UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D. C. 20549









FORM
10-Q





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





SECURITIES
EXCHANGE ACT OF 1934




FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008





- 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 T. No£.





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):




Large
      accelerated filer £
              
              Accelerated
      filer £.Non-accelerated
      filer £
              
              Smaller
      reporting company T.(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes £    No
T.





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of November 7, 2008.





Common
Stock, $7.00 par value – 1,678,924 shares














Glossary of TermsCES
              Competitive
      Energy SupplierCMP
              Central
      Maine Power CompanyCPCN
              Certificate
      of Public Convenience and NecessityEA
              Energy
      Atlantic, LLCFAME
              Finance
      Authority of MaineFASB
              Financial
      Accounting Standards BoardFERC
              Federal
      Energy Regulatory CommissionFIN
              FASB
      Interpretation NumberISO-NE
              ISO
      New EnglandMAM
              Maine
      & Maritimes CorporationMAM
      USG
              MAM
      Utility Services GroupMe&NB
              Maine
      & New Brunswick Electrical Power Company, LtdMecel
              Mecel
      Properties LtdMEPCO
              Maine
      Electric Power Company, Inc.MPC
              Maine
      Power ConnectionMPS
              Maine
      Public Service CompanyMPUC
              Maine
      Public Utilities CommissionMTI
              Maricor
      Technologies, Inc.MW
              MegawattMWH
              Megawatt
      HourOATT
              Open
      Access Transmission TariffOCI
              Other
      Comprehensive IncomePCB
              Poly
      Chlorinated Bi-phenolSFAS
              Statement
      of Financial Accounting StandardsSOS
              Standard
      Offer ServiceTMG
              The
      Maricor GroupTMGC
              The
      Maricor Group, Canada LtdTMGNE
              The
      Maricor Group New England


2




PART
1. FINANCIAL INFORMATION


Item 1. Financial Statements





The
following Consolidated Financial Statements for Maine & Maritimes
Corporation ("MAM" or the "Company") and its subsidiaries include: (1) an
unaudited statement of consolidated operations for the quarter and nine months
ended September 30, 2008, and for the corresponding periods of the preceding
year; (2) an unaudited statement of consolidated cash flows for the period
January 1 (beginning of the fiscal year) through September 30, 2008, and for the
corresponding period of the preceding year; (3) an unaudited consolidated
balance sheet as of September 30, 2008; (4) an audited consolidated balance
sheet as of December 31, 2007, the end of MAM's preceding fiscal year; and (5)
an unaudited statement of consolidated common shareholders’ equity for the
period January 1 (beginning of the fiscal year) through September 30,
2008.





In the
opinion of Management, the accompanying unaudited consolidated financial
statements present fairly the financial position of the Company and its
Subsidiaries at September 30, 2008; the results of their operations for the
three and nine months ended September 30, 2008 and 2007; and their cash flows
for the nine months ended September 30, 2008 and 2007.





MAM
is the parent holding company for the following wholly-owned
subsidiaries:





1.
            Maine
      Public Service Company (“MPS”) and its wholly-owned inactive Canadian
      subsidiary Maine & New Brunswick Electrical Power Company, Ltd
      (“Me&NB”);


2.
            MAM
      Utility Services Group (“MAM USG”);


3.
            The
      Maricor Group (“TMG”) and its wholly-owned United States subsidiary The
      Maricor Group New England (“TMGNE”) and TMG’s wholly-owned Canadian
      subsidiary The Maricor Group, Canada, Ltd (“TMGC”) and TMGC’s wholly-owned
      Canadian subsidiary, Mecel Properties Ltd (“Mecel”), all of which are
      classified as discontinued operations;
and


4.
            Energy
      Atlantic, LLC (“EA”), an inactive
subsidiary.





Maine
& Maritimes Corporation and Subsidiaries


flowchart2





(1)  Indicates
      inactive companies


(2)  Companies
      classified as Discontinued Operations in these financial
      statements.





General
Descriptions of the Parent Company and its Subsidiaries:





Continuing
Operations:





•
            Maine
      & Maritimes Corporation is a holding company incorporated in the State
      of Maine, and is the ultimate parent company for all business
      segments.  MAM maintains investments in a regulated electric
      transmission and distribution utility and an unregulated utility services
      company, both operating within the State of Maine and classified for
      financial reporting purposes as continuing operations.  MAM is
      headquartered in Presque Isle,
Maine.





•
            Maine
      Public Service Company is a regulated electric transmission and
      distribution utility serving all of Aroostook County and a portion of
      Penobscot County in northern Maine.  Since March 1, 2000, the
      date retail electric competition in Maine commenced, customers in MPS’s
      service territory have been purchasing energy from suppliers other than
      MPS.  This energy comes from Competitive Electricity Suppliers
      (“CES”) or, if customers are unable or do not wish to choose a competitive
      supplier, the Standard Offer Service (“SOS”) provider.  SOS
      providers are determined through a bid process conducted by the Maine
      Public Utilities Commission (“MPUC”).  MPS provides the
      transportation through its transmission and distribution wires
      infrastructure.  Its service area covers approximately 3,600
      square miles, with a population of 73,000.  The utility is
      regulated by the Federal Energy Regulatory Commission (“FERC”) and the
      MPUC.  MPS is headquartered in Presque Isle,
    Maine.




3




Electric
sales in the Company’s territory are seasonal, and the Company’s results of
operations reflect this seasonal nature.  The highest usage occurs
during the five heating season months, from November through March, due to
heating-related requirements and shorter daylight hours.  The rate
year is divided into two periods, with higher rates in place in the winter
months to encourage conservation.  Also, due to the climate in the
northern Maine area, the majority of MPS’s construction program is completed
during the spring, summer and fall months.





•
            Maine
      & New Brunswick Electrical Power Company, Ltd. is an inactive Canadian
      subsidiary of MPS, which, prior to deregulation and generation
      divestiture, owned MPS’s Canadian electric generation
    assets.





•
            MAM
      Utility Services Group is a wholly-owned subsidiary of MAM, incorporated
      in the State of Maine on September 27, 2007.  MAM USG provides
      utility-related services to clients on projects that MPS could not or
      would not be required to provide under State and Federal
      regulations.  These services include transmission line and
      substation design and build services for generator projects outside the
      MPS service territory and contract work within MPS’s
      territory.  MAM USG is focused on areas such as transmission
      infrastructure to support renewable generation, utility asset maintenance
      contracts and other utility-related
services.





Discontinued
Operations





•
            The
      Maricor Group (“TMG”) was a facilities engineering and solutions company
      providing mechanical, electrical and plumbing/fire protection engineering
      consulting design services, energy efficiency solutions, facilities
      condition assessments, lifecycle asset management solutions, and emissions
      reduction services.  TMG operated primarily within the New
      England region of the United States and the eastern Canadian provinces,
      particularly Atlantic Canada, through its subsidiaries The Maricor Group
      New England (“TMGNE”) and The Maricor Group Canada, Ltd
      (“TMGC”).  The legal entities of TMG, TMGNE and TMGC are
      expected to be dissolved during the fourth quarter of
  2008.







•
            TMGC
      is also the parent company of Mecel Properties Ltd.  Mecel was
      formerly a Canadian subsidiary of Maricor Properties Ltd and owned the
      office building that housed the Halifax, Nova Scotia, operating division
      of TMGC.  The Mecel building was sold May 30, 2008. The legal entity of
      Mecel Properties Ltd. was dissolved during the fourth quarter of
      2008.





•
            Energy
      Atlantic, LLC is a licensed, but currently inactive, CES of retail
      electricity.





4





MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES


Statements of Consolidated Operations(Unaudited)




(In thousands of dollars except shares and per share
      amounts)
                                                                                                                            
                                                                                                                            Three
      Months Ended
                                                                                                                              September
      30,
                                                                                                                            
                                                                                                                            
                                                                                                                            Nine
      Months Ended
                                                                                                                              September
      30,2008
                                                                                                                            
                                                                                                                            
                                                                                                                            2007
                                                                                                                            
                                                                                                                            
                                                                                                                            2008
                                                                                                                            
                                                                                                                            
                                                                                                                            2007Operating
      RevenuesRegulated
      Revenues
                                                                                                                            
                                                                                                                            $
                                                                                                                            7,805
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            8,016
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            26,485
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            26,882Unregulated
      Utility Services Revenues
                                                                                                                            
                                                                                                                            
                                                                                                                            4,463
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            7,837
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -Total
      Operating Revenues
                                                                                                                            
                                                                                                                            
                                                                                                                            12,268
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            8,016
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            34,322
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            26,882Operating
      ExpensesRegulated
      Operation and Maintenance
                                                                                                                            
                                                                                                                            
                                                                                                                            2,949
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            4,392
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            9,591
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            10,936Unregulated
      Utility Services Direct Project Expenses
                                                                                                                            
                                                                                                                            
                                                                                                                            4,530
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            7,740
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -Other
      Unregulated Operation and Maintenance (1)
                                                                                                                            
                                                                                                                            
                                                                                                                            204
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            185
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            687
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,032Depreciation
                                                                                                                            
                                                                                                                            
                                                                                                                            766
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            697
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,277
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,104Amortization
      of Stranded Costs
                                                                                                                            
                                                                                                                            
                                                                                                                            2,728
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,648
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            8,184
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            8,099Amortization
                                                                                                                            
                                                                                                                            
                                                                                                                            54
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            57
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            161
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            173Taxes
      Other Than Income
                                                                                                                            
                                                                                                                            
                                                                                                                            430
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            440
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,336
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,325(Benefit
      of) Provision for Income Taxes—Regulated
                                                                                                                            
                                                                                                                            
                                                                                                                            (10
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (218
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            1,547
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,419Provision
      for (Benefit of) Income Taxes—Unregulated
                                                                                                                            
                                                                                                                            
                                                                                                                            354
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (111
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            177
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (533
                                                                                                                            )Total
      Operating Expenses
                                                                                                                            
                                                                                                                            
                                                                                                                            12,005
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            8,090
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            31,700
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            24,555Operating
      Income (Loss)
                                                                                                                            
                                                                                                                            
                                                                                                                            263
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (74
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            2,622
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,327Other
      Income (Deductions)Equity
      in Income of Associated Companies
                                                                                                                            
                                                                                                                            
                                                                                                                            37
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            28
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            103
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (6
                                                                                                                            )Interest
      and Dividend Income
                                                                                                                            
                                                                                                                            
                                                                                                                            1
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            3
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            6
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            16Benefit
      of (Provision for) Income Taxes
                                                                                                                            
                                                                                                                            
                                                                                                                            3
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (7
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (5
                                                                                                                            )Other—Net
                                                                                                                            
                                                                                                                            
                                                                                                                            (3
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (13
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (95
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (57
                                                                                                                            )Total
      Other Income (Deductions)
                                                                                                                            
                                                                                                                            
                                                                                                                            38
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            18
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            7
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (52
                                                                                                                            )Income
      (Loss) Before Interest Charges
                                                                                                                            
                                                                                                                            
                                                                                                                            301
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (56
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            2,629
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,275Interest
      ChargesLong-Term
      Debt and Notes Payable
                                                                                                                            
                                                                                                                            
                                                                                                                            543
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            735
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,757
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            2,218Less
      Stranded Costs Carrying Charge
                                                                                                                            
                                                                                                                            
                                                                                                                            (370
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (429
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,175
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,327
                                                                                                                            )Total
      Interest Charges
                                                                                                                            
                                                                                                                            
                                                                                                                            173
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            306
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            582
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            891Net
      Income (Loss) from Continuing Operations
                                                                                                                            
                                                                                                                            
                                                                                                                            128
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (362
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            2,047
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,384Discontinued
      OperationsGain
      (Loss) on Sales of Discontinued Operations
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            208
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (1
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (154
                                                                                                                            )Income
      (Loss) from Operations
                                                                                                                            
                                                                                                                            
                                                                                                                            3
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (369
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (32
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (1,292
                                                                                                                            )Income
      Tax (Provision) Benefit
                                                                                                                            
                                                                                                                            
                                                                                                                            (2
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            53
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            13
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            565Income
      (Loss) from Discontinued Operations
                                                                                                                            
                                                                                                                            
                                                                                                                            1
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (108
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (20
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (881
                                                                                                                            )Net
      Income (Loss) Available for Common Stockholders
                                                                                                                            
                                                                                                                            $
                                                                                                                            129
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (470
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            2,027
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            503Average
      Shares of Common Stock Outstanding
                                                                                                                            
                                                                                                                            
                                                                                                                            1,678,249
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,677,430
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,678,069
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            1,667,147Basic
      Earnings (Loss) Per Share of Common Stock From Continuing
      Operations
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.08
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.22
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            1.22
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.83Basic
      Loss Per Share of Common Stock From Discontinued
Operations
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (0.06
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (0.01
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (0.53
                                                                                                                            )Basic
      Earnings (Loss) Per Share of Common Stock From Net Income
      (Loss)
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.08
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.28
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            1.21
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.30Diluted
      Earnings (Loss) Per Share of Common Stock From Continuing
      Operations
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.08
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.22
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            1.22
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.83Diluted
      Loss Per Share of Common Stock From Discontinued
Operations
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (0.06
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (0.01
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (0.53
                                                                                                                            )Diluted
      Earnings (Loss) Per Share of Common Stock From Net Income
      (Loss)
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.08
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.28
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            1.21
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.30





(1) Other
Unregulated Operation and Maintenance expense includes general and
administrative expenses for MAM Utility Services Group, activity of the holding
company that cannot be allocated to MPS, and intercompany
eliminations.




See Notes
to Consolidated Financial Statements





5





MAINE & MARITIMES CORPORATION AND
SUBSIDIARIES


Statements of Consolidated Cash Flows(Unaudited)





(In
      thousands of dollars)
                                                        
                                                        Nine
      Months Ended
                                                          September
      30,2008
                                                        
                                                        
                                                        2007Cash
      Flow From Operating ActivitiesNet
      Income
                                                        
                                                        $
                                                        2,027
                                                        
                                                        
                                                        $
                                                        503Adjustments
      to Reconcile Net Income to Net Cash Provided by
Operations:Depreciation
                                                        
                                                        
                                                        2,277
                                                        
                                                        
                                                        
                                                        2,104Amortization
      of Intangibles
                                                        
                                                        
                                                        161
                                                        
                                                        
                                                        
                                                        173Amortization
      of Seabrook
                                                        
                                                        
                                                        833
                                                        
                                                        
                                                        
                                                        833Amortization
      of Cancelled Transmission Plant
                                                        
                                                        
                                                        191
                                                        
                                                        
                                                        
                                                        191Deferred
      Income Taxes—Net
                                                        
                                                        
                                                        (50
                                                        )
                                                        
                                                        
                                                        (502
                                                        )Deferred
      Investment Tax Credits
                                                        
                                                        
                                                        (15
                                                        )
                                                        
                                                        
                                                        (15
                                                        )Change
      in Deferred Regulatory and Debt Issuance Costs
                                                        
                                                        
                                                        4,277
                                                        
                                                        
                                                        
                                                        3,781Change
      in Benefit Obligations
                                                        
                                                        
                                                        195
                                                        
                                                        
                                                        
                                                        (1,115
                                                        )Change
      in Deferred Directors' Compensation
                                                        
                                                        
                                                        88
                                                        
                                                        
                                                        
                                                        467Change
      in Current Assets and Liabilities:Accounts
      Receivable and Unbilled Revenue from Utility
                                                        
                                                        
                                                        (1,081
                                                        )
                                                        
                                                        
                                                        586Other
      Current Assets
                                                        
                                                        
                                                        (132
                                                        )
                                                        
                                                        
                                                        (255
                                                        )Accounts
      Payable
                                                        
                                                        
                                                        1,050
                                                        
                                                        
                                                        
                                                        (985
                                                        )Other
      Current Liabilities
                                                        
                                                        
                                                        290
                                                        
                                                        
                                                        
                                                        296Other—Net
                                                        
                                                        
                                                        (862
                                                        )
                                                        
                                                        
                                                        553Operating
      Cash Flows from Continuing Operations
                                                        
                                                        
                                                        9,249
                                                        
                                                        
                                                        
                                                        6,615Operating
      Cash Flows from Discontinued Operations
                                                        
                                                        
                                                        27
                                                        
                                                        
                                                        
                                                        42Net
      Cash Flow Provided By Operating Activities
                                                        
                                                        
                                                        9,276
                                                        
                                                        
                                                        
                                                        6,657Cash
      Flow From Financing ActivitiesRepayments
      of Long-Term Debt
                                                        
                                                        
                                                        (4,410
                                                        )
                                                        
                                                        
                                                        (1,154
                                                        )Repayments
      of Long-Term Debt, Discontinued Operations
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (1,750
                                                        )Additions
      of Long-Term Debt
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        3,499Payments
      of Capital Lease Obligation
                                                        
                                                        
                                                        (171
                                                        )
                                                        
                                                        
                                                        (62
                                                        )Short-Term
      Debt Borrowings (Repayments), Net
                                                        
                                                        
                                                        (1,050
                                                        )
                                                        
                                                        
                                                        (3,970
                                                        )Short-Term
      Debt Repayments of Discontinued Operations, Net
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (1,000
                                                        )Net
      Cash Flow Used For Financing Activities
                                                        
                                                        
                                                        (5,631
                                                        )
                                                        
                                                        
                                                        (4,437
                                                        )Cash
      Flow From Investing ActivitiesCash
      Paid for Stock Contingencies from Acquisition Agreements
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (413
                                                        )Investment
      in Fixed Assets
                                                        
                                                        
                                                        (5,746
                                                        )
                                                        
                                                        
                                                        (4,621
                                                        )Change
      in Restricted Investments
                                                        
                                                        
                                                        2,391
                                                        
                                                        
                                                        
                                                        (6
                                                        )Stock
      Redemption from Associated Company
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        500Cash
      Received from Sale of Discontinued Operations
                                                        
                                                        
                                                        573
                                                        
                                                        
                                                        
                                                        1,821Net
      Cash Flow Used For Investing Activities
                                                        
                                                        
                                                        (2,782
                                                        )
                                                        
                                                        
                                                        (2,719
                                                        )Increase
      (Decrease) in Cash and Cash Equivalents
                                                        
                                                        
                                                        863
                                                        
                                                        
                                                        
                                                        (499
                                                        )Cash
      and Cash Equivalents at Beginning of Period
                                                        
                                                        
                                                        910
                                                        
                                                        
                                                        
                                                        898Cash
      and Cash Equivalents at End of Period
                                                        
                                                        $
                                                        1,773
                                                        
                                                        
                                                        $
                                                        399Supplemental
      Disclosure of Cash Flow Information:Cash
      Paid During the Period for:Interest
                                                        
                                                        $
                                                        1,776
                                                        
                                                        
                                                        $
                                                        2,459Income
      Taxes
                                                        
                                                        $
                                                        2,626
                                                        
                                                        
                                                        $
                                                        153Non-Cash
      Activities:Fair
      Market Value of Stock Issued to Directors
                                                        
                                                        $
                                                        20
                                                        
                                                        
                                                        $
                                                        19Capital
      Leases
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        500





See Notes
to Consolidated Financial Statements


6




MAINE & MARITIMES CORPORATION AND
SUBSIDIARIES


Consolidated
Balance Sheets





(In Thousands of Dollars)
                                                              
                                                              September
      30,
                                                              
                                                              
                                                              December
      31,2008
                                                              
                                                              
                                                              2007ASSETS
                                                              
                                                              (Unaudited)
                                                              
                                                              
                                                              (Audited)Plant:Electric
      Plant in Service
                                                              
                                                              $
                                                              107,304
                                                              
                                                              
                                                              $
                                                              104,289Non-Utility
      Plant
                                                              
                                                              
                                                              61
                                                              
                                                              
                                                              
                                                              3Less
      Accumulated Depreciation
                                                              
                                                              
                                                              (46,010
                                                              )
                                                              
                                                              
                                                              (44,212
                                                              )Net
      Plant in Service
                                                              
                                                              
                                                              61,355
                                                              
                                                              
                                                              
                                                              60,080Construction
      Work-in-Progress
                                                              
                                                              
                                                              4,902
                                                              
                                                              
                                                              
                                                              3,035Total
      Plant Assets
                                                              
                                                              
                                                              66,257
                                                              
                                                              
                                                              
                                                              63,115Investments
      in Associated Companies
                                                              
                                                              
                                                              946
                                                              
                                                              
                                                              
                                                              940Net
      Plant and Investments in Associated Companies
                                                              
                                                              
                                                              67,203
                                                              
                                                              
                                                              
                                                              64,055Current
      Assets:Cash
      and Cash Equivalents
                                                              
                                                              
                                                              1,773
                                                              
                                                              
                                                              
                                                              910Accounts
      Receivable (less allowance for uncollectible accounts of $130 in 2008 and
      $247 in 2007)
                                                              
                                                              
                                                              9,818
                                                              
                                                              
                                                              
                                                              7,921Accounts
      Receivable from Associated Companies
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              377Unbilled
      Revenue from Utility
                                                              
                                                              
                                                              730
                                                              
                                                              
                                                              
                                                              1,170Inventory
                                                              
                                                              
                                                              802
                                                              
                                                              
                                                              
                                                              819Unbilled
      Contract Revenue
                                                              
                                                              
                                                              128
                                                              
                                                              
                                                              
                                                              -Prepayments
                                                              
                                                              
                                                              448
                                                              
                                                              
                                                              
                                                              427Current
      Assets of Discontinued Operations
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              756Total
      Current Assets
                                                              
                                                              
                                                              13,699
                                                              
                                                              
                                                              
                                                              12,380Regulatory
      Assets:Uncollected
      Maine Yankee Decommissioning Costs
                                                              
                                                              
                                                              2,811
                                                              
                                                              
                                                              
                                                              4,774Recoverable
      Seabrook Costs
                                                              
                                                              
                                                              8,616
                                                              
                                                              
                                                              
                                                              9,449Regulatory
      Assets—Deferred Income Taxes
                                                              
                                                              
                                                              5,160
                                                              
                                                              
                                                              
                                                              5,481Regulatory
      Assets—Post-Retirement Medical Benefits
                                                              
                                                              
                                                              2,555
                                                              
                                                              
                                                              
                                                              2,574Deferred
      Fuel and Purchased Energy Costs
                                                              
                                                              
                                                              27,322
                                                              
                                                              
                                                              
                                                              30,859Cancelled
      Transmission Plant
                                                              
                                                              
                                                              64
                                                              
                                                              
                                                              
                                                              254Unamortized
      Premium on Early Retirement of Debt
                                                              
                                                              
                                                              737
                                                              
                                                              
                                                              
                                                              893Deferred
      Regulatory Costs
                                                              
                                                              
                                                              685
                                                              
                                                              
                                                              
                                                              1,302Total
      Regulatory Assets
                                                              
                                                              
                                                              47,950
                                                              
                                                              
                                                              
                                                              55,586Other
      Assets:Unamortized
      Debt Issuance Costs
                                                              
                                                              
                                                              185
                                                              
                                                              
                                                              
                                                              289Restricted
      Investments (at cost, which approximates market)
                                                              
                                                              
                                                              75
                                                              
                                                              
                                                              
                                                              2,466Other
      Assets
                                                              
                                                              
                                                              1,456
                                                              
                                                              
                                                              
                                                              849Total
      Other Assets
                                                              
                                                              
                                                              1,716
                                                              
                                                              
                                                              
                                                              3,604Total
      Assets
                                                              
                                                              $
                                                              130,568
                                                              
                                                              
                                                              $
                                                              135,625





See Notes
to Consolidated Financial Statements


7




MAINE & MARITIMES CORPORATION AND
SUBSIDIARIES


Capitalization
and Liabilities





(In
      Thousands of Dollars)
                                                            
                                                            September
      30,
                                                            
                                                            
                                                            December
      31,2008
                                                            
                                                            
                                                            2007Capitalization
      (see accompanying statement):
                                                            
                                                            (Unaudited)
                                                            
                                                            
                                                            (Audited)Shareholders’
      Equity
                                                            
                                                            $
                                                            44,871
                                                            
                                                            
                                                            $
                                                            42,941Long-Term
      Debt
                                                            
                                                            
                                                            25,794
                                                            
                                                            
                                                            
                                                            27,427Total
      Capitalization
                                                            
                                                            
                                                            70,665
                                                            
                                                            
                                                            
                                                            70,368Current
      Liabilities:Long-Term
      Debt Due Within One Year
                                                            
                                                            
                                                            1,386
                                                            
                                                            
                                                            
                                                            4,163Notes
      Payable to Banks
                                                            
                                                            
                                                            6,950
                                                            
                                                            
                                                            
                                                            8,000Accounts
      Payable
                                                            
                                                            
                                                            6,247
                                                            
                                                            
                                                            
                                                            4,699Accounts
      Payable—Associated Companies
                                                            
                                                            
                                                            215
                                                            
                                                            
                                                            
                                                            234Accrued
      Employee Benefits
                                                            
                                                            
                                                            898
                                                            
                                                            
                                                            
                                                            1,377Customer
      Deposits
                                                            
                                                            
                                                            91
                                                            
                                                            
                                                            
                                                            61Taxes
      Accrued
                                                            
                                                            
                                                            386
                                                            
                                                            
                                                            
                                                            116Interest
      Accrued
                                                            
                                                            
                                                            183
                                                            
                                                            
                                                            
                                                            201Unearned
      Revenue
                                                            
                                                            
                                                            49
                                                            
                                                            
                                                            
                                                            42Current
      Liabilities of Discontinued Operations
                                                            
                                                            
                                                            399
                                                            
                                                            
                                                            
                                                            537Total
      Current Liabilities
                                                            
                                                            
                                                            16,804
                                                            
                                                            
                                                            
                                                            19,430Deferred
      Credits and Other Liabilities:Accrued
      Removal Obligations
                                                            
                                                            
                                                            5,689
                                                            
                                                            
                                                            
                                                            5,699Carrying
      Value of Interest Rate Hedge
                                                            
                                                            
                                                            1,927
                                                            
                                                            
                                                            
                                                            2,255Uncollected
      Maine Yankee Decommissioning Costs
                                                            
                                                            
                                                            2,811
                                                            
                                                            
                                                            
                                                            4,774Other
      Regulatory Liabilities
                                                            
                                                            
                                                            205
                                                            
                                                            
                                                            
                                                            343Deferred
      Income Taxes
                                                            
                                                            
                                                            21,619
                                                            
                                                            
                                                            
                                                            21,864Accrued
      Postretirement Benefits and Pension Costs
                                                            
                                                            
                                                            8,401
                                                            
                                                            
                                                            
                                                            8,226Investment
      Tax Credits
                                                            
                                                            
                                                            44
                                                            
                                                            
                                                            
                                                            59Miscellaneous
                                                            
                                                            
                                                            2,403
                                                            
                                                            
                                                            
                                                            2,607Total
      Deferred Credits and Other Liabilities
                                                            
                                                            
                                                            43,099
                                                            
                                                            
                                                            
                                                            45,827Commitments,
      Contingencies, and Regulatory Matters (Note 8)Total
      Capitalization and Liabilities
                                                            
                                                            $
                                                            130,568
                                                            
                                                            
                                                            $
                                                            135,625





See Notes
to Consolidated Financial Statements




8





MAINE & MARITIMES CORPORATION AND
SUBSIDIARIES


Statement of Consolidated
Shareholders’ Equity(Unaudited)





(In
      thousands of dollars, except share information)Common
      SharesCommon
      Shares Issued and Outstanding
                                                    
                                                    
                                                    Par
      Value Issued ($7/Share)
                                                    
                                                    
                                                    Paid-In
      Capital
                                                    
                                                    
                                                    Retained
      Earnings
                                                    
                                                    
                                                    Accumulated
      Other Compre-hensive Income (Loss)
                                                    
                                                    
                                                    TotalBalance,
      December 31, 2007
                                                    
                                                    
                                                    1,677,664
                                                    
                                                    
                                                    $
                                                    11,744
                                                    
                                                    
                                                    $
                                                    1,706
                                                    
                                                    
                                                    $
                                                    29,898
                                                    
                                                    
                                                    $
                                                    (407
                                                    )
                                                    
                                                    $
                                                    42,941Common
      Stock  Issued
                                                    
                                                    
                                                    585
                                                    
                                                    
                                                    
                                                    4
                                                    
                                                    
                                                    
                                                    16
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    20Net
      Income
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2,027
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    2,027Other
      Comprehensive (Loss) Income:Changes
      in Value of Foreign Exchange Translation Loss, Net of Tax Benefit of
      $205
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (308
                                                    )
                                                    
                                                    
                                                    (308
                                                    )Unrealized
      Loss on Investments Available for Sale, Net of Tax Benefit of
      $4
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (6
                                                    )
                                                    
                                                    
                                                    (6
                                                    )Change
      in Fair Value of Interest Rate Hedge, Net of Tax Provision of
      $131
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    197
                                                    
                                                    
                                                    
                                                    197Total
      Other Comprehensive Income
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (117
                                                    )Total
      Comprehensive Income
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    1,910Balance,
      September 30, 2008
                                                    
                                                    
                                                    1,678,249
                                                    
                                                    
                                                    $
                                                    11,748
                                                    
                                                    
                                                    $
                                                    1,722
                                                    
                                                    
                                                    $
                                                    31,925
                                                    
                                                    
                                                    $
                                                    (524
                                                    )
                                                    
                                                    $
                                                    44,871




MAM had
five million shares of $7 per share common stock authorized, with 1,678,249 and
1,677,664 shares issued and outstanding as of September 30, 2008, and December
31, 2007, respectively.  At September 30, 2008, and December 31, 2007,
MAM had 500,000 shares of $0.01 per share preferred stock authorized, with none
issued or outstanding.


See Notes
to Consolidated Financial Statements




9


NOTES
TO CONSOLIDATED


FINANCIAL
STATEMENTS





1.      ACCOUNTING
POLICIES





Consolidation
and Basis of Presentation





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





1.
            Maine
      Public Service Company (“MPS”) and its wholly-owned inactive Canadian
      subsidiary Maine & New Brunswick Electrical Power Company, Ltd
      (“Me&NB”);2.
            MAM
      Utility Services Group (“MAM USG”); and3.
            Energy
      Atlantic, LLC (“EA”), an inactive subsidiary.





The
Maricor Group (“TMG”) is a wholly-owned subsidiary of MAM.  TMG and
its subsidiaries The Maricor Group New England and The Maricor Group, Canada,
and its subsidiary Mecel Properties, are expected to be dissolved during the
fourth quarter of 2008.  The activity of TMG and its subsidiaries is
reported in discontinued operations.





Maricor
Technologies, Inc. (“MTI”) was a former wholly-owned subsidiary of
MAM.  Substantially all of the assets of MTI were sold on April 13,
2007, and the legal entity of MTI was dissolved on June 28, 2007.  The
activity of MTI through dissolution of the company is reported in discontinued
operations.





MAM was a
50% owner of Maricor Properties Ltd, a Canadian company formerly wholly-owned by
MAM, and its wholly-owned Canadian subsidiary Cornwallis Court Developments Ltd.
(“Cornwallis”).  MAM divested its 50% ownership of Maricor Properties
on March 31, 2008, through a share redemption agreement with Ashford
Investments, Inc. (“Ashford”).





MAM was
also a 50% owner of Maricor Ashford, an inactive joint venture with
Ashford.  As of September 12, 2007, MAM sold its 50% ownership of
Maricor Ashford to Ashford.





MAM is
listed on NYSE Alternext US under the symbol “MAM.”





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





Accounting
Policies





The
Company’s accounting policies are those disclosed in its 2007 Annual Report on
Form 10-K, which is hereby incorporated by this reference.




10





2.      INCOME
TAXES





A summary
of Federal, State and Canadian income taxes charged (credited) to income is
presented below.  For accounting and ratemaking purposes, income tax
provisions (benefits) included in “Operating Expenses” reflect taxes applicable
to revenues and expenses allowable for ratemaking purposes on MPS regulated
activities and unregulated activities for MAM, MAM USG, TMG and
MTI.  The tax effect of items not included in rate base or normal
operating activities is allocated as “Other Income (Deductions).”  The
foreign income taxes include only the Canadian income taxes for Me&NB and
Mecel.





(In
      thousands of dollars)
                                        
                                        For
      the Quarters Ending September 30,
                                        
                                        
                                        For
      the Nine Months Ending September 30,2008
                                        
                                        
                                        2007
                                        
                                        
                                        2008
                                        
                                        
                                        2007Current
      income taxesFederal
                                        
                                        $
                                        856
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        1,901
                                        
                                        
                                        $
                                        -State
                                        
                                        
                                        325
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        682
                                        
                                        
                                        
                                        -Foreign
                                        
                                        
                                        5
                                        
                                        
                                        
                                        5
                                        
                                        
                                        
                                        19
                                        
                                        
                                        
                                        13Total
      current income taxes
                                        
                                        
                                        1,186
                                        
                                        
                                        
                                        5
                                        
                                        
                                        
                                        2,602
                                        
                                        
                                        
                                        13Deferred
      income taxesFederal
                                        
                                        
                                        (696
                                        )
                                        
                                        
                                        (88
                                        )
                                        
                                        
                                        (739
                                        )
                                        
                                        
                                        279State
                                        
                                        
                                        (142
                                        )
                                        
                                        
                                        (294
                                        )
                                        
                                        
                                        (130
                                        )
                                        
                                        
                                        49Total
      deferred income taxes
                                        
                                        
                                        (838
                                        )
                                        
                                        
                                        (382
                                        )
                                        
                                        
                                        (869
                                        )
                                        
                                        
                                        328Investment
      credits, net
                                        
                                        
                                        (5
                                        )
                                        
                                        
                                        (5
                                        )
                                        
                                        
                                        (15
                                        )
                                        
                                        
                                        (15
                                        )Total
      income taxes
                                        
                                        $
                                        343
                                        
                                        
                                        $
                                        (382
                                        )
                                        
                                        $
                                        1,718
                                        
                                        
                                        $
                                        326Allocated
      to:Operating
      income-  Regulated
                                        
                                        $
                                        (10
                                        )
                                        
                                        $
                                        (218
                                        )
                                        
                                        $
                                        1,547
                                        
                                        
                                        $
                                        1,419-  Unregulated
                                        
                                        
                                        354
                                        
                                        
                                        
                                        (111
                                        )
                                        
                                        
                                        177
                                        
                                        
                                        
                                        (533
                                        )Subtotal
                                        
                                        
                                        344
                                        
                                        
                                        
                                        (329
                                        )
                                        
                                        
                                        1,724
                                        
                                        
                                        
                                        886Discontinued
      Operations
                                        
                                        
                                        2
                                        
                                        
                                        
                                        (53
                                        )
                                        
                                        
                                        (13
                                        )
                                        
                                        
                                        (565
                                        )Total
      Operating
                                        
                                        
                                        346
                                        
                                        
                                        
                                        (382
                                        )
                                        
                                        
                                        1,711
                                        
                                        
                                        
                                        321Other
      income
                                        
                                        
                                        (3
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        7
                                        
                                        
                                        
                                        5Total
                                        
                                        $
                                        343
                                        
                                        
                                        $
                                        (382
                                        )
                                        
                                        $
                                        1,718
                                        
                                        
                                        $
                                        326




For the
nine months ended September 30, 2008, and 2007, the effective income tax rates
were 45.9% and 39.3%, respectively.  The principal reason for the
effective tax rate differing from the US federal income tax rate is the earnings
from investments and adjustments to prior year tax estimates.





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 the first three quarters of 2008 or
2007.





In June
2006, the FASB issued FASB Interpretation Number (“FIN”) 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement 109.”This
statement clarifies the criteria that an individual tax position must satisfy
for some or all of the benefits of that position to be recognized in a company’s
financial statements.  FIN 48 requires a tax position must be
more-likely-than-not in order for the position to be recognized in the financial
statements.  The Company does not expect that the amounts of
unrecognized tax benefits will change significantly in the next twelve months,
and no adjustments to reported tax benefits were required under FIN
48.  As of September 30, 2008 and 2007, the Company has accrued no
interest or penalties related to uncertain tax positions.





The
statutes of limitations for audits by Federal, Maine, Massachusetts and Canadian
tax authorities have expired for all tax years ending December 31, 2004, or
earlier.





As
required by SFAS 109 and FIN 48, Management of the Company has evaluated the
positive and negative evidence bearing upon the realizability of the Company’s
deferred tax assets, which consist principally of pension and post-retirement
benefits, net operating loss carryforwards, earnings on investments, and
Accumulated Other Comprehensive Income (“OCI”) on MPS’s interest rate
hedges.  For the nine months ended September 30, 2008, and the year
ended December 31, 2007, Management evaluated the deferred tax assets and
determined a valuation allowance was needed on the earnings on
investments.  Certain distributions from MPS’s investments have been
treated for tax purposes as dividend income, resulting in a deferred tax
asset.  As this will become a capital loss for tax purposes, the
Company cannot be assured capital gains will exist to allow for the use of this
loss, and a valuation allowance has been provided




11





The
following summarizes accumulated deferred income tax (assets) and liabilities
established on temporary differences under SFAS 109 as of September 30, 2008,
and December 31, 2007:





(In
      thousands of dollars)September 30, 2008
                  
                  
                  December
      31, 2007Seabrook
                  
                  $
                  4,664
                  
                  
                  $
                  5,124Property
                  
                  
                  10,334
                  
                  
                  
                  9,527Flexible
      pricing revenue
                  
                  
                  236
                  
                  
                  
                  403Deferred
      fuel
                  
                  
                  10,900
                  
                  
                  
                  12,311Pension
      and post-retirement benefits
                  
                  
                  (3,294
                  )
                  
                  
                  (2,173
                  )Net
      Operating Loss Carryforwards
                  
                  
                  (92
                  )
                  
                  
                  (2,095
                  )Other
      Comprehensive Income
                  
                  
                  (725
                  )
                  
                  
                  (853
                  )Deferred
      Directors' Compensation
                  
                  
                  (433
                  )
                  
                  
                  (388
                  )Other
                  
                  
                  29
                  
                  
                  
                  8Net
      Accumulated Deferred Income Tax Liability from Continuing
      Operations
                  
                  $
                  21,619
                  
                  
                  $
                  21,864Other
      Comprehensive Income
                  
                  
                  399
                  
                  
                  
                  538Other
                  
                  
                  -
                  
                  
                  
                  (11
                  )Net
      Accumulated Deferred Income Tax Liability of Discontinued
      Operations
                  
                  $
                  399
                  
                  
                  $
                  527Net
      Accumulated Deferred Income Tax Liability
                  
                  $
                  22,018
                  
                  
                  $
                  22,391




3.      SEGMENT
INFORMATION





The
Company is organized based on products and services.  Management
monitors the operations of the Company in the following operating
segments:





·
            Regulated
      electric utility: MPS and its inactive wholly-owned Canadian subsidiary,
      Me&NB;





·
            Unregulated
      utility services: MAM USG;





·
            Unregulated
      engineering services: TMG and its subsidiaries and product and service
      lines, classified as discontinued
operations;





·
            Unregulated
      software technology: MTI, classified as discontinued operations;
      and





·
            Other:
      Corporate costs directly associated with the unregulated subsidiaries,
      common costs not allocated to the regulated utility and inter-company
      eliminations.





The
accounting policies of the segments are the same as those described in Note 1,
“Accounting Policies.”  MAM provides certain administrative support
services to MPS and MAM USG, and provided similar services to MTI, and TMG and
its subsidiaries.  The costs of services provided to MPS and MAM USG
are billed to MPS and MAM USG based on a combination of direct charges and
allocations.  The cost of corporate services provided to the other
unregulated entities remains at the holding company, and is not allocated or
charged to the various subsidiaries.





MPS also
provides services to MAM and other affiliates, including administrative
services, such as information technology, human resources and accounting, and
operational services.  The administrative services are billed to MAM
at cost through inter-company transactions.  Operational services for
which MPS has an established rate for charging third parties are charged at
those established rates.




12


(In
      thousands of dollars)Quarter
      Ended September 30, 2008UnregulatedRegulated
                                                  Electric
                                                  Utility
                                                
                                                
                                                Utility
      Services
                                                
                                                
                                                Engineering
      Services
                                                
                                                
                                                Software
      Technology
                                                
                                                
                                                Other
                                                
                                                
                                                TotalRevenues
      from External CustomersRegulated
      Operating Revenues
                                                
                                                $
                                                7,840
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (35
                                                )
                                                
                                                $
                                                7,805Unregulated
      Utility Operating Revenues
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,463
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,463Total
      Operating Revenues
                                                
                                                
                                                7,840
                                                
                                                
                                                
                                                4,463
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (35
                                                )
                                                
                                                
                                                12,268Operating
      ExpensesRegulated
      Operation & Maintenance
                                                
                                                
                                                2,949
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,949Unregulated
      Operation & Maintenance
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,684
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                50
                                                
                                                
                                                
                                                4,734Depreciation
                                                
                                                
                                                762
                                                
                                                
                                                
                                                3
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1
                                                
                                                
                                                
                                                766Amortization
      of Stranded Costs
                                                
                                                
                                                2,728
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,728Amortization
                                                
                                                
                                                54
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                54Taxes
      Other than Income
                                                
                                                
                                                430
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                430Income
      Taxes
                                                
                                                
                                                (10
                                                )
                                                
                                                
                                                (89
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                443
                                                
                                                
                                                
                                                344Total
      Operating Expenses
                                                
                                                
                                                6,913
                                                
                                                
                                                
                                                4,598
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                494
                                                
                                                
                                                
                                                12,005Operating
      Income (Loss)
                                                
                                                
                                                927
                                                
                                                
                                                
                                                (135
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (529
                                                )
                                                
                                                
                                                263Other
      Income (Deductions)Equity
      in Income of Associated Companies
                                                
                                                
                                                37
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                37Interest
      and Dividend Income
                                                
                                                
                                                1
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1Other
      (Deductions) Income
                                                
                                                
                                                1
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1
                                                )
                                                
                                                
                                                -Total
      Other Income (Deductions)
                                                
                                                
                                                39
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1
                                                )
                                                
                                                
                                                38Income
      (Loss) Before Interest Charges
                                                
                                                
                                                966
                                                
                                                
                                                
                                                (135
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (530
                                                )
                                                
                                                
                                                301Interest
      Charges
                                                
                                                
                                                154
                                                
                                                
                                                
                                                3
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                16
                                                
                                                
                                                
                                                173Income
      (Loss) from Continuing Operations
                                                
                                                
                                                812
                                                
                                                
                                                
                                                (138
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (546
                                                )
                                                
                                                
                                                128Income
      from Discontinued Operations:Income
      From Operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3Provision
      for Income Taxes
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2
                                                )Income
      from Discontinued Operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1Net
      Income (Loss)
                                                
                                                $
                                                812
                                                
                                                
                                                $
                                                (138
                                                )
                                                
                                                $
                                                1
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (546
                                                )
                                                
                                                $
                                                129




13




(In
      thousands of dollars)Quarter
      Ended September 30, 2007UnregulatedRegulated
                                                Electric
                                                Utility
                                              
                                              
                                              Utility
      Services
                                              
                                              
                                              Engineering
                                                Services
                                              
                                              
                                              Software
                                                Technology
                                              
                                              
                                              Other
                                              
                                              
                                              TotalRevenues
      from External CustomersRegulated
      Operating Revenues
                                              
                                              $
                                              8,016
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              8,016Operating
      ExpensesRegulated
      Operation & Maintenance
                                              
                                              
                                              4,392
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,392Unregulated
      Operation & Maintenance
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              185
                                              
                                              
                                              
                                              185Depreciation
                                              
                                              
                                              697
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              697Amortization
      of Stranded Costs
                                              
                                              
                                              2,648
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,648Amortization
                                              
                                              
                                              57
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              57Taxes
      Other than Income
                                              
                                              
                                              439
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1
                                              
                                              
                                              
                                              440Income
      Taxes
                                              
                                              
                                              (218
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (111
                                              )
                                              
                                              
                                              (329
                                              )Total
      Operating Expenses
                                              
                                              
                                              8,015
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              75
                                              
                                              
                                              
                                              8,090Operating
      Income (Loss)
                                              
                                              
                                              1
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (75
                                              )
                                              
                                              
                                              (74
                                              )Other
      Income (Deductions)Equity
      in Loss of Associated Companies
                                              
                                              
                                              31
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (3
                                              )
                                              
                                              
                                              28Interest
      and Dividend Income
                                              
                                              
                                              13
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (10
                                              )
                                              
                                              
                                              3Other
      Deductions
                                              
                                              
                                              (6
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (7
                                              )
                                              
                                              
                                              (13
                                              )Total
      Other Income (Deductions)
                                              
                                              
                                              38
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (20
                                              )
                                              
                                              
                                              18Income
      (Loss) Before Interest Charges
                                              
                                              
                                              39
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (95
                                              )
                                              
                                              
                                              (56
                                              )Interest
      Charges
                                              
                                              
                                              229
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              77
                                              
                                              
                                              
                                              306Loss
      from Continuing Operations
                                              
                                              
                                              (190
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (172
                                              )
                                              
                                              
                                              (362
                                              )Loss
      from Discontinued Operations:Gain
      on Sales of Discontinued Operations
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              208
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              208Loss
      From Operations
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (369
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (369
                                              )Benefit
      of Income Taxes
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              53
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              53Loss
      from Discontinued Operations
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (108
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (108
                                              )Net
      Loss
                                              
                                              $
                                              (190
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (108
                                              )
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (172
                                              )
                                              
                                              $
                                              (470
                                              )




14




(In
      thousands of dollars)Nine
      Months Ended September 30, 2008UnregulatedRegulated
                                                              Electric
                                                              Utility
                                                            
                                                            
                                                            Utility
      Services
                                                            
                                                            
                                                            Engineering
      Services
                                                            
                                                            
                                                            Software
      Technology
                                                            
                                                            
                                                            Other
                                                            
                                                            
                                                            TotalRevenues
      from External CustomersRegulated
      Operating Revenues
                                                            
                                                            $
                                                            26,546
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (61
                                                            )
                                                            
                                                            $
                                                            26,485Unregulated
      Utility Operating Revenues
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            7,837
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            7,837Total
      Operating Revenues
                                                            
                                                            
                                                            26,546
                                                            
                                                            
                                                            
                                                            7,837
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (61
                                                            )
                                                            
                                                            
                                                            34,322Operating
      ExpensesRegulated
      Operation & Maintenance
                                                            
                                                            
                                                            9,591
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            9,591Unregulated
      Operation & Maintenance
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            8,208
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            219
                                                            
                                                            
                                                            
                                                            8,427Depreciation
                                                            
                                                            
                                                            2,269
                                                            
                                                            
                                                            
                                                            7
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1
                                                            
                                                            
                                                            
                                                            2,277Amortization
      of Stranded Costs
                                                            
                                                            
                                                            8,184
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            8,184Amortization
                                                            
                                                            
                                                            161
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            161Taxes
      Other than Income
                                                            
                                                            
                                                            1,334
                                                            
                                                            
                                                            
                                                            2
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,336Income
      Taxes
                                                            
                                                            
                                                            1,547
                                                            
                                                            
                                                            
                                                            (150
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            327
                                                            
                                                            
                                                            
                                                            1,724Total
      Operating Expenses
                                                            
                                                            
                                                            23,086
                                                            
                                                            
                                                            
                                                            8,067
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            547
                                                            
                                                            
                                                            
                                                            31,700Operating
      Income (Loss)
                                                            
                                                            
                                                            3,460
                                                            
                                                            
                                                            
                                                            (230
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (608
                                                            )
                                                            
                                                            
                                                            2,622Other
      Income (Deductions)Equity
      in Income (Loss) of Associated Companies
                                                            
                                                            
                                                            112
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (9
                                                            )
                                                            
                                                            
                                                            103Interest
      and Dividend Income
                                                            
                                                            
                                                            23
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (17
                                                            )
                                                            
                                                            
                                                            6Other
      (Deductions) Income
                                                            
                                                            
                                                            (104
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2
                                                            
                                                            
                                                            
                                                            (102
                                                            )Total
      Other (Deductions) Income
                                                            
                                                            
                                                            31
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (24
                                                            )
                                                            
                                                            
                                                            7Income
      (Loss) Before Interest Charges
                                                            
                                                            
                                                            3,491
                                                            
                                                            
                                                            
                                                            (230
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (632
                                                            )
                                                            
                                                            
                                                            2,629Interest
      Charges
                                                            
                                                            
                                                            479
                                                            
                                                            
                                                            
                                                            3
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            100
                                                            
                                                            
                                                            
                                                            582Income
      (Loss) from Continuing Operations
                                                            
                                                            
                                                            3,012
                                                            
                                                            
                                                            
                                                            (233
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (732
                                                            )
                                                            
                                                            
                                                            2,047Loss
      from Discontinued Operations:Loss
      on Sales of Discontinued Operations
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (1
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (1
                                                            )Loss
      From Operations
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (32
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (32
                                                            )Benefit
      of Income Taxes
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            13
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            13Loss
      from Discontinued Operations
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (20
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (20
                                                            )Net
      Income (Loss)
                                                            
                                                            $
                                                            3,012
                                                            
                                                            
                                                            $
                                                            (233
                                                            )
                                                            
                                                            $
                                                            (20
                                                            )
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (732
                                                            )
                                                            
                                                            $
                                                            2,027Total
      Assets
                                                            
                                                            $
                                                            126,144
                                                            
                                                            
                                                            $
                                                            4,608
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (184
                                                            )
                                                            
                                                            $
                                                            130,568


15




(In
      thousands of dollars)Nine
      Months Ended September 30, 2007UnregulatedRegulated
                                                      Electric
                                                      Utility
                                                    
                                                    
                                                    Utility
      Services
                                                    
                                                    
                                                    Engineering
                                                      Services
                                                    
                                                    
                                                    Software
                                                      Technology
                                                    
                                                    
                                                    Other
                                                    
                                                    
                                                    TotalRevenues
      from External CustomersRegulated
      Operating Revenues
                                                    
                                                    $
                                                    26,882
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    26,882Operating
      ExpensesRegulated
      Operation & Maintenance
                                                    
                                                    
                                                    10,936
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    10,936Unregulated
      Operation & Maintenance
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,032
                                                    
                                                    
                                                    
                                                    1,032Depreciation
                                                    
                                                    
                                                    2,104
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,104Amortization
      of Stranded Costs
                                                    
                                                    
                                                    8,099
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    8,099Amortization
                                                    
                                                    
                                                    173
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    173Taxes
      Other than Income
                                                    
                                                    
                                                    1,320
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    5
                                                    
                                                    
                                                    
                                                    1,325Income
      Taxes
                                                    
                                                    
                                                    1,419
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (533
                                                    )
                                                    
                                                    
                                                    886Total
      Operating Expenses
                                                    
                                                    
                                                    24,051
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    504
                                                    
                                                    
                                                    
                                                    24,555Operating
      Income (Loss)
                                                    
                                                    
                                                    2,831
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (504
                                                    )
                                                    
                                                    
                                                    2,327Other
      Income (Deductions)Equity
      in Loss of Associated Companies
                                                    
                                                    
                                                    33
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (39
                                                    )
                                                    
                                                    
                                                    (6
                                                    )Interest
      and Dividend Income
                                                    
                                                    
                                                    47
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (31
                                                    )
                                                    
                                                    
                                                    16Other
      Deductions
                                                    
                                                    
                                                    (48
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (14
                                                    )
                                                    
                                                    
                                                    (62
                                                    )Total
      Other Deductions
                                                    
                                                    
                                                    32
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (84
                                                    )
                                                    
                                                    
                                                    (52
                                                    )Income
      (Loss) Before Interest Charges
                                                    
                                                    
                                                    2,863
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (588
                                                    )
                                                    
                                                    
                                                    2,275Interest
      Charges
                                                    
                                                    
                                                    640
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    251
                                                    
                                                    
                                                    
                                                    891Income
      (Loss) from Continuing Operations
                                                    
                                                    
                                                    2,223
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (839
                                                    )
                                                    
                                                    
                                                    1,384Loss
      from Discontinued Operations:Loss
      on Sales of Discontinued Operations
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (154
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (154
                                                    )Loss
      From Operations
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (881
                                                    )
                                                    
                                                    
                                                    (411
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (1,292
                                                    )Benefit
      of Income Taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    401
                                                    
                                                    
                                                    
                                                    164
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    565Loss
      from Discontinued Operations
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (634
                                                    )
                                                    
                                                    
                                                    (247
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (881
                                                    )Net
      Income (Loss)
                                                    
                                                    $
                                                    2,223
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    (634
                                                    )
                                                    
                                                    $
                                                    (247
                                                    )
                                                    
                                                    $
                                                    (839
                                                    )
                                                    
                                                    $
                                                    503Total
      Assets
                                                    
                                                    $
                                                    133,964
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    3,709
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    (148
                                                    )
                                                    
                                                    $
                                                    137,525







4.      INVESTMENTS
IN ASSOCIATED COMPANIES





Maine
Yankee and MEPCO





MPS owns
5% of the common stock of Maine Yankee Atomic Power Company (“Maine Yankee”), a
jointly-owned nuclear electric power company, and 7.49% of the common stock of
Maine Electric Power Company, Inc. (“MEPCO”), a jointly-owned electric
transmission company.  Although MPS’s ownership percentage of these
entities is relatively low, it does have influence over the operating and
financial decisions of these companies through board representation, and,
therefore, MPS records its investment in MEPCO and Maine Yankee using the equity
method.  This is consistent with industry practice for similar
jointly-owned units.





No
dividends were paid by Maine Yankee in the nine months of 2008.  Maine
Yankee declared and paid a $20,000 dividend and a $250,000 stock redemption in
the first nine months of 2007.  Maine Yankee also declared a $20,000
dividend in September 2007 that was received in October 2007.  MPS
received dividends of $2,000 from MEPCO in each of the first three quarters of
2008 and 2007.





Substantially
all earnings of Maine Yankee and MEPCO are distributed to investor
companies.





5.      STOCK
COMPENSATION PLANS





Upon
approval by MPS’s shareholders in June 2002, MPS adopted the 2002 Stock Option
Plan (the “Plan”).  The Plan was subsequently adopted by MAM after its
formation.  The Plan, excluding these options outstanding, was
terminated by the MAM Board of
Directors on March 14, 2008.  The former CEO was the only employee to
receive stock options under this Plan, with 3,932 options outstanding for the
remainder of their original ten-year terms.




16


The
Company accounts for the fair value of its grants under the Plan in accordance
with the expense provisions of SFAS 123(R), “Accounting for Stock-Based
Compensation.”  The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for the grants:





Year
      of Issuance
                        
                        2003
                        
                        
                        2002Number
      of Options Granted
                        
                        
                        1,966
                        
                        
                        
                        1,966Exercise
      Price
                        
                        $
                        30.10
                        
                        
                        $
                        30.45Vesting
      Period
                        
                        3
      years
                        
                        
                        3
      yearsNumber
      of Options Vested and Exercisable
                        
                        
                        1,966
                        
                        
                        
                        1,966Dividend
      Yield
                        
                        
                        4.60
                        %
                        
                        
                        4.70
                        %Volatility
                        
                        
                        20.00
                        %
                        
                        
                        20.00
                        %Risk-Free
      Interest Rate
                        
                        
                        3.00
                        %
                        
                        
                        4.60
                        %Expected
      Life
                        
                        7
      years
                        
                        
                        7
      years








The
options issued in 2002 expire May 31, 2012.  The options issued in
2003 expire May 31, 2013.  No options were granted, exercised,
forfeited or expired during the quarter. The weighted-average fair value of the
options granted is $4.17.





Dilutive
earnings per share impact of outstanding stock options:




Quarters
      Ended September 30,
                    
                    
                    Nine
      Months Ended September 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Net
      Income (Loss) (in thousands)
                    
                    $
                    129
                    
                    
                    $
                    (470
                    )
                    
                    $
                    2,027
                    
                    
                    $
                    503Shares
      Used in Computation of EarningsWeighted-Average
      Common Shares Outstanding in Computation of Basic Earnings per
      Share
                    
                    
                    1,678,249
                    
                    
                    
                    1,677,430
                    
                    
                    
                    1,678,069
                    
                    
                    
                    1,667,147Dilutive
      Effect of Common Stock Options
                    
                    
                    733
                    
                    
                    
                    -
                    
                    
                    
                    336
                    
                    
                    
                    -Shares
      Used in Computation of Earnings per Common Share Assuming
      Dilution
                    
                    
                    1,678,982
                    
                    
                    
                    1,677,430
                    
                    
                    
                    1,678,405
                    
                    
                    
                    1,667,147Net
      Income (Loss) per Share (Basic)
                    
                    $
                    0.08
                    
                    
                    $
                    (0.28
                    )
                    
                    $
                    1.21
                    
                    
                    $
                    0.30Net
      Income (Loss) per Share (Diluted)
                    
                    $
                    0.08
                    
                    
                    $
                    (0.28
                    )
                    
                    $
                    1.21
                    
                    
                    $
                    0.30




The 2008
Stock Plan was approved at the May 13, 2008, Annual Stockholders
Meeting.  This plan allows for the Performance and Compensation
Committee of the MAM Board of Directors to grant up to 85,000 shares of MAM
stock to employees.  No more than 10,000 shares may be granted to any
one employee during a five-year period, and the Performance and Compensation
Committee may condition the grant or vesting of the stock awards on attainment
of performance goals or the passage of time.  No shares have been
granted under this plan since inception.





6.      DEFERRED
DIRECTORS’ COMPENSATION





The
compensation program for the MAM Board of Directors includes an option for the
directors to defer some or all of their fees, rather than taking those fees in
cash each quarter.  The first deferral option grants the director a
number of phantom shares of stock, with the number granted equivalent to the
fees earned for the quarter, divided by the closing share price on the last day
of that quarter.  The cumulative deferred phantom shares are marked to
the closing share price on the last day of each quarter, and the adjustment is
recorded as expense.  If applicable, any dividends paid are also
converted to an equivalent number of phantom shares, and are added to the
cumulative deferred total.





During
the third quarter of 2008, the equivalent of 1,032 shares was deferred, bringing
the total deferred through September 30, 2008, to the equivalent of 34,381
shares.  The share price on that date was $32.95, resulting in a $1.1
million liability recorded on the Consolidated Balance Sheet under
“Miscellaneous Liabilities.” During the third quarter of 2008, there was a
$293,000 reduction to operating expense, before tax, as a result of a decrease
in the Company’s stock price.  This unfunded liability is payable upon
termination of services of the director.  The plan allows for a lump
sum distribution or a monthly payment over ten years.  All directors
currently participating in this deferral plan have elected the ten-year payment
option.





The
second deferral option allows directors to postpone payment of their fees in
cash and earn interest on the deferred amounts at a rate adjusted quarterly to
the five-year Treasury Note rate.  The unfunded obligation under this
deferral program is $23,000, and is also recorded under “Miscellaneous
Liabilities” on the Consolidated Balance Sheets.





17





7.      BENEFIT
PROGRAMS





The
Company provides certain pension, post-retirement and other benefit
programs to its employees.  Benefit programs are an integral part of
the Company’s commitment to hiring and retaining employees, and providing
market-based compensation that rewards individual and corporate
performance.  The Company offers benefit plans to all employees,
consisting of health care, life insurance, long-term disability, and accidental
disability insurance.  The Company also offers a retirement savings
program to most employees in the form of a 401(k) plan.  This plan
allows voluntary contributions by the employee and may contain a contribution by
the Company.


U.
S. Defined Benefit Pension Plan




The
Company has a non-contributory defined benefit pension plan covering MPS and
certain former MAM employees.  No employees of other unregulated
businesses are eligible for this benefit plan.  Benefits under the
plan are based on employees’ years of service and compensation prior to
retirement.





On August
17, 2006, the Pension Protection Act was signed into law.  Included in
this legislation are new minimum funding rules that will go into effect for plan
years beginning in 2008.  The funding target is 100% of a plan’s
liability, with any shortfall amortized over seven years.  There are
lower funding targets, between 92% and 100%, available to well-funded plans
during the transition period.





On
December 31, 2006, future salary and service accruals for current participants
in the plan ceased, and any new employees hired on or after January 1, 2006, are
not eligible for the pension plan.  The Company agreed to additional
employer contributions to the Retirement Savings Plan to compensate employees,
in part or in full, depending on their number of years of service, for this lost
benefit.  This additional contribution ranges from 5% to 25% of each
eligible employee’s gross base pay, and is immediately fully
vested.  This contribution was $541,000 and $552,000 in the first nine
months of 2008 and 2007, respectively.





The
Company’s policy has been to fund pension costs accrued.  For the 2008
plan year, the Company contributed $41,000 in April, July and October
2008.   The Company also expects to contribute approximately
$51,000 during 2009 for 2008.  The fair market value of pension assets
has decreased approximately $3.4 million or 20% from December 31, 2007, to
September 30, 2008, as a result of current financial market
conditions.  If these market conditions do not improve by December 31,
2008, the contributions required for 2009 and 2010 in accordance with
the Pension Protection Act will be significantly higher than
2008 contributions. The exact
amount of these contributions is not known at this time; an actuarial study will
be performed during 2009 to quantify the minimum contributions for 2009 and
2010.





The
following table sets forth the plan’s net periodic benefit income:





(In
      thousands of dollars)
                  
                  Pension
      BenefitsQuarters
      Ended September 30,
                  
                  
                  Nine
      Months Ended September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Interest
      cost
                  
                  $
                  268
                  
                  
                  $
                  265
                  
                  
                  $
                  805
                  
                  
                  $
                  795Expected
      return on plan assets
                  
                  
                  (305
                  )
                  
                  
                  (290
                  )
                  
                  
                  (914
                  )
                  
                  
                  (870
                  )Recognized
      net actuarial loss
                  
                  
                  19
                  
                  
                  
                  16
                  
                  
                  
                  56
                  
                  
                  
                  48Net
      periodic benefit income
                  
                  $
                  (18
                  )
                  
                  $
                  (9
                  )
                  
                  $
                  (53
                  )
                  
                  $
                  (27
                  )





Health
Care Benefits





The
Company provides certain health care benefits to eligible
employees.  Eligible employees share in the cost of their medical
benefits, in addition to plan deductibles and coinsurance
payments.  The plan also covers retiree medical coverage for employees
of Maine Public Service Company, the regulated utility.  Employees
hired on or after October 1, 2005, are not eligible for post-retirement medical
coverage.




18





The
following table sets forth the plans’ net periodic benefit cost:





(In
      thousands of dollars)
                  
                  Health
      Care BenefitsQuarters
      Ended September 30,
                  
                  
                  Nine
      Months Ended September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Service
      cost
                  
                  $
                  50
                  
                  
                  $
                  45
                  
                  
                  $
                  150
                  
                  
                  $
                  135Interest
      cost
                  
                  
                  142
                  
                  
                  
                  124
                  
                  
                  
                  425
                  
                  
                  
                  372Expected
      return on plan assets
                  
                  
                  (57
                  )
                  
                  
                  (53
                  )
                  
                  
                  (170
                  )
                  
                  
                  (159
                  )Amortization
      of transition obligation
                  
                  
                  18
                  
                  
                  
                  18
                  
                  
                  
                  54
                  
                  
                  
                  54Amortization
      of prior service cost
                  
                  
                  (15
                  )
                  
                  
                  (15
                  )
                  
                  
                  (45
                  )
                  
                  
                  (45
                  )Recognized
      net actuarial loss
                  
                  
                  47
                  
                  
                  
                  45
                  
                  
                  
                  142
                  
                  
                  
                  135Net
      periodic benefit cost
                  
                  $
                  185
                  
                  
                  $
                  164
                  
                  
                  $
                  556
                  
                  
                  $
                  492




8.      COMMITMENTS,
CONTINGENCIES AND REGULATORY MATTERS




Federal
Energy Regulatory Commission 2008 Open Access Transmission Tariff Formula Rate
Filing




On June
16, 2008, MPS filed its updated rates under the 2008 Open Access Transmission
Tariff (“OATT”) formula pursuant to Docket ER00-1053 for both wholesale and
retail customers.  The revenue decreases were approximately $230,000
or 28% for wholesale customers, effective June 1, 2008, and $670,000 or 18% for
retail customers, effective July 1, 2008.  The decrease is primarily
associated with wheeling revenue collected from generators exporting electricity
off the MPS system during 2007.  The proceeding and potential
settlement negotiations are underway; the final change in rates could differ
from the initial filing.  MPS cannot determine the ultimate outcome at
this time.




MPS
and CMP File with FERC for Incentive Rate Treatment on MPC Transmission Line
Project




In their
filing on July 18, 2008, MPS and Central Maine Power Company (“CMP”) jointly
filed with FERC for incentive rate treatment on their Maine Power Connection
transmission line project (“MPC” or the “Project”), a proposed 200-mile 345
kilovolt transmission line and new and upgraded substations.  For MPS,
the incentive rate treatment requested was 150 basis points above our current
10.5% return on equity for transmission.  Additionally, in the event
the Project is cancelled, MPS and CMP are seeking authorization to recover costs
related to the abandonment of the Project.  MPS has currently deferred
approximately $517,000 of costs associated with the Project, reported in the
Consolidated Balance Sheet at “Other Assets.”  The filing requested
that FERC issue a decision by September 18, 2008; however, a decision has not
yet been reached.  The decision in this filing cannot be
predicted.




Also
within the July 18, 2008, filing, MPS and CMP provided a Project cost estimate
of $625 million, with MPS’s investment up to 30% of this amount, or $184
million.  These are preliminary estimates of both the total project
cost and MPS’s investment; actual cost and investment is dependent on many
factors and could be materially higher or lower.




MPS
and CMP File with MPUC for Certificate of Public Convenience and
Necessity




On
July 1, 2008, MPS and CMP jointly filed for a Certificate of Public Convenience
and Necessity (“CPCN”) under MPUC Docket No. 2008-256 related to the MPC
transmission line project.  On October 8, 2008, the MPUC denied a
motion to dismiss by some of the opposing parties in this Docket. The MPUC has
not yet issued a scheduling order in this Docket.  A Commission
decision in this Docket is expected no earlier than the second quarter of
2009.





MPS and
CMP continue to pursue the transmission line studies. MPS and CMP entered into a
Joint Development Agreement on October 2, 2008.




MPUC
Investigation of Maine Utilities Continued Participation in ISO-NE




On April
8, 2008, the MPUC initiated an investigation in Docket No. 2008-156 of Maine
utilities continued participation in ISO New England (“ISO-NE”) and the New
England Regional Transmission Organization.  MPS is not currently a
member of ISO-NE.  However, as noted in the Stakeholder Initiative
Regarding the Competitiveness and Reliability of the Northern Maine Power Grid
discussed in MAM’s 2007 Form 10-K and March 31, 2008 and June 30, 2008, Forms
10-Q, the Company has requested to become a member of ISO-NE if certain
conditions are met.  MPS has been an active participant in this
Docket.  The Company cannot predict the outcome of this
case.




19




Reduction
of Stated Capital of Maine & New Brunswick Electrical Power Company,
Ltd.




In the
Order Approving Stipulation under MPUC Docket No. 2002-676, “Maine Public Service Company Request
for Approval of Reorganization of the Company into a Holding Company Structure,”MPS received permission from the MPUC to wind up and dissolve Me&NB
at such future time as MPS deemed appropriate.  In September 2008, MPS
filed notice with the MPUC and partially liquidated its investment in
Me&NB.  This partial liquidation reduced MPS’s equity investment
in Me&NB from $1 million to $150,000, with $850,000 cash returned from
Me&NB to MPS, to be used to fund MPS working capital needs.





Wheelabrator-Sherman





MPS was
ordered into a Power Purchase Agreement with Wheelabrator-Sherman in 1986, which
required the purchase of the entire output (up to 126,582 MWH per year) of a
17.6 MW biomass plant through December 31, 2006.  Total stranded costs
included as regulatory assets under the caption “Deferred Fuel and Purchased
Energy Costs” in the Consolidated Balance Sheet related to this contract are
$27.3 million and $30.9 million at September 30, 2008, and December 31, 2007,
respectively.





Poly
Chlorinated Bi-Phenol Transformers





In
response to a Maine environmental regulation to phase out Poly Chlorinated
Bi-phenol (“PCB”) transformers, MPS has a program to eliminate transformers on
its system that do not meet the State environmental guidelines. The Company is
in the process of inspecting almost 13,000 distribution transformers over a
ten-year period.  MPS is currently in its eighth year of this ten-year
program.  Approximately 35% of the transformers inspected require “in
service” PCB oil sampling.  In addition, transformers that pass the
inspection criteria will be refitted with new lightning arrestors and animal
guards, where necessary.  The current total estimated cost of the
project is $3.0 million; as of September 30, 2008, $2.5 million of this total
has been spent.  The remaining cost of the project has been accrued on the
Consolidated Balance Sheet as “Accrued Removal Obligations.”





Off-Balance
Sheet Arrangements





The
Company has several operating leases for office and field equipment, vehicles
and office space, accounted for in accordance with SFAS 13, Accounting for
Leases.  The following summarizes payments for leases for a
period in excess of one year for the nine months ended September 30, 2008, and
2007:





(In thousands of
    dollars)
                                            
                                            2008
                                            
                                            
                                            2007Office
      Equipment
                                            
                                            $
                                            5
                                            
                                            
                                            $
                                            33Building
                                            
                                            
                                            97
                                            
                                            
                                            
                                            160Vehicles
                                            
                                            
                                            -
                                            
                                            
                                            
                                            28Field
      Equipment
                                            
                                            
                                            9
                                            
                                            
                                            
                                            8Rights
      of Way
                                            
                                            
                                            27
                                            
                                            
                                            
                                            41Total
                                            
                                            $
                                            138
                                            
                                            
                                            $
                                            270





The
future minimum lease payments amounts reported as of December 31, 2007, included
lease payments for TMGNE’s former space in Hudson, Massachusetts, of $72,000 in
2008 and $30,000 in 2009.  With the termination of the Hudson lease on
May 9, 2008, for $59,000, the remainder of these payments, or approximately
$43,000, is no longer required.  The remaining future minimum lease
payments reported as of December 31, 2007, have not changed
materially.  Refer to MAM’s 2007 Form 10-K for these future lease
payments.





Financial
Information System Hosting Agreement




In 2007, the Company renegotiated its financial information system hosting
agreement with OneNeck IT Services to host and provide technical and functional
support for the integrated Oracle Financial Information System.  As a
result of the negotiation, the base hosting fees were reduced to $537,500 per
year for 2007 through 2013.





9.      CAPITAL
LEASES





MPS
financed certain of its 2006 and 2007 vehicle and computer equipment purchases
through capital leases, totaling $820,000.  The remaining liability as
of September 30, 2008, for these capital lease arrangements is approximately
$507,000, and is recorded within “Miscellaneous Liabilities” on the Consolidated
Balance Sheet.  Future minimum lease payments have not changed from
the amounts reported as of December 31, 2007.  Refer to MAM’s 2007
Form 10-K for these future lease payments.




20





10.           FAIR
VALUE DISCLOSURES


On
January 1, 2008, the Company adopted SFAS 157, “Fair Value
Measurements.”  SFAS 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures requirements about
fair value measurements.  This standard applies to reported balances
that are required or permitted to be measured at fair value under existing
accounting pronouncements.  The standard does not require any new fair
value measurements.




SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement.  Therefore, a fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset
or liability.  SFAS 157 establishes a three-level fair value hierarchy
as the basis for considering market participant assumptions in fair value
measurements.  The input levels are defined as follows:





·
            Level
      1 inputs:  Unadjusted quoted prices in active markets for
      identical assets or liabilities that the Company has the ability to
      access.





·
            Level
      2 inputs:  Inputs other than quoted prices included in Level 1
      that are observable for the asset or liability, either directly or
      indirectly, including quoted prices for similar assets and liabilities in
      active markets, as well as other observable inputs for the asset or
      liability, such as interest rates, foreign exchange rates, and yield
      curves that are observable at commonly quoted
  intervals.





·
            Level
      3 inputs:  Unobservable inputs for the asset or liability,
      typically based on an entity’s own assumptions, as there is little, if
      any, related market activity.





In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.





Currently,
the Company uses interest rate swaps to manage its interest rate
risk.  The valuation of these instruments is determined using widely
accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of each derivative.  This analysis reflects the
contractual terms of the derivatives, including the period to maturity, and uses
observable market-based inputs.  This valuation relies on Level 2
inputs.





The fair
value of the interest rate hedges as of September 30, 2008, was a liability of
$1.93 million, compared to a liability of $2.26 million at December 31, 2007, a
year-to-date gain in fair value of $328,000.  This gain, less the
deferred income tax provision of $131,000, has been reported as “Other
Comprehensive (Loss) Income” on the Consolidated Statement of Shareholders’
Equity.





11.           DISCONTINUED
OPERATIONS





The
Maricor Group





The
operations of TMG largely ceased during 2007, with the sale of substantially all
of the assets of TMGC in June 2007, and the closure of TMGNE in August
2007.  Mecel Properties, a wholly-owned Canadian subsidiary of TMGC,
was the only TMG operation remaining in 2008.  On May 30, 2008, the
Mecel building was sold for approximately $572,000 Canadian, resulting in a
$1,000 loss on the sale.  Mecel’s operations ceased with the sale of
the building.





The net
loss for unregulated engineering services is composed of the
following:





(in
      thousands of dollars)
                
                Quarters
      Ended September 30,
                
                
                Nine
      Months Ended September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Income
      (Loss) From Operations:Gain
      (Loss) on Sale of Discontinued Operations
                
                $
                -
                
                
                $
                208
                
                
                $
                (1
                )
                
                $
                (154
                )Operating
      Revenue
                
                
                -
                
                
                
                82
                
                
                
                26
                
                
                
                2,374Expenses
                
                
                3
                
                
                
                (451
                )
                
                
                (58
                )
                
                
                (3,256
                )Income
      (Loss) from Operations
                
                
                3
                
                
                
                (161
                )
                
                
                (33
                )
                
                
                (1,036
                )(Provision
      for (Benefit of) Income Taxes
                
                
                (2
                )
                
                
                53
                
                
                
                13
                
                
                
                402Net
      Income (Loss) — Unregulated Engineering Services
                
                $
                1
                
                
                $
                (108
                )
                
                $
                (20
                )
                
                $
                (634
                )




21




Maricor
Technologies





MAM
divested all of the assets reported as Unregulated Software Technology during
2007.  The operations for this segment have been classified as
discontinued operations.




The
operating revenue and net loss for unregulated software technology for the first
nine months of 2007 was as follows:





(in
      thousands of dollars)
                        
                        Nine
      Months Ended September 30, 2007Loss
      From Operations:Operating
      Revenue
                        
                        $
                        135Expenses
                        
                        
                        (546
                        )Loss
      From Operations
                        
                        
                        (411
                        )Benefit
      of Income Taxes
                        
                        
                        164Net
      Loss — Unregulated Software Technology
                        
                        $
                        (247
                        )








There was
no impact on earnings from MTI after the second quarter of 2007, and no assets,
liabilities or equity in MTI at September 30, 2007, or after.





12.           SUBSEQUENT
EVENTS





In
October 2008, public notice was posted in Nova Scotia, Canada, for the
dissolution of TMGC.  Under Statement of Financial Accounting
Standards No. 52, “Foreign
Currency Translation,”the currency translation adjustment accumulated in
Other Comprehensive Income (“OCI”) within Shareholders’ Equity is realized upon
complete or substantially complete liquidation of the foreign
entity.  With the dissolution expected in the fourth quarter, MAM’s
foreign investment in TMGC will be completely liquidated, and this accumulated
OCI will be recognized as a Foreign Currency Gain.  Based on an
estimated dissolution date of October 24, 2008, currently pending approval from
the Nova Scotia Registry of Joint Stock Companies, the accumulated OCI related
to foreign exchange on MAM’s investment in TMGC was estimated at between
$900,000 and $1 million.




22




PART
1. FINANCIAL INFORMATION





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





Forward-Looking
Statements




This
filing contains certain “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995, related to the expected future
performance of our plans and objectives, such as forecasts and projections of
expected future performance or statements of Management’s plans and
objectives.  These forward-looking statements may be contained in
filings with the SEC and in press releases and oral statements.  We
use words such as “anticipate,” “estimate,” “predict,” “expect,” “project,”
“intend,” “plan,” “believe,” and other words and terms of similar meaning in
connection with any discussion of future operating or financial
performance.  These statements are based on the current expectations,
estimates or projections of Management and are not guarantees of future
performance.  Some or all of these forward-looking statements may not
turn out to be what the Company expected. Actual results will differ, and some
of the differences may be material.




Factors
that could cause actual results to differ materially from our projections
include, among other matters, legislation and regulation; construction and
financing of new transmission facilities; development of MAM USG; attraction and
retention of qualified employees; economy of the region and general economic
conditions; competitive conditions; holding company structures; interest rate
and debt covenant risk; pension plan investments; information technology;
environmental risks; aging infrastructure and reliability; weather; vandalism,
terrorism and other illegal acts; development of renewable generation in our
service territory; professional liability; final settlement of remaining
obligations of discontinued operations; divestiture of unregulated real estate;
and foreign operations.  Therefore, no assurances can be given that
the outcomes stated in such forward-looking statements and estimates will be
achieved.





Accounting
Policies





Critical
accounting policies are disclosed in the Company’s 2007 Annual Report on Form
10-K.





Results
of Operations and Executive Overview




Net Income and Earnings Per Share


Quarters
      Ended September 30,
                
                
                Nine
      Months Ended September 30,(Dollars
      in Thousands Except per Share Amounts)
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007Income
      (Loss) from Continuing OperationsRegulated
      Electric Utility
                
                $
                812
                
                
                $
                (190
                )
                
                $
                3,012
                
                
                $
                2,223Unregulated
      Utility Services
                
                
                (138
                )
                
                
                -
                
                
                
                (233
                )
                
                
                -Other*
                
                
                (546
                )
                
                
                (172
                )
                
                
                (732
                )
                
                
                (839
                )Income
      (Loss) from Continuing Operations
                
                
                128
                
                
                
                (362
                )
                
                
                2,047
                
                
                
                1,384Income
      (Loss) from Discontinued OperationsUnregulated
      Engineering Services
                
                
                1
                
                
                
                (108
                )
                
                
                (20
                )
                
                
                (634
                )Unregulated
      Software Technology
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (247
                )Income
      (Loss) from Discontinued Operations
                
                
                1
                
                
                
                (108
                )
                
                
                (20
                )
                
                
                (881
                )Net
      Income (Loss)
                
                $
                129
                
                
                $
                (470
                )
                
                $
                2,027
                
                
                $
                503Basic
      Earnings (Loss) Per Share
                
                $
                0.08
                
                
                $
                (0.28
                )
                
                $
                1.21
                
                
                $
                0.30





*The
“Other” line includes corporate costs directly associated with the unregulated
subsidiaries, common costs not allocated to the regulated utility or unregulated
utility services and inter-company eliminations.





On a
consolidated basis, MAM has continued its 2008 trend of outperforming 2007
quarter and year-to-date financial performance for both continuing and
discontinued operations.  Net income from continuing operations for
the third quarter is $128,000, up from a net loss from continuing operations of
$(362,000) for the third quarter of 2007.  The improvement in
year-to-date net income from continuing operations from 2007 to 2008 is $663,000
or 47.9%.   Generally, this positive financial performance is
driven by three primary factors:





·
            Corporate
      wide cost control;


·
            Revenues
      from MAM USG covering corporate fixed overheads and costs;
    and


·
            Deferral
      of costs on MPS’s balance sheet related to work on our proposed
      transmission investment in the MPC
project.





The positive
financial performance is led by MPS.  Despite revenue volumes being
down due to lower KWH usage by our customer base, MPS continues to show solid
financial performance.  While we believe the negative usage trend is a
result of the overall economy and high fuel and energy costs for consumers
causing some conservation of their usage, we do not believe that future
conservation measures by our customers will continue at the same declining
rate.   MPS also experienced a reduction in direct and allocated
expenses due to (a) deferrals of costs for the MPC project and (b) labor cost of
MPS employees being utilized by and charged to our utility services
group.




23




MPS and
its partner, CMP, continue to pursue the MPC Project
transmission studies.  Also, the two parties executed a
Joint Development Agreement on October 2, 2008.  This agreement
outlines the cost-sharing and decision-making terms of the development phase of
the MPC project, as well as laying the groundwork for the structure of a Joint
Ownership Agreement that will follow if the project is approved.  On
October 8, 2008, the MPUC denied a motion to dismiss the filing for a
Certificate of Public Convenience and Necessity for this project.  The
MPUC has not yet issued a scheduling order in this case.  Refer to
Part II, Item 1 for further updates on the status of federal and state
regulatory proceedings.





At MAM
USG, our utility services group continues to grow its revenue largely as a
result of electrical contracting work related to two wind farm
projects.  Although we are disappointed that the segment including all
allocated overheads results in a loss for the quarter and year to date, the
segment did absorb $61,000 and $270,000 for the quarter and year-to-date,
respectively, of corporate overheads and common costs which would have otherwise
been charged to the regulated utility and / or other operating
segments.





Regulated
Operations





Regulated
operations include MPS and Me&NB, the Company’s regulated subsidiary and its
inactive unregulated Canadian subsidiary:





Quarters
      Ended
                    
                    
                    Nine
      Months EndedSeptember
      30,
                    
                    
                    September
      30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Net
      Income (Loss) — Regulated Electric Utility (In thousands)
                    
                    $
                    812
                    
                    
                    $
                    (190
                    )
                    
                    $
                    3,012
                    
                    
                    $
                    2,223Earnings
      (Loss) Per Share from Regulated Electric Utilities
                    
                    $
                    0.48
                    
                    
                    $
                    (0.11
                    )
                    
                    $
                    1.80
                    
                    
                    $
                    1.33




Regulated
Operating Revenue





Consolidated
revenues (in thousands of dollars) and Megawatt Hours (“MWH”) for the quarters
and nine months ended September 30, 2008, and 2007, are as follows:





Quarters
      Ended September 30,
                
                
                Nine
      Months Ended September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Dollars
                
                
                MWH
                
                
                Dollars
                
                
                MWH
                
                
                Dollars
                
                
                MWH
                
                
                Dollars
                
                
                MWHResidential
                
                $
                3,481
                
                
                
                40,963
                
                
                $
                3,531
                
                
                
                41,515
                
                
                $
                11,387
                
                
                
                133,597
                
                
                $
                11,424
                
                
                
                135,637Large
      Commercial
                
                
                915
                
                
                
                37,319
                
                
                
                1,102
                
                
                
                42,621
                
                
                
                3,211
                
                
                
                112,722
                
                
                
                3,609
                
                
                
                129,035Medium
      Commercial
                
                
                1,101
                
                
                
                27,274
                
                
                
                1,164
                
                
                
                27,594
                
                
                
                4,017
                
                
                
                77,965
                
                
                
                4,149
                
                
                
                80,885Small
      Commercial
                
                
                1,373
                
                
                
                21,277
                
                
                
                1,373
                
                
                
                20,952
                
                
                
                5,255
                
                
                
                68,615
                
                
                
                5,290
                
                
                
                69,249Other
      Retail
                
                
                227
                
                
                
                842
                
                
                
                232
                
                
                
                849
                
                
                
                690
                
                
                
                2,541
                
                
                
                688
                
                
                
                2,544Total
      Regulated Retail
                
                
                7,097
                
                
                
                127,675
                
                
                
                7,402
                
                
                
                133,531
                
                
                
                24,560
                
                
                
                395,440
                
                
                
                25,160
                
                
                
                417,350Other
      Regulated Operating Revenue
                
                
                743
                
                
                
                
                
                
                
                614
                
                
                
                
                
                
                
                1,986
                
                
                
                
                
                
                
                1,722Total
      Regulated Revenue
                
                $
                7,840
                
                
                
                
                
                
                $
                8,016
                
                
                
                
                
                
                $
                26,546
                
                
                
                
                
                
                $
                26,882








Similar
to the first half of 2008, regulated operating revenue was down for the third
quarter of 2008, compared to the same period of 2007.  We are
continuing to see the trend of customers ceasing or cutting back operations, or
implementing conservation efforts in order to reduce energy
consumption.





Residential
revenue volume decreased 552 MWH or 1.3%, reducing revenue approximately $50,000
compared to the third quarter of 2007.  Medium and small commercial
customer volume was consistent with prior year; however, due to lower average
rates in the medium commercial group, revenue for these customers is down
$63,000.





In the
third quarter of 2008, large commercial customer volume is down 5,302 MWH or
12.4% compared to the same period of 2007.  As a result, revenue is
down $187,000 or 17.0%.  The decreases are due to the combination of
rate reductions and various companies in our service territory, primarily in
wood and lumber related industries, scaling back operations or
closing.  Large commercial customer transmission rates decreased
approximately 18% on average with the rates effective July 1, 2008, and large
commercial customers are no longer charged DSM rates, effective January 1,
2008.




24




Other
regulated operating revenue has increased from prior year, up
$129,000.  Higher wheeling volume, primarily from a wind project
located in MPS’s service area, accounted for $96,000 of this
increase.





Year-to-date,
residential revenue dollars are down $37,000 or 0.3%.  The 2,040 MWH
or 1.5% decrease in volume was partly offset by slightly higher average
rates.  Medium and small commercial customer revenue is down $167,000
on a 3,554 MWH or 2.4% decrease in volume.





Large
commercial customer volume is down 16,313 MWH or 12.6% for the year-to-date,
resulting in a $398,000 decrease in revenue dollars.





Wheeling
revenue is also up, resulting in the $264,000 increase in other regulated
operating revenue for the first nine month of 2008 compared to the first nine
months of 2007.





MPS’s
2008 OATT formula was filed June 16, 2008, based on the 2007 test
year.  As described in earlier filings, MPS transmission rates are
based on the Company’s revenue requirement (transmission expenses plus the
allowed rate of return on assets) less the wheeling revenue
earned.  The rates go into effect on June 1 for wholesale customers,
and July 1 for retail customers.  The additional wheeling revenue
earned in 2007 over 2006 offset the revenue requirement in the 2008 OATT
formula.  As a result, the revenue requirement for the June 1, 2008
through May 31, 2009 rate period decreased approximately $230,000 or 28% for
wholesale customers, and decreased approximately $670,000 or 18% for retail
customers for the July 1, 2008 through June 30, 2009 rate period.





For more
information on regulatory orders approving the most recent rate increases, see
Part II, Item 1, “Legal Proceedings.”





Regulated
Utility Expenses





For the
quarters and nine months ended September 30, 2008, and 2007, regulated operation
and maintenance expenses are as follows:





Quarters
      Ended September 30,
                                                      
                                                      
                                                      Nine
      Months Ended September 30,(In
      thousands of dollars)
                                                      
                                                      2008
                                                      
                                                      
                                                      2007
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      2007Regulated
      Operation and MaintenanceLabor
                                                      
                                                      $
                                                      1,191
                                                      
                                                      
                                                      $
                                                      1,482
                                                      
                                                      
                                                      $
                                                      3,562
                                                      
                                                      
                                                      $
                                                      3,733Benefits
                                                      
                                                      
                                                      322
                                                      
                                                      
                                                      
                                                      799
                                                      
                                                      
                                                      
                                                      919
                                                      
                                                      
                                                      
                                                      1,511Outside
      Services
                                                      
                                                      
                                                      378
                                                      
                                                      
                                                      
                                                      466
                                                      
                                                      
                                                      
                                                      885
                                                      
                                                      
                                                      
                                                      907Holding
      Company Management Costs
                                                      
                                                      
                                                      53
                                                      
                                                      
                                                      
                                                      437
                                                      
                                                      
                                                      
                                                      1,024
                                                      
                                                      
                                                      
                                                      1,399Insurance
                                                      
                                                      
                                                      147
                                                      
                                                      
                                                      
                                                      158
                                                      
                                                      
                                                      
                                                      405
                                                      
                                                      
                                                      
                                                      431Regulatory
      Expenses
                                                      
                                                      
                                                      216
                                                      
                                                      
                                                      
                                                      276
                                                      
                                                      
                                                      
                                                      829
                                                      
                                                      
                                                      
                                                      776Transportation
                                                      
                                                      
                                                      121
                                                      
                                                      
                                                      
                                                      169
                                                      
                                                      
                                                      
                                                      572
                                                      
                                                      
                                                      
                                                      658Maintenance
                                                      
                                                      
                                                      121
                                                      
                                                      
                                                      
                                                      132
                                                      
                                                      
                                                      
                                                      430
                                                      
                                                      
                                                      
                                                      437Other
                                                      
                                                      
                                                      400
                                                      
                                                      
                                                      
                                                      473
                                                      
                                                      
                                                      
                                                      965
                                                      
                                                      
                                                      
                                                      1,084Total
      Regulated Operation and Maintenance
                                                      
                                                      $
                                                      2,949
                                                      
                                                      
                                                      $
                                                      4,392
                                                      
                                                      
                                                      $
                                                      9,591
                                                      
                                                      
                                                      $
                                                      10,936




Regulated
utility operating expenses are down $1.44 million or 32.9% in the third quarter
of 2008, compared to the third quarter of 2007.   Expenses
decreased in every category, with the largest reductions as
follows:





§
            Labor
      expenses are down $291,000 year-over-year, as a result of deferred labor
      related to the MPC project, and labor used on MAM USG
      projects.





§
            Benefits
      expenses have decreased $477,000, due to several factors.  The
      freeze of the MPS Pension Plan on December 31, 2006, resulted in $169,000
      less pension expense in the third quarter of 2008 than the third quarter
      of 2007.  Health insurance expense has also improved from last
      year, a reduction of $160,000.  The remaining decrease is due to
      the allocation of benefits expense to MAM USG associated with the labor
      used on MAM USG projects.





§
            A
      reduction in legal expenses reduced outside service costs from $466,000 in
      the third quarter of 2007 to $378,000 in the third quarter of
      2008.





§
            Holding
      company management costs represent charges from the parent company, MAM,
      to MPS for common corporate services, including directors’ fees, investor
      relations, tax services and other such costs.  Approximately
      $301,000 of the $384,000 decrease is a result of the changes in deferred
      directors’ compensation expense, which fluctuates based on MAM’s stock
      price.  The increase in MAM’s stock price in the third quarter
      of 2007 resulted in $75,000 of expense to MPS.  MAM’s stock
      price decreased in the third quarter of 2008, reducing MPS’s holding
      company management costs by
$226,000.




25




§
            Regulatory
      expenses decreased $60,000, compared to prior year, as a result of lower
      conservation expenses due to a change in the basis of the
      assessment.





Other
smaller changes account for the remaining change.





Year to
date, expenses are also down, approximately $1.35 million or
12.3%.  The most significant decreases were:





§
            Labor
      and benefits expenses are down $763,000.  Similar to the
      quarterly results, the largest reductions in expense year to date have
      been lower pension and postretirement medical expenses, lower health
      insurance expense, and more labor used on MAM USG
  projects.





§
            Holding
      company management costs are down approximately $375,000 year to date, as
      a result of the change in the deferred directors’ compensation adjustment
      for the three quarters of 2007 and
2008.





§
            Transportation
      expenses have decreased $86,000.  In the first quarter of 2007,
      more expense was incurred in repairing and maintaining the vehicle fleet,
      resulting in higher costs than
normal.





Stranded
cost expenses of the regulated utility are as follows:





Quarters
      Ended September 30,
                                        
                                        
                                        Nine
      Months Ended September 30,(In
      thousands of dollars)
                                        
                                        2008
                                        
                                        
                                        2007
                                        
                                        
                                        2008
                                        
                                        
                                        2007Stranded
      CostsMaine
      Yankee
                                        
                                        $
                                        588
                                        
                                        
                                        $
                                        721
                                        
                                        
                                        $
                                        1,763
                                        
                                        
                                        $
                                        2,162Seabrook
                                        
                                        
                                        384
                                        
                                        
                                        
                                        384
                                        
                                        
                                        
                                        1,153
                                        
                                        
                                        
                                        1,153Deferred
      Fuel
                                        
                                        
                                        1,560
                                        
                                        
                                        
                                        1,346
                                        
                                        
                                        
                                        4,679
                                        
                                        
                                        
                                        4,195Cost
      Incentive Refund
                                        
                                        
                                        62
                                        
                                        
                                        
                                        63
                                        
                                        
                                        
                                        187
                                        
                                        
                                        
                                        187Cancelled
      Transmission Plant
                                        
                                        
                                        64
                                        
                                        
                                        
                                        64
                                        
                                        
                                        
                                        192
                                        
                                        
                                        
                                        192Special
      Discounts
                                        
                                        
                                        70
                                        
                                        
                                        
                                        70
                                        
                                        
                                        
                                        210
                                        
                                        
                                        
                                        210Total
      Stranded Costs
                                        
                                        $
                                        2,728
                                        
                                        
                                        $
                                        2,648
                                        
                                        
                                        $
                                        8,184
                                        
                                        
                                        $
                                        8,099




The
stranded cost expenses presented above for both 2008 and 2007 reflect the impact
of MPS’s most recent stranded cost rate case, MPUC Docket No.
2006-506.  The amortization amounts for the rest of 2008 are expected
to remain consistent with the first three quarters.  The changes from
prior year are a result of the timing of recovery of stranded costs under the
Docket, primarily related to Maine Yankee and deferred fuel.  The
recovery of Maine Yankee in the Docket correlates to Maine Yankee’s cost budget,
which is decreasing over time, while the recovery of deferred fuel is the
levelizing mechanism, which allowed for less amortization of deferred fuel in
2007 than in 2008.




Unregulated
Utility Services





(in
      thousands except per share amounts)
                    
                    Period
      Ending September 30, 2008Quarter
                    
                    
                    Nine
      MonthsOperating
      Revenue
                    
                    $
                    4,463
                    
                    
                    $
                    7,837Cost
      of Services
                    
                    
                    4,530
                    
                    
                    
                    7,740Gross
      Margin
                    
                    
                    (67
                    )
                    
                    
                    97Other
      Operating Expenses
                    
                    
                    160
                    
                    
                    
                    480Income
      Tax Benefit
                    
                    
                    89
                    
                    
                    
                    150Net
      Loss — Unregulated Utility Services
                    
                    $
                    (138
                    )
                    
                    $
                    (233
                    )Loss
      Per Share from Unregulated Utility Services
                    
                    $
                    (0.08
                    )
                    
                    $
                    (0.14
                    )








Unregulated
utility services reduced consolidated net income by approximately $138,000 for
the third quarter of 2008, and $233,000 for the year to
date.  Estimated profit for the current projects was reduced,
resulting in a negative gross margin for the quarter.  However, USG
continues to expect a gross profit on these projects, with the work on these
projects scheduled to be completed during the fourth quarter of
2008.  Other operating expenses include costs for bidding on projects,
accounting, legal and other administrative costs.  Other operating
expenses also include common costs from the parent company, MAM, and facilities
charges from MPS for use of its space and employees.  These costs were
$61,000 for the quarter and $270,000 for the year to date.




26




Other
Continuing Operations




Quarters
      Ended
                          
                          
                          Nine
      Months EndedSeptember
      30,
                          
                          
                          September
      30,2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007Net
      Loss — Other Continuing Operations (in thousands)
                          
                          $
                          (546
                          )
                          
                          $
                          (172
                          )
                          
                          $
                          (732
                          )
                          
                          $
                          (839
                          )Loss
      Per Share from Other Continuing Operations
                          
                          $
                          (0.33
                          )
                          
                          $
                          (0.10
                          )
                          
                          $
                          (0.44
                          )
                          
                          $
                          (0.50
                          )








Other
continuing operations are the corporate costs of MAM directly associated with
the former unregulated businesses and intercompany eliminations.  The
divestiture of the unregulated software technology and engineering services
operations reduced the costs included in this segment; however, some of these
costs are expected to continue subsequent to the divestiture of the unregulated
operations without other cost reduction or recovery efforts.  The
increase from a loss of $172,000 in the third quarter of 2007 to a loss of
$546,000 in the third quarter of 2008 is a result of a reduction in the
estimated income tax benefit as a result of the filing of the 2007 tax
return.





Interest
Expense





Interest
expense of $173,000 for the third quarter of 2008 represents a $133,000 decrease
from the $306,000 of interest expense recognized in the third quarter of
2007.  This decrease is due to the reduction in long- and short-term
debt.  Total long- and short-term debt repayments from December 31,
2007, through September 30, 2008, were $5.46 million.  Year-to-date
interest expense of $891,000 was recognized through the first nine months of
2007, compared to $582,000 for the same period of 2008, also due to the
reduction in debt outstanding.





Income
Tax Expense / Benefit





The
income tax provision for the third quarter of 2008 was approximately $344,000,
compared to an income tax benefit of $329,000, as a result of the profit
incurred in current period compared to last year’s quarterly
loss.  Year to date, the provision increased from $886,000 in 2007 to
$1.7 million in 2008, also as a result of the higher earnings.





Taxes
Other Than Income





Taxes
other than income consist primarily of property and payroll
taxes.  For the quarter, taxes other than income decreased $10,000,
from $440,000 in the third quarter of 2007 to $430,000 in the third quarter of
2008.  These expenses were also comparable for the year to date, with
$1.34 million of expense incurred in the first nine months of 2008, compared to
$1.33 million in the first nine months of 2007.





Off-Balance
Sheet Arrangements and Financial Information System Hosting
Agreement





Please
refer to Note 8 of the financial statements.





Liquidity
and Capital Resources





MAM has continued the
trend of improving its liquidity position demonstrated in 2007 and the first
half of 2008.  In the nine months ended September 30, 2008, we have
reduced our consolidated short-term debt by $1.1 million, and long-term debt by
$4.4 million.  This includes the repayment of all but $1.1 million of
debt incurred in the discontinued unregulated engineering and software
technology acquisitions and operations.  We have also substantially
improved our cash flow from operating activities, which increased by $2.6
million or 39.3% year over year due to favorable differences in net income and
accounts payable.





The
Company’s cash and cash equivalents as of September 30, 2008, were $1.8 million,
up from $910,000 at December 31, 2007.  The “Statements of
Consolidated Cash Flows” of the Company’s Consolidated Financial Statements, as
presented in Part I, Item 1 of this Form 10-Q, reflects the Company’s sources
and uses of capital.





Cash flow
provided by operating activities for the first nine months of 2008 was $9.3
million, compared to $6.7 million in the first nine months of
2007.  The increase in net income of $1.5 million from the first three
quarters of 2007 to the first three quarters of 2008 and the increase in
accounts payable, as a result of higher accruals at September 30, 2008, than
December 31, 2007, for the MPC project, MAM Utility Services Group subcontractor
expenses and construction season, were the largest factors in the increase in
operating cash flow period-over-period.  Net cash flow provided by
operating activities was reduced the first three quarters of 2008, compared to
the first three quarters of 2007, by $1.7 million from the change in accounts
receivable and unbilled revenue, due to the higher receivable balances,
primarily from USG projects that did not exist in the first three quarters of
2007.




27




Cash flow
used for financing included the repayment of short- and long-term debt totaling
$5.5 million in the first nine months of 2008.  Cash flow used for
financing activities for the first nine months of 2007 totaled $4.4 million, as
long- and short-term debt was reduced.





Cash flow
used for investing activities for the first three quarters of 2008 was $2.8
million.  The $5.7 million use of cash for investments in fixed assets
was mitigated by the change in restricted investments which provided cash flows
from the capital reserve account upon final payment of the 1998 FAME Notes
obligation.  For the first nine months of 2007, cash flow used for
investing activity totaled $2.7 million.  The $4.6 million investment
in fixed assets was offset by $1.8 million of proceeds from the sale of
discontinued operations.  Approximately $413,000 was used in the first
nine months of 2007 for settlement of the stock contingencies associated with
acquisitions in 2003 and 2004.  The final stock contingency
obligations from TMG acquisitions were settled in September 2007.





In
accordance with rate stipulations approved by the MPUC, for ratemaking purposes,
MPS is required to maintain a capital structure not to include more than 51%
common equity for the determination of delivery rates.   Also, in
the order approving the reorganization of MPS and the formation of MAM, the
parties stipulated to several restrictions on the capital structure of MPS and
MPS’s ability to make dividend payments to MAM.  As of September 30,
2008, MPS is in compliance with these conditions.




MAM and
certain of its subsidiaries are subject to financial and other covenants, such
as debt service coverage and earnings before interest and taxes ratios. In the
event of a default, the various lenders could require immediate repayment of the
debt. A default could also trigger increases in interest rates, difficulty
obtaining other sources of financings and cross-default provisions within the
debt agreements.  MAM and its subsidiaries are in compliance with all
debt covenants as of September 30, 2008.





Regulatory
Proceedings





For
regulatory proceedings, see Part II, Item 1, “Legal Proceedings,” which is
incorporated in this section by this reference.







Item 3.  Quantitative and Qualitative
Disclosures about Market Risk





Item not
required from smaller reporting companies.





Item
4T. Controls and Procedures





The
principal executive officer and principal financial officer evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this report.  "Disclosure controls and
procedures" are controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in the reports
that it files or submits under the Securities Exchange Act of 1934, within the
time periods specified in the SEC rules and forms, is recorded, processed,
summarized and reported, and is accumulated and communicated to the Company's
Management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.  Based on their evaluation, the Company’s principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective.




We
maintain a system of internal control over financial reporting designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
There was no change in our internal control over financial reporting that
occurred during the most recent fiscal quarter that materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.




28





PART II. OTHER INFORMATION







Item 1. Legal
Proceedings




Federal
Energy Regulatory Commission 2008 Open Access Transmission Tariff Formula Rate
Filing




On June 16,
2008, MPS filed its updated rates under the 2008 Open Access Transmission Tariff
(“OATT”) formula pursuant to Docket ER00-1053 for both wholesale and retail
customers.  The revenue decreases were approximately $230,000 or 28%
for wholesale customers, effective June 1, 2008, and $670,000 or 18% for retail
customers, effective July 1, 2008.  The decrease is primarily
associated with wheeling revenue collected from generators exporting electricity
off the MPS system during 2007.  The proceeding and potential
settlement negotiations are underway; the final change in rates could differ
from the initial filing.  MPS cannot determine the ultimate outcome at
this time.




MPS
and CMP File with FERC for Incentive Rate Treatment on MPC Transmission Line
Project





In their
filing on July 18, 2008, MPS and Central Maine Power Company (“CMP”) jointly
filed with FERC for incentive rate treatment on their Maine Power Connection
transmission line project (“MPC” or the “Project”), a proposed 200-mile 345
kilovolt transmission line and new and upgraded substations.  For MPS,
the incentive rate treatment requested was 150 basis points above our current
10.5% return on equity for transmission.  Additionally, in the event
the Project is cancelled, MPS and CMP are seeking authorization to recover costs
related to the abandonment of the Project.  MPS has currently deferred
approximately $517,000 of costs associated with the Project, reported in the
Consolidated Balance Sheet at “Other Assets.”  The filing requested
that FERC issue a decision by September 18, 2008; however, a decision has not
yet been reached.  The decision in this filing cannot be
predicted.




Also
within the July 18, 2008, filing, MPS and CMP provided a Project cost estimate
of $625 million, with MPS’s investment up to 30% of this amount, or $184
million.  These are preliminary estimates of both the total project
cost and MPS’s investment; actual cost and investment is dependent on many
factors and could be materially higher or lower.






MPS
and CMP File with MPUC for Certificate of Public Convenience and
Necessity




On
July 1, 2008, MPS and CMP jointly filed for a Certificate of Public Convenience
and Necessity (“CPCN”) under MPUC Docket No. 2008-256 related to the MPC
transmission line project.  On October 8, 2008, the MPUC denied a
motion to dismiss by some of the opposing parties in this Docket. The MPUC has
not yet issued a scheduling order in this Docket.  A Commission
decision in this Docket is expected no earlier than the second quarter of
2009.





MPS and
CMP continue to pursue the transmission line studies. MPS and CMP entered into a
Joint Development Agreement on October 2, 2008.




MPUC
Investigation of Maine Utilities Continued Participation in ISO-NE




On April
8, 2008, the MPUC initiated an investigation in Docket No. 2008-156 of Maine
utilities continued participation in ISO New England (“ISO-NE”) and the New
England Regional Transmission Organization.  MPS is not currently a
member of ISO-NE.  However, as noted in the Stakeholder Initiative
Regarding the Competitiveness and Reliability of the Northern Maine Power Grid
discussed in MAM’s 2007 Form 10-K and March 31, 2008 and June 30, 2008, Forms
10-Q, the Company has requested to become a member of ISO-NE if certain
conditions are met.  MPS has been an active participant in this
Docket.  The Company cannot predict the outcome of this
case.




Reduction
of Stated Capital of Maine & New Brunswick Electrical Power Company,
Ltd.




In the
Order Approving Stipulation under MPUC Docket No. 2002-676, “Maine Public Service Company Request
for Approval of Reorganization of the Company into a Holding Company Structure,”MPS received permission from the MPUC to wind up and dissolve Me&NB
at such future time as MPS deemed appropriate.  In September 2008, MPS
filed notice with the MPUC and partially liquidated its investment in
Me&NB.  This partial liquidation reduced MPS’s equity investment
in Me&NB from $1 million to $150,000, with $850,000 cash returned from
Me&NB to MPS, to be used to fund MPS working capital needs.





Item
1A.  Risk Factors





The Risk
Factors identified in Item 1A. of MAM’s 2007 Form 10-K and updated in Item 1A.
of MAM’s March 31, 2008 and June 30, 2008 Forms 10-Q are incorporated herein by
reference.  The following risk factors include new risk factors
identified during the quarter, as well as risk factors that have changed
materially since year end.




29





Legislation
and Regulation





MPS is a
regulated utility, operating its distribution activity under the jurisdiction of
the Maine Public Utilities Commission and transmission activity under the
jurisdiction of the Federal Energy Regulatory Commission.  The MPUC
and FERC regulate the rates MPS is allowed to charge its
customers.  This includes determination of our allowed rate of return
and rate structure, construction and operation of facilities, approval of
depreciation and amortization rates and recovery of certain incremental costs,
such as storm damage.  The timing of rate changes and the results of
regulatory proceedings could materially impact our results.





Transmission
rates are adjusted annually, and were changed on July 1, 2008.  MPS
was involved in rate cases in 2006 for each of its rates: distribution rates
under MPUC Docket No. 2006-024, revision of the transmission rate formula and
establishment of the 2006 transmission rates under FERC Docket No. ER00-1053,
and recovery of stranded costs for the period from January 1, 2007, through
December 31, 2009, under MPUC Docket No. 2006-506.  No additional rate
changes are anticipated during 2008; however, the final settlement of
transmission rates is not yet complete, and may result in an adjustment. The
change in any rates could have a positive or negative impact on earnings and
cash flow, but the ultimate impact is unknown at this time.





MPS is
also subject to local regulations, which may impact the location of our
transmission and distribution facilities, and our ability to make repairs and
upgrades to our facilities.




Other
changes in legislation and regulation could impact MAM’s earnings and operations
positively or negatively.  Such changes could include changes in tax
rates or changes in environmental or workplace laws.





Construction
of New Transmission Facilities





MPS, working
with CMP, is seeking to develop the Maine Power Connection transmission line
project (“MPC” or the “Project”), a proposed 200-mile 345 kilovolt transmission
line and new and upgraded substations to connect northern Maine to the ISO-NE
control area.  MPS expects this line, if built, will increase
reliability and competition and meet new load growth requirements from potential
renewable generation projects.  This project is being undertaken
coincident with an on-going system impact study at ISO-NE, which was triggered
by interconnection requests in connection with proposed new generation
projects.  Local, state and federal regulatory approvals and permits
are required for this project.  We may or may not be able to obtain
the approvals required for this proposed transmission project.  The
project is also dependent on (i) the development of additional generation and
the needs of generators in our service territory, and (ii) as currently
proposed, the requirement that MPS join ISO-NE and the line become socialized or
paid for by agreements with generators.  The inability to obtain
regional socialization or agreements with generators, each on terms acceptable
to MPS, is likely to have an impact on whether MPS and CMP construct the
line.  Other factors, such as cost and availability of materials,
labor and subcontractors may increase the cost of the project or delay its
completion.  On July 1, 2008, MPS and CMP jointly filed for a
Certificate of Public Convenience and Necessity (“CPCN”) under MPUC Docket No.
2008-256 related to the MPC transmission line project.  On October 8,
2008, the MPUC denied a motion to dismiss by some of the opposing parties in
this Docket. A Commission decision in this Docket is expected no earlier than
the second quarter of 2009, but we cannot predict the outcome at this
time.





On July
18, 2008, MPS and CMP jointly filed with FERC for incentive rate treatment on
their MPC transmission line. Additionally, in the event the Project is
cancelled, MPS and CMP are seeking authorization to recover costs related to the
abandonment of the Project.  If FERC does not approve this Petition,
we may be unable to recover certain project expenses.





MPS has
submitted notice to ISO-NE that, subject to certain conditions, it will seek to
become a member of ISO-NE.  Among the conditions is the requirement
that the cost of the transmission project be included in the ISO-NE regional
transmission rates.  The Company cannot predict the outcome of this
request, and it is possible that the conditions necessary for membership will
not be met, which could impact our ability to develop this line.





Financing
Risk for New Transmission Facilities





The
Company will be seeking financing for the new transmission facilities referenced
above.  As noted above, MPS’s investment obligation is currently
estimated at $184 million.  There can be no assurance that the Company
will be able to raise that amount of money, given, among other factors, (a) the
uncertainty of financial markets, which is currently greater than normal, and
(b) the fact that the amount to be financed is greater than the total assets of
the Company (i. e., without any reduction for liabilities), which, as of
September 30, 2008, are $131 million.   Other financing risks,
including the type and cost of financing, are also risks in the development of
this line.




Risk
from Joint Development Agreement
 
 The Joint
Development Agreement with CMP entered into on October 2, 2008 in connection
with the MPC project, sets forth numerous conditions for continued MPS
participation in the Project. Failure to meet such conditions in a timely
fashion can result in various consequences, including a reduction in, or
elimination of the interest which MPS may acquire in the Project. Reference is
made to such Agreement, which was an exhibit to the MAM 8-K filed on October 8,
2008, for details of such conditions and consequences.




30





Contract
Risk at MAM Utility Services Group





We
perceive a high demand for the services offered by MAM USG; however, the Company
operates in a competitive market, and does not have an exclusive
franchise.  Competition for contracts comes from other engineering
firms and utility construction contractors, and is a risk associated with the
on-going operations of this segment.





There are
also risks when MAM USG secures contracts.  Such risks include
inaccuracy of cost estimates on fixed rate projects, change order approval risks
and professional liability for engineering services.  These risks are
mitigated by Management’s experience with estimating utility engineering and
construction costs, as well as professional liability insurance
coverage.





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





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





Certain
of the following exhibits (indicated by *) have been filed within this form
10-Q, which the remaining exhibits were previously filed with the Securities and
Exchange Commission, and are incorporated by reference.





·
            Exhibit
      10(a) Maine Power Connection Project Joint Development Agreement between
      Maine Public Service Company and Central Maine Power Company (Filed as
      Exhibit to MAM Form 8-K dated October 8,
2008)





·
      *
            Exhibit
      10(b) Directors Stock Plan





·
            Exhibit
      10(c) 2008 Stock Plan (Filed as Appendix A to MAM Proxy Statement dated
      March 20, 2008)





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





·
      *
            Exhibit
      32 Certification of Financial Reports Pursuant to 18 USC Section
      1350




31





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:  November
7, 2008





/s/ Randi
J. Arthurs


Randi J.
Arthurs


Vice
President Accounting, Controller


and
Assistant Treasurer




32