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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
-----------------------------------

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

-OR-

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

SECURITIES EXCHANGE ACT OF 1934
-----------------------------------

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

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 - 1,580,701 shares
--------------------------------------------------------------------------








- ----------------------------------------------------------------------
Glossary of Terms

- ---------------- -----------------------------------------------------
AFUDC Allowances for the cost of equity and borrowed
funds used during construction
- ---------------- -----------------------------------------------------
AMEX American Stock Exchange
- ---------------- -----------------------------------------------------
APBO Accumulated Pension Benefit Obligation
- ---------------- -----------------------------------------------------
ARP Alternative Rate Plan
- ---------------- -----------------------------------------------------
BHE Bangor Hydro Electric Company
- ---------------- -----------------------------------------------------
CES Competitive Energy Supplier
- ---------------- -----------------------------------------------------
CMLTD Current Maturities Long-Term Debt
- ---------------- -----------------------------------------------------
CMP Central Maine Power Company
- ---------------- -----------------------------------------------------
DETM Duke Energy Trading and Marketing
- ---------------- -----------------------------------------------------
DOE Department of Energy
- ---------------- -----------------------------------------------------
EA Energy Atlantic, LLC
- ---------------- -----------------------------------------------------
Engage Engage Energy America, LLC
- ---------------- -----------------------------------------------------
EPS Earnings Per Share
- ---------------- -----------------------------------------------------
FAME Finance Authority of Maine
- ---------------- -----------------------------------------------------
FAS Financial Accounting Standards
- ---------------- -----------------------------------------------------
FASB Financial Accounting Standards Board
- ---------------- -----------------------------------------------------
FERC Federal Energy Regulatory Commission
- ---------------- -----------------------------------------------------
FIN FASB Interpretation Number
- ---------------- -----------------------------------------------------
ISFSI Independent Spent Fuel Storage Installation
- ---------------- -----------------------------------------------------
ISO Independent System Operator
- ---------------- -----------------------------------------------------
ISO-NE Independent System Operator - New England
- ---------------- -----------------------------------------------------
LIBOR London InterBank Offering Rate
- ---------------- -----------------------------------------------------
LOC Letter of Credit
- ---------------- -----------------------------------------------------
MAM Maine & Maritimes Corporation
- ---------------- -----------------------------------------------------
MAMES Maine & Maritimes Energy Services Company
- ---------------- -----------------------------------------------------
Maricor Maricor Ltd.
- ---------------- -----------------------------------------------------
Me&NB Maine & New Brunswick Electrical Power Company,
Limited
- ---------------- -----------------------------------------------------
MEPCO Maine Electric Power Company, Inc.
- ---------------- -----------------------------------------------------
MPS Maine Public Service Company
- ---------------- -----------------------------------------------------
MPUC Maine Public Utilities Commission
- ---------------- -----------------------------------------------------
MPUFB Maine Public Utility Financing Bank
- ---------------- -----------------------------------------------------
MW Megawatt
- ---------------- -----------------------------------------------------
MWH Megawatt hour
- ---------------- -----------------------------------------------------
NEPOOL New England Power Pool
- ---------------- -----------------------------------------------------
NMISA Northern Maine Independent System Administrator
- ---------------- -----------------------------------------------------
NOI Notice of Inquiry
- ---------------- -----------------------------------------------------
NPCC Northeastern Power Coordinating Council
- ---------------- -----------------------------------------------------
NRC Nuclear Regulatory Commission
- ---------------- -----------------------------------------------------
NUG Non-Utility Generator
- ---------------- -----------------------------------------------------
OATT Open Access Transmission Tariff
- ---------------- -----------------------------------------------------
PBR'S Performance Based Rates
- ---------------- -----------------------------------------------------
PCB Poly Chlorinated Bi-phenol
- ---------------- -----------------------------------------------------
PPA Power Purchase Agreement
- ---------------- -----------------------------------------------------
PURPA Public Utilities Regulatory Policy Act
- ---------------- -----------------------------------------------------
PWC PricewaterhouseCoopers
- ---------------- -----------------------------------------------------
QF Qualifying Facility
- ---------------- -----------------------------------------------------
ROCE Return on Capital Employed
- ---------------- -----------------------------------------------------
RTO Regional Transmission Organization
- ---------------- -----------------------------------------------------
SAM Strategic Asset Management
- ---------------- -----------------------------------------------------
SCADA Supervisory Control and Data Acquisition
- ---------------- -----------------------------------------------------
SEC Securities and Exchange Commission
- ---------------- -----------------------------------------------------
SFAS Statement of Financial Accounting Standards
- ---------------- -----------------------------------------------------
SOS Standard Offer Service
- ---------------- -----------------------------------------------------
T&D Transmission and Distribution
- ---------------- -----------------------------------------------------
VEBA Voluntary Employee Benefit Association
- ---------------- -----------------------------------------------------
VERP Voluntary Employee Retirement Program
- ---------------- -----------------------------------------------------
WPS-PDI WPS - Power Development, Inc.
- ---------------- -----------------------------------------------------
WS Wheelabrator-Sherman
- ---------------- -----------------------------------------------------






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 ended March 31, 2004, and for the
corresponding period of the preceding year; (2) an unaudited consolidated
balance sheet as of March 31, 2004; (3) an audited consolidated balance sheet as
of December 31, 2003, the end of Maine & Maritimes Corporation's preceding
fiscal year; and (4) an unaudited statement of consolidated cash flows for the
period January 1 (beginning of the fiscal year) through March 31, 2004, 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 March 31, 2004, and December 31, 2003; the results of their operations for
the three months ended March 31, 2004 and 2003; and their cash flows for the
three months ended March 31, 2004, and 2003.

MAM is the parent holding company for Maine Public Service Company ("MPS"),
Energy Atlantic, LLC ("EA"), and Maine & Maritimes Energy Services Company
("MAMES"). Maine & New Brunswick Electrical Power Company, Limited ("Me&NB"), is
a wholly-owned Canadian subsidiary of MPS. MAMES (dba "The Maricor Group") is
the parent company of Maricor Ltd ("Maricor"), also a wholly-owned Canadian
subsidiary. General descriptions of these companies and subsidiaries are as
follows:

o MPS is a regulated electric transmission and distribution utility serving
all of Aroostook County and a portion of Penobscot County in northern
Maine.
o Maine & New Brunswick Electrical Power Company, Limited, an inactive
Canadian subsidiary of MPS, formerly owned MPS's Canadian electric
generation assets.
o Energy Atlantic, LLC is a licensed, but currently inactive Competitive
Energy Supplier ("CES") of retail electricity and formerly served the
northern and central regions of the state of Maine.
o Maine & Maritimes Energy Services Company (dba "The Maricor Group") is a
development, engineering, energy efficiency and asset management firm
focused on markets in the United States providing fee-for-service
mechanical and electrical engineering services.
o Maricor Ltd is a Canadian subsidiary of Maine & Maritimes Energy Services
Company, whose principal business is primarily the delivery of similar
products and services as MAMES, but in Canadian markets.















Page 3 of 38










MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
Statements of Consolidated Income
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)

Three Months Ended March 31,
-----------------------------
2004 2003
------------- ------------


Operating Revenues
Regulated $10,208 $9,580
Unregulated 290 0
------------- ------------
Total Revenues 10,498 9,580
------------- ------------

Operating Expenses
Regulated Operation & Maintenance 3,250 2,765
Unregulated Operation & Maintenance 605 0
Depreciation 634 663
Amortization of Stranded Costs 2,264 2,448
Amortization 19 51
Taxes Other Than Income 366 357
Provision for Income Taxes - Regulated 1,282 1,091
Benefit of Income Taxes - Unregulated (118) 0
------------- ------------
Total Operating Expenses 8,302 7,375
------------- ------------

Operating Income 2,196 2,205
------------- ------------

Other Income (Deductions)
Equity in Income of Associated Companies 57 71
Benefit of (Provision for) Income Taxes - Regulated 9 (11)
Other - Net (120) (271)
------------- ------------
Total (54) (211)
------------- ------------

Income Before Interest Charges 2,142 1,994
------------- ------------

Interest Charges
Long-Term Debt and Notes Payable 566 355
Less Stranded Costs Carrying Charges and Allowance for Borrowed Funds Used During
Construction (332) (299)
------------- ------------
Total 234 56
------------- ------------

Income from Continuing Operations 1,908 1,938

Discontinued Operations
(Loss) Income from Discontinued Operations (598) 3
Income Tax Benefit (Provision) 240 (1)
------------- ------------
(Loss) Income from Discontinued Operations (358) 2

Net Income Available for Common Stock $1,550 $1,940
============= ============

Average Shares Outstanding (000's) 1,581 1,574

Basic and Diluted Earnings Per Share of Common Stock from Continuing Operations $1.21 $1.23
Basic and Diluted Loss Per Share of Common Stock from Discontinued Operations ($0.23) $0.00
------------- ------------
Basic and Diluted Earnings Per Share of Common Stock from Net Income $0.98 $1.23

Dividends Declared per Common Share $0.38 $0.37

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





Page 4 of 38










MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in Thousands)

ASSETS March 31, December 31,
2004 2003


Utility Plant
Electric Plant in Service $92,039 $92,055
Less Accumulated Depreciation 38,138 37,618
------------------ ------------------
Net Electric Plant in 53,901 54,437
Service
Construction Work-in-Progress 2,366 8
------------------ ------------------
Total 56,267 54,445

Investment in Associated Companies 2,510 2,729
------------------ ------------------

Net Utility Plant and Investments in Associated Companies 58,777 57,174
------------------ ------------------

Current Assets
Cash and Cash Equivalents 3,699 4,344
Accounts Receivable - Net 6,304 6,032
Unbilled Revenue 975 1,199
Inventory 705 695
Income Tax Refund Receivable 0 229
Prepayments 315 361
------------------ ------------------
Total 11,998 12,860
------------------ ------------------

Regulatory Assets
Uncollected Maine Yankee Decommissioning Costs 17,011 17,771
Recoverable Seabrook Costs 13,611 13,889
Regulatory Assets - SFAS 109 & 106 6,617 6,648
Deferred Fuel and Purchased Energy Costs 22,147 20,495
Regulatory Asset - Power Purchase Agreement Restructuring 3,990 4,353
Unamortized Premium on Early Retirement of Debt 1,445 1,498
Deferred Regulatory Costs, less accumulated amortization 1,125 1,392
------------------ ------------------

Total 65,946 66,046
------------------ ------------------

Other Assets
Intangible Assets 112 138
Goodwill 427 404
Unamortized Debt Issuance Costs 632 625
Restricted Investment (at cost, which approximates market) 2,378 2,379
Miscellaneous 1,081 1,643
------------------ ------------------

Total 4,630 5,189
------------------ ------------------
------------------ ------------------

Total Assets $141,351 $141,269
================== ==================

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



Page 5 of 38








MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
Capitalization and Liabilities
(Unaudited)
(Dollars in Thousands)


March 31, December 31,
2004 2003

Capitalization
Common Shareholders' Equity $47,595 $46,984
Long-Term Debt 29,230 29,230
------------------ -------------------
Total 76,825 76,214
------------------ -------------------

Current Liabilities
Long-Term Debt Due Within One Year 1,450 1,450
Notes Payable to Banks 4,100 6,200
Accounts Payable 3,882 3,928
Accounts Payable - Associated Companies 257 28
Accrued Employee Benefits 1,124 1,013
Customer Deposits 19 19
Taxes Accrued 911 20
Interest Accrued 119 35
------------------ -------------------
Total 11,862 12,693
------------------ -------------------

Deferred Credits and Other Liabilities
Accrued Removal Obligations 4,095 4,015
Carrying Value of Interest Rate Hedge 1,772 1,185
Uncollected Maine Yankee Decommissioning Costs 17,011 17,771
Income Taxes 25,153 25,044
Accrued Post-retirement Benefits and Pension Costs 3,685 3,462
Investment Tax Credits 152 160
Miscellaneous 796 725
------------------ -------------------
Total 52,664 52,362
------------------ -------------------

------------------ -------------------
Total Capitalization and Liabilities $141,351 $141,269
================== ===================









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




Page 6 of 38







MAINE & MARITIMES CORPORATION AND SUBSIDIARIES
Statement of Consolidated Common Shareholders' Equity
(Unaudited)
(Dollars in Thousands)



Accumulated
Number of Shares Other
-------------------- Par Value Paid-In Retained Comprehensive
Issued Treasury Issued Capital Earnings Income (Loss) Total
------------------------------------------------------------------------------

Balance, December 31, 2003 1,580,512 --- $11,064 $165 $36 ($721) $46,984
------------------------------------------------------------------------------
New Stock Issued 189 1 6 7
Net Income 1,550 1,550
Other Comprehensive Income
(Loss)
Changes in Value of Foreign
Exchange Translation Gain
(Loss) 8 8
Interest Rate Hedge, Net of
Tax Benefit of $234 (353) (353)
Dividend ($0.38 per share) (601) (601)
------------------------------------------------------------------------------
Balance, March 31, 2004 1,580,701 --- $11,065 $171 $37,425 ($1,066) $47,595
==============================================================================

































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


Page 7 of 38







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

Three Months Ended March 31,
Cash Flow From Operating Activities 2004 2003

Net Income $1,550 $1,940
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used For) Operations:
Depreciation 636 665
Amortization 296 329
Amortization of Deferred Gain from Asset Sale 0 (443)
Deferred Income Taxes - Net 355 (56)
Income on Tax-Exempt Bonds-Restricted Funds 0 (4)
Change in Deferred Regulatory and Debt Issuance Costs (1,365) (618)
Amortization of WS Upfront Payment 363 363
Change in Benefit Obligations 255 308
Change in Current Assets and Liabilities:
Accounts Receivable and Unbilled Revenue (48) (136)
Other Current Assets 265 267
Accounts Payable 183 149
Accrued Employee Benefits 111 (377)
Other Current Liabilities 975 1,063
Other - Net 228 41
----------- ------------
Net Cash Flow Provided By Operating Activities 3,804 3,491
----------- ------------
Cash Flow From Financing Activities
Dividend Payments (601) (582)
Retirements of Long-Term Debt 0 (1,800)
Short-Term Debt Repayments, Net (2,100) (2,700)
----------- ------------
Net Cash Flow Used For Financing Activities (2,701) (5,082)
----------- ------------
Cash Flow From Investing Activities
Drawdown from Tax-Exempt Bond Trust 0 436
Stock Redemption from Associated Company 200 224
Investment in Electric Plant (1,948) (1,782)
----------- ------------
Net Cash Flow Used For Investing Activities (1,748) (1,122)
----------- ------------
Decrease in Cash and Cash Equivalents (645) (2,713)
Cash and Cash Equivalents at Beginning of Period 4,344 5,956
----------- ------------
Cash and Cash Equivalents at End of Period $3,699 $3,243
=========== ============
Supplemental Disclosure of Cash Flow Information:
Cash Paid (Received) During the Period For:
Interest $350 $275
Income Taxes $(160) $0







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



Page 8 of 38






NOTES TO CONSOLIDATED STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of Maine
& Maritimes Corporation (the "Company" or "MAM") and the following wholly-owned
active subsidiaries and affiliates:

- - Maine Public Service Company ("MPS"), regulated transmission and distribution
company and its wholly-owned inactive Canadian subsidiary, Maine and New
Brunswick Electrical Power Company, Limited., ( "Me&NB" );

- - Energy Atlantic, LLC ("EA"), unregulated competitive electricity marketing
subsidiary, which was owned by MPS until June 30, 2003 and is now a wholly
owned, inactive subsidiary of MAM;

- - Maine & Maritimes Energy Services Company ("MAMES") dba "The Maricor Group"
and its wholly-owned Canadian subsidiary, Maricor, Ltd, ("Maricor") providing
energy management, asset lifecycle management and engineering services.

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 the first three months of 2003 were reported by MPS.

MAMES and Maricor were organized on November 6, 2003, and November 12, 2003,
respectively. On December 1, 2003, Maricor acquired a mechanical and electrical
engineering firm located in New Brunswick, Canada.

All inter-company transactions between MAM and it subsidiaries have been
eliminated in consolidation.

The financial statements of the Company were prepared in accordance with
accounting principles generally accepted in the United States of America.

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 2003 financial statement amounts
in order to conform to the 2004 presentation.

2. DISCONTINUED OPERATIONS - ENERGY ATLANTIC

On March 1, 2004, EA suspended all active operations and has been classified as
a discontinued operation in accordance with FASB No. 144, as discussed in more
detail below. EA participated in the wholesale power market during 1999 and
until March 1, 2000, when it began selling energy in the retail electricity
market within the state of Maine. The retail market consists of two sectors,
Standard Offer Service ("SOS") and Competitive Energy Supply ("CES"). The MPUC
requests bids from CES providers for SOS in each utility service territory.

In connection with its prior active operations, EA had previously entered into a
contract for 40% of the output of the WS energy facility for the two years
beginning March 1, 2002 and expiring on February 29, 2004. The output from this
contract amounted to approximately 55,000 MWH annually and was used to provide
electricity for additional CES sales within MPS's service territory. This
contract was a take-or-pay contract, which carried more counterparty risk than
others entered into by EA. To mitigate this risk, EA entered into a contract
with NB Power, whereby NB Power committed to buy WS output in excess of load
requirements in MPS's service territory at a rate indexed to the price of 3%
Sulphur Max No. 6 residential oil into New York Harbor, which was intended to
reflect NB Power's avoided cost, subject to a floor and ceiling. All output was
sold to CES customers, therefore limiting the risk that energy would be sold to
NB Power. In addition, NB Power committed to sell electricity to EA when load
exceeded WS output at a fixed on and off-peak rate.

Page 9 of 38



In addition, EA had 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 agreed
to waive this credit requirement in lieu of EA's commitment to maintain a $1
million ($1,000,000) minimum bank account balance. On January 27, 2004, EA
notified DETM in writing of the impending expiration of the Master Service
Agreement between EA and DETM on March 1, 2004. This correspondence was to
notify DETM of EA's expiration of its commitment to maintain a $1 million
($1,000,000) minimum account balance as credit coverage in connection with EA's
suspension of its energy marketing activities. EA continued to serve its
existing contracts in northern Maine through their expiration on February 27,
2004. CES sales, primarily in northern Maine, were approximately $6.1 million in
2003.

In connection with its February 21, 2003, announced intent to withdraw from the
retail electricity markets in northern Maine, EA has ceased all of its energy
marketing activities in MPS's service territory, as well as the balance of the
state, effective March 1, 2004. Currently, EA is an inactive subsidiary and
management has ceased all active retail CES activity on behalf of EA within the
state of Maine until market conditions, the availability of supply, the mandate
for stringent credit requirements and the risk environment improve. Management
will continue to monitor both U.S. and Canadian deregulated markets to determine
the appropriate timing for possible re-entry into the deregulated retail market.

In the first quarter of 2004, the Company recognized a loss from discontinued
operations of $0.23 per share for EA, classified as discontinued operations in
the statement of consolidated income. This loss includes additional lease
expense of $181,000 recognized on the buy-out of a software lease by EA, as well
as $172,000 for employee severance payments. The following table summarizes the
statement of operations for EA (in thousands):




Quarter Ended March 31,

2004 2003
---------------------------------------------------------------------------------------------

Revenue $562 $1,788
Expenses (1,161) (1,792)
Other income, deductions and interest 1 7
-------------- ------------
Pretax income (loss) from discontinued operations (598) 3
Income taxes 240 (1)
-------------- ------------
Income (loss) from discontinued operations ($358) $2
============== ============

Income (loss) per share from discontinued operations
(basic and diluted) ($0.23) $0.00
============== ============

The major classes of assets and liabilities of the discontinued operations
included in the Company's consolidated balance sheets as of March 31, 2004, are
as follows (in thousands):

Assets
Cash and cash equivalents $1,060
Accounts receivable 111
Other assets 403
------------
Total Assets $1,574
============

Liabilities
Accounts payable $337
Other liabilities 36
------------
Total Liabilities $373
============






Page 10 of 38










3. SEGMENT INFORMATION

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, the Maricor Group, which includes Maricor Ltd. and
its operating division, Eastcan Consultants, 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 approximately $178,000 for the three months ended March 31, 2003,
classified as other income and deductions. 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.



Three Months Ended
(Dollars in Thousands)
March 31, 2004 March 31, 2003
---------------------------------------------------------------------------------------------
Maricor Maricor
EA MPS Group Other* Total EA MPS Group Other* Total
---------------------------------------------------------------------------------------------

Revenue from External
Customers - Regulated 0 10,209 0 (1) 10,208 0 9,580 0 0 9,580
Revenue from External
Customers -
Unregulated 0 0 290 0 290 0 0 0 0 0
---------------------------------------------------------------------------------------------
Total Operating
Revenues 0 10,209 290 (1) 10,498 0 9,580 0 0 9,580
---------------------------------------------------------------------------------------------
Regulated Operation &
Maintenance 0 3,250 0 0 3,250 0 2,765 0 0 2,765
Unregulated Operation &
Maintenance 0 0 409 196 605 0 0 0 0 0
Depreciation 0 633 0 1 634 0 663 0 0 663
Amortization of Stranded
Cost 0 2,264 0 0 2,264 0 2,448 0 0 2,448
Amortization 0 19 0 0 19 0 51 0 0 51
Taxes Other than Income 0 366 0 0 366 0 357 0 0 357
Income Taxes 0 1,282 (40) (78) 1,164 0 1,091 0 0 1,091
---------------------------------------------------------------------------------------------
Total Operating
Expenses 0 7,814 369 119 8,302 0 7,375 0 0 7,375
Operating Income 0 2,395 (79) (120) 2,196 0 2,205 0 0 2,205
Equity in Income of
Associated Companies 0 59 0 (2) 57 0 71 0 0 71
Benefits of (Provision
for) Income Taxes -
Regulated 0 9 0 0 9 0 (11) 0 0 (11)
Other - Net 0 (107) (6) (7) (120) 0 (271) 0 0 (271)
---------------------------------------------------------------------------------------------
Income Before Interest
Charges 0 2,356 (85) (129) 2,142 0 1,994 0 0 1,994
---------------------------------------------------------------------------------------------
Interest Charges 0 238 3 (7) 234 0 56 0 0 56
---------------------------------------------------------------------------------------------
Income from Continuing
Operations 0 2,118 (88) (122) 1,908 0 1,938 0 0 1,938
(Loss) Income from
Discontinued
Operations (358) 0 0 0 (358) 2 0 0 0 2
---------------------------------------------------------------------------------------------
Net Income (358) 2,118 (88) (122) 1,550 2 1,938 0 0 1,940
=============================================================================================

- ------------------------
* Other column includes intercompany eliminations and holding company expenses.



Page 11 of 38





4. REGULATORY MATTERS

MPUC Approves Stranded Cost Revenue Requirements Effective March 1, 2004
- ------------------------------------------------------------------------

In an Order dated February 27, 2004, MPS received final approval from the
MPUC for the stranded cost revenue component of its electric delivery rates,
effective March 1, 2004. Under Title 35-A of the Maine Revised Statutes
Annotated, Section 3208, the MPUC is required to periodically investigate and
adjust the stranded cost charges reflected in the rates of a transmission and
distribution utility. In accordance with this provision, on September 16, 2003,
in Docket No. 2003-666, the MPUC issued a notice of investigation in order to
determine whether MPS's rates must be changed effective March 1, 2004, to
reflect any changes in MPS's stranded costs. On February 27, 2004, the MPUC
issued an order approving a stipulation under which MPS is allowed to recover
$11,785,339 per year to satisfy its approved stranded cost revenue requirements
for the "rate effective period" beginning March 1, 2004, and ending on December
31, 2006. The approved revenue requirement for the rate effective period ended
February 29, 2004, was $11,540,000. Under the approved stipulation MPS's
stranded cost rates approved in Docket No. 2003-85 will remain in effect during
the rate effective period. The stipulation approved by the MPUC in Docket
2003-666 also approved and reaffirmed each of the elements and associated
balances of MPS's recoverable stranded costs.

As explained more fully below, during the course of Docket 2003-666 the
parties reviewed the manner in which MPS was recovering and accounting for its
carrying charges associated with the deferred fuel element of its stranded cost.
As a result of the stipulation approved in Docket No. 2003-666, MPS will record
deferred income tax expense associated with deferred fuel carrying charges
during the rate effective period from March 1, 2004, through December 31, 2006,
as compared to past treatment where such expense was deferred for future
recovery. Because the deferred fuel carrying charge component of MPS's stranded
costs is not expected to fully amortize until 2012, the Company anticipates that
deferred income tax expense will be incurred through 2012, subject to future
stranded cost filings with the MPUC. In Dockets 98-577 and 2001-240, the parties
stipulated that MPS would accrue carrying costs on its unrecovered fuel balance
(the "deferred fuel account") during the respective rate effective period at its
net of tax cost of capital rate. Consistent with the stipulation in Docket No.
2001-240, MPS accrued a carrying charge using the net of tax rate of 7.98%
through October 31, 2003, applied against its unrecovered deferred fuel balance.
From November 1, 2003, to December 31, 2003, MPS accrued its carrying charge
using a net of tax rate of 7.06%, based on the cost of capital approved in
Docket No. 2003-85 (described in Docket 2003-85 Partial Stipulation filed on
September 2, 2003).

During the course of the Docket 2003-666 proceeding, MPS determined that it
had not previously recognized accumulated deferred income taxes with respect to
the carrying charges on the deferred fuel account and that the recording of a
deferred tax liability to its balance sheet pursuant to FAS 109 in the amount of
$2.896 million was required, of this, $2.739 million was recorded as of December
31, 2003, and the balance was recorded on February 29, 2004. The deferred fuel
balance as of March 1, 2004, prior to any adjustment is projected to be
$18,838,000. Under the stipulation MPS was allowed to adjust its accumulated
deferred income tax account and the deferred fuel balance by $2,896,000, as of
March 1, 2004, resulting in a total deferred balance as of March 1, 2004, of
$21,734,000. Under the approved stipulation the parties also agreed that the
return component on the deferred fuel balance should be reduced in such a manner
that ratepayers were held harmless on a net present value basis as a result of
the March 1, 2004, adjustment to the deferred fuel balance. During the rate
effective period ending on December 31, 2006, the overall pre-tax return
component on the deferred fuel balance will be 8.28%, reflecting a 6.17% return
on equity. The return on the deferred fuel balance will be reviewed in future
stranded cost rate setting proceedings and will be adjusted as necessary in
order that the present value of the revenue requirements of the deferred fuel
account without the adjustments described above equals the present value of the
revenue requirements of the deferred fuel account with the adjustments. MPS
concludes that as a result of this stipulation and the foregoing described
adjustment to the deferred fuel balance and the accumulated deferred income tax
liability that no further adjustment is necessary under FAS 109 in order to
reflect prior unrecorded deferred income taxes.

The decreased cost of capital rate beginning on March 1, 2004, will have an
impact on future stranded cost earnings and cash flow, but will not impact
future distribution or transmission earnings. In the year 2004, the Company
anticipates that it will record deferred income tax expense of approximately
$412,000 associated with the deferred fuel carrying charges. The amount of
deferred income tax expense recorded in future years will vary depending upon
the amount of the accrued carrying charge in any year, and the tax rates then in
effect. The Company anticipates that earnings from carrying charges on its
stranded costs in 2004 will be approximately $267,000 lower than the amount that
would have been recorded had the Company continued to use the original cost of
capital on its deferred fuel balance, for a total earnings impact of $679,000 in
2004. The impact on future earnings resulting from the agreed upon lower cost of
capital, when compared against the cost of capital used in prior stranded cost
filings, will vary. Schedules filed by the Company as part of the stipulation in
Docket No. 2003-666 reflect the deferred fuel balance as of March 1, 2003,

Page 12 of 38



certain additions relating to the Wheelabrator-Sherman above-market contract
through December, 2006 and the amortization of the deferred fuel balance though
2012. Applying these assumptions, current tax rates and the agreed upon cost of
capital, the Company anticipates that the impact on future earnings resulting
from recording deferred income taxes on accrued carrying charges and applying a
lower cost of capital to the deferred fuel balance could range from $1.0 million
in 2005, increasing to $1.2 million in 2007, then gradually decreasing to
$17,000 in 2012. These amounts may vary with changes in the deferred fuel
balance and other variables which the Company cannot predict with certainty at
this time. Management is analyzing means to mitigate the impact of this
stipulation on future net income and cash flows.

In addition to the return allowed on its deferred fuel account as set forth
above, under the approved stipulation MPS shall be allowed to recover the
following pre-tax returns on the applicable stranded cost rate base components
during the rate effective period: (i) the pre-tax return on unrecovered balance
of the Wheelabrator-Sherman Contract Buydown shall be 2.79% plus its FAME
issuance costs; (ii) the pre-tax return on the unrecovered Seabrook Investment
and approved special rate contract costs shall be 11.74%; and, (iii) the pre-tax
return on the Maine Yankee decommissioning related costs shall be 8.56%.

MPUC Request for Approval of Alternative Rate Plan
- --------------------------------------------------

On March 6, 2003, MPS submitted its formal "Request for Approval of
Alternate Rate Plan" ("ARP") (MPUC Docket 2003-85). The proposal was a
seven-year rate plan for its distribution delivery services and had 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. On September 11, 2003, MPS made a compliance filing
consisting of draft rate sheets and associated exhibits pursuant to the
requirements of the MPUC's September 3, 2003 procedural order. In the course of
the parties' review of this filing, it was discovered that an error had occurred
in the development of the transmission component of MPS's retail rates ("TCRR").
The error led to an incorrect allocation of the total Company pro-forma test
year revenue between the TCRR and the distribution component of MPS's retail
rates ("DCRR"). Specifically, the error caused the TCRR revenue to be higher,
and the DCRR revenue to be correspondingly lower, than would have been the case
had the error not occurred. On October 17, 2003, MPS and the parties submitted a
Supplemental Stipulation which proposed to resolve the TCRR and test year
revenue allocation error issues. In connection with this aspect of the ARP
review and analysis, MPS was authorized by, and received final approval from the
MPUC to increase its electric delivery rates. Following the entry of a
procedural order, discovery, and a public conference, by an Order dated October
29, 2003, the MPUC approved a final Supplemental Stipulation in connection with
this rate increase. As a result, effective November 1, 2003, MPS increased 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. More specifically, under the terms of the
Supplemental Stipulation approved by the MPUC, the authorized distribution
component of MPS's retail rate increase was reduced from $940,000 to no more
than $685,037. In addition, the parties agreed that, following the
implementation on November 1, 2003, MPS was to determine the additional revenue
it received as a result of an error discovered in the development of the
transmission component of MPS's retail rates (the "TCRR error") and submit its
calculations to the MPUC and the parties for review, the parties would then
collaborate and strive to agree on a calculation of the additional revenues
collected as a result of the TCRR error during the period of October 1, 2002 and
November 1, 2003 (the "Extra Revenues"), and the proper flow-through of the
Extra Revenues (i.e., a methodology for returning or refunding the Extra
Revenues to customers). In accordance with the October 29, 2003 MPUC order
approving the Supplemental Stipulation, MPS submitted a Transmission Rate
Recognition Proposal ("TRRP") to the parties which proposed to resolve the TCRR
error, as well as, other refund and deferrals associated with MPS's FERC
jurisdictional revenue requirement. The parties and our Advisory Staff held a
series of discussions regarding the TRRP. On April 15, 2004, MPS filed a
Memorandum Of Understanding ("MOU") entered into between MPS and the parties and
supported by the MPUC's advisory staff. Under the terms of the MOU, MPS agreed
that as part of its annual OATT Information Filing to be made with FERC in June
2004 (the "June Filing"), MPS will incorporate the TRRP as agreed to in the MOU.
The parties agree that they will not contest those portions of MPS's June Filing
(and subsequent FERC filings, as applicable) that are consistent with the TRRP.
Following the entry of the order approving the Supplemental Stipulation, the ARP
proceeding was bifurcated and MPS had 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. On December 29, 2003, MPS withdrew its request for approval for
its ARP from the proceedings. On April 30, 2004 the MPUC issued its order
approving the final disposition of the matter and closing the docket. A copy of
the Stipulation, Supplemental Stipulation and the final orders approving the
increase and resolving all issues in the docket may be viewed on the MPUC
website at http://www.state.me.us/mpuc/.

Page 13 of 38



FERC Open Access Transmission Tariff ("OATT") Filing
- ----------------------------------------------------

Pursuant to Section 2.4 of the Settlement Agreement filed on September 30,
2000, in Docket No. ER00-1053-000, and accepted by the FERC on September 15,
2000, MPS provided parties and FERC staff on June 10, 2003, the 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 negotiated
by the parties to the proceeding. In general, MPS is seeking a slight
modification to its rate formula under its transmission tariff, including, among
others, changes in certain depreciation rates for transmission property, and
allocations of certain operating expenses and revenues. The return on common
equity used in determining the rate of return on transmission rate base will
remain at 11%. An Order approving the 2003 informational filings and OATT
revisions was issued by the FERC on April 1, 2004. MPS has entered into a
settlement agreement in the matter with the parties and FERC staff resolving all
outstanding issues in the filing. In February 2004, the parties executed a
settlement which was filed with the FERC on February 11, 2004. FERC issued its
order approving the stipulation on April 1, 2004.

5. INCOME TAXES

A summary of Federal, Canadian and State income taxes charged (credited) 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 on MPS regulated activities and
unregulated activities for MAM, MAMES, Me&NB and Maricor. The tax effect of
items not included in rate base or normal operating activities is allocated as
"Other Income (Deductions)."


Three Months Ended
March 31,
(Dollars in Thousands)
2004 2003
Current income taxes $ 1,274 $ 1,158
Deferred income tax (352) (48)
Investment credits (7) (7)
-------------------------------------
Total income taxes $ 915 $ 1,103
=====================================
Allocated to:
Operating Income
- - Regulated $ 1,282 $ 1,091
- - Unregulated (118) 0
Discontinued Operations (240) 1
Other income (9) 11
-------------------------------------
Total $ 915 $ 1,103
=====================================


For the three months ended March 31, 2004, and 2003, the effective income tax
rates were 37.1% and 36.2%, respectively. The principal reasons for the
effective tax rates differing from the US federal income tax rate are
flowthrough items, namely Seabrook amortization, which is required by regulation
and state income taxes, and adjustments to prior year tax reserves.

The Company has not accrued U.S. income taxes on the undistributed earnings of
Me&NB, as the withholding taxes due on the distribution of any remaining amount
would be principally offset by foreign tax credits. No dividends were received
from Me&NB in 2003, 2002 or 2001.


Page 14 of 38





The following summarizes accumulated deferred income tax (assets) and
liabilities established on temporary differences under SFAS 109 as of March 31,
2004 and December 31, 2003:

(Dollars in Thousands)
March 31, December 31,
2004 2003
Seabrook $7,530 $7,577
Property 7,903 7,784
Flexible Pricing Revenue 585 608
Deferred Fuel 8,629 8,176
Wheelabrator-Sherman up-front payment 1,592 1,736
Pension and post-retirement benefits (706) (610)
OCI-Interest Rate Hedge (707) (473)
Other 327 246
------------------------------------
Net accumulated deferred income taxes $25,153 $25,044
====================================

6. MAINE YANKEE

MPS owns 5% of the common stock of Maine Yankee, which operated an 860 MW
nuclear power plant (the "Plant") in Wiscasset, Maine. On August 6, 1997, the
Board of Directors of Maine Yankee voted to permanently cease power operations
and to begin decommissioning the Plant.

On September 1, 1997, Maine Yankee estimated the sum of the future payments
for the closing, decommissioning and recovery of the remaining investment in
Maine Yankee to be approximately $930 million, of which MPS's 5% share would be
approximately $46.5 million. On nine different occasions dating back to December
1998, Maine Yankee has updated its estimate of decommissioning costs based on
the Settlement. Legislation enacted in Maine in 1997 called for restructuring
the electric utility industry and provided for recovery of decommissioning
costs, to the extent allowed by federal regulation, through the rates charged by
the transmission and distribution companies. Based on the Maine legislation and
regulation precedent established by the FERC in its opinion relating to the
decommissioning of the Yankee Atomic nuclear plant, MPS believes that it is
entitled to recover substantially all of its share of such costs from its
customers and, as of March 31, 2004, is carrying on its consolidated balance
sheet a regulatory asset and a corresponding liability in the amount of $17.0
million, which reflects MPS's 5% share of Maine Yankee's September 2003 revised
estimate of the remaining decommissioning costs, less actual decommissioning
payments made since then, and discounted by a risk-free interest rate.

The MPUC, on January 27, 2002, approved a Stipulation providing for the
recovery of stranded investment, for a two-year period from March 1, 2002, until
February 29, 2004, which includes MPS's share of Maine Yankee decommissioning
expenses, Maine Yankee replacement power costs, and the remaining Maine Yankee
investment.

As of March 31, 2004, deferred fuel of $22.1 million is reflected as a
regulatory asset, which includes the Maine Yankee replacement power costs, as
well as deferred Wheelabrator-Sherman fuel costs.

In accordance with its 1999 FERC rate case settlement, on October 21, 2003,
Maine Yankee filed a revised formula rate schedule with the FERC, proposing an
effective date of January 1, 2004. The filing contained 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, Maine Yankee also requested a change in its billing formula and an
increase in the level of collection for certain post-retirement benefits. To
meet these needs, Maine Yankee proposed to collect an additional $3.77 million
per year over current decommissioning collection levels through October 2008,
exclusive of any income-tax liability, for the decommissioning and spent-fuel
management expense, and to collect from November 2008, through October 2010, the
amounts needed to replenish its Spent Fuel Trust for funds previously used for
ISFSI construction. On December 19, 2003, the FERC issued an order accepting the
new rates effective January 1, 2004, subject to refund pending a hearing. Maine
Yankee believes it is entitled to recover the costs underlying the proposed new
rates, but cannot predict the outcome of the rate proceeding.

As previously reported, in May 2000, Maine Yankee terminated its
decommissioning operations contract with Stone & Webster Engineering Corp.
("Stone & Webster") pursuant to the terms of the contract. Stone & Webster
disputed Maine Yankee's grounds for the termination. In June 2000, Stone &
Webster filed a voluntary petition under Chapter 11 of the United States

Page 15 of 38




Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware. Since the contract termination, Maine Yankee has managed the
decommissioning project itself.

In December 2001, Maine Yankee and Federal Insurance Company ("Federal")
entered into a settlement agreement resolving litigation between the parties,
pursuant to which Federal paid Maine Yankee $44 million. That amount represented
full payment under the performance bond provided by Federal, plus an additional
amount under its payment bond reflecting certain payments previously made by
Maine Yankee to subcontractors and suppliers who had not been fully paid by
Stone & Webster. Maine Yankee deposited the payment in its decommissioning trust
fund to offset past and future expenses resulting from the failures of Stone &
Webster.

In addition, Maine Yankee continued to pursue its claim for damages that
was originally filed against Stone & Webster and its then parent corporations in
August 2000, in the Bankruptcy Court in Delaware. After recognizing the payment
from Federal, Maine Yankee asserted a right to recover an additional $21 million
in that court from the bankruptcy estates. After extensive interim proceedings
and negotiations, in the third quarter of 2003, the major parties agreed to a
joint plan of reorganization under which Maine Yankee would have an allowed
claim of $20.3 million against the principal bankrupt estate, subject to certain
contingencies. Under the plan, Maine Yankee would also have a first lien on any
distributions from a related bankrupt estate in the proceeding on any amount
needed to increase its actual cash recovery to $18.5 million. On February 3,
2004, Maine Yankee received an initial distribution of $8.4 million, which it
deposited in its decommissioning trust fund. The amount of cash that Maine
Yankee will actually recover on the balance of its claim remains contingent on a
number of factors beyond Maine Yankee's control that affect the amount of
bankrupt estate assets ultimately available to pay the claim. Maine Yankee has
settled its litigation claims against Stone & Webster's bankruptcy estate and
Envirocare in connection with Stone & Webster's bankruptcy proceeding.

Federal legislation enacted in 1987 directed the Department of Energy
("DOE") to proceed with the studies necessary to develop and operate a permanent
high-level waste (spent fuel) repository at Yucca Mountain, Nevada. The project
has encountered delays, and the DOE has indicated that the permanent disposal
site is not expected to open before 2010, although originally scheduled to open
in 1998.

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 ("NRC"),
upon application of the DOE, and after a public adjudicatory hearing, as well as
a second NRC approval after completion of construction to operate the facility.
Maine Yankee cannot predict the timing or results of those proceedings.

In November 1997, the U.S. Court of Appeals for the District of Columbia
Circuit confirmed the obligation of the DOE under the Nuclear Waste Policy Act
of 1982 to take responsibility for spent nuclear fuel from commercial reactors
in January 1998. After an unsuccessful effort by Maine Yankee in the same court
to compel the DOE to take Maine Yankee's spent fuel, in June 1998, Maine Yankee
filed a claim for money damages in the U.S. Court of Federal Claims for the
costs associated with the DOE's default. In November 1998, the Court granted
summary judgment in favor of Maine Yankee, ruling the DOE had violated its
contractual obligations, but leaving the amount of damages incurred by Maine
Yankee for later determination by the Court. Since then the parties have been
engaged in extensive discovery and resolution of pre-trial issues in the damages
phase of the proceeding. Subsequently the parties engaged in extensive discovery
and resolution of pretrial issues in the damages phase of the proceeding, and on
February 26, 2004, the Court set a date of July 12, 2004, for the start of the
evidential hearing on the determination of damages. Maine Yankee completed the
transfer of sixty casks of spent fuel and four casks of GTCC to its ISFSI on
February 27, 2004. In the litigation the DOE has taken the position that the
GTCC is not covered by the terms of its contract with Maine Yankee, and
therefore it should be entitled to additional payments from Maine Yankee for
disposing of the GTCC. Maine Yankee disagrees with the DOE's position on that
and other issues. Maine Yankee is pursuing its claim for determination of
damages vigorously, but cannot predict the outcome or timing of the final
determination.

At the same time, as an interim measure until the DOE meets its contractual
obligation to dispose of Maine Yankee's spent fuel at Yucca Mountain or
elsewhere, Maine Yankee constructed an ISFSI, utilizing dry-cask storage, on the
Plant site and has completed the process of transferring the spent fuel from the
spent-fuel pool to the individual casks and the casks to the ISFSI. Maine
Yankee's total cost of maintaining the ISFSI will be substantially affected by
heightened security costs and by the length of time it is required to operate
the ISFSI before the DOE honors its contractual obligation to take the fuel from
the site. Maine Yankee's current decommissioning costs estimate is based on an

Page 16 of 38



assumption that its operation of the ISFSI will end in 2023, but the actual
period of operation and cost may vary.

On January 15, 2003, Maine Yankee notified NAC International ("NAC"), the
contractor responsible for providing for the fabrication of the spent-fuel casks
and transferring the fuel to the casks and the casks to the ISFSI, that Maine
Yankee was terminating its contract with NAC pursuant to the terms of the
contract. NAC had been experiencing financial difficulties and had requested
relief from the terms of the contract. Maine Yankee believes that NAC had also
failed to perform its contractual obligations in accordance with the terms of
the contract and provide adequate assurance of its ability to do so in the
future. NAC disputed Maine Yankee's basis for terminating the contract and
served Maine Yankee with a demand to arbitrate the dispute and a request for
damages. Maine Yankee, in turn, filed suit in the U.S. District Court for the
District of Maine against NAC, its bonding company, and its parent guarantor,
wherein Maine Yankee sought, among other things, damages due to NAC's failure to
perform. Maine Yankee also entered into contracts with the major subcontractors
and resumed the transfer of fuel to the ISFSI under its own management.

In April 2003, after extensive negotiations, the parties entered into a
comprehensive settlement agreement resolving all the disputed issues and
providing for Maine Yankee to replace NAC in managing the completion of the
fuel-transfer work. The settlement included a payment for $10.4 million to Maine
Yankee to compensate Maine Yankee for higher costs incurred or to be incurred as
a result of NAC's failure to perform its contractual obligations. The payment
was reflected in Maine Yankee's second quarter 2003 results. Although the NAC
dispute contributed to a slowdown in the progress of the fuel transfer work in
the first quarter of 2003, since then Maine Yankee has implemented additional
efficiencies and the pace of work has improved to a point where it has been
consistently exceeding the pre-2003 pace. The transfer of spent fuel to the
ISFSI was completed February 27, 2004.

The Federal Low-Level Radioactive Waste Policy Amendments Act, enacted in
1986, required states, either alone or in multi-state compacts, to provide for
the disposal of low-level radioactive waste generated within their borders. The
States of Maine, Texas and Vermont entered into a compact for the disposal of
low-level waste over a 30 year period at a then-planned facility in west Texas.

The terms of the compact provided that the State of Maine would contribute
$25 million, payable (1) in two equal installments, the first after ratification
by Congress and the second upon commencement of operation of the Texas facility,
or (2) alternatively, if agreed by the three states, in accordance with the
schedule for repayment of bonds issued for the development or operation of the
facility. By statute, those costs were to be initially assessed against the
Company, as the operator of a nuclear power plant in Maine.

As required by the 1986 Act, the United States Congress ratified the
compact in September 1998. However, in October 1998, the Texas Natural Resource
Conservation Commission denied a permit for the proposed west Texas disposal
site, and efforts to site such a facility in Texas were suspended. Maine Yankee
is shipping its low-level waste to other facilities licensed to accept such
material.

At its 2002 session the Maine legislature enacted legislation providing for
the withdrawal of the State of Maine from the Texas compact pursuant to the
terms of the compact. The legislation cited the 1997 closure of the Maine Yankee
plant and the inability of the State of Texas to cause a disposal facility to be
built in a timely manner under the compact as the reasons for initiating the
withdrawal process. However, in its 2003 session the Texas legislature enacted a
bill that reactivated the process of siting a disposal facility in Texas and
provides for Texas to seek payment from Maine of $12.5 million under the
compact. By letter dated September 10, 2003, the Attorney General of Texas
requested payment of $12.5 million from the State of Maine, to which the State
of Maine responded by denying liability. Maine Yankee believes that withdrawal
from the compact by the State of Maine is legally justified, but cannot predict
the results of the Texas legislation on the State of Maine or Maine Yankee or of
any attempt by any party to challenge through litigation or otherwise the State
of Maine's withdrawal from the compact or to assess Maine Yankee for any
payments under the compact.

On February 28, 2003, the Nuclear Regulatory Commission approved Maine
Yankee's License Termination Plan ("LTP"). The LTP was approved without any
unexpected conditions. In accordance with the plan accepted by the SEC, Maine
Yankee has started the redemption of its common stock periodically through 2008.

Page 17 of 38





7. STOCK COMPENSATION PLAN

Upon approval by Maine Public Service Company's shareholders in June 2002, MPS
adopted the 2002 Stock Option Plan (the "Plan"). Effective June 30, 2003,
pursuant to the Agreement and Plan of Merger among MPS and MAM, the outstanding
shares of Common Stock, $7.00 par value, of MPS were exchanged automatically on
a share-for-share basis of Common Stock, $7.00 par value of MAM, and MPS became
a subsidiary of MAM. Accordingly, all stock offered under the Maine Public
Service Company 2002 Stock Option Plan will be shares of MAM Common Stock under
the Maine & Maritimes Corporation 2002 Stock Option Plan.

The Plan provides designated employees of the Company and its subsidiaries with
stock ownership opportunities and additional incentives to contribute to the
success of the Company, and to attract, reward and retain employees of
outstanding ability. The Plan is administered by the members of the Performance
and Compensation Committee of the Board, who are not employees of the Company or
any subsidiaries. The Company may grant options to its employees for up to
150,000 shares of common stock, provided that the maximum aggregate number of
shares, which may be issued under the plan pursuant to incentive stock options,
shall be 120,000 shares. The exercise price for shares to be issued under any
incentive stock option shall not be less than one hundred percent (100%) of the
fair market value of such shares on the date the option is granted. An option's
maximum term is 10 years and a three-year vesting schedule is followed.

The Company accounts for the fair value of its grants under the plan in
accordance with the expense provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The effect of
the grants on compensation expense for the quarter ended March 31, 2004, was
immaterial.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model, with the following weighted-average
assumptions used for grants: dividend yield of 4.45%; expected volatility of 20
percent, risk-free interest rate of 3.48%; and expected lives of 7 years.

A summary of the status of the Company's stock option plan as of March 31, 2004,
and changes during the quarter then ended is presented below:

Options Shares Exercise
(000) Price

Outstanding at December 31, 2003 10.5 $31.48
Granted 0 0
Exercised 0 0
Forfeited 0 0
---------------------
Outstanding at March 31, 2004 10.5 $31.48
=====================
Options exercisable at March 31, 2004 0
===========
Weighted-average fair value of options granted to date $5.39
===========

The following table summarizes information about fixed stock options outstanding
at March 31, 2004:



Options Outstanding Options Exercisable
Weighted- Weighted
Number Average Average Number
Range of Outstanding Remaining Exercise Exercisable at Weighted-Average
Exercise Prices at 3/31/04 Contractual Life Price 3/31/04 Exercise Price


$30.45 - 32.51 10,500 7.0 years 31.48 - -



8. BENEFIT PLANS

The Company has an insured non-contributory defined benefit pension plan
covering substantially all employees. Benefits under the plan are based on
employees' years of service and compensation prior to retirement.

In addition to providing pension benefits, the Company provides certain health
care benefits to eligible employees and retirees. All employees and retirees
share in the cost of their medical benefits, in addition to plan deductibles and
coinsurance payments.

Page 18 of 38



The following table sets forth the plans' net periodic benefit cost for March
31, 2004, and 2003 (in thousands):

Pension Benefits Other Benefits
Three months ended March 31, 2004 2003 2004 2003
-----------------------------------------
Service Cost $118 $107 $55 $48
Interest Cost 289 286 146 135
Expected Return on Plan Assets (304) (310) (51) (49)
Amortization of Prior Service Cost 23 23 (15) 36
Amortization of Transition Obligation 0 (4) 36 (15)
Amortization of net (gain) loss 0 0 53 48
------------------- ------------------
Net Periodic Benefit Cost $126 $102 $224 $203
=================== ==================

The Company previously disclosed in its financial statements for the year ended
December 31, 2003, that it expected to contribute $400,000 to its pension plan
in 2004. As of March 31, 2004, no contributions have been made. The Company
continues to anticipate contributing $400,000 to fund its pension plan in 2004.

The Company previously disclosed in its financial statements for the year ended
December 31, 2003, that it expected to contribute approximately $506,000 to its
postretirement health plan in 2004. As of March 31, 2004, no contributions have
been made. The Company continues to anticipate contributing approximately
$506,000 to fund its postretirement health plan in 2004.

9. NEW ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued FASB Interpretation No. 46R, "Consolidation of
Variable Interest Entities, an interpretation of ARB 51" ("FIN 46R"). FIN 46R
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights ("variable interest
entities") and on the determination of when such entities are required to be
included in the consolidated financial statements of the business enterprise
that holds an interest in the variable interest entity. This new model for
consolidation applies to an entity in which either (1) the equity investors do
not have a controlling financial interest or (2) the equity investment at risk
is insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46R requires
additional related disclosures. Certain disclosure provisions of FIN 46R apply
to all financial statements issued after January 31, 2003, the consolidation
provisions apply to variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains an interest
after that date, and the remaining provisions, with the exception of interest in
special purpose entities, apply at the end of the first fiscal year or interim
period ending after March 15, 2004, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
Application for interest in special purpose entities is required for periods
after December 15, 2003. The adoption of the provisions of FIN 46R did not have
a material impact on the consolidated financial statements as of March 31, 2004.
The Company does not have any variable interest entities as defined by FIN 46R.

In December 2003, the FASB also issued the revision of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pension and Other
Postretirement Benefits - An Amendment of FASB Statements No. 87, 88 and 106"
("FAS 132"). FAS 132 revises employer's disclosure requirements for pension
plans and other postretirement plans by requiring additional disclosures about
the assets, obligations, cash flows and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. There are
additional disclosure requirements for both annual and interim reporting
periods. FAS 132, as revised, is effective for fiscal years ending after
December 15, 2003, and for interim reporting periods starting after December 15,
2003. The revisions to FAS 132 did not impact the Company's financial position
or statement of operations.

Page 19 of 38





10. COMMITMENTS AND CONTINGENCIES

Except for operating leases used for office and field equipment, vehicles and
computer hardware and software, accounted for in accordance with Financial
Accounting Standards No. 13, "Accounting for Leases," ("FAS 13") the Company has
no other form of off-balance sheet arrangements. The following summarizes
payments for leases for a period in excess of one year for the quarters ended
March 31, 2004 and 2003:


(Dollars in Thousands)
Three Months Ended
March 31,
2004 2003
------------------------------------
------------------------------------

Office Equipment $ 0 $ 2
Vehicles 0 1
Computer Hardware and Software 0 29
Rights of Way 29 29
Field Equipment 20 20
------------------------------------
------------------------------------
Total $ 49 $ 81
====================================

11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

MPS has three issues of long-term debt with variable interest rates, as
discussed in detail in the Company's 2003 Form 10-K. Pursuant to its rate order
in MPUC Docket 2003-85, as more fully explained in Note 4, "Regulatory Matters,"
MPS agreed to fix its interest rates and the MPUC allowed recovery of the fixed
interest costs in rates. On September 9, 2003, MPS executed swap agreements for
the three variable rate issues, locking in the rates over the remaining terms of
the issues. For the Finance Authority of Maine ("FAME"), 1998 Taxable Elective
Rate Stabilization Revenue Notes due 2008, the effective fixed interest rate has
been set at 2.79%. For the two series of tax-exempt bonds issued by the Maine
Public Utilities Financing Bank ("MPUFB"), the effective fixed interest rates
for the 1996 Series due 2021 and the 2000 Series due 2025 are 4.57% and 4.68%,
respectively.

At March 31, 2004, the fair value of these qualified cash flow hedges was
$(1,772,000), reflecting an increase in swap rates since the execution date. For
the first quarter of 2004, the difference between the fixed rates and the
underlying variable rates on the issues of approximately $234,000 was charged to
interest expense. Although the fixed interest rates were higher than the
underlying variable rates, a portion of the MPUC approved rate increase was to
cover this difference. Management believes that the fixing of interest rates
over the terms of the Company's debt will prove to protect both shareholders and
consumers from upward variable debt pressures. The loss in fair value on the
interest rate swaps for the first quarter of 2004 of $587,000 less the deferred
tax of $234,000 has been recorded as Other Comprehensive Income (Loss). Gains or
losses in the fair market value of the interest rate swaps do not impact net
income or the revenues of the Company, unless shareholder's common equity falls
below the minimum allowable 48 percent.


Page 20 of 38





Form 10-Q

PART 1. FINANCIAL INFORMATION


Item 2. Management's Analysis of Quarterly Income Statements

Forward-Looking Statements

The discussion below may contain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995, related to expected future
performance of our plans and objectives, such as expected future earnings from
MAMES. There can be no assurance that actual results will not materially differ
from expectations. Factors that could cause actual results to differ materially
from our projections include, among other matters, electric utility
restructuring; future economic conditions; changes in tax rates; interest rates
or rates of inflation; developments in our legislative, regulatory, and
competitive environment; technology displacement; consumer decisions; and the
decommissioning cost of Maine Yankee.

Discussion and Description of the Company's Growth Strategy

Management and the Board of Directors have adopted what they believe to be a
realistic and conservative growth strategy, focusing primarily, but not
exclusively, on market opportunities within New England and Atlantic Canada. As
part of the Company's growth and business strategy, focus and investments are
being placed on strategies to improve the overall performance, system
reliability, economics and efficiencies of MPS's transmission and distribution
systems. These strategies include the adoption of new productivity enhancing
technologies, changes in core business processes, adoption of integrated asset
management strategies, and development and implementation of long-term
transmission and distribution plans. These plans may also include the
construction of additional regulated transmission assets. The goals of these
efforts are to reduce overall annual capital, operating, and maintenance
expenditures, while improving system and customer service performance.

MAM's growth strategy through MAMES/Maricor centers on a diversification
approach that expands the Company's business and revenue model to include,
without limitation, mechanical and electrical engineering services, energy
efficiency solutions, air emissions reductions, asset/facilities management
related services and asset/ facility ownership, in addition to its continuing
focus on regulated and unregulated utility services. Unregulated utility
services may include, but not be limited to, energy supply management and
unregulated energy assets, such as central utility plants.

The Company is continuing to evaluate potential regulated and unregulated
utility acquisitions, such as small electric utilities, local natural gas
distribution companies, fuel oil and propane distributors, electric transmission
projects and mid-stream natural gas assets across North America. However, the
Company cannot assure that such acquisitions can or will be accomplished.
Utility-related acquisitions are intended to seek to leverage MPS's and other
subsidiaries' existing operating infrastructure, including without limitation,
call center and collections operations, telecommunications technologies, billing
and information technology applications, engineering capabilities, asset
management systems, regulatory experience, and management expertise. MAM's
proposed overall growth strategy will be heavily influenced by acquisitions that
meet certain desired strategic and financial criteria within the general
categories defined below. Implementation of the acquisition strategy is
dependent upon, among other things, MAM's and its subsidiaries' ability to raise
sufficient capital. MAM believes that it can raise necessary capital to
implement its acquisition strategy, but cannot assure investors of this ability.

Results of Operations

For the first quarter of 2004, the Company earned revenue from the transmission
and distribution ("T&D") operations of Maine Public Service Company, as well as
the activities of its wholly owned unregulated marketing subsidiary, Energy
Atlantic, LLC ("EA") and wholly owned unregulated energy services company, Maine
and Maritimes Energy Services ("MAMES", dba "The Maricor Group"). MPS's wholly
owned unregulated Canadian subsidiary, ME&NB is inactive at this time. For
purposes of the discussion below, ME&NB results, if any, are included under the
heading of "Core T&D" below.

Page 21 of 38





Net income and earnings per share for the three months ended March 31, 2004,
along with the corresponding information for same period of the previous year
are as follows (dollars in thousands, except per share amounts):


Three Months Ended
March 31,
-------------------------------
Net Income* 2004 2003
--------------- ---------------
MPS - Core T&D $2,118 $1,938
Maricor Group (88) 0
Other (122) 0
--------------- ---------------
Income from Continuing Operations 1,908 1,938
EA - Discontinued Operations (358) 2
--------------- ---------------
Total Company Net Income $1,550 $1,940
=============== ===============

Earnings per Share
Earnings per Share from Continuing Operations $1.21 $1.23
Earnings per Share from Discontinued Operations (0.23) 0.00
--------------- ---------------
Total Company Earnings Per Share $0.98 $1.23
=============== ===============

* Due to the immateriality of elimination amounts, they have been grouped with
the appropriate line items.

Net income above is allocated based upon the segment allocation as presented in
Item 1 of this Form 10-Q, Note 3 of the Notes to Consolidated Financial
Statements, "Segment Information".

As part of the formation of the holding company, certain MPS staff were
transferred to MAM. Also, certain administrative, legal, professional and
governance costs were assigned to MAM, following an MPUC approved cost
allocation process. In addition, certain costs associated with merger and
acquisition due diligence activities were included in MAM costs. In December
2003, MAM formed MAMES and MAMES' Canadian subsidiary, Maricor, Ltd. On December
1, 2003, Maricor purchased Eastcan Consultants, a mechanical and electrical
engineering firm headquartered in Moncton, New Brunswick, Canada, with an office
in Saint John, New Brunswick.

MPS core T&D earnings were $2,118,000 for the first quarter of 2004, compared to
$1,938,000 in the first quarter of 2003, an increase of $180,000. Sales in 2004
increased approximately 6.5% over 2003, contributing an additional $395,000, net
of income taxes. In addition, amounts expensed for amortization of stranded
costs decreased $116,000, net of income taxes. A reduction of other deductions
of $89,000, net of income taxes, also contributed to earnings. Offsetting these
increases in earnings were additional expenses of $305,000, net of income taxes,
for regulated operation and maintenance, and an increase of $114,000, net of
taxes, for interest charges.

In the first quarter of 2004, EA incurred a loss of $358,000, compared to income
of $2,000 for the same period in 2003. EA's loss for 2004 and income for 2003
are presented as the loss and income from discontinued operations on the
consolidated statement of operations. As more fully explained in the "Energy
Atlantic" section below, EA ceased operations on February 29, 2004, and has been
presented as discontinued operations on the consolidated statement of
operations.

Page 22 of 38





Consolidated revenues and Megawatt Hours ("MWH") for the quarters ended March
31, 2004, and 2003, are as follows (dollars in thousands):



2004 2003
----------------------------------------------------
Dollars MWH Dollars MWH
----------------------------------------------------

Residential $3,954 51,125 $3,774 50,682
Large Commercial 1,627 44,135 1,470 40,784
Medium Commercial 1,841 27,564 1,773 26,644
Small Commercial 2,237 25,397 2,186 25,753
Other Retail 549 842 377 838
----------------------------------------------------
Total Regulated Retail $10,208 149,063 $9,580 144,701
============ ============
Maricor Group 290 0
------------- ------------
Total Revenues from Continuing Operations $10,498 $9,580
Energy Atlantic Competitive Energy Supply 562 1,788
------------- ------------
Total Revenues $11,060 $11,368
============= ============



Due to the immateriality of elimination amounts, they have been grouped with
appropriate line items.

For the first quarter of 2004, regulated retail sales for MPS were 149,063 MWH
compared to 144,701 MWH in the first quarter of 2003. Residential sales in the
first quarter of 2004 were 0.9% higher than sales in the first quarter of 2003.

Large commercial sales through March 31, 2004, increased by 3,351 MWH over the
same period of 2003. Several of MPS's largest customers have expanded their
operations or increased production since the first quarter of 2003.

Sales to medium and small commercial customers have remained steady from 2003 to
2004. Sales to MPS's medium commercial customers increased by 920 MWH or 3.5% to
27,564 MWH in the first quarter of 2004, as compared to 26,644 MWH in the same
period of 2003. Small commercial customer sales were 25,397 MWH, compared to
sales in 2003 of 25,753 MWH.

The MPUC has jurisdiction over MPS's retail rates. On November 1, 2003, MPS's
delivery rates were increased by approximately 3.8%. This retail rate increase
included the retail portion of previously FERC approved transmission increases.
The FERC has jurisdiction over MPS's transmission rates, including the rates
charged for wheeling revenues. For more information on the regulatory orders
approving the recent rate increases, see Note 4 to Consolidated Statements,
"Regulatory Matters".

As more fully explained in the "EA Discontinued Operations" section below, EA
provided CES during the periods presented. EA has now ceased operations and no
longer serves customers in Maine. Its inactive status will remain under review
by management, and the Company intends to maintain certain licenses in order to
preserve the option of returning to the market should market conditions and
other risk factors improve.

Other regulated operating revenues in the first quarter of 2004 were $549,000
compared to $377,000 in the first quarter of 2003. As more fully explained in
Note 4 to Consolidated Statements, "Regulatory Matters", the MPUC, in its
stranded cost review, adjusted the treatment of certain customer discounts
through flexible pricing adjustments, effective March 1, 2002. As a result, the
revenues recognized from flexible pricing adjustments in 2004 were $64,000 more
than 2003. In addition, wheeling revenues increased $40,000 with the approval by
the FERC of an increase effective June 1, 2003, and the net profit from
additional jobbing work for the first quarter totaled $58,000.

Page 23 of 38





For the quarters ended March 31, 2004 and 2003, regulated operation and
maintenance expenses and unregulated operation and maintenance expenses,
stranded costs and unregulated energy supply and unregulated operation and
maintenance for discontinued operations of EA are as follows (in thousands):




For the three months ended
March 31,
-------------------------------
2004 2003
-------------------------------
Regulated Operation and Maintenance

Transmission and Distribution $730 $624
Customer Service 341 332
Administrative and General 2,179 1,809
-------------------------------
Total Regulated Operation and Maintenance 3,250 2,765

Unregulated Operation and Maintenance
Maricor Group 409 0
Other 196 0
-------------------------------
Total Unregulated Operation and Maintenance 605 0

Stranded Costs
Wheelabrator-Sherman 2,201 2,392
Maine Yankee 760 727
Seabrook 278 278
Amortization of Gain from Asset Sale 0 (443)
Deferred Fuel (1,045) (576)
Special Discounts 70 70
-------------------------------
Total Stranded Costs 2,264 2,448

Energy Atlantic (Discontinued Operations)
Unregulated Energy Supply 634 1,496
Unregulated Operation and Maintenance 519 289
-------------------------------
Total Energy Atlantic 1,153 1,785



* Due to the immateriality of elimination amounts, they have been grouped
with appropriate line items.

Transmission and distribution expenses in the first quarter of 2004 were
$730,000, an increase of $106,000 from the expenses in the first quarter of
2003. The primary reasons for the increase are the shift to maintenance projects
in 2004, compared to more labor time spent on capital projects in 2003, and the
new transmission voltage assessment, approved by the FERC, effective April 2003.

Through March 31, 2004, customer service expense was $341,000, compared to
$332,000 for the same period in 2003. Customer accounts expense, which includes
meter reading and customer records and collection expense, decreased
approximately $14,000, primarily due to the reduction in meter reading costs as
a result of the implementation of automatic meter reading throughout 2003, which
was partly offset by an increase in uncollectible accounts. Customer service and
information expense, which includes customer assistance expense and
informational and instructional expense, increased approximately $24,000, due to
economic development initiatives by the Company.

Administrative and general expenses increased by $370,000 from $1,809,000 in the
first quarter of 2003 to $2,179,000 in the first quarter of 2004. Legal and
accounting expenses, principally associated with the stranded cost filing and
other regulatory matters, increased by approximately $230,000. Additional
employee benefits expenses of $106,000 were incurred in 2004, partly due to the
amortization of the voluntary early retirement plan ("VERP") costs and an
increase in medical insurance expenses. Regulatory commission expense increased
$45,000 as a result of an increase in the conservation assessment and costs
associated with a stranded cost filing.

Unregulated operation and maintenance expense for MAM and Maricor Group totaled
$605,000 for the first quarter of 2004. The major components of this expense
include the cost of work invoiced by Maricor, and new business development
expenses.

Page 24 of 38




Beginning on March 1, 2000, MPS began recovering stranded costs from its retail
customers. As discussed in Part II, Item 1, "Legal Proceedings" section, the
MPUC reviewed MPS's stranded costs and adjusted MPS's recovery effective March
1, 2002. MPS recognized stranded costs of $2,264,000 and $2,448,000 for the
three months ended March 31, 2004 and 2003, respectively. The stranded costs for
WS and Maine Yankee represent actual cash expenses during the year, while other
costs reflect the amortization or recognition of regulatory assets and
regulatory liabilities.

The unregulated energy supply expenses represent EA's purchases of energy to
supply their CES customers. As further described in the Energy Atlantic section
below, the reduction in purchases of energy supply from $1,496,000 in the first
quarter of 2003 to $633,000 in the first quarter of 2004 reflects the reduction
in sales achieved by EA, as presented in the "Operating Revenues and Energy
Deliveries" section above.

Unregulated operation and maintenance expense for EA increased by $253,000 from
$261,000 in the first quarter of 2003 to $514,000 in the first quarter of 2004.
As part of the process of ceasing operations, EA incurred approximately $181,000
of expense for the buyout of a software lease. EA also incurred approximately
$172,000 of expense related to severance agreements with former employees.

Energy Atlantic Discontinued Operations

On March 1, 2004, EA suspended all active operations and has been classified as
a discontinued operation in accordance with FASB 144, as discussed in more
detail below. EA participated in the wholesale power market during 1999 and
until March 1, 2000, when it began selling energy in the retail electricity
market within the state of Maine. The retail market consists of two sectors,
Standard Offer Service ("SOS") and Competitive Energy Supply ("CES"). The MPUC
requests bids from CES providers for SOS in each utility service territory.

In connection with its prior active operations, EA had previously entered into a
contract for 40% of the output of the WS energy facility for the two years
beginning March 1, 2002 and expiring on February 29, 2004. The output from this
take-or-pay contract amounted to approximately 55,000 MWH annually and was used
to provide electricity for additional CES sales within MPS's service territory.
This contract was a take-or-pay contract, which carried more counterparty risk
than others entered into by EA. To mitigate this risk, EA entered into a
contract with NB Power, whereby NB Power committed to buy WS output in excess of
load requirements in MPS's service territory at a rate indexed to the price of
3% Sulphur Max No. 6 residential oil into New York Harbor, which was intended to
reflect NB Power's avoided cost, subject to a floor and ceiling. All output was
sold to CES customers, therefore limiting the risk that energy would be sold to
NB Power. In addition, NB Power committed to sell electricity to EA when load
exceeded WS output at a fixed on and off-peak rate.

In addition, EA had 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 of 2002 for an additional year. Effective March 21, 2003, DETM
agreed to waive this credit requirement in lieu of EA's commitment to maintain a
$1 million ($1,000,000) minimum bank account balance. On January 27, 2004, EA
notified DETM in writing of the impending expiration of the Master Service
Agreement between EA and DETM on March 1, 2004. This correspondence was to
notify DETM of EA's expiration of its commitment to maintain a $1 million
($1,000,000) minimum account balance as credit coverage in connection with EA's
suspension of its energy marketing activities. EA continued to serve its
existing contracts in northern Maine through their expiration on February 27,
2004. CES sales, primarily in northern Maine, were approximately $6.1 million in
2003.

In connection with its February 21, 2003, announced intent to withdraw from the
retail electricity markets in northern Maine, EA has ceased all of its energy
marketing activities in MPS's service territory, as well as the balance of the
state, effective March 1, 2004. Currently, EA is an inactive subsidiary and
management has suspended all active retail CES activity on behalf of EA within
the state of Maine until market conditions, the availability of supply, the
mandate for stringent credit requirements and the risk environment improve.
Management will continue to monitor both U.S. and Canadian deregulated markets
to determine the appropriate timing for possible re-entry into the deregulated
retail market.

Page 25 of 38





In the first quarter of 2004, the Company recognized a loss from discontinued
operations of $0.23 per share for EA, classified as discontinued operations in
the statement of consolidated income. This loss includes additional lease
expense of $181,000 recognized on the buy-out of a software lease by EA as well
as $172,000 for employee severance payments. The following table summarizes the
statement of operations for EA (in thousands):




Quarter Ended March 31,

2004 2003
---------------------------------------------------------------------------------------------

Revenue $562 $1,788
Expenses (1,161) (1,792)
Other income, deductions and interest 1 7
-------------- ------------
Pretax income (loss) from discontinued operations (598) 3
Income taxes 240 (1)
-------------- ------------
Income (loss) from discontinued operations (358) 2

Income (loss) per share from discontinued operations
(basic and diluted) ($0.23) $0.00

The major classes of assets and liability of the discontinued operations
included in the Company's consolidated balance sheets as of March 31, 2004, are
as follows (in thousands):

Assets
Cash and cash equivalents $1,060
Accounts receivable 111
Other assets 403
------------
Total Assets $1,574
============

Liabilities
Accounts payable $337
Other liabilities 36
------------
Total Liabilities $373
============





Operating Capital and Liquidity

Net cash flows from operating activities for the first three months of 2004 were
$3,804,000 with net income of $1,550,000. The deferral of $1,365,000 of deferred
regulatory and debt issuance costs, principally Wheelabrator-Sherman costs in
accordance with MPS's stranded cost recovery accounted for the biggest reduction
in operating cash flows. For the three months ended March 31, 2004, the use of
cash for financing activities of $2,701,000 was due to scheduled dividend
payments of $601,000 and the repayment of $2,100,000 of short-term borrowings.
During the first three months of 2004, MPS invested $1,948,000 in electric
plant. Construction work-in-progress, reported in the Utility Plant section of
the Company's March 31, 2004, Consolidated Balance Sheet, increased by
$2,358,000 from the balance as of December 31, 2003, due to the timing of
expenditures for the Automated Meter Reading project and implementation of a
financial software system in 2004. In addition, MPS received $200,000 for the
partial redemption of its Maine Yankee Common Stock.

For the first three months of 2003, net cash flow from operating activities was
$3,491,000 based on net income of $1,940,000. For the first three months of
2003, deferral of $618,000 of deferred regulatory and debt issuance costs, and
the return to ratepayers of $443,000 of the gain recognized on the sale of MPS's
generation assets in 1999 reduced operating cash flows. For the period, dividend
payments were $582,000. Long-term debt was reduced by $1,800,000 and short-term
borrowings were reduced by $2,700,000. During the first three months of 2003,
$1,782,000 was invested in electric plant. During the period, a stock redemption
by Maine Yankee contributed $224,000 to cash flows.

The quarterly dividend was increased by $0.02 per share from $0.35 per share to
$0.37 per share effective October 1, 2002, for an annual dividend payment of
$1.48 per share. Effective January 1, 2004, the Board of Directors increased the
quarterly dividend by $0.01 per share to $0.38 per share, for an annual dividend
of $1.52 per share.

Page 26 of 38





Revolving Credit Agreement and Letters of Credit Extensions

On March 29, 2004, MPS's $6 million revolving credit agreement with two
participating banks was extended until June 8, 2006. The agreement contains
certain restrictive covenants including interest coverage tests and
debt-to-equity ratios. As of March 31, 2004, MPS was in compliance with these
covenants.

The Maine Public Utility Financing Bank ("MPUFB") has issued its tax-exempt
bonds on behalf of MPS for the construction of qualifying distribution property.
Originally issued for $15 million and reduced with generating asset sale
proceeds, the 1996 Refunding Series had $13.6 million outstanding at March 31,
2004, and is due in 2021. On October 19, 2000, the 2000 Series of bonds were
issued in the amount of $9 million with these bonds due in 2025. The proceeds of
the 2000 Series were placed in trust and drawn down for the reimbursement of
issuance costs and for the construction of qualifying distribution property. For
both tax-exempt bond series, a long-term note was issued under a loan agreement
between MPS and the MPUFB with MPS agreeing to make payments to the MPUFB for
the principal and interest on the bonds. Concurrently, pursuant to a letter of
credit and reimbursement agreement, the Bank of New York separately issued its
direct pay letters of credit ("LC's") for the benefit of the holders of each
series of bonds. Both LC's were due to expire in June 2004, and were extended to
June 8, 2006. In addition, MPS issued $14.4 million in Second Mortgage Bonds due
2021, to secure its obligations under the letter of credit and reimbursement
agreement for the 1996 Refunding Series, replacing $15.875 million of second
mortgage bonds issued in 1996 that were due in June 2002.

On October 1, 2003, MPS executed an additional $3 million line of credit with
the Bank of New York. This unsecured facility was renewed on March 29, 2004, and
will expire on December 31, 2004. Interest rates on this facility are comparable
to the rates on the existing revolving credit agreement. The additional facility
provides an additional source of short-term borrowings in the event required
borrowings exceed the existing revolving credit agreement.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

(a) Until September 9, 2003, MPS had interest rate risk with three variable rate
debt issues, for purposes other than trading. These issues are discussed in
detail in MAM's 2003 Form 10-K. The discussion occurs in Note 11, SFAS No. 133,
of the Notes to Consolidated Financial Statements. On September 9, 2003, MPS
executed swap agreements for the three variable rate issues, locking in the
rates over the remaining terms of the issues.

(b) The Company's unregulated energy marketing subsidiary, Energy Atlantic, LLC
was engaged in retail and wholesale energy transactions for purposes other than
trading. This activity exposed EA to a number of risks such as counter-party,
market liquidity, forecasting, deliverability, transmission, volumetric,
market-based cost and credit risk. EA has discontinued operations and is now
inactive.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company's President and Chief Executive Officer and Senior Vice President,
Chief Financial Officer and Treasurer have implemented new disclosure controls
and procedures. Based on their evaluation of these disclosure controls and the
procedures, as of the end of the period covered by this Form 10-Q, as evidenced
by the certifications attached as Exhibit 31 to this Form 10-Q, the
aforementioned officers have concluded that the controls are working
effectively.

(b) Changes in Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial
reporting that occurred during the Company's most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting, or in other factors that
could significantly offset this internal control. There were also no corrective
actions with regard to significant deficiencies and material weaknesses.


Page 27 of 38






PART II. OTHER INFORMATION

Item 1. Legal Proceedings


MPS Rate Cases:

(a) Maine Public Utilities Commission, Request for Approval of Alternative Rate
Plan, MPUC Docket 2003-85.

As reported in prior MPS and MAM quarterly reports on Form 10-Q which are
incorporated in this section by this reference, on March 6, 2003, MPS submitted
its formal "Request for Approval of Alternate Rate Plan" (the "ARP") (MPUC
Docket 2003-85). The proposal was a seven-year rate plan for its distribution
delivery services and had 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. On September 11,
2003, MPS made a compliance filing consisting of draft rate sheets and
associated exhibits pursuant to the requirements of the MPUC's September 3,
2003, procedural order. In the course of the parties' review of this filing, it
was discovered that an error had occurred in the development of the transmission
component of MPS's retail rates ("TCRR"). The error led to an incorrect
allocation of the total Company pro-forma test year revenue between the TCRR and
the distribution component of MPS's retail rates ("DCRR"). Specifically, the
error caused the TCRR revenue to be higher, and the DCRR revenue to be
correspondingly lower, than would have been the case had the error not occurred.
On October 17, 2003, MPS and the parties submitted a Supplemental Stipulation
which proposed to resolve the TCRR and test year revenue allocation error
issues. In connection with this aspect of the ARP review and analysis, MPS was
authorized by, and received final approval from the MPUC to increase its
electric delivery rates. Following the entry of a procedural order, discovery,
and a public conference, by an Order dated October 29, 2003, the MPUC approved a
final Supplemental Stipulation in connection with this rate increase. As a
result, effective November 1, 2003, MPS increased 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. More specifically, under the terms of the Supplemental Stipulation
approved by the MPUC, the authorized distribution component of MPS's retail rate
increase was reduced from $940,000 to no more than $685,037. In addition, the
parties agreed that, following the implementation on November 1, 2003, MPS was
to determine the additional revenue it received as a result of an error
discovered in the development of the transmission component of MPS's retail
rates (the "TCRR error") and submit its calculations to the MPUC and the parties
for review, the parties would then collaborate and strive to agree on a
calculation of the additional revenues collected as a result of the TCRR error
during the period of October 1, 2002, and November 1, 2003, (the "Extra
Revenues"), and the proper flow-through of the Extra Revenues (i.e., a
methodology for returning or refunding the Extra Revenues to customers). In
accordance with the October 29, 2003, MPUC order approving the Supplemental
Stipulation, MPS submitted a Transmission Rate Recognition Proposal ("TRRP") to
the parties which proposed to resolve the TCRR error, as well as, other refund
and deferrals associated with MPS's FERC jurisdictional revenue requirement. The
parties and our Advisory Staff held a series of discussions regarding the TRRP.
On April 15, 2004, MPS filed a Memorandum Of Understanding ("MOU") entered into
between MPS and the parties and supported by the MPUC's advisory staff. Under
the terms of the MOU, MPS agreed that as part of its annual OATT Information
Filing to be made with FERC in June 2004 (the "June Filing"), MPS will
incorporate the TRRP as agreed to in the MOU. The parties agree that they will
not contest those portions of MPS's June Filing (and subsequent FERC filings, as
applicable) that are consistent with the TRRP. Following the entry of the order
approving the Supplemental Stipulation, the ARP proceeding was bifurcated and
MPS had 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. On December
29, 2003, MPS withdrew its request for approval for its ARP from the
proceedings. On April 30, 2004, the MPUC issued its order approving the final
disposition of the matter and closing the docket. A copy of the Stipulation,
Supplemental Stipulation and the final orders approving the increase and
resolving all issues in the docket may be viewed on the MPUC website at
http://www.state.me.us/mpuc/. For the purposes of future rate proceedings MPS
will continue to evaluate if an ARP is in the best interest of MPS, its
shareholders and consumers or if it should continue to proceed with
cost-of-service rate filings as it has done in the past.

As a part of this rate case, the MPUC approved MPS's request to fix its debt
interest rates through the purchase of interest rate swap derivatives. Prior to
MPS's fixing of its interest rates through such interest rate swaps, all of its
debt had been subject to variable interest rates. Given the long-term nature of
MPS's debt, management believed that locking the rates at historically low
levels reduced future shareholder and consumer risks associated with the

Page 28 of 38



volatility of interest rates. Effective interest rates achieved by the swaps for
MPS's variable rate debt through maturity range from 2.79% to 4.68%. See Item
16(a) of this Form 10-K, Note 8 of the Consolidated Financial Statements,
"Long-Term Debt" for a description of these debt issues and associated swap
rates.

(b) Maine Public Utilities Commission Investigation into MPS's Stranded Cost
Revenue Requirements and Rates in MPUC Docket No.2003-666.

As previously reported in the prior MPS 8-K filing of March 2, 2004, MPS
received final approval from the MPUC for the stranded cost revenue component of
its electric delivery rates. Under Title 35-A of the Maine Revised Statutes
Annotated, Section 3208, the MPUC is required to periodically investigate and
adjust the stranded cost charges reflected in the rates of a transmission and
distribution utility. In accordance with this provision, on September 16, 2003,
in Docket No. 2003-666, the MPUC issued a notice of investigation in order to
determine whether MPS's rates must be changed effective March 1, 2004, to
reflect any changes in MPS's stranded costs. On February 27, 2004, the MPUC
issued an order approving a stipulation under which MPS is allowed to recover
$11,785,339 per year to satisfy its approved stranded cost revenue requirements
for the "rate effective period," which began March 1, 2004, and will end on
December 31, 2006. The approved revenue requirement for the rate effective
period ended February 29, 2004, was $11,540,000. Under the approved stipulation
MPS's stranded cost rates approved in Docket No. 2003-85 will remain in effect
during the rate effective period. The stipulation approved by the MPUC in Docket
No. 2003-666 also approved and reaffirmed each of the elements and associated
balances of MPS's recoverable stranded costs.

As explained more fully below, during the course of Docket No. 2003-666 the
parties reviewed the manner in which MPS was recovering and accounting for its
carrying charges associated with the deferred fuel element of its stranded cost.
As a result of the stipulation approved in Docket No. 2003-666, MPS will record
deferred income tax expense associated with deferred fuel carrying charges
during the rate effective period from March 1, 2004, through December 31, 2006,
as compared to past treatment where such expense was deferred for future
recovery. Because the deferred fuel carrying charge component of MPS's stranded
costs is not expected to be fully amortized until 2012, MPS anticipates that
deferred income tax expense will be incurred through 2012, subject to future
stranded cost filings with the MPUC. In Dockets Nos. 98-577 and 2001-240, the
parties stipulated that MPS would accrue carrying costs on its unrecovered fuel
balance (the "deferred fuel account") during the respective rate effective
period at its net of tax cost of capital rate. Consistent with the stipulation
in Docket No. 2001-240, MPS accrued a carrying charge using the net of tax rate
of 7.98% through October 31, 2003, applied against its unrecovered deferred fuel
balance. From November 1, 2003 to December 31, 2003, MPS accrued its carrying
charge using a net of tax rate of 7.06%, based on the cost of capital approved
in Docket No. 2003-85 (described in Docket No. 2003-85 Partial Stipulation filed
on September 2, 2003).

During the course of the Docket No. 2003-666 proceeding, MPS determined that it
had not previously recognized accumulated deferred income taxes with respect to
the carrying charges on the deferred fuel account and that the recording of a
deferred tax liability on its balance sheet pursuant to FAS 109 in the amount of
$2.896 million was required. The deferred fuel balance as of March 1, 2004,
prior to any adjustment was $18,838,000. Under the stipulation MPS is allowed to
adjust its accumulated deferred income tax account and the deferred fuel balance
by $2,896,000, as of March 1, 2004, resulting in a total deferred balance as of
March 1, 2004, of $21,734,000. Under the approved stipulation the parties also
agreed that the return component on the deferred fuel balance should be reduced
in such a manner that ratepayers were held harmless on a net present value basis
as a result of the March 1, 2004, adjustment to the deferred fuel balance.
During the rate effective period ending on December 31, 2006, the overall
pre-tax return component on the deferred fuel balance will be 8.28%, reflecting
a 6.17% return on equity. The return on the deferred fuel balance will be
reviewed in future stranded cost rate setting proceedings and will be adjusted
as necessary in order that the present value of the revenue requirements of the
deferred fuel account without the adjustments described above equals the present
value of the revenue requirements of the deferred fuel account with the
adjustments. MPS concludes that as a result of this stipulation and the
foregoing described adjustment to the deferred fuel balance and the accumulated
deferred income tax liability that no further adjustment is necessary under FAS
109 in order to reflect prior unrecorded deferred income taxes.

The decreased cost of capital rate beginning on March 1, 2004, will have an
impact on future stranded cost earnings and stranded cost freed-up cash flows,
but will not impact future distribution or transmission earnings. In the year
2004, MPS anticipates that it will record deferred income tax expense of
approximately $412,000 associated with the deferred fuel carrying charges. The
amount of deferred income tax expense recorded in future years will vary
depending upon the amount of the accrued carrying charge in any year, and the
tax rates then in effect. MPS anticipates that earnings from carrying charges on
its stranded costs in 2004 will be approximately $267,000 lower than the amount
that would have been recorded had MPS continued to use the original cost of

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capital on its deferred fuel balance, for a total earnings impact of $679,000 in
2004. The impact on future earnings resulting from the agreed upon lower cost of
capital, when compared against the cost of capital used in prior stranded cost
filings, will vary. Schedules filed by MPS as part of the stipulation in Docket
No. 2003-666 reflect the deferred fuel balance as of March 1, 2003, certain
additions relating to the Wheelabrator-Sherman above-market contract through
December 2006, and the amortization of the deferred fuel balance though 2012.
Applying these assumptions, current tax rates and the agreed upon cost of
capital, MPS anticipates that the impact on future earnings resulting from
recording deferred income taxes on accrued carrying charges and applying a lower
cost of capital to the deferred fuel balance could range from $1.0 million in
2005, increasing to $1.2 million in 2007, then gradually decreasing to $17,000
in 2012. These amounts may vary with changes in the deferred fuel balance and
other variables which MPS cannot predict with certainty at this time. Management
is analyzing means to mitigate the impact of this stipulation on future net
income and stranded cost freed-up cash flows.

In addition to the return allowed on its deferred fuel account as set forth
above, under the approved stipulation MPS shall be allowed to recover the
following pre-tax returns on the applicable stranded cost rate base components
during the rate effective period: (i) the pre-tax return on unrecovered balance
of the Wheelabrator-Sherman NUG Contract Buydown shall be 2.79% plus its FAME
issuance costs; (ii) the pre-tax return on the unrecovered Seabrook Investment
and approved special rate contract costs shall be 11.74%; and, (iii) the pre-tax
return on the Maine Yankee decommissioning related costs shall be 8.56%. The
MPUC issued its order approving the stipulation on February 27, 2004. The
stipulation, any accompanying exhibits, and the MPUC order can be found on the
MPUC website at www.maine.gov.us/mpuc and are incorporated in this section by
this reference.

(c) Federal Energy Regulatory Commission 2003 Open Access Transmission Tariff
Formula Rate filing, FERC Docket ER00-1053-009

As previously reported in prior MPS and MAM quarterly reports on Forms 10-Q and
10-K, which are incorporated in this section by this reference, pursuant to
Section 2.4 of the Settlement Agreement filed on September 30, 2000, in Docket
No. ER00-1053-000, and accepted by the 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. The
initial notification for the 2003 filing was filed with the FERC on March 31,
2003. In its 2003 OATT filing, MPS provided the proposed changes to its OATT
Formula Rate to the intervening parties and FERC staff. In general, MPS sought a
slight modification to its rate formula under its transmission tariff. On
February 11, 2004, following discussions to resolve all outstanding issues in
the 2003 informational filing, MPS, the parties, FERC Trial Staff, and the MPUC
reached a settlement agreement (the "Settlement Agreement") regarding changes to
the MPS Formula Rate. The Settlement Agreement and OATT revisions filed reflect
and set forth the agreement reached. Specifically, the parties and the FERC
Trial Staff agreed to certain provisions and changes to MPS's Formula Rate and
OATT as summarized below and in the revised MPS OATT pages. The revised MPS OATT
pages in redline and non-redline format are included in Attachment A to the
Settlement Agreement. The provisions and changes agreed to are summarized as
follows:

o A fixed 11% return on common equity shall continue to be used. The formula
makes clear that the return on common equity may not be changed unless
pursuant to section 205 or 206 of Federal Power Act, 16 U.S.C. ss.ss. 824d,
824e.

o In calculating the weighted overall return, MPS's actual long term debt and
preferred costs will be calculated as specified in Note 1 of Statement AV
of the Formula Rate. For the three years ending June 1, 2006, MPS's equity
ratio will be (1) the actual equity ratio as calculated according to
Formula Rate Statement AV or (2) 53%, whichever is lower, and MPS's debt
ratio will be (a) the actual debt ratio as calculated according to Formula
Rate Statement AV or (b) 100% less 53% less the actual preferred stock
ratio, whichever is higher.

o Effective January 1, 2004, MPS will begin booking depreciation accruals for
the certain plant accounts at the rates specified, and depreciation expense
reflecting these rates will be included in the MPS Formula Rate be used in
the OATT charges to be effective June 1, 2005. Formula Rate Statement AJ
makes clear that the depreciation rates may not be changed unless pursuant
to section 205 or 206 of Federal Power Act, 16 U.S.C. ss.ss. 824d, 824e.

o Depreciation rates for certain plant accounts will be effective January 1,
2003, and depreciation expense reflecting accruals at these rates and will
be included in the MPS Formula Rate and will be used in the OATT charges to

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be effective June 1, 2004. Formula Rate Statement AJ makes clear that the
depreciation rates may not be changed unless pursuant to section 205 or 206
of Federal Power Act, 16 U.S.C. ss.ss. 824d, 824e. Also the proposed
amounts of depreciation accrual previously recorded through December 31,
2002 and related to Account 350.2 and 350.3 will not be reversed and will
continue to be recognized as credits to rate base.

o MPS will continue to include intangible plant in rate base, and in
addition, MPS will reduce intangible plant by accumulated amortization
(reflected on Formula Rate Statement AE) and include an amortization of
intangible plant in the calculation of depreciation and amortization
expense. Formula Rate Statement AJ shall be modified to include the
intangible amortization in total general plant depreciation and intangible
amortization. The transmission labor allocator shall be used to allocate
total general plant depreciation and intangible amortization to the
transmission function. MPS will use a three-year amortization period for
computer hardware and software related intangible plant, except that
extraordinary software investment that on a project basis exceed $100,000
shall be amortized over seven years, with appropriate recognition of
deferred taxes. In the informational filing MPS makes each year pursuant to
Section 2.4 of the Settlement Agreement, MPS will include worksheets that
detail the following information regarding projects being amortized in
Account 303: a description of the project, beginning and ending balances,
the annual amortization and total accumulated amortization for that
project. A sample worksheet is included in Attachment B of the Settlement
Agreement.

o MPS will allocate external regulatory expenses to all customers based on a
load ratio share basis beginning with test year 2002 expenses. The current
three-year amortization will continue. A conforming change to Formula Rate
Schedule 1b will be made.

o A revenue credit for rents in Account 454 (pole attachments, etc.) shall be
added to the Formula Rate Statement AU. A conforming change to Formula Rate
Schedule 2 will be made.

o MPS will add a new line item to Schedule 2 of the Formula Rate to reduce
rate base for deferred directors' fees. The amount of directors' fees to be
shown on Schedule 2 of the Formula Rate will be developed on Formula Rate
Statement AD2.

o MPS will modify the Formula Rate Statement AF2 to reduce rate base by the
net of amounts in Account 228.3 (i.e. Accounts 228.310, 228.320, and
228.330) minus the amount in Account 186.991. MPS will average the
beginning and end of year balances in the accounts and allocate the net of
the averages to the transmission function using the transmission labor
allocator. Formula Rate Schedule 2 will be modified to add a line item for
pensions and benefits.

o All costs: (1) of generation, (2) of entering the generation business and
(3) of any other non-transmission business (regulated or non-regulated)
activities - including all deferred income taxes and an appropriate
allocation of administrative and general expenses - shall be excluded from
the transmission rate. Any costs of starting or operating any business
other than transmission or distribution that have or will be incurred as of
January 1, 2003, shall be separately identified and segregated so that
transmission customers can review those costs. MPS will maintain sufficient
records to enable customers to monitor these costs and to ensure that these
costs are identified and not charged to transmission customers, and to
enable MPS to support and explain its allocation of costs. Any information
provided by MPS regarding these costs will be treated as supporting
documentation under Section 2.3 of the Settlement Agreement and any
disputes concerning that information will be resolved under the terms of
Section 2.3 and not Section 2.4.

o In the informational filing MPS makes each year pursuant to Section 2.4 of
the Settlement Agreement, MPS will include worksheets that detail the
treatment of deferred taxes related to Accelerated Costs Recovery System
("ACRS") / Modified Accelerated Cost Recovery System ("MACRS") property.
Specifically, MPS will demonstrate by journal or account entries that the
tax benefits related to the tax deductions for the retirement of ACRS/MACRS
property and for costs of removal of that property were credited to Account
282 or 283. A sample worksheet is included in Attachment B of the
Settlement Agreement.

o For retail transmission charges, MPS changed the retail transmission rates
each year on October 1. Specifically, MPS will add the following language
to the Formula Rate Schedule 1.1.1: "Retail transmission price changes will
take effect on October 1. The transmission revenue effect of any difference
(positive or negative) between when transmission price changes would
normally occur (June 1) and when they actually occur (October 1) will be
accrued with interest, calculated pursuant to Section 35.19a for FERC's
regulations and included in the next determination of transmission prices
for retail transmission customers." Certain clean-up edits to the Formula
Rate were also made.

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MPS will also modify OATT Schedule 2, Reactive Support and Voltage Control from
Generation Sources Service to specify the allocation of reactive support costs.
MPS will allocate reactive support charges on a load ratio share basis. For
wholesale customers, charges for reactive support shall occur each month on an
as billed basis. For retail customers, the reactive support charges shall be
rolled into the retail transmission revenue requirement on a prospective yearly
basis with a true-up the next year. This change to Schedule 2 was effective
April 1, 2003. MPS also will add Schedule 4 to the Formula Rate to describe the
allocation of reactive support costs and modify Schedule 1.1.2 to reflect the
allocation for retail transmission customers.

The parties also agreed that if there is a conflict between the Formula Rate and
OATT, changes listed in Section 2.2 of the Settlement Agreement and changes
reflected on the Formula Rate and OATT pages included in Attachment A to the
Settlement Agreement will control.

Consistent with the 2000 Settlement Agreement, the parties also agreed that
before each annual (June 1) adjustment under MPS's Formula Rate, MPS shall
provide the Parties and Commission Trial Staff with the changed charges that MPS
proposes to apply on June 1 together with back-up materials. MPS will use its
best efforts to provide that information by May 15 of each year. MPS will submit
an informational filing with the Commission setting forth the changed charges by
June 15 of each year. If a party to the Settlement Agreement disputes the annual
charge change, that party will possess the right to raise any issue with the
Commission (even after June 15). MPS will respond to reasonable requests for
supporting documentation requested by any party or FERC Trial Staff (even after
June 15).

The parties also agreed that by March 1, 2006, MPS will meet with the parties
and FERC Trial Staff to determine if any of the parties or FERC Trial Staff
believe that the Formula Rate does not produce reasonable results. If MPS and
the parties and FERC Trial Staff are unable to reach agreement, then MPS will
submit by April 30, 2006, under section 205 of the Federal Power Act, 16 U.S.C.
ss. 824d, a unilateral filing with FERC restating or revising the Formula Rate.

As a result of the settlement, MPS will re-bill OATT customers for charges under
the OATT related to the implementation of the Rate Formula changes effective
June 1, 2003. The rebilling shall include interest computed under 18 C.F.R. ss.
35.19a. For the purpose of keeping the total retail transmission and
distribution rate constant until the October 1, 2004, MPS will not re-bill the
retail transmission customers until October 1, 2004. At the time of the retail
transmission rebilling, MPS will include refunds with interest pursuant to 18
C.F.R. ss. 35.19a for the rebilling and any appropriate surcharges with interest
calculated pursuant to FERC regulations, 18 C.F.R. ss. 35.19a, associated with
the delay in implementation of the 2003 retail transmission change in charges
from June 1, 2003, to October 1, 2003. Also included in the rebilling will be
the yet unbilled refunds and surcharges associated with past periods, including
but not limited to those associated with the delay in implementation of the 2002
retail transmission change in charges from June 1, 2002, to October 1, 2002, and
the 2003 retail transmission change in charges from June 1, 2003, to November 1,
2003, and refunds associated with the settlement filed on March 7, 2003, in
Docket No. ER03-1053-008.

MPS has requested among other things that the FERC accept the 2003 informational
filing and the proposed OATT revisions. On February 17, 2004, FERC issued its
Notice of Filing and established a public comment date deadline of March 3,
2004. The matter has been briefed to the Commissioners who had no objections to
any provisions of the MPS filing. An order by the FERC approving the 2003
informational filing and OATT revisions was issued on April 1, 2004. The
Settlement Agreement, cover correspondence and its attachments are submitted
with this filing as Exhibit 99(aq), and are incorporated in this section by this
reference.

Other MPS Matters:

(a) Maine Public Utilities Commission Notices of Inquiry, MPUC Dockets No.
2003-82; 2003-423.

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. The MPUC's inquiry is
for the purpose of identifying potential concerns related to northern Maine's
supply and market situation, and to explore possible solutions. In contrast to
the rest of Maine, which is part of the Independent System Operator - New
England ("ISO-NE") region, northern Maine and MPS are electrically
interconnected to the Canadian Maritimes region, which also includes the
electric loads and generation of New Brunswick, as well as Nova Scotia and
Prince Edward Island. Load and generation in northern Maine, which comprises

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MPS's service territory, are interconnected to the rest of Maine and New England
only by transmission through New Brunswick. The Northern Maine Independent
System Administrator ("NMISA") operates the bulk power and transmission systems
for the region. The divestiture of generation assets in connection with the
Maine Electric Industry Restructuring Act eliminated rate regulation for the
production and sale of electricity supply as of March 1, 2000. During the
subsequent period of time, the retail and wholesale markets have experienced a
limited number of participants. In furtherance of the MPUC's inquiry, it
requested comments on a number of issues related to these unique market
conditions. MPS has provided comments for the MPUC's consideration. There have
been no other material or further developments in this proceeding during 2003.
At this time MPS 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). MPS provided comments to the MPUC
on July 7, 2003. There have been no other material or further developments in
this proceeding during the first quarter of 2004. At this time the Company
cannot predict the nature or the outcome of any finding, decision or ruling by
the MPUC in this proceeding.

(b) Wholesale Standard Offer - MPUC Docket No. 2003-677 and Sale of Capacity and
Energy Available from Wheelabrator-Sherman Energy Company.

As previously reported in prior MAM Form 8-K reports, on September 16, 2003, the
MPUC issued an Order Regarding Standard Offer Provider For Maine Public Service
Company (Docket No. 2003-670) to resolve all issues regarding the upcoming
standard offer solicitation for all customer classes in MPS's service territory.
Pursuant to Maine's Electric Restructuring Act, the MPUC administers periodic
bid processes to select providers of SOS. The current SOS provider arrangement
for all three sets of customer classes in MPS's service territory terminated on
February 29, 2004.

Accordingly, the MPUC solicited bids for MPS SOS customers beginning on March 1,
2004. WPS ESI was awarded the Standard Offer for all customer classes for the
period March 1, 2004, through February 28, 2006, as well as the entitlement to
capacity and energy from Wheelabrator-Sherman ("WS"), located in Sherman, Maine,
for the term beginning at the hour ending on 1:00 p.m. on March 1, 2004, through
the expiration of the Wheelabrator-Sherman NUG Contract in December 2006. The
bid solicitation can be viewed at http://www.mainepublicservice.com.

(c) WPS Canada Generation, Inc. - FERC Docket Nos. ER03-689-000, et al.; and WPS
Canada Generation, Inc. FERC Docket No.ER-04-210-000; WPS Reactive Power Service
Rate ("RPS") matter.

On April 1, 2003, as amended on April 8, 2003, WPS Canada filed rate schedules
for MPS and the NMISA, Rate Schedule FERC Nos. 2 and 3, respectively to obtain
$142,734 per year in compensation for WPS's RPS service. Parties, including MPS
intervened and/or protested the WPS RPS rate case. While this charge has no
direct effect on MPS or the Company's shareholders, MPS and other parties
intervening in the matter, believed that the charge sought by WPS Canada
Generation, Inc. ("WPS") was not justified and therefore contested the issue. By
order issued May 19, 2003, the FERC accepted the RPS rate schedules for filing,
established that rate schedules would become effective on April 2, 2003, subject
to refund, provided for a hearing, held the hearing in abeyance and established
settlement procedures. On July 29, 2003, the Chief Judge ordered the termination
of the settlement procedures and ordered the institution of "Track II" hearing
procedures. Direct and rebuttal testimony was submitted. MPS filed its testimony
on this case on October 17, 2003. MPS also, as a precautionary measure, included
the pass-through of this charge in its settlement proposal in its FERC OATT case
described above, in the event that WPS was successful in obtaining FERC approval
for this charge. A settlement in principal was reached prior to the commencement
of the actual hearing in the matter. The parties finalized a settlement in the
matter resolving all outstanding issues in the above referenced dockets and on
February 10, 2004, the settlement agreement, its appendices, an "Explanatory
Statement in Support of the Settlement," and redlined rate sheets were filed
with the FERC Presiding Administrative Law Judge.

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Item 2. Changes in Securities

None


Item 3. Defaults upon Senior Securities

None


Item 4. Submission of Matters to a Vote of Security Holders

None


Item 5. Other Information

None


Item 6. Exhibits and Reports on Form 8-K

The following Forms 8-K were filed for Maine & Maritimes Corporation:

o January 2, 2004 - Providing the Interim Report to Stockholders dated
January 1, 2004, presenting financial results through November 30, 2003.

o March 2, 2004 - Reporting on the Approval by the Maine Public Utilities
Commission of the Stranded Cost Revenue Requirements, effective March 1,
2004.

o March 2, 2004 - Press release titled "Maine & Maritimes Corporation
Releases Fourth Quarter 2003 Results."

o March 8, 2004 - Reporting on the declaration of a regular quarterly
dividend by the Board of Directors.

o March 15, 2004 - Amendment to March 2, 2004 Form 8-K for the press release
titled "Maine & Maritimes Corporation Releases Fourth Quarter 2003
Results."

Exhibit 31 Rule 13a-14(a)/15d-14(a) Certifications.

Exhibit 32 Section 1350 Certification.

Page 34 of 38






SIGNATURE


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.


MAINE & MARITIMES CORPORATION
(Registrant)

Date: May 14, 2004


/s/ Larry E. LaPlante

Larry E. LaPlante
Vice President, Controller and Chief Accounting Officer


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