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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549
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FORM 10-Q

( / ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
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Commission File No. 333-103749

MAINE & MARITIMES CORPORATION

A Maine Corporation

I.R.S. Employer Identification No. 30-0155348

209 STATE STREET, PRESQUE ISLE, MAINE 04769

(207) 760-2499
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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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the close of the period covered by this report.

Common Stock, $7.00 par value - 1,574,803 shares
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Form 10-Q

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

See the following exhibits: Maine & Maritimes Corporation and Subsidiaries Consolidated Financial Statements, including (1) an unaudited statement of consolidated operations for the quarter and nine months ended September 30, 2003, and for the corresponding periods of the preceding year; (2) an unaudited consolidated balance sheet as of September 30, 2003; (3) an audited consolidated balance sheet as of December 31, 2002, the end of Maine Public Service Company’s preceding fiscal year; and (4) an unaudited statement of consolidated cash flows for the period January 1 (beginning of the fiscal year) through September 30, 2003, and for the corresponding period of the preceding year.

In the opinion of management, the accompanying unaudited consolidated financial statements present fairly the financial position of the Company and Subsidiaries at September 30, 2003, and December 31, 2002; the results of their operations for the three and nine months ended September 30, 2003 and 2002; and their cash flows for the nine months ended September 30, 2003, and 2002.

The accompanying unaudited consolidated financial statements include the accounts of Maine & Maritimes Corporation (the “Company” or “MAM”), its active, wholly-owned, regulated transmission and distribution subsidiary, Maine Public Service Company (“MPS”); and including MPS’s inactive wholly-owned Canadian subsidiary, Maine and New Brunswick Electrical Power Company, Limited, (“ME&NB”) and MAM’s active unregulated energy marketing subsidiary, Energy Atlantic, LLC (“EA”).

MAM, a Maine corporation, became a holding company effective June 30, 2003, and owns all of the common stock of Maine Public Service Company. All of the shares of MPS common stock were converted into an equal number of shares of MAM common stock, which are listed on the American Stock Exchange under the symbol MAM. The reorganization was approved by MPS’s shareholders at its annual meeting on May 30, 2003. The U.S. Securities and Exchange Commission (“SEC”) had previously accepted MAM’s S-4A Registration Statement for registration and other appropriate state and federal regulatory agencies issued the necessary approvals on various dates in 2003. Amounts shown for 2002 were reported by MPS. Amounts in the first three months of the nine-month period ending September 30, 2003 were also reported by MPS.

MPS is subject to the regulatory authority of the Maine Public Utilities Commission (“MPUC”) and, with respect to wholesale transmission rates, the Federal Energy Regulatory Commission (“FERC”).

The accompanying unaudited consolidated financial statements should be read in conjunction with the MPS 2002 Annual Report, which includes MPS’s Form 10-K. Certain financial statement disclosures have been condensed or omitted but are an integral part of the MPS 2002 Form 10-K. These statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of results for interim periods presented. All such adjustments are of a normal recurring nature. The Company’s significant accounting policies are the same as those of MPS, which are described in the Notes to Consolidated Financial Statements of MPS’s 2002 Annual Report filed with Form 10-K. For interim reporting purposes, these same accounting policies are followed.

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)

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

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

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

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SHAREHOLDERS’ EQUITY
(Dollars in Thousands)

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

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
Statements of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
Statements of Consolidated Cash Flows
(Unaudited)
(Dollars in Thousands)

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

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NOTES TO CONSOLIDATED STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include the accounts of Maine & Maritimes Corporation (the “Company” or “MAM”), its active, wholly-owned, regulated transmission and distribution subsidiary, Maine Public Service Company (“MPS”); and including MPS’s inactive wholly-owned Canadian subsidiary, Maine and New Brunswick Electrical Power Company, Limited, (“ME&NB”) and MAM’s active unregulated energy marketing subsidiary, Energy Atlantic, LLC (“EA”).

MAM, a holding company organized effective June 30, 2003, owns all of the common stock of MPS. All of the shares of MPS common stock were converted into an equal number of shares of MAM common stock, which are listed on the American Stock Exchange under the symbol MAM. The reorganization was approved by MPS’s shareholders at the annual meeting on May 30, 2003. The U.S. Securities and Exchange Commission (“SEC”) had previously accepted MAM’s S-4A Registration Statement for registration and other appropriate state and federal regulatory agencies issued the necessary approvals on various dates in 2003. Amounts shown for 2002 were reported by MPS. MPS also reported amounts in the first three months of the nine-month period ending September 30, 2003.

MPS is subject to the regulatory authority of the Maine Public Utilities Commission (“MPUC”) and, with respect to wholesale transmission rates, the Federal Energy Regulatory Commission (“FERC”).

The accompanying unaudited consolidated financial statements should be read in conjunction with the MPS 2002 Annual Report, which includes MPS’s Form 10-K. Certain financial statement disclosures have been condensed or omitted but are an integral part of the MPS 2002 Form 10-K. These statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of results for interim periods presented. All such adjustments are of a normal recurring nature. The Company’s significant accounting policies are the same as those of MPS, which are described in the Notes to Consolidated Financial Statements of MPS’s Annual Report filed with Form 10-K. For interim reporting purposes, these same accounting policies are followed.

Due to the seasonal nature of the Company’s operations, financial results for interim periods are not necessarily indicative of trends for a twelve-month period.

For purposes of the statements of consolidated cash flows, the Company considers all highly liquid securities with maturity, when purchased, of three months or less, to be cash equivalents.

Certain reclassifications have been made to the 2002 financial statement amounts in order to conform to the 2003 presentation.

2. ENERGY ATLANTIC (EA)

EA’s net loss for the third quarter of 2003 was $93,000 compared to a net income of $3,432,000 for the third quarter of last year. EA’s third quarter, 2002 net income reflects the final settlement with its energy supplier for Standard Offer Service in CMP’s service territory. As mentioned in previous filings, EA recognized net income of approximately $3,087,000 from the settlement and the reversal of certain regulatory assessments pursuant to the agreement with the supplier. EA’s third quarter, 2003 loss reflects the gradual termination of service as contracts expire in northern Maine. The Company believes that the current standard offer pricing in Maine, the lack of wholesale choices and liquidity within northern Maine, and the increased credit requirements associated with acquiring wholesale electricity supply have hampered EA in competing for sales. The Company maintains a conservative risk management philosophy and has limited the transactions EA can undertake as a buyer or seller in order to limit and mitigate potential transactional risk exposures.

Energy Atlantic’s sales can be classified into two general categories: Standard Offer Service (“SOS”) sales in Central Maine Power Company’s (“CMP”) service territory which expired February 28, 2002, and Competitive Energy Supply (“CES”) sales to individual retail customers within certain regions of the State of Maine. Except as stated below, the electricity for those sales within ISO New England was provided entirely under a Wholesale Power Sales Agreement (the “Agreement”) with Engage Energy America, LLC (“Engage”), which also expired February 28, 2002. Under this Agreement, all revenues from both SOS and CES sales were paid directly to an Escrow Agent that disbursed funds in accordance with instructions from Engage. For SOS sales, EA received reimbursement for certain expenses and a portion of the net profit that was reported as SOS margin.

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EA has a contract for 40% of the output of the Wheelabrator-Sherman (“W-S”) energy facility for the two years beginning March 1, 2002. The output from this take-or-pay contract amounts to approximately 55,000 MWH annually and will be used to provide electricity for CES sales in MPS’s service territory. This contract is a take-or-pay contract, which carries more counter-party risk than others entered into by EA. To mitigate this risk, EA has entered into a contract with NB Power, whereby NB Power will buy W-S output in excess of load requirements in the Company’s service territory at a rate indexed to the price of 3% Sulphur Max No. 6 residential oil into New York Harbor, which is intended to reflect NB Power’s avoided cost, subject to a floor and ceiling. Currently, all output has been sold to CES customers, therefore limiting the risk that energy will be sold to NB Power. In addition, NB Power will sell electricity to EA when load exceeds W-S output at a fixed on and off-peak rate.

In addition, EA has a power supply relationship with Duke Energy Trading and Marketing (“DETM”) for electricity in CMP’s service area. In connection with this relationship, and certain transactions between EA and DETM, MPS provided a contractual guarantee on behalf of EA in an aggregate amount of one million dollars ($1,000,000). This guarantee was related specifically to the delivery and/or receipt of electric power between EA and DETM. This guarantee was renewed in September 2002, for an additional year. Effective March 21, 2003, DETM has agreed to waive this credit requirement in lieu of EA’s commitment to maintain a $1 million ($1,000,000) minimum bank account balance, which is reflected as Restricted Cash on the Balance Sheet.

The following illustrates each type of EA’s risk exposure related to these contracts for supply and sales:

With the expiration of EA’s sales of SOS in CMP’s service territory in February of 2002, EA’s revenues and net income have been adversely impacted. In 2002, EA realized SOS margin in CMP’s service territory of approximately $5.8 million. The Company continues to review EA’s current and future business model, which may include a possible exit from the CES market in part or in whole, a potential sale of the subsidiary, a refinement of its market area, and/or expansion into other product and service lines. The Company has not determined which strategy will be used going forward. However, it has targeted the fourth quarter of 2003 as the timeframe for adoption and implementation of one of possible strategic alternatives.

On February 24, 2003, EA announced its intent to withdraw from retail electricity markets in northern Maine. The reasons included concerns over a lack of risk-adjusted profitability in that market, the lack of price-differentiated electric products within the Maritimes and the region administered by the Northern Maine Independent System Administrator, and an overall illiquidity of the wholesale power market in the region, as well as other factors. EA will continue to serve its existing customer contracts in northern Maine until they expire by their terms on February 28, 2004. CES sales in northern Maine were approximately $5 million for the year ended December 31, 2002 and $4 million for the nine months ended September 30, 2003. EA believes that, in addition to minimizing its risk profile, this action will substantially relieve any underlying regulatory concerns that may exist or arise in connection with the issue of employee sharing and energy marketing activities conducted by EA within the Company’s service territory.

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In connection with MPS’s reorganization and EA’s withdrawal from retail electricity markets in northern Maine, MPS filed with the MPUC on February 21, 2003, an “Application for Exemption of Chapter 304” to exempt MPS and EA from certain management restrictions. These restrictions had been imposed to allow EA to engage in energy marketing activities within MPS’s service territory. A series of settlement conferences were held between the MPUC Advisory Staff, the Office of the Public Advocate, WPS Energy Services, Inc. and MPS. On June 24, 2003, the parties submitted a Stipulation to the MPUC. The MPUC issued an Order Approving Stipulation in this matter on July 24, 2003, which approved a partial waiver of the requirements of Chapter 304 (the “304 Order”) and resolved all issues in this matter. Under the provisions of the 304 Order, MPS is exempted from the employee sharing provisions of Chapter 304 of the Commissions Rules subject to certain specified conditions. The exemptions and waivers granted in the 304 Order are expressly contingent on the condition that EA cease marketing in MPS’s service territory effective March 1, 2003. The 304 Order also provides that the parties to the proceeding may revisit the matter in the event EA should subsequently elect to re-enter the northern Maine retail electricity market in the future. In connection with it’s announced intent to withdraw from the retail electricity markets in northern Maine EA has ceased all of its energy marketing activities in MPS’ service territory effective March 1, 2003. As noted, it will serve the remaining terms of existing contracts within northern Maine, which will expire March 1, 2004.

3. SEGMENT INFORMATION

The Company operates in three segments, with MPS providing regulated transmission and distribution services, EA performing unregulated power marketing services and MAM providing corporate oversight functions. The table below summarizes segment activity for the three and nine months ended September 30, 2003, and 2002.

The Company’s reportable segments include the electric utility portion of the business—MPS and its inactive wholly-owned Canadian subsidiary, Maine and New Brunswick Electrical Power Company, Limited, (“ME&NB”), the energy marketing portion of the business—EA, and the holding company—MAM. The accounting policies of the segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.” MAM did not have any material assets or operations until it became a holding company on June 30, 2003; however, MPS incurred expenses associated with the formation of MAM, which totaled $52,000 and $639,000 for the three and nine months ended September 30, 2003, respectively, classified as unregulated operations and maintenance. MAM provides certain administrative support services to MPS and EA, and MPS provides certain support services to MAM and EA, which are billed to the respective entities at cost, based on a combination of direct charges and allocations. The Company is organized based on products and services.

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* Reconciling Eliminations

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* Reconciling Eliminations

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4. REGULATORY MATTERS

Maine Public Utilities Commission, Request for Approval of Alternative Rate Plan:

As reported in prior MPS and MAM quarterly reports on Form 10-Q, and in recent Form 8-Ks, on March 6, 2003, MPS submitted its formal “Request for Approval of Alternate Rate Plan” (“ARP”) (MPUC Docket 2003-85). The proposal is a seven-year rate plan for its distribution delivery services with a target implementation date on or before July 1, 2003. The ARP is an alternative form of regulating MPS’s distribution assets, similar to the performance rate plans the MPUC has adopted for Central Maine Power Company and Bangor Hydro-Electric Company. In accordance with a recently enacted state statute, Maine utilities requesting an ARP must now also file cost of service financial information as part of the ARP proceeding. In connection with this aspect of the ARP review and analysis, MPS has been authorized by, and has received final approval from the MPUC to increase its electric delivery rates. On October 24, 2003, following the entry of a procedural order, discovery, and a public conference, the MPUC approved a final Supplemental Stipulation in connection with this rate increase. As a result, effective November 1, 2003, MPS will increase its total electric delivery rate by 3.78%, or a total revenue increase not to exceed $1,126,552. This increase includes $685,037 in distribution revenues and $441,515 in transmission revenues. Following the entry of the order approving the Supplemental Stipulation, the ARP proceeding was bifurcated and MPS has until December 31, 2003 to notify the MPUC of its intention to proceed with the remaining elements of the ARP or withdraw the ARP docket. The Company is in the process of evaluating this option.

Maine Public Utilities Commission Notices of Inquiry:

As reported in prior MPS and MAM quarterly reports on Form 10-Q, on February 11, 2003, the MPUC initiated a formal Notice of Inquiry (“NOI”) into the status of the competitive market for electricity supply in northern Maine (MPUC Docket No. 2003-82). The NOI is not directed at MPS or any specific party or entity but is a general inquiry designed to gather information about the adequacy of existing market structures, rules and laws in light of the limited number of supplier/generator participants in the region. There have been no material developments in this proceeding during this quarter. At this time the Company cannot predict the nature or the outcome of any finding, decision or ruling by the MPUC in this proceeding.

On June 18, 2003, the MPUC also initiated a similar Notice of Inquiry and Request for Comments concerning “Incentives to Promote Energy Efficiency and Security of the Electric Grid” (MPUC Docket No. 2003-423). The Company provided comments to the MPUC on July 7, 2003. At this time the Company cannot predict the nature or the outcome of any finding, decision or ruling by the MPUC in this proceeding.

Federal Energy Regulatory Commission (FERC) Open Access Transmission Tariff (OATT) Filing:

As previously reported in prior MPS and MAM quarterly reports on Form 10-Q, pursuant to Section 2.4 of the Settlement Agreement filed on September 30, 2000, in Docket No. ER00-1053-000, and accepted by the Federal Energy Regulatory Commission (FERC) on September 15, 2000, MPS provided parties and FERC staff on June 10, 2003, the changed Open Access Transmission Tariff (OATT) Formula Rate charges that MPS proposed to apply on June 1, 2003, together with back-up materials. On June 1, 2003, the Formula Rate charges became effective subject to a refund that may occur in connection with a settlement stipulation currently being negotiated by the parties to the proceeding. In general, MPS is seeking a slight modification to its rate formula under its transmission tariff. MPS is currently engaged in discussions with the parties and FERC staff to resolve all outstanding issues in the filing with the objective of reaching a settlement agreement. The probability of success of this collaborative effort is unknown at this time; however the Company expects to resolve the matter and reach a settlement agreement prior to the close of calendar year 2003.

5. INCOME TAXES

A summary of Federal and State income taxes charged to income is presented below. For accounting and ratemaking purposes, income tax provisions included in Operating Expenses reflect taxes applicable to revenues and expenses allowable for ratemaking purposes for regulated activities and unregulated activities for EA and MAM. The tax effect of items not included in rate base is allocated as Other Income (Deductions).

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For the nine months ended September 30, 2003, and 2002, the effective income tax rates were 31.3 % and 38.6%, respectively. The principal reasons for the effective tax rates differing from the US federal income tax rate are flow through items, namely Seabrook amortization, which is required by regulation and state income taxes, and adjustments to prior year tax reserves.

The following summarizes accumulated deferred income taxes established on temporary differences under Statement of Financial Accounting Standards No. 109 (“FAS 109”), as of September 30, 2003, and December 31, 2002.

6. MAINE YANKEE

As previously reported in prior MPS and MAM quarterly reports on Form 10-Q, MPS owns 5% of the Common Stock of Maine Yankee, which operated an 860 MW nuclear power plant in Wiscasset, Maine that has ceased power operations and is now in the final stages of decommissioning.

In accordance with its 1999 FERC rate case settlement, on October 21, 2003, MY filed a revised formula rate schedule with the FERC, proposing an effective date of January 1, 2004, when major decommissioning activities are expected to be nearing completion. The filing contains a revised decommissioning cost estimate and collection schedule to assure that adequate funds are available to safely and promptly decommission the Plant and operate and manage the independent spent fuel storage installation (“ISFSI”). In the filing MY also requests a change in its billing formula and an increase in the level of collection for certain postretirement benefits. To meet these needs, MY proposes to collect an additional $3.77 million per year through October 2008, over current decommissioning collection levels, exclusive of any income-tax liability, for the decommissioning and spent-fuel management expense, and to collect the amounts needed to replenish its Spent Fuel Trust for funds previously used for ISFSI construction from November 2008 through October 2010. MY believes it is entitled to recover the costs underlying the proposed new rates, but cannot predict the outcome of the rate proceeding. If approved by FERC, MPS’s share of this increase, approximately $189,000, will be recovered as stranded costs.

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In accordance with the process set forth in the legislation, in February 2002, the Secretary of Energy recommended the Yucca Mountain site to the President for the development of a nuclear waste repository, and the President then recommended development of the site to Congress. As provided in the statutory procedure, the State of Nevada formally objected to the site in April 2002, and in July 2002, Congress overrode the objection. Construction of the repository requires the approval of the Nuclear Regulatory Commission approved Maine Yankee’s License Termination Plan (“LTP”). The LTP was approved without any unexpected conditions. In accordance with a plan approved by the Securities and Exchange Commission, Maine Yankee has started the redemption of its Common Stock periodically through 2008.