitil should Great Bay default. The amount is reflected as restricted cash in
the accompanying balance sheet. The amendment received FERC approval. Great
Bay assigned the Unitil PPA to Great Bay Power Marketing as of January 1, 2003.

This contract meets the definition of a derivative under SFAS No. 133. All
sales, purchases and market value adjustments related to the Unitil PPA are
reflected gross in the Company's financial statements as the Company has
designated this forward contract as non-trading in accordance with EITF Issue
No. 02-03. Additionally, in accordance with EITF Issue No. 02-03, the inception
gain (initial value of $2.1 million) on the contract has been deferred and will
be amortized over the life of the contract. For the quarter ended September 30,
2004, the Company had an unrealized loss on the mark-to-market of the Unitil PPA
of

8

$714,000 and had recognized $66,000 of the deferred gain on the Unitil PPA. The
deferred inception gain and unrealized loss on the Unitil PPA was $1,600,000 and
$3,194,000, respectively, as of September 30, 2004. For the quarter ended
September 30, 2003, the Company had an unrealized loss on the mark-to-market of
the Unitil PPA of $206,000 and had recognized $66,000 of the deferred gain. The
deferred inception gain and unrealized gain on the Unitil PPA was $1,863,000 and
$1,253,000, respectively, as of September 30, 2003.

The Company realized a net loss on energy commodity contract trading activity
of approximately $4,000 and a net gain of $42,000, for the three and nine months
ended September 30, 2004, respectively, and reflected these amounts in operating
revenues in the accompanying statements of operations. The gross retail sales
volume of such activity was approximately $352,000, net of $356,000 of related
cost of sales for the three months ended September 30, 2004. The gross retail
sales volume of such activity was approximately $1,269,000, net of $1,227,000 of
related cost of sales for the nine months ended September 30, 2004. There was
no such activity in the three or nine month periods ending September 30, 2003.

NOTE D - INVESTMENT IN HOUSTONSTREET

Prior to April 30, 2004, in addition to its equity interest in HoustonStreet,
the Company held an $8.4 million secured note in HoustonStreet. In March 2001,
HoustonStreet raised additional funding by selling senior secured notes to
BayCorp and other investors. Collectively, these notes were referred to as the
"HoustonStreet Series C Units." The outstanding principal and interest of this
note to BayCorp as of April 30, 2004 was approximately $11 million. The Company
had written this note down to zero as of December 31, 2000. The notes were
originally due and payable in December 2001, and the maturity date was
subsequently extended to January 15, 2004. The notes were not paid when due,
and in February 2004, HoustonStreet was formally notified of the payment
default. BayCorp and the other senior secured noteholders reserved their rights
and proposed a recapitalization of HoustonStreet that would potentially provide
effective control of HoustonStreet to the noteholders. The recapitalization was
approved by the Board of Directors of HoustonStreet in March 2004 and was
approved by HoustonStreet shareholders in April 2004.

The effect of the recapitalization was to convert HoustonStreet's secured debt
into equity and convert outstanding preferred stock in HoustonStreet into either
the right to receive nominal cash consideration or a nominal amount of
HoustonStreet common stock. All outstanding shares of HoustonStreet common
stock prior to the restructuring were cancelled. As a result of the
restructuring, as of May 1, 2004, holders of senior secured promissory notes
held common stock of HoustonStreet representing approximately ninety-nine
percent of the outstanding capital stock of HoustonStreet. Holders of preferred
stock held approximately one percent of the outstanding capital stock as a
result of the restructuring.

This recapitalization at HoustonStreet was completed in the second quarter of
2004 and as a result, BayCorp owns shares representing approximately 59.7% of
the outstanding common shares of HoustonStreet, effective May 1, 2004. In
accordance with EITF Topic D-84, the Company followed step acquisition
accounting to consolidate HoustonStreet. The fair value of current assets
exceeded BayCorp's net investment in HoustonStreet by $278,000 resulting in
negative goodwill upon application of step acquisition accounting. As a result,
the Company recognized an extraordinary gain of $278,000 in the second quarter
of 2004 in accordance with SFAS No. 141 "Business Combinations."

Prior to the recapitalization, BayCorp held a minority ownership interest in
HoustonStreet, owning approximately 46.4% of the voting power of all outstanding
common and preferred shares of HoustonStreet and accounted for HoustonStreet
under the equity method.

9

Summarized financial information for HoustonStreet, prior to consolidation, is
as follows:

NOTE E - EQUITY

On January 31, 2003, BayCorp commenced an issuer tender offer to purchase up
to 8,500,000 shares of its common stock at a price of $14.85 per share (the
"Tender Offer" or "Offer"). The Company disclosed in the Offer to Purchase
mailed to stockholders that the Board may decide to reduce the number of shares
purchased in the Offer to preserve the Company's ability to use its
approximately $90 million in net operating loss ("NOL") carryforwards. The
Offer was scheduled to expire on March 3, 2003.

On March 4, 2003, in view of the response to the Offer and the significant
proration that would have been necessary to preserve the Company's NOL
carryforwards, the Board determined and announced that it would not exercise its
reserved right to prorate the shares tendered in the Offer to preserve the
Company's ability to use the NOL carryforwards without limitation. The Company
extended the expiration date of the Tender Offer to March 18, 2003 to provide
stockholders additional time to tender shares that had not been tendered or to
withdraw shares that had been tendered. At the extended expiration date of
March 18, 2003, 9,207,508 shares had been properly tendered and not withdrawn
(including options surrendered for repurchase and cancellation.) The Company
exercised its discretion to purchase up to an additional 2% of outstanding
shares, purchasing a total of 8,673,887 shares (and surrendered options) at a
purchase price of $14.85, representing approximately 94.3% of the shares (and
options) tendered, excluding odd lots, which were purchased without proration.
Payment for all such shares and options was completed by March 24, 2003. The
Company distributed approximately $123,622,000 to tendering stockholders and
option holders. As of December 31, 2003 the Company had 641,937 shares
outstanding and cash and cash equivalents and restricted cash of approximately
$9,969,000.

As of September 30, 2004 there were 557,945 shares outstanding and options to
purchase 212,538 shares, 170,038 of which were exercisable.

BayCorp has never paid cash dividends on its common stock. Any future
dividends depend on future earnings, BayCorp's financial condition and other
factors.

NOTE F - STOCK OPTIONS

Prior to 2003, the Company accounted for its stock option plans under
Accounting Principles Board Opinion No. 25 and related interpretations, and as
such no compensation cost was recognized on options that were granted prior to
2003 at fair market value and that had not been modified. Beginning in 2003,
the Company began to account for all employee awards granted, modified, or
settled after January 1, 2003 in accordance with SFAS No. 123, "Accounting for
Stock Based Compensation" and SFAS 148, "Accounting for Stock Based Compensation
- - Transition and Disclosure" on a prospective basis. Awards under the company's
plans vest over periods ranging from one to three years. Therefore, the cost
related to stock-based employee compensation included in the determination of
net income for 2004 and 2003 differs from that which would have been recognized
if the fair value based method had been applied to all awards since

10

the original effective date of Statement 123. The following table illustrates
the effect on net income and earnings per share if the fair value based method
had been applied to all outstanding and unvested awards in each period.

9/30/04 9/30/03
------- -------

Net Loss: As Reported . . . . . . . . . . . . . . ($2,253) ($2,663)
Stock compensation expense included in net loss. . 129 367
Stock compensation expense determined using fair
value method for all awards . . . . . . . . . . . (129) (317)
------- -------
ProForma . . . . . . . . . . . . . . . . . . ($2,253) ($2,613)
Loss Per Share (Basic and Diluted):
As reported . . . . . . . . . . . . . . . . . ($3.79) ($0.88)
ProForma . . . . . . . . . . . . . . . . . . ($3.79) ($0.87)

In October 2001, the Company issued 240,000 non-qualified options pursuant to
the 2001 Non-Statutory Stock Option Plan. These options had an exercise price
of $9.05 and vested upon the closing of the sale of the Seabrook Project. The
Company recorded compensation expense related to contingent and repriced options
of $77,000 for the nine months ended September 30, 2003.

In April 2003 and July 2003, the Company issued 132,000 and 10,000 options,
respectively, pursuant to the 1996 Stock Option Plan and the 2001 Non-Statutory
Stock Option Plan. These options have an exercise price of $14.45. The Company
accounts for these options using the fair value method and recorded compensation
expense of $43,000 in the third quarter of 2004 and in the third quarter of 2003
for these options.

NOTE G - SEGMENT INFORMATION

BayCorp is a holding company for Great Bay Power Marketing, Great Bay Hydro,
BayCorp Ventures and HoustonStreet. The Company operates primarily in two
segments, each of which is managed separately because each segment sells
distinct products and services. Great Bay Power Marketing and Great Bay Hydro
constitute the electricity generation and trading business segment, whose
principal assets are the Unitil PPA and hydroelectric facilities of
approximately 4 megawatts located in Newport, Vermont, diesel engine generators
totaling approximately 7 megawatts located in Newport, Vermont and non-operating
hydroelectric facilities in Troy and West Charleston, Vermont. HoustonStreet
developed and operates HoustonStreet.com, an Internet-based independent crude
oil and refined products trading exchange in the United States.

Management utilizes more than one measurement and multiple views of data to
measure segment performance and to allocate resources to the segments. However,
the dominant measurements are consistent with the company's consolidated
financial statements and, accordingly, are reported on the same basis herein.
Management evaluates the performance of its segments and allocates resources to
them primarily based on cash flows and overall economic returns.

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Great Bay
Power
BayCorp Holdings, Ltd Marketing Inter-
As of and for the and company
nine months ended Great Bay Houston Elimina-
September 30 ($000's) Hydro Street(1) Other Tions Total
--------------------- ------ ------ ------ ------ ------

2004
- ----
Revenues $3,521 $398 $0 $0 $3,919
Operating Expenses 6,500 361 1,027 (211) 7,677
Segment Net Income (Loss) (2,955) 24 702 (24) (2,253)
Total Assets 9,280 537 19,023 (14,159) 14,681

-----------------------------------------------------------------------------------------

2003
- ----
Revenues $2,994 0 0 0 $2,994
Operating Expenses 4,064 0 2,777 (428) 6,413
Segment Net Loss (1,047) 0 (1,616) 0 (2,663)
Total Assets 5,696 0 23,152 (14,680) 14,168

(1) BayCorp began consolidating HoustonStreet as of May 1, 2004. See "Note A.
The Company."

NOTE H - NEW ACCOUNTING PRONOUNCEMENTS

None applicable to the Company.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- --------------------------------------------------------------------------------

Overview

BayCorp derived its revenues primarily through energy sales activities by
Great Bay Power Marketing and Great Bay Hydro in the third quarter of 2004 and
from Great Bay Power Marketing in the third quarter of 2003. Great Bay Power
Marketing currently holds one purchased power contract with Unitil. On April 1,
2004, Great Bay Hydro completed an acquisition of generating facilities
including an operating hydroelectric facility of approximately 4 megawatts
located in Newport, Vermont, diesel engine generators totaling approximately 7
megawatts located in Newport, Vermont and non-operating hydroelectric facilities
in Troy and West Charleston, Vermont. Great Bay Hydro assumed operating
responsibility of the generating facilities on April 1, 2004. Great Bay Hydro
uses the output of the Newport plant as a physical hedge for meeting a portion
of the Company's contractual obligations under the Unitil PPA. Expenses for the
third quarter of 2004 and 2003 primarily consisted of the cost of purchased
power and general and administrative costs.

As of May 1, 2004, BayCorp began consolidating HoustonStreet for financial
reporting purposes and HoustonStreet revenues and expenses are reflected in the
Company's financials as of that date. The Company recognized an extraordinary
gain of $278,000 in the second quarter of 2004 upon consolidation of
HoustonStreet. See "Note D. Investment in HoustonStreet."

The following discussion focuses solely on operating revenues and operating
expenses and is presented in a substantially consistent manner for all of the
periods presented.

Results of Operations: Third Quarter of 2004 Compared to the Third Quarter of
2003
- --------------------------------------------------------------------------------

Operating Revenues

BayCorp's operating revenues increased by approximately $435,000, or 43.2%, to
$1,442,000 in the third quarter of 2004 as compared to $1,007,000 in the third
quarter of 2003. The increase in revenues was primarily attributable to
revenues of approximately $196,000 from the sale of electricity generated by
Great Bay Hydro and HoustonStreet revenues of approximately $242,000.

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Expenses

The Company purchases power to satisfy its power supply obligations.
Purchased power expenses decreased by approximately $6,000, or 0.7%, to $897,000
in the third quarter of 2004 as compared to $903,000 in the third quarter of
2003.

The Company recorded a non-cash charge for an unrealized loss on the mark-to-
market of its long term energy sales contract and recorded the amortization of
the deferred inception gain on this contract for a total net unrealized loss of
approximately $648,000 in the third quarter of 2004 as compared to a net
unrealized loss of approximately $140,000 in the third quarter of 2003. The
mark-to-market value of this long-term contract is based on current projections
of power prices over the life of the contract. Forward power prices increased
during 2003 and have continued to rise into the third quarter of 2004 primarily
due to increases in the forward price of natural gas. In the New England Power
Pool ("NEPOOL"), power generating plants are usually dispatched in the order of
increasing variable costs. The plants that are called upon to supply the last
amount of demand are considered to be on the margin and set the price of power
for all plants selling into the market. Since the completion of a significant
amount of new gas-fired generation in NEPOOL, plants that use natural gas as a
fuel source are frequently on the margin and therefore set the price of power in
NEPOOL. Accordingly, the price of power in NEPOOL is highly influenced by the
price of natural gas.

Administrative and general expenses decreased approximately $349,000, or
39.2%, to $542,000 in the third quarter of 2004 as compared to $891,000 in the
third quarter of 2003. The Company undertook numerous cost savings measures,
including reducing the salaries of its President and its COO late in the second
quarter of 2003 that have reduced administrative and general expenses in the
third quarter of 2004 as compared to the third quarter of 2003. In addition,
the Company sold its remaining claim against Enron in the third quarter of 2004
and recorded a recovery of bad debt, reducing total administrative and general
expenses in the third quarter of 2004 by approximately $77,000. See "Note A.
Enron Claim."

Taxes other than income increased approximately $56,000, to $60,000 in the
third quarter of 2004 as compared to $4,000 in the third quarter of 2003
primarily due to Great Bay Hydro property taxes. There was no property tax
expense in the third quarter of 2003.

Total other income increased approximately $491,000, to total other income of
$486,000 in the third quarter of 2004 as compared to total other deductions of
$5,000 in the third quarter of 2003. In the third quarter of 2004, the Company
negotiated a final settlement of the remaining accrued liability related to the
sale of Seabrook and paid approximately $168,000 in settlement of this
liability. As a result of this liability being settled for less than the
Company had previously estimated and accrued for, the Company recorded other
income of approximately $634,000 in the third quarter of 2004. Also in the
third quarter of 2004, the Company recorded other income of approximately
$75,000 upon receipt of an insurance refund related to its ownership in
Seabrook. Offsetting these income items in the third quarter of 2004, the
Company recorded an expense of $255,000 for a directors and officers liability
insurance policy; this run-off policy insures against claims, including nuclear
related claims, for events that may have occurred prior to July 2004. The
Company is currently in non-nuclear related energy businesses, and as such,
directors and officers liability insurance coverage is available at
significantly lower premiums for current operations.

13

Net Loss

As a result of the above factors, for the third quarter of 2004, the Company
recorded a net loss of approximately $250,000, or $0.45 per share, as compared
to a net loss of approximately $936,000, or $1.45 per share, for the third
quarter of 2003.

Results of Operations: First Nine Months of 2004 Compared to the First Nine
Months of 2003
- ----------------------------------------------------------------------------

Operating Revenues

BayCorp's operating revenues increased by approximately $925,000, or 30.9%, to
$3,919,000 in the first nine months of 2004 as compared to $2,994,000 in the
first nine months of 2003. The increase in revenues in 2004 was primarily
attributable to revenues of approximately $479,000 from the sale of electricity
generated by Great Bay Hydro and HoustonStreet revenues of approximately
$398,000.

Expenses

The Company recorded a non-cash charge for an unrealized loss on the mark-to-
market of its long term energy sales contract and recorded the amortization of
the deferred inception gain on this contract for a total net unrealized loss of
approximately $3,000,000 in the first nine months of 2004 as compared to a net
unrealized loss of approximately $725,000 in the first nine months of 2003. The
mark-to-market value of this long-term contract is based on current projections
of power prices over the life of the contract. Forward power prices increased
during 2003 and have continued to rise in the first nine months of 2004
primarily due to increases in the forward price of natural gas. In NEPOOL,
power-generating plants are usually dispatched in the order of increasing
variable costs. The plants that are called upon to supply the last amount of
demand are considered to be on the margin and set the price of power for all
plants selling into the market. Since the completion of a significant amount of
new gas-fired generation in NEPOOL, plants that use natural gas as a fuel source
are frequently on the margin and therefore set the price of power in NEPOOL.
Accordingly, the price of power in NEPOOL is highly influenced by the price of
natural gas.

Administrative and general expenses decreased approximately $998,000, or
39.1%, to $1,554,000 in the first nine months of 2004 as compared to $2,552,000
in the first nine months of 2003. The Company incurred costs related to the
Tender Offer in the first nine months of 2003; there were no such costs incurred
in the first nine months of 2004. The Company undertook numerous cost savings
measures, including relocating its corporate offices to smaller space, reducing
headcount and reducing the salaries of its President and its COO late in the
second quarter of 2003 that have reduced administrative and general expenses in
the first nine months of 2004 as compared to the first nine months of 2003. In
addition, the Company sold its remaining claim against Enron in the first nine
months of 2004 and recorded a recovery of bad debt, reducing total
administrative and general expenses in the first nine months of 2004 by
approximately $77,000. See "Note A. Enron Claim."

Interest income decreased approximately $312,000, to $146,000 in the first
nine months of 2004 as compared to $458,000 in the first nine months of 2003.
Average cash balances in the first nine months of 2003 were significantly higher
than in the first nine months of 2004. On January 31, 2003, BayCorp commenced
an issuer tender offer to purchase up to 8,500,000 shares of its common stock at
a price of $14.85 per share. The Company exercised its discretion to purchase
up to an additional 2% of outstanding shares, purchasing a total of 8,673,887
shares and options, representing approximately 94.3% of the shares and options
tendered. The Company distributed approximately $123,603,000 in cash to
tendering shareholders and options holders by March 24, 2003. See "Note E.
Equity."

14

Other income increased approximately $812,000, to $1,110,000 in the first nine
months of 2004 as compared to $298,000 in the first nine months of 2003. This
increase was primarily due to receipt by the Company in the first nine months of
2004 of one-time payments totaling approximately $572,000 following the final
reconciliation and termination of certain escrow accounts that had been funded
for potential closing adjustments and other costs specific to the Company's sale
of its interests in the Seabrook Nuclear Power Plant in November 2002. The
Company also received insurance refunds related to its previous ownership in
Seabrook of approximately $190,000 in the first nine months of 2004. In the
third quarter of 2004, the Company negotiated a final settlement of the
remaining accrued liability related to the sale of Seabrook and paid
approximately $168,000 in settlement of this liability. As a result of this
liability being settled for less than the Company had previously estimated and
accrued for, the Company recorded other income of approximately $634,000 in the
third quarter of 2004. Offsetting these income items, the Company recorded a
deduction of $255,000 for a directors and officers liability insurance policy;
this run-off policy insures against claims, including nuclear related claims,
for events that may have occurred prior to July 2004. The Company is currently
in non-nuclear related energy businesses, and as such, directors and officers
liability insurance coverage is available at significantly lower premiums for
current operations.

The Company recognized an extraordinary gain of $278,000 in the first nine
months of 2004 upon the consolidation of HoustonStreet. As of May 1, 2004,
BayCorp's ownership in HoustonStreet was 59.7%, and in accordance with EITF
Topic D-84, the Company followed step acquisition accounting to consolidate
HoustonStreet. The fair value of current assets exceeded BayCorp's net
investment in HoustonStreet by $278,000 resulting in negative goodwill upon
application of step acquisition accounting. See "Note D. Investment in
HoustonStreet."

Net Loss

As a result of the above factors, for the first nine months of 2004, the
Company recorded a net loss of approximately $2,253,000, or $3.79 per share, as
compared to a net loss of approximately $2,663,000, or $0.88 per share, for the
first nine months of 2003.

Liquidity and Capital Resources

As of September 30, 2004, BayCorp had approximately $11,072,000 in cash and
cash equivalents, which included approximately $3,791,000 that Great Bay Hydro
expects to use to pay for the costs of complying with the requirements of the
new operating license issued by FERC. On September 28, 2004, Great Bay Hydro
agreed to terminate Citizens' indemnification requirements in exchange for
Citizens' payment to Great Bay Hydro of approximately $4,400,000. Upon receipt
of the settlement funds, Great Bay Hydro paid approximately $676,000 for costs
incurred and payable as of September 30, 2004. The remaining cash of
approximately $3.8 million is included in the Company's balance sheet as cash
along with corresponding short term and long term liabilities of $1.2 million
and $2.6 million, respectively, for the estimated remaining cost of FERC
compliance. See "Note A. The Company."

The Company had approximately $2,500,000 in restricted cash as required by the
terms of the Unitil PPA. See "Note C. Commitments and Contingencies." The
Company also had approximately $514,000 in a cash deposit at ISO NE. The
Company purchases a portion of its power needed for resale from ISO NE and ISO
NE requires financial assurance to protect NEPOOL against a payment default of
one of its participants. The amount of collateral needed is calculated based
upon formulas developed by ISO NE and NEPOOL. This deposit is reflected as an
Other Long Term Asset in the Company's financial statements.

15

BayCorp's cash generation for the nine months ended September 30, 2004,
excluding the cash settlement received from Citizens described above, was not
sufficient to cover the cash requirements of the Company during this period.
The Company believes that its current cash, together with the anticipated
proceeds from the sale of electricity by Great Bay Power Marketing and Great Bay
Hydro, will be sufficient to enable the Company to meet the anticipated cash
requirements of its current operations in 2004. However if the prices at which
Great Bay Power Marketing must purchase its power supply increase significantly
from current levels, BayCorp could be required to raise additional capital,
either through a debt financing or an equity financing, to meet ongoing cash
requirements. There can be no assurance that BayCorp will be able to raise
additional capital on acceptable terms or at all.

BayCorp's total cash and cash equivalents increased approximately $3,603,000
during the first nine months of 2004. The increase in cash during this period
included approximately $3,759,000, the balance of the settlement received from
Citizens. Upon receipt of the settlement funds of approximately $4,435,000,
Great Bay Hydro paid approximately $676,000 for costs incurred and payable as of
September 30, 2004. See "Note A. The Company."

The Company had a net loss of approximately $2,253,000 for the first nine
months of 2004. Included in this net loss was a non-cash charge for the loss on
the mark-to-market of the Unitil PPA of approximately $3,198,000 and a non-cash
recognition of deferred gain on the Unitil PPA of approximately $198,000. The
Company recognized a non-cash extraordinary gain of $278,000 upon the
consolidation of HoustonStreet as of May 1, 2004. Also included was a non-cash
charge to earnings of approximately $129,000 for compensation expense related to
the accounting for stock options.

The decrease of approximately $1,950,000 in prepaids and other assets and the
decrease of approximately $564,000 in miscellaneous and other current
liabilities were primarily attributable to the final reconciliation and
termination of certain escrow accounts that had been funded for potential
closing adjustments and other costs specific to the Company's sale of its
interests in Seabrook in November 2002. The Company received approximately
$572,000 in the first nine months of 2004 relative to the termination of these
accounts and, as a result of the total liability being settled for less than the
Company had previously estimated and accrued for, these accounts were reduced by
approximately $1,000,000.

Offsetting this decrease in other current liabilities, $1,200,000 in other
current liabilities was recorded and $2,559,000 in long term liabilities was
recorded, that reflect Great Bay Hydro's estimate of the remaining cost of
complying with the requirements of the new operating license, issued by the FERC
in November 2003, for its hydro facilities.

A decrease in accounts payable and accrued expenses of approximately $256,000
was primarily attributable to the timing of purchased power payments by Great
Bay Power Marketing. As a result of a change in NEPOOL policy, purchased power
payments from Great Bay Power Marketing to NEPOOL were due weekly as of July 15,
2004, whereas prior to that date they had been due and payable on a monthly
basis.

During the first nine months of 2004, the Company repurchased 88,551 shares of
its common stock for approximately $1,156,000, at an average per share price of
approximately $13.06.

The Company's contractual obligations as of September 30, 2004 were as
follows:

16

Less More
Contractual Than One 1-3 3-5 Than
Obligations Total Year Years Years 5 Years
----------- ----- -------- ----- ----- -------

Office Space Lease $22,500 $22,500 0 0 0

Following the sale of Seabrook and the completion of the Company's Tender
Offer, the Company has evaluated and pursued a number of energy-related
investment opportunities. The Company continues to focus on the acquisition of
electric generating assets, an area where it feels that it has a solid
understanding of the market and the value of and risks related to those assets.
BayCorp is interested in acquiring either complete or partial ownership of
generating facilities. There are a large number of generating assets currently
offered for sale. These plants consist of both merchant and contracted
facilities using a variety of fuels and located both domestically and
internationally. There is also growing competition for the acquisition of these
assets, with a number of new participants entering the market, including private
equity funds, hedge funds, insurance companies and investment banks. The
Company is focused on pursuing opportunities and assets that it believes will
provide a return to stockholders commensurate with the risks.

Generally, BayCorp has targeted the following operating assets: (1) merchant
plants in regions with developed wholesale power markets such as New England,
New York, PJM and Texas, (2) international assets that have stable, long-term
off-take contracts, and (3) either merchant or contracted renewable assets.
BayCorp is also pursuing other energy-related investments including development
of new power generation facilities and hydrocarbon reserves and the further
development of HoustonStreet, its online trading platform.

BayCorp's first acquisition in the post-Seabrook period was the acquisition
of the generating plants owned by Citizens through BayCorp's wholly-owned
subsidiary, Great Bay Hydro. Great Bay Hydro entered into a purchase and sale
agreement in October 2003 with Citizens to acquire all of the generating
facilities in Vermont owned by the Vermont Electric Division of Citizens. The
generating facilities include an operating hydroelectric facility of
approximately 4 MWs located in Newport, Vermont, diesel engine generators
totaling approximately 7 MWs located in Newport, Vermont and non-operating
hydroelectric facilities in Troy and West Charleston, Vermont. On April 1,
2004, BayCorp announced that Great Bay Hydro completed this acquisition. Great
Bay Hydro assumed operating responsibility for these facilities on April 1, 2004
and is using the output of the Newport plant as a physical hedge for a portion
of BayCorp's contractual obligation to supply 9.06 megawatts to Unitil through
2010.

Great Bay Hydro paid a nominal purchase price to Citizens for the generating
facilities and 650 acres of real property associated with the generating
facilities. In addition, Citizens agreed to indemnify Great Bay Hydro for the
reasonably anticipated costs of complying with the requirements of the new
operating license issued by the FERC on November 21, 2003. On September 28,
2004, Great Bay Hydro agreed to terminate Citizens' indemnification requirements
in exchange for Citizens' payment to Great Bay Hydro of approximately $4.4
million. These funds are being used to pay for the repairs and capital
improvements required by the FERC operating license. The company recorded this
settlement on its balance sheet as cash and set up corresponding short term and
long term liabilities that reflect the anticipated cost of FERC compliance.

The Company may pursue investments that would require additional equity or
debt financing. The Company believes that such financing is available, but
there can be no assurance that the Company would be successful in obtaining such
financing. If the Company is not successful in obtaining additional financing,
the Company may not be able to pursue certain investment alternatives. In such
a case, the

17

Company may be limited to opportunities that it can pursue given its current
resources. The income from the Company's current operating businesses (the
Unitil PPA and Great Bay Hydro acquisition) is insufficient to pay current
operating expenses. The Company believes however, that its current cash,
together with the anticipated proceeds from the sale of electricity by Great Bay
Power Marketing and Great Bay Hydro, will be sufficient to enable the Company to
meet the anticipated cash requirements of its current operations in 2004. If
the Company is unsuccessful in identifying and making additional investments,
the Company may pursue alternative strategies, including sale of the Company,
deregistration or liquidation. If the Company decides to liquidate, cash would
be reserved to pay for the expected expenses of liquidation and other
liabilities of the Company, including potential runoff insurance policies and
severance obligations that would be triggered.

Critical Accounting Policies
- ----------------------------

Preparation of the Company's financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities and revenues and expenses.
Note 1 to the Consolidated Financial Statements in the Company's Form 10-K,
filed March 26, 2004, is a summary of the significant accounting policies used
in the preparation of the Company's financial statements. The following is a
discussion of the most critical accounting policies used historically by the
Company.

Stock Options

The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25 and related interpretations for options issued prior to
2003, and as such no compensation cost had been recognized for options granted
at fair market value that had not been modified. In prior years, the Company
repriced certain options, accelerated the vesting of others, made limited
recourse loans for certain individuals to exercise options and issued contingent
options. The Company recorded compensation expense related to these options.
On August 14, 2002 the Company announced that it would expense the fair value of
all stock options granted beginning January 1, 2003 in accordance with SFAS No.
123, "Accounting for Stock Based Compensation." Awards under the Company's
plans vest over periods ranging from one to three years. Therefore, the cost
related to stock-based employee compensation included in the determination of
net income for 2004 and 2003 differs from that which would have been recognized
if the fair value based method had been applied to all awards since the original
effective date of Statement 123.

Principles of Consolidation

The Company consolidates all majority-owned and controlled subsidiaries and
applies the equity method of accounting for investments between 20% and 50%.
All significant intercompany transactions have been eliminated. All sales of
subsidiary stock are accounted for as capital transactions in the consolidated
financial statements.

The Company began consolidating its subsidiary, HoustonStreet, as a result of
the recapitalization that occurred on April 30, 2004. As a result of the
recapitalization, the Company's ownership in HoustonStreet increased from 46.4%
to 59.7%.

18

Energy Marketing

Forward contracts (including the Unitil PPA) meeting the definition of a
derivative and not designated and qualifying for the normal purchases and normal
sales exception under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) are
recorded at fair value. In accordance with FASB's Emerging Issues Task Force
Issue No. 02-03, Issues Involved in Accounting for Derivative Contracts Held for
Trading Purposes and Contracts Involved in Energy Trading and Risk Management
Activities (EITF Issue No. 02-03), revenues related to derivative instruments
classified as trading are reported net of related cost of sales.

Forward Looking Statements and Certain Factors That May Affect Future Results
- -----------------------------------------------------------------------------

This Quarterly Report contains forward-looking statements. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the results of BayCorp
and/or its subsidiaries to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those
set forth below and elsewhere in this report.

Business Opportunities and Development. As described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," the Company has evaluated and pursued energy-
related investment opportunities, has focused on the acquisition of electric
generating assets and is considering other energy-related investments and the
further development of HoustonStreet. There can be no assurance that the
Company will be able to identify business opportunities that it believes to be
attractive, or that it will be successful in pursuing any such opportunities, in
view of factors that include competition for the acquisition of assets, the fact
that many energy-related activities are subject to government regulatory
requirements, the Company's limited resources and the probable need to obtain
debt or equity financing in order to pursue certain opportunities.

History of Losses. BayCorp reported an operating loss for the first nine
months of 2004 and for the year 2003 and reported operating income for the years
2002 and 2001. Prior to 2001, BayCorp had never reported an operating profit
for any year since its incorporation.

Liquidity Needs. As of September 30, 2004, BayCorp had approximately $13.6
million in cash and cash equivalents and restricted cash. Approximately $3.8
million of this cash is expected to be used to pay for repairs and capital
improvements required by the new operating license issued by FERC at Great Bay
Hydro. See "Note A. The Company." The Company believes that current cash,
together with the anticipated proceeds from the sale of electricity by Great Bay
Power Marketing and Great Bay Hydro will be sufficient to enable the Company and
its wholly owned subsidiaries to meet their cash requirements in 2004. The
direction of the Company's business and circumstances, foreseen or unforeseen,
may cause cash requirements to be materially higher than anticipated and the
Company or its wholly-owned subsidiaries may be required to raise additional
capital, either through a debt financing or an equity financing, to meet ongoing
cash requirements. There is no assurance that the Company or its subsidiaries
would be able to raise such capital or that the terms on which any additional
capital is available would be acceptable. Moreover, the Company's need to raise
additional capital in order to pursue certain opportunities may affect the
Company's competitive position with respect to such opportunities. If
additional funds are raised by issuing equity securities, dilution to then
existing stockholders will result.

19

Primary Reliance on a Single Asset. BayCorp's principal source of revenue in
the first three months of 2004 was Great Bay Power Marketing's contract to sell
power to Unitil. Accordingly, BayCorp's results of operations significantly
depended on the successful and continued performance under the Unitil contract.
In April 2004, Great Bay Hydro completed the acquisition and assumed operating
responsibility of all of the generating facilities in Vermont owned by the
Vermont Electric Division of Citizens. Great Bay Hydro is currently using the
output of the Newport plant as a physical hedge for a portion of BayCorp's
contractual obligation under the Unitil PPA.

Extensive Government Regulation. The electric energy industry is subject to
extensive regulation by federal and state agencies. Great Bay Power Marketing
and Great Bay Hydro are subject to the jurisdiction of the FERC. Great Bay
Power Marketing is required to file with FERC all contracts for the sale of
electricity. Great Bay Hydro operates the Clyde River hydroelectric project
under the terms of a license issued by FERC. FERC's jurisdiction also includes,
among other things, the sale, lease, merger, consolidation or other disposition
of facilities, interconnection of certain facilities, accounts, service and
property records.

Risks Related to HoustonStreet. HoustonStreet's revenues depend on continued
and expanded use of Internet-based wholesale energy trading platforms.
Electronic trading of wholesale energy is new and evolving, and thus may not
achieve widespread market acceptance or emerge as a sustainable business. In
addition, HoustonStreet will need to enhance trading liquidity in order to
increase and sustain revenues. As a technology dependent business,
HoustonStreet's business could suffer due to computer or communications systems
interruptions or failures, technological change or adverse competitive
developments. Further, as electronic commerce evolves, federal, state and
foreign agencies could adopt regulations covering issues such as user privacy,
content and taxation of products and services. If enacted, government
regulations could materially adversely affect HoustonStreet's business.
Although HoustonStreet currently is not aware that it infringes any other
patents, it is possible that HoustonStreet's technology infringes patents held
by third parties. If HoustonStreet were to be found infringing, the owner of
the patent could sue HoustonStreet for damages, prevent HoustonStreet from
making, selling or using the owner's patented technology or could impose
substantial royalty fees for those privileges. If any of the foregoing risks
materialize, or other risks develop that adversely affect HoustonStreet, or if
HoustonStreet fails to grow its revenues and net income, BayCorp could lose all
of the value of its investment in HoustonStreet.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------

Commodity Price Risk

The prices of electricity are subject to fluctuations resulting from changes
in supply and demand. The Company tracks market exposure for any forward firm
energy contracts in a mark-to-market model that is updated daily with current
market prices and is reflected in the company's balance sheet. See "Note B -
Summary of Significant Accounting Policies." The positive, or negative, value
of the portfolio of forward firm energy commitments represents an estimation of
the gain or loss that Great Bay Power Marketing would have experienced if open
firm commitments were covered at then-current market prices. Great Bay Power
Marketing had a net unrealized loss of approximately $3,000,000 on its forward
firm fixed energy contract as of September 30, 2004 and an unrealized loss of
approximately $725,000 as of September 30, 2003.

20

Item 4. Controls and Procedures
- -------------------------------

Evaluation of Disclosure Controls and Procedures

The Chairman, CEO, and President and the Vice President of Finance of the
Company have reviewed and evaluated the effectiveness of disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 (the "Exchange
Act") Rules 240.13a and 15(e)) as of the end of the fiscal quarter covered by
this Quarterly Report. Based on that evaluation, the Chairman, CEO, and
President and the Vice President of Finance have concluded that their current
disclosure controls and procedures are, in all material respects, effective and
timely, providing them with material information relating to that required to be
disclosed in the reports the Company files or submits under the Exchange Act.

The Company's management, including the Chairman, CEO and President and the
Vice President of Finance, does not expect that the Company's disclosure
controls and procedures or its internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, provides
reasonable, not absolute, assurance that the objectives of the control system
are met. The design of a control system reflects resource constraints; the
benefits of controls must be considered relative to their costs. Because there
are inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been or will be detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns occur because of simple error or mistake. Controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all future conditions; over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with the policies or procedures. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

Changes in Internal Controls

There have not been any significant changes in the Company's internal controls
or, to its knowledge, in other factors that have materially affected, or are
reasonably likely to materially affect, these controls subsequent to the date of
their evaluation. The Company is not aware of any significant deficiencies or
material weaknesses and, therefore, no corrective actions were taken.

Part II - OTHER INFORMATION

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
- --------------------------------------------------------------------

Share Repurchase Plan.

21

The following table summarizes repurchases of BayCorp stock during the
fiscal quarter ended September 30, 2004:

Total Number of Maximum Number
Shares Purchased as of Shares that May
Average Part of Publicly Yet Be Purchased
Shares Price Announced Plans Under the Plans or
Period Repurchased Per Share or Programs Programs (2)
---------- ---------- ---------- ---------- ----------

July 2004 6,710 (1) $12.26 -- 24
August 2004 -- -- -- 24
September 2004 -- -- -- 100,024
------------------------------------------------------------------
Total 6,710 $12.26 -- 100,024

(1) These shares were purchased from a former director of the Company in a
privately negotiated transaction authorized by the Company's Board of
Directors.

(2) On September 29, 2003, the Company announced that its Board of Directors
had authorized the repurchase of up to ten percent of its fully diluted common
stock on the open market or in negotiated transactions. On September 15, 2004
the Company announced that its Board of Directors had authorized the repurchase
of up to an additional 100,000 shares of its common stock on the open market or
in negotiated transactions. The Board of Directors did not establish expiration
dates for either of these plans.

Item 3. Defaults upon Senior Securities
- ---------------------------------------

Prior to the April 30, 2004 recapitalization of HoustonStreet resulting in
BayCorp's ownership interest increasing above 50% and HoustonStreet becoming a
majority-owned subsidiary, HoustonStreet had defaulted in the payment of its
senior secured promissory notes. Such notes were cancelled in the
recapitalization of HoustonStreet. See "Note D - Investment in HoustonStreet."

Item 6. Exhibits
- -----------------

(a) See Exhibit Index.

22

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.

BayCorp Holdings, Ltd.

November 12, 2004 /s/ Frank W. Getman Jr.
--------------------------------
Frank W. Getman Jr.
President and Chief Executive Officer and
Principal Financial Officer

23

EXHIBIT INDEX

Exhibit No. Description
- ----------- -----------

31.1 Certification of President and Chief Executive Officer (principal executive
officer) pursuant to Exchange Act Rules 13a-14 and 15d-14.

31.2 Certification of President and Chief Executive Officer (principal financial
officer) pursuant to Exchange Act Rules 13a-14 and 15d-14.

31.3 Certification of Vice President of Finance and Treasurer (chief accounting
officer) pursuant to Exchange Act Rules 13a-14 and 15d-14.

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.

32.2 Certification of Vice President of Finance and Treasurer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.