UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
       X          
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998


              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                        For the transition period from to

Commission       Registrant, State of Incorporation,            I.R.S. Employer
File Number         Address, and Telephone Number             Identification No.

001-14786                  CMP GROUP, INC.                      01-0519429
               83 Edison Drive, Augusta, Maine  04336
                           (207) 623-3521

   1-5139            CENTRAL MAINE POWER COMPANY                01-0042740
               83 Edison Drive, Augusta, Maine  04336
                           (207) 623-3521

Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of each exchange
     Registrant             Title of each class            on which registered

CMP Group, Inc.           Common Stock, $5 Par Value     New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:             None

                                                           Name of each exchange
    Registrant               Title of each class            on which registered

Central Maine Power Company   6% Preferred Stock                         -
                              $100 Par Value (Voting,
                               Noncallable)

                              Dividend Series Preferred Stock            -
                              $100 Par Value (Callable)



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.

CMP Group, Inc.                          Yes x       No _
                                             --
Central Maine Power Company              Yes  x      No
                                             ---

This  combined  Form 10-K is separately  filed by CMP Group,  Inc.,  and Central
Maine Power Company.  Information contained herein relating to either individual
registrant is filed by such registrant on its own behalf.  Each registrant makes
no representation as to information relating to the other registrant.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K

CMP Group, Inc.                                  x

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  of the registrant.  The aggregate market value of such common
equity held by non-affiliates of the Company was:

CMP                                        Group, Inc. $603,585,605 on March 24,
                                           1999  (based,  in  the  case  of  the
                                           common stock of CMP Group,  Inc.,  on
                                           the last  reported sale price thereof
                                           on the New  York  Stock  Exchange  on
                                           March 24, 1999).
Central Maine Power Company                $0 (all held by CMP Group, Inc.)

                   (APPLICABLE  ONLY  TO  CORPORATE  REGISTRANTS)  Indicate  the
number of  shares  outstanding  of each of the  registrant's  classes  of common
stock, as of the latest practicable date.

As of March 24, 1999, the number of shares of Common Stock  outstanding for each
registrant was as follows:
                               Registrant                        Shares

CMP Group, Inc., Common Stock, $5 Par Value                      32,442,552
Central Maine Power Company, Common Stock, $5 Par Value (All
   held by CMP Group, Inc.)                                      31,211,471

                       DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K  (e.g.,  Part I, Part II,  etc.)  into  which the  document  is
incorporated:(1)  Any  annual  report  to  security  holders;  (2) Any  proxy or
information  statement;  and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.

Portions of the  definitive  proxy  statement for CMP Group,  Inc.'s 1999 Annual
Meeting of Shareholders are incorporated by reference in Part III hereof.



                               CMP GROUP, INC. and
                           CENTRAL MAINE POWER COMPANY

                        INFORMATION REQUIRED IN FORM 10-K

 
                                                                           Page

Glossary                                                                      1


Item Number                  Part I

Item 1.      Business                                                         5
Item 2.      Properties                                                      22
Item 3.      Legal Proceedings                                               29
Item 4.      Submission of Matters to a Vote of Security Holders             31
Item 4.1.    Executive Officers of the Registrant                            31

                             Part II

Item 5.      Market for the Registrant's Common Equity and Related           33
             Stockholder Matters
Item 6.      Selected Financial Data                                         33
Item 7.      Management's Discussion and Analysis of Financial Condition  
             and Results of Operations of CMP Group and Central Maine
             Power Company                                                   34
Item 7A      Quantitative and Qualitative Disclosures About Market Risk      55
Item 8.      Financial Statements and Supplementary Data                     56
Item 9       Changes in and Disagreements with Accountants on Accounting    108
             and Financial Disclosure


                            Part III

Item 10.     Directors and Executive Officers of the Registrant             108
Item 11.     Executive Compensation                                         108
Item 12.     Security Ownership of Certain Beneficial Owners and
             Management                                                     108
Item 13.     Certain Relationships and Related Transactions                 108

                             Part IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on
             Form 8-K                                                       109

             Signatures                                                     110





                                    GLOSSARY

The following  abbreviations  or acronyms are used in the text of this Form 10-K
as defined below:

  Term                                                   Definition

Form 10-K                      Annual Report on Form 10-K

ARP                            Alternative Rate Plan

APB                            Accounting Principles Board

Assigned                       Agreements   Maine  Yankee's   Power   Contracts,
                               Additional  Power  Contracts  and  Capital  Funds
                               Agreements, as amended, with its Sponsors.

Central Maine                  Central Maine Power Company, a regulated electric
                               utility and subsidiary of CMP Group.

Central                        Securities  Central  Securities  Corporation,   a
                               wholly owned  subsidiary  of Central  Maine which
                               owns and manages real estate.

CERCLA                         Comprehensive Environmental Response, Compensa-
                               tion, and Liability Act.

CMP                            Group CMP Group,  Inc.,  is the  holding  company
                               organized effective September 1, 1998, which owns
                               all of the common  stock of Central  Maine  Power
                               Company,  Union  Water  Power  Company,  MaineCom
                               Services, CNEX, MainePower, TeleSmart and New
                               England Gas Development.

CMP Group System               CMP Group and its  wholly-owned and directly  and
                               indirectly controlled subsidiaries.

CMP                            Natural   Gas  CMP   Natural   Gas,   L.L.C.,   a
                               limited-liability  company owned by  subsidiaries
                               of CMP Group and Energy East to distribute
                               natural gas in Maine.

CNEX                           A  wholly   owned   subsidiary   of  CMP   Group,
                               (previously      called     CMP     International
                               Consultants),  which provides utility  consulting
                               (domestic and international) and research.

Cumberland                     Securities Cumberland Securities  Corporation,  a
                               wholly owned  subsidiary  of Central  Maine which
                               owns and manages real estate.

Connecticut Yankee             Connecticut Yankee Atomic Power Company

D&P                            Duff & Phelps Credit Rating Co.

DOE                            United States Department of Energy

DOJ                            United States Department of Justice

EITF                           Emerging Issues Task Force of FASB

Energy                         East Energy East Corporation,  a New York holding
                               company and the parent company of NYSEG effective
                               May 1, 1998

EPA                            United States Environmental Protection Agency.

EPS                            Earnings per share

ERAM                           Electric Revenue Adjustment Mechanism

FASB                           Financial Accounting Standards Board

FERC                           Federal Energy Regulatory Commission

FPL                            FPL Group, Inc.

Indenture                      General and Refunding Mortgage Indenture between 
                               Central Maine and State Street Bank and Trust 
                               Company, Trustee, dated as of April 15, 1976, as 
                               amended and supplemented.

IPO                            Initial Public Offering

IRS                            United States Internal Revenue Service

ISO                            Independent System Operator

Kwh                            Kilowatt-hour

MaineCom                       MaineCom  Services,  a CMP Group subsidiary which
                               arranges   fiber-optic   data  service  for  bulk
                               carriers.

MainePower                     A wholly owned subsidiary of CMP Group created in
                               September 1998.

MEPCO                          Maine Electric Power Company,  Inc., a 78-percent
                               owned  subsidiary  of Central  Maine which owns a
                               345-KV  transmission line from Wiscasset,  Maine,
                               to New Brunswick, Canada.

MRS                            Monitored Retrievable Storage

Moody's                        Moody's Investors Service

MPUC                           Maine Public Utilities Commission

Maine Yankee                   Maine Yankee Atomic Power Company, a 38-percent 
                               owned subsidiary of Central Maine.

NB Power                       New Brunswick Power Corporation.

NEON                           NorthEast  Optic Network,  Inc., a corporation of
                               which  MaineCom owns  38.5-percent  of the common
                               stock, which is building a fiber optic network in
                               New England and New York.

NEPOOL                         New England Power Pool

NERC                           North American Electric Reliability Council

NORVARCO                       A  wholly-owned   subsidiary  of  Central  Maine.
                               NORVARCO is one of two general  partners with 50%
                               interests in Chester SVC Partnership,  which owns
                               a static  var  compensator  facility  located  in
                               Chester, Maine.

NPCC                           Northeast Power Coordinating Council

NRC                            United States Nuclear Regulatory Commission

NYSEG                          New York State Electric & Gas Corporation, a 
                               utility subsidiary of Energy East.

NUG                            Non-utility generator

New                            England   Gas   Development   New   England   Gas
                               Development    Corporation,     a    wholly-owned
                               subsidiary of CMP Group created in September 1998
                               to hold up to a 50-percent  ownership interest in
                               CMP Natural Gas.

OASIS                          Open Access Same-time Information System.

OI                             Nuclear Regulatory Commission's Office of 
                               Investigations

OPA                            Maine Office of the Public Advocate

Plant                          Maine Yankee nuclear generating plant at 
                               Wiscasset, Maine

PURPA                          Public Utility Regulatory Policies Act of 1978.

RCRA                           Resource Conservation and Recovery Act.

SAB                            Securities and Exchange Commission's Staff 
                               Accounting Bulletins.

S&P                            Standard & Poor's Corp.

SEC                            Securities and Exchange Commission

SFAS                           Statement of Financial Accounting Standards

Secondary                      Purchasers 28 municipal and cooperative utilities
                               that  had  purchased  Maine  Yankee  power  under
                               identical contracts with Maine Yankee sponsors.
SFAS                           Statement of Financial Accounting Standards

TeleSmart                      A wholly  owned  subsidiary  of CMP  Group  which
                               provides accounts receivable management.

Union Water                    The Union Water Power Company, a wholly owned 
                               subsidiary of CMP Group.

Vermont Yankee                 Vermont Yankee Nuclear Power Corporation.

Waste Act                      Federal Low-level Radioactive Waste Policy 
                               Amendments Act.

Yankee Atomic                  Yankee Atomic Electric Company




Basis of  Presentation.  This Annual Report on Form 10-K is a combined report of
CMP Group and Central  Maine,  a regulated  electric-utility  subsidiary  of CMP
Group  whose   financial   position  and  results  of  operations   account  for
substantially all of CMP Group's consolidated  financial position and results of
operations.  The Notes to Consolidated  Financial  Statements  apply to both CMP
Group and Central Maine. CMP Group's  consolidated  financial statements include
the accounts of CMP Group and its wholly owned or controlled subsidiaries, which
are Central Maine,  Union Water, CNEX,  TeleSmart and MaineCom.  Central Maine's
consolidated  financial  statements include its accounts as well as those of its
wholly owned or controlled subsidiaries,  MEPCO, NORVARCO, Cumberland Securities
and Central Securities.  Certain immaterial  majority owned subsidiaries,  which
were  previously  accounted  for on the  equity  method,  were  consolidated  in
September 1998.

Note re Forward-Looking Statements

This  Report  on  Form  10-K  contains  forecast   information  items  that  are
"forward-looking  statements"  as defined in the Private  Securities  Litigation
Reform  Act  of  1995.   Such  statements  are  subject  to  certain  risks  and
uncertainties  which could cause actual results to differ  materially from those
projected.   Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking  statements,  which speak only as of the date hereof.  CMP Group
and Central Maine undertake no obligation to republish  revised  forward-looking
statements  to  reflect  events or  circumstances  after  the date  hereof or to
reflect the occurrence of unanticipated  events.  Readers are urged to carefully
review and consider the factors in the succeeding paragraph.

Factors  that could cause actual  results to differ  materially  include,  among
other  matters,  the outcome of the FERC  proceeding  involving  Maine  Yankee's
rates,  decommissioning  costs and issues  related  to the  closing of the Maine
Yankee nuclear generating plant; the actual costs of  decommissioning  the Maine
Yankee  plant;  failure  to  resolve  any  significant  aspect of the "Year 2000
problem";  electric utility industry restructuring,  including the ongoing state
and federal  activities  that will determine  Central Maine's ability to recover
its stranded costs and establish its revenue  requirements  and rate design as a
transmission-and-distribution  utility  commencing March 1, 2000; the results of
Central Maine's planned sale of its generating  assets;  Central Maine's ability
to recover its costs resulting from the January 1998 ice storms that damaged its
transmission   and   distribution    system;    future   economic    conditions;
earnings-retention   and   dividend-payout   policies;   developments   in   the
legislative,  regulatory,  and  competitive  environments in which CMP Group and
Central Maine operate;  CMP Group's  investment in unregulated  businesses;  and
other  circumstances that could affect  anticipated  revenues and costs, such as
unscheduled  maintenance  or repair  requirements  at  nuclear  plants and other
facilities, and compliance with laws and regulations.


                                     PART I

Item 1.    BUSINESS.

Introduction

General.  CMP Group is a holding company organized  effective September 1, 1998,
which owns all of the common stock of Central  Maine and the former  non-utility
subsidiaries of Central Maine. As part of the reorganization,  all of the shares
of Central Maine's common stock were converted into an equal number of shares of
CMP Group common stock,  which are listed on the New York Stock  Exchange  under
the symbol CTP. The reorganization was approved by Central Maine's  shareholders
on May 21,  1998,  and on  various  dates in 1998 by the  appropriate  state and
federal regulatory agencies. CMP Group's principal executive offices are located
at 83 Edison Drive, Augusta,  Maine, where its general telephone number is (207)
623-3521. For a discussion of business opportunities being pursued by CMP Group,
see "Expansion of Lines of Business," below.

Central Maine is a public utility  incorporated in Maine in 1905.  Central Maine
is primarily  engaged in the business of generating,  purchasing,  transmitting,
distributing  and selling electric energy for the benefit of retail customers in
southern and central Maine and wholesale customers, principally other utilities.
Its principal executive offices are located at 83 Edison Drive,  Augusta,  Maine
04336, where its general telephone number is (207) 623-3521.

Central Maine is the largest  electric utility in Maine,  serving  approximately
533,000 customers in its 11,000 square-mile service area in southern and central
Maine and having $939 million in  consolidated  electric  operating  revenues in
1998 (reflecting  consolidation of financial  statements with its majority-owned
subsidiary,  MEPCO, and with the  wholly-owned  Cumberland  Securities,  Central
Securities and NORVARCO.  Central  Maine's service area contains most of Maine's
industrial  and  commercial  centers,  including  Portland (the state's  largest
city), South Portland,  Westbrook,  Lewiston,  Auburn, Rumford, Bath, Biddeford,
Saco, Sanford,  Kittery, Augusta (the state's capital),  Waterville,  Fairfield,
Skowhegan and Rockland, and approximately 964,000 people,  representing about 78
percent of the total  population of the state.  Central  Maine's  industrial and
commercial  customers  include  major  producers  of pulp  and  paper  products,
producers of chemicals,  plastics,  electronic  components,  processed food, and
footwear, and shipbuilders.  Large pulp-and-paper industry customers account for
approximately 56 percent of Central Maine's  industrial sales and  approximately
21.6 percent of total service-area sales.

The following topics are discussed under the general heading of Business.  Where
applicable,  the  discussions  make reference to the various other Items of this
report.

Topic                                                      Page
-----                                                      ----
Regulation and Rates                                         7
Alternative Rate Plan                                        8
Electric-Utility Industry Restructuring                      9
Agreement for Sale of Generation Assets                     12
Expansion of Lines of Business                              14
Permanent Shutdown of Maine Yankee Plant                    15
Non-utility Generation                                      18
Financing and Related Considerations                        18
Securities Ratings                                          19
"Year 2000" Computer Issues                                 19
Environmental Matters                                       20
Storm Damage to Central Maine's System                      21
Employee Information                                        21



Regulation and Rates

General.  Central Maine is subject to the regulatory authority of the MPUC as to
retail rates, accounting,  service standards,  territory served, the issuance of
securities maturing more than one year after the date of issuance, certification
of generation and transmission projects and various other matters. Central Maine
is also subject to the jurisdiction of the Federal Energy Regulatory  Commission
("FERC")  under Parts I, II and III of the Federal  Power Act for some phases of
its business,  including  licensing of its hydroelectric  stations,  accounting,
rates relating to wholesale  sales and to interstate  transmission  and sales of
energy and certain  other  matters.  Other  activities  of CMP Group and Central
Maine from time to time are subject to the  jurisdiction  of various other state
and federal regulatory agencies.

The Maine  Yankee Plant and the other  nuclear  generating  facilities  in which
Central Maine has an interest are subject to extensive regulation by the federal
Nuclear  Regulatory  Commission  ("NRC").  The NRC is empowered to authorize the
siting,  construction,  operation and  decommissioning of nuclear reactors after
consideration of public health,  safety,  environmental  and antitrust  matters.
Under its continuing  jurisdiction,  the NRC may, after appropriate proceedings,
require  modification  of units for which operating  licenses are in effect,  or
impose new conditions on such licenses,  and may require that the operation of a
unit  cease  or  that  the  level  of  operation  of a unit  be  temporarily  or
permanently reduced.

The United States  Environmental  Protection Agency ("EPA") administers programs
which affect Central Maine's thermal and hydroelectric  generating facilities as
well as the nuclear  facilities  in which it has an interest.  The EPA has broad
authority in  administering  these  programs,  including  the ability to require
installation of pollution-control  and mitigation devices. CMP Group and Central
Maine is also subject to  regulation by various  state,  local and other federal
authorities with regard to land use and other environmental matters. For further
discussion of environmental  considerations as they affect CMP Group and Central
Maine,  see  "Environmental  Matters",  below,  and Item 3, "Legal  Proceedings"
"Legal and Environmental Matters."

Under the Federal Power Act, Central Maine's  hydroelectric  projects (including
storage  reservoirs) on navigable waters of the United States are required to be
licensed by the FERC.  Central Maine is a licensee,  either by itself or in some
cases with other parties, for 26 FERC-licensed  projects,  some of which include
more than one generating  unit.  Eleven licenses expired in 1993, one expired in
1997, and fourteen expire after 2000.  Central Maine filed all  applications for
relicensing  the projects  whose  licenses were  scheduled to expire in 1993 and
1997 and has been  authorized to continue to operate those projects under annual
licenses pending action by the FERC.  Central Maine's  hydroelectric  generating
and storage  facilities are included in the generating  assets Central Maine has
contracted  to sell to FPL Group,  Inc.  For further  discussion  of the pending
sale, see "Agreement for Sale of Generating Assets," below.

The United  States has the right upon  expiration  of a license to take over and
thereafter  maintain  and operate a project  upon payment to the licensee of the
lesser of its "net  investment" or the fair value of the property taken, and any
severance  damages,  less  certain  amounts  earned by the licensee in excess of
specified rates of return.  If the United States does not exercise its statutory
right,  the FERC is authorized to issue a new license to the original  licensee,
or to a new licensee  upon  payment to the  original  licensee of the amount the
United  States  would have been  obligated to pay had it taken over the project.
The United  States has not asserted  such a right with respect to any of Central
Maine's licensed  projects.  The FERC,  however,  denied a license renewal for a
non-utility-owned  hydroelectric  project on the Kennebec River in Maine,  which
ultimately resulted in an agreement to remove the dam in 1999.

Alternative Rate Plan

On January 1, 1995,  Central  Maine's ARP was put into  effect.  Instead of rate
changes based on the level of costs  incurred and capital  investments,  the ARP
provides for one annual adjustment of an inflation-based  cap on each of Central
Maine's  rates,  with no  separate  reconciliation  and  recovery  of  fuel  and
purchased-power costs. Under the ARP, the MPUC is continuing to regulate Central
Maine's operations and prices, provide for continued recovery of deferred costs,
and  specify a range for its rate of  return.  The MPUC  confirmed  in its order
approving  the ARP that the ARP is  intended to comply  with the  provisions  of
Statement of Financial  Accounting Standards No. 71, "Accounting for the Effects
of Certain  Types of  Regulation."  As a result,  Central Maine will continue to
apply the  provisions  of SFAS No.  71 to its  accounting  transactions  and its
future financial statements.

The ARP contains a mechanism that provides  price-caps on Central Maine's retail
rates  to be  adjusted  annually  on  each  July 1,  commencing  in  1995,  by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism,  and (4) flow-through items and mandated costs. The price cap applies
to all of Central  Maine's retail rates,  and includes fuel and purchased  power
costs that previously had been treated  separately.  Under the ARP, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.

A specified  standard  inflation  index is the basis for each  annual  price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general  productivity  offset of 1.0%,  and a second  formula-based  offset that
started in 1996 and was  intended to reflect the limited  effect of inflation on
Central Maine's purchased-power costs during the proposed five-year initial term
of the ARP.

The sharing  mechanism may adjust the subsequent year's July price-cap change in
the event Central Maine's earnings are outside a range of 350 basis points above
or below  Central  Maine's  allowed  return on equity  (starting  at the  10.55%
allowed  return in 1995) and  indexed  annually  for  changes in capital  costs.
Outside that range,  profits and losses could be shared equally by Central Maine
and its  customers  in  computing  the  price-cap  adjustment.  The ROE used for
earnings  sharing is scheduled to be increased to 11.5%  effective with the July
1999 price change.

The ARP also  provides for partial  flow-through  to  ratepayers of cost savings
from non-utility  generator  contract  buy-outs and  restructuring,  recovery of
energy-management  costs,  and penalties for failure to attain  customer-service
and  energy-efficiency  targets.  The ARP also generally  defines mandated costs
that would be recoverable by Central Maine notwithstanding the index-based price
cap. To receive such  treatment,  the annual  revenue  requirement  related to a
mandated  cost must  exceed $3  million  and have a  disproportionate  effect on
Central Maine or the electric-power industry.

On May 13, 1998,  Central Maine submitted its 1998 ARP compliance  filing to the
MPUC. In keeping with its pledge of limiting  increases to the inflation  index,
Central Maine voluntarily  limited its request to 1.78%, which was the inflation
rate for 1997 under the ARP.  Central  Maine also  proposed a rate  reduction of
approximately  ten percent  contingent on the  consummation  of, and  ratemaking
associated with,  Central Maine's planned sale of generating  assets. The filing
also reported  information on the costs of restoring  service to Central Maine's
customers  after the January  1998 ice storm,  as  required by the earlier  MPUC
order allowing Central Maine to defer those costs.  Effective July 11, 1998, the
MPUC approved a stipulated  1.33% increase.  The amount of the increase  remains
subject to change,  based on the outcome of the pending FERC proceeding  related
to the  permanent  shutdown  of the  Maine  Yankee  plant.  Depending  on FERC's
decision, the price increase could increase or decrease,  ranging from a ceiling
of 1.78% to a floor of 0.22%.  However,  the Offer of Settlement  pending before
the FERC in Maine  Yankee's  rate  case,  which has been  approved  by the MPUC,
provides that the 1998 ARP increase will not be adjusted.

The components of the last three ARP price increases approved by the MPUC are as
follows:

                                           1998         1997         1996
                                           ----         ----         ----

   Inflation Index                         1.78%         2.12%        2.55%
   Productivity Offset                    (1.00)        (1.00)       (1.00)
   Qualifying Facility Offset              (.29)         (.42)            -
   Earnings Sharing                        1.12              -         .32
   Flowthrough and Mandated Items          (.28)          .40         (.61)
                                           ----         -----         -----
                                           1.33%         1.10%        1.26%
                                           ====          ====         ====

Electric-Utility Industry Restructuring

Stranded  Costs.  The  enactment  by Congress  of the Energy  Policy Act of 1992
accelerated  planning by electric  utilities,  including  Central  Maine,  for a
transition  to a more  competitive  industry.  In Maine,  legislation  that will
restructure the  electric-utility  industry by March 1, 2000, was enacted by the
Maine  Legislature  in May 1997,  and is  discussed in detail under this heading
below.  Such a departure  from  traditional  regulation,  however,  could have a
substantial impact on the value of utility assets and on the ability of electric
utilities to recover their costs through rates. In the absence of full recovery,
utilities   would  find  their   above-market   costs  to  be   "stranded",   or
unrecoverable, in the new competitive setting.

Central Maine has substantial  exposure to cost stranding  relative to its size.
In general,  its  stranded  costs  reflect the excess  costs of Central  Maine's
purchased-power obligations over the market value of the power, and the costs of
deferred  charges  and other  regulatory  assets.  The major  portion of Central
Maine's  stranded  costs is related  to  above-market  costs of  purchased-power
obligations arising from Central Maine's long-term,  noncancelable contracts for
the purchase of capacity  and energy from NUGs,  with lesser  estimated  amounts
related to Central Maine's deferred regulatory assets.

There is a high degree of uncertainty  that surrounds  stranded-cost  estimates,
resulting  from  having to rely on  projections  and  assumptions  about  future
conditions,  including,  among others, estimates of the future market for power.
Higher  market  rates lower  stranded-cost  exposure,  while lower  market rates
increase it. In addition to market-related impacts, any estimate of the ultimate
level  of  stranded   costs  depends  on  such  factors  as  state  and  federal
regulations,  the extent,  timing and form that competition for electric service
will take, the ongoing level of Central  Maine's costs of  operations,  regional
and national economic conditions, growth of Central Maine's sales, the timing of
any changes that may occur from state and federal  initiatives on restructuring,
and the extent to which  regulatory  policies and decisions  ultimately  address
recovery of stranded costs,  including the application of value from the sale of
Central Maine's generating assets.

The  estimated  market rate for power is based on  anticipated  regional  market
conditions  and future costs of  producing  power.  The present  value of future
purchased-power  obligations and Central Maine's  generating  costs reflects the
underlying costs of those sources of generation in place today,  with reductions
for contract expirations and continuing depreciation.  Deferred regulatory-asset
totals  include the  current  uncollected  balances  and  existing  amortization
schedules for purchased-power  contract  restructuring and buyouts negotiated by
Central  Maine to lessen the  impact of these  obligations,  along  with  energy
management costs, financing costs, and other regulatory commitments.

Maine  Restructuring  Legislation.  The  1997  Maine  restructuring  legislation
requires the MPUC, when retail access to generation  begins on March 1, 2000, to
provide a "reasonable  opportunity" to recover  stranded costs through the rates
of  the  transmission-and-distribution  company,  comparable  to  the  utility's
opportunity to recover stranded costs before the implementation of retail access
under the legislation.  Stranded costs are defined as the legitimate, verifiable
and  unmitigable  costs  made  unrecoverable  as a result  of the  restructuring
required by the  legislation  and will be  determined by the MPUC as provided in
the legislation.  The MPUC has been conducting separate adjudicatory proceedings
to  determine  the  stranded  costs  for  each  Maine  utility,  along  with the
corresponding  revenue  requirements and stranded-cost  charges to be charged by
each transmission-and-distribution utility. The first phase of the Central Maine
proceeding was completed in early 1999 and is discussed  under the heading "MPUC
Proceeding on Stranded Costs, Revenue Requirements, and Rate Design," below.

In addition,  the legislation  requires utilities to use all reasonable means to
reduce their potential  stranded costs and to maximize the value from generation
assets and contracts. The MPUC must consider a utility's efforts to mitigate its
stranded  costs in  determining  the  amount of the  utility's  stranded  costs.
Stranded costs and the related rates charged to customers will be  prospectively
adjusted as necessary to correct  substantial  inaccuracies in the year 2003 and
at least every three years thereafter.

The principal restructuring  provisions of the legislation provide for customers
to have direct  retail  access to generation  services and for  deregulation  of
competitive    electric    providers,    commencing    March   1,   2000,   with
transmission-and-distribution  companies continuing to be regulated by the MPUC.
By that date,  subject to  possible  extensions  of time  granted by the MPUC to
improve  the sale  value of  generation  assets,  investor-owned  utilities  are
required  to  divest  all  generation  assets  and  generation-related  business
activities,  with two major exceptions: (1) non-utility generator contracts with
qualifying facilities and contracts with demand-side  management or conservation
providers,  brokers or hosts,  and (2)  ownership  interests  in  nuclear  power
plants.  However,  the MPUC can require  Central Maine to divest its interest in
Maine Yankee  Atomic  Power  Company on or after  January 1, 2009.  As discussed
below  under  "Agreement  for Sale of  Generating  Assets,"  Central  Maine  has
contracted  to sell its  non-nuclear  generating  assets and,  after a favorable
court decision,  is proceeding toward a completion of the sale by April 7, 1999.
The legislation also requires investor-owned utilities, after February 29, 2000,
to sell their  rights to the  capacity  and energy from all  generation  assets,
including the  purchased-power  contracts that had not previously  been divested
pursuant to the legislation, with certain immaterial exceptions.

Upon the  commencement  of retail access on March 1, 2000,  Central Maine,  as a
transmission-and-distribution  utility, will be prohibited from selling electric
energy  to  retail  customers.  Any  competitive  electricity  provider  that is
affiliated  with  Central  Maine  would be allowed to sell  electricity  outside
Central Maine's service  territory without  limitation as to amount,  but within
Central  Maine's  service  territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service  territory,  as determined by the MPUC. CMP Group does not now intend to
engage in the sale of electric energy after March 1, 2000.

Other features of the legislation include the following:
       (a) After the effective date of the  legislation,  if an entity purchases
10 percent or more of the stock of a  distribution  utility,  including  Central
Maine,  the purchasing  entity and any related  entity would be prohibited  from
selling generation service to any retail customer in Maine.
       (b)  The  legislation  encourages  the  generation  of  electricity  from
renewable  resources  by  requiring  competitive  providers,  as a condition  of
licensing,  to  demonstrate  to the MPUC that no less than 30  percent  of their
portfolios  of supply  sources for retail  sales in Maine are  accounted  for by
renewable resources.
       (c) The  legislation  requires  the MPUC to  ensure  that  standard-offer
service is available to all consumers,  but any competitive  provider affiliated
with Central Maine would be limited to providing  such service for only up to 20
percent of the electric load in Central Maine's service territory.
       (d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1, 2000,
the providing of billing and metering services will be subject to competition.
       (e) A customer who  significantly  reduces or eliminates  consumption  of
electricity  due to  self-generation,  conversion  to an  alternative  fuel,  or
demand-side  management  may not be assessed an exit fee or re-entry  fee in any
form  for  such   reduction   or   elimination   of   consumption   or  for  the
re-establishment of service with a transmission-and-distribution utility.
       (f)  Finally,  the  legislation  provides  for  programs  for  low-income
assistance, energy conservation research and development on renewable resources,
assistance for utility  employees laid off as a result of the  legislation,  and
recovery of nuclear-plant  decommissioning  costs "[a]s required by federal law,
rule or order", all funded through  transmission-and-distribution  utility rates
and charges.

Legislative  bills that would amend certain  provisions of the 1997  legislation
have been submitted to the 1999 session of the Maine Legislature.  CMP Group and
Central Maine cannot predict whether any changes to the 1997 legislation will be
enacted.

MPUC Proceeding on Stranded Costs,  Revenue  Requirements,  and Rate Design. The
MPUC has completed  the first phase of the  proceeding  contemplated  by Maine's
restructuring legislation that will ultimately determine the recovery of Central
Maine's stranded costs, its revenue requirements, and the design of its rates to
be effective when Central Maine becomes a transmission-and-distribution  utility
at the time retail  access to  generation  begins in Maine on March 1, 2000.  On
December 23, 1998,  the MPUC Hearing  Examiners in the  proceeding  issued their
report,  in the form of a recommended  decision.  Central Maine disagreed with a
number   of  the   individual   recommendations   in  the   stranded-costs   and
revenue-requirements  areas and filed exceptions to those  recommendations.  The
MPUC  deliberated  the  recommendations  on February 10 and 11, 1999,  indicated
disagreement with some of the  recommendations,  and issued its written order on
March 19, 1999.

The MPUC stressed in its order that it was deciding the "principles" by which it
would set Central Maine's  transmission-and-distribution  rates, effective March
1, 2000, but was not calculating the rates themselves  because such calculations
at that time would rely  excessively on estimates.  The MPUC pointed out that it
would  hold a "Phase  II"  hearing to set the  actual  rates and  determine  the
recoverable  stranded  costs  after  processing  information  expected to become
available during 1999.

With respect to stranded costs,  the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding pursuant
to   its    mandate    under    the    restructuring    statute    to    provide
transmission-and-distribution utilities a reasonable opportunity to recover such
costs that is  equivalent to the  utility's  opportunity  to recover these costs
prior  to the  commencement  of  retail  access.  The  MPUC  also  reviewed  the
prescribed methodology for determining the amount of a utility's stranded costs,
including  among other  factors the  application  of excess value from  divested
generation  assets to offset  stranded costs. At the beginning of the proceeding
Central Maine had estimated its total  stranded costs to be  approximately  $1.3
billion.

In the  area  of  revenue  requirements,  the  Phase I  order  did  not  include
definitive amounts, but did contain the MPUC's conclusions as to the appropriate
cost of  common  equity  for  Central  Maine as a  transmission-and-distribution
company beginning March 1, 2000. Central Maine had recommended a 12-percent cost
of common  equity  with a  55-percent  common  equity  component  in the capital
structure.  The MPUC, after weighing conflicting  recommendations,  decided on a
common-equity  cost  of  10.50  percent  with a  common-equity  component  of 47
percent, and an overall weighted-average cost of capital of 8.68 percent.

In dealing with rate design,  the MPUC limited  itself in the first phase of the
proceeding primarily to establishing principles that would guide it in designing
Central  Maine's rates to be effective March 1, 2000. The MPUC indicated that it
would focus on (1)  facilitating  the  transition  to a  competitive  market for
generation,  and (2) implementing a "no-losers" policy,  i.e., that the new rate
design  would  cause no Central  Maine  customer's  bill to increase on March 1,
2000. Applying the latter principle,  the MPUC rejected a newly designed standby
rate  for  self-generators  proposed  by  Central  Maine  in  favor  of a design
generally similar to Central Maine's current rate for the class. The MPUC stated
that it planned to undertake a comprehensive  rate design and  alternative  rate
plan proceeding for Central Maine prior to March 1, 2002, when it could consider
experience      gained     with     the     cost     structures     of     other
transmission-and-distribution  utilities after the commencement of retail access
to generation.

The Phase I order resulted from an extended  proceeding with many points of view
represented  and covers a wide  variety  of  rate-related  subjects.  Definitive
findings by the MPUC in a number of the subject  areas await the second phase of
the  proceeding,  which must be completed  before  March 1, 2000.  CMP Group and
Central Maine cannot  predict the  definitive  amount of stranded costs the MPUC
will  determine  that Central Maine will be entitled to recover  pursuant to the
mandate of the  restructuring  statute,  or the  revenue  requirements  and rate
design that will result from Phase II of the MPUC proceeding.

Agreement for Sale of Generation Assets

On January 6, 1998,  Central Maine  announced  that it had reached  agreement to
sell  all  of its  hydro,  fossil  and  biomass  power  plants  with a  combined
generating  capacity  of 1,185  megawatts  for $846  million in cash,  including
approximately $18 million for assets of Union Water, to Florida-based FPL Group.
The related  book value for these  assets was  approximately  $218.9  million at
December 31, 1998. In addition, as part of its agreement with FPL Group, Central
Maine  entered  into energy  buy-back  agreements  to assist in  fulfilling  its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage  facilities to FPL Group for an
additional  $3.6 million ($1.5 million for the assets and $2.1 million for lease
revenue  associated  with  the  properties  that  Central  Maine  will  retain),
including $1.15 million for Union Water assets.  The related book value of these
assets was approximately $11.9 million at December 31, 1998.

Central  Maine's  interests  in the power  entitlements  from  approximately  50
power-purchase agreements with non-utility generators representing approximately
488  megawatts,  its  2.5-percent  interest in the Millstone  Unit No. 3 nuclear
generating  unit in Waterford,  Connecticut,  its  3.59-percent  interest in the
output of the Vermont Yankee nuclear  generating plant in Vernon,  Vermont,  and
its entitlement in the NEPOOL Phase II  interconnection  with  Hydro-Quebec  all
attracted  insufficient  interest to be included  in the pending  sale.  Central
Maine will continue to seek buyers for those assets. Central Maine did not offer
for sale its  interests  in the Maine  Yankee  (Wiscasset,  Maine),  Connecticut
Yankee (Haddam,  Connecticut)  and Yankee Atomic (Rowe,  Massachusetts)  nuclear
generating plants, all of which are in the process of being decommissioned.

Substantially  all of the generating  assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture").  Therefore,  substantially all of the proceeds
from sale must be deposited  initially  with the trustee  under the Indenture at
the  closing  of the sale to free  the  generating  assets  from the lien of the
Indenture.  Central  Maine plans to use some of the proceeds on deposit with the
trustee to redeem or repurchase bonds under the terms of the Indenture,  and may
discharge the Indenture. In addition, the proceeds could provide the flexibility
to redeem or repurchase  outstanding equity securities.  Central Maine must also
provide for payment of applicable  taxes resulting from the sale. The manner and
timing of the ultimate application of the sale proceeds after closing are in any
event subject to various factors,  including  Indenture  provisions,  regulatory
requirements, market conditions and terms of outstanding securities.

On November 17, 1998, FPL Group announced that its subsidiary, FPL Energy Maine,
Inc. ("FPL Energy") had filed a civil action in the United States District Court
for the Southern  District of New York  requesting a  declaratory  judgment that
Central Maine could not meet essential terms of the January agreement. FPL Group
asserted that based on October 1998 FERC rulings on transmission access, as well
as other  issues,  it  believed  that  Central  Maine  could not comply with the
conditions  in the purchase  contract and that FPL Energy should not be bound to
complete the transaction.

FPL Energy  contended in its complaint  that the FERC rulings (1)  constituted a
material adverse effect under the purchase agreement and substantially  lessened
the value of Central Maine's  generating assets, and (2) precluded Central Maine
from obtaining all federal,  state and local consents and approvals required for
the ownership,  operation and  maintenance of the generating  assets in a manner
substantially  consistent with Central Maine's historical ownership,  operation,
and maintenance thereof, as required by the purchase agreement. In addition, FPL
Energy  asserted  that the FERC rulings  limited the ability of the  prospective
buyer  to  get  power  from  the  Central  Maine  generating  assets  to  market
unconstrained  by transmission  limitations  resulting from new generators being
added to the NEPOOL system, and therefore,  based on the doctrine of frustration
of  purpose,  FPL  Energy  should be  "excused  without  further  obligation  or
liability from effecting the purchase of [Central Maine's]  generating  assets."
Central Maine, FPL Energy,  NEPOOL,  and other parties interested in New England
transmission-access issues requested rehearing of the FERC rulings.

On November 23, 1998, the MPUC granted its approval of the sale to FPL Energy of
the generating assets contemplated by the purchase  agreement,  finding the sale
to be in the public  interest.  The MPUC also made the  findings  required  as a
prerequisite  to a FERC  designation  of the  generating  facilities  as "exempt
wholesale generators," which had been requested by FPL Energy.

On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL  Energy,  after  making  the  required  finding  that the sale was
consistent  with  the  public  interest,   and  accepted  certain   implementing
agreements  for filing.  In discussing an issue raised by an intervenor the FERC
stated that by purchasing  the  generating  assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier  transmission-access
rulings.  The FERC  granted its approval of the  transfer of  hydroelectric  and
water  storage  licenses  on  December  28,  1998,  and the  approval by FERC of
exempt-wholesale-generator  status for the generating facilities, was granted on
February 24, 1999.

On March 11,  1999,  the  hearing  on FPL  Energy's  request  for a  declaratory
judgment was held in the United States District Court for the Southern  District
of New York. On the same day the  presiding  judge ruled that FPL Energy was not
entitled to the declaratory  judgment and entered judgment for Central Maine and
its affiliated defendants on all counts of the complaint. Thereafter on that day
FPL Energy announced that it would not appeal the decision, but would proceed to
a closing  of the sale on or  before  April 7,  1999,  as  required  by the sale
agreement, and the parties are preparing for the closing.

Expansion of Lines of Business

General.  CMP Group is also preparing for  competition by expanding its business
opportunities through investments that capitalize on core competencies. MaineCom
Services  is a  subsidiary  that  arranges  fiber-optic  data  service  for bulk
carriers,  offering  support for cable television or  "super-cellular"  personal
communication  vendors,  and  providing  other   telecommunications   consulting
services. TeleSmart is a wholly-owned accounts receivable management subsidiary.
Another wholly-owned subsidiary,  CNEX, formerly CMP International  Consultants,
provides  utility  consulting  (domestic and  international)  and research.  The
wholly-owned  Union  Water  Power  Company  provides  management  of rivers  and
recreational facilities, locating of underground utility facilities and infrared
photography, real estate brokerage and management,  modular housing, engineering
and  environmental   services,   integrated   energy   solutions,   and  utility
construction  services.  Union  Water's  operating  divisions  include On Target
Utility Services,  UnionLand Services,  Maine HomeCrafters,  E/PRO, and Combined
Energies(TM).  These  subsidiaries  often utilize skills of former Central Maine
employees and regularly compete for business with other companies.

Natural Gas Distribution. CMP Group and Energy East, through subsidiaries,  have
entered into a  joint-venture  agreement to pursue  opportunities  to distribute
natural gas at retail in many Maine  communities  that are not currently  served
with that fuel. They would offer natural-gas  service in several areas of Maine,
primarily the Augusta,  Bangor,  Bath-Brunswick,  Bethel, Windham and Waterville
areas, none of which currently has a natural-gas  distribution  system in place.
The gas would be drawn from two new gas-pipeline  projects now under development
by unrelated  parties that would carry  Canadian gas through  Maine and into the
regional energy market using substantial portions of electric  transmission-line
corridors  owned  by  Central  Maine  and  MEPCO.  On July  24,  1998,  the MPUC
authorized the joint venture to serve the areas it had applied to serve. The new
company (now "CMP Natural Gas,  L.L.C.",  equally owned by  subsidiaries  of CMP
Group and Energy East) would face competition from a new gas utility  affiliated
with Bangor Hydro-Electric Company in the Bangor area, and in the Bath-Brunswick
area, from an existing gas utility,  Northern  Utilities,  Inc.,  which has been
serving other areas of Maine,  including the Portland and Lewiston-Auburn areas.
CMP Group's level of investment is dependent on the overall economic feasibility
of natural gas as a competitive energy option in Maine, a sufficient  expression
of customer  interest in gas service from CMP Natural Gas, and the prospects for
achieving an acceptable return on investment.

Fiber Optic Network.  CMP Group,  through its wholly-owned  subsidiary  MaineCom
Services, owns 38.5 percent of the common stock of Northeast Optic Network, Inc.
("NEON"),  which is a  facilities-based  provider of  technologically  advanced,
high-bandwidth, fiber optic transmission capacity for communications carriers on
local loop,  inter-city and interstate  facilities.  NEON is currently expanding
its fiber optic  network to encompass  over 1,000 fiber optic cable route miles,
or more than 65,000 fiber strand miles,  in New England and New York,  utilizing
primarily electric-utility  rights-of-way,  including some of Central Maine's in
Maine and some owned by other electric utilities including Northeast  Utilities,
another substantial minority stockholder, in Connecticut,  Massachusetts and New
Hampshire.  As  of  December  31,  1998,  NEON  had  completed  construction  of
approximately  600 route miles, or 49,000 fiber miles, of its planned system and
is currently  engineering,  constructing,  or acquiring additional routes with a
goal of  creating  a  continuous  fiber  optic  link  between  New York City and
Portland,  Maine,  with access into and around  Boston and numerous  other major
service areas in the Northeast.

On August 5, 1998, NEON completed  initial public  offerings of $48.0 million of
common stock and $180.0 million of senior notes,  and Central Maine,  as part of
the  common-stock  offering,  sold some of the  shares in NEON it then owned for
proceeds of approximately $3.1 million.  In addition,  with some of the proceeds
of the offering NEON repaid approximately $18 million Central Maine had advanced
under an earlier  construction  loan  agreement.  CMP Group  believes there is a
growing  need for such a fiber optic  network in the  Northeast  and that NEON's
outside financing will provide substantial assistance in completing construction
of the network, but cannot predict the results of this venture. The common stock
of NEON is listed on the Nasdaq Stock Market's  National Market under the symbol
"NOPT".

Permanent Shutdown of Maine Yankee Plant

On August 6, 1997,  the Board of Directors of Maine Yankee voted to  permanently
cease power operations at its nuclear generating plant at Wiscasset,  Maine (the
"Plant")  and to begin  decommissioning  the  Plant.  As  reported  in detail in
Central Maine's Annual Report on Form 10-K for the year ended December 31, 1997,
the Plant had  experienced a number of operational  and regulatory  problems and
did not  operate  after  December  6,  1996.  The  decision  to close  the Plant
permanently  was  based  on  an  economic  analysis  of  the  costs,  risks  and
uncertainties  associated with operating the Plant compared to those  associated
with closing and  decommissioning it. The Plant's operating license from the NRC
was scheduled to expire on October 21, 2008.

FERC Rate Case. On November 6, 1997,  Maine Yankee  submitted to FERC for filing
certain  amendments to the Power  Contracts (the  "Amendatory  Agreements")  and
revised  rates to  reflect  the  decision  to shut down the Plant and to request
approval of an increase in the  decommissioning  component of its formula rates.
Maine Yankee's  submittal also requested  certain other rate changes,  including
recovery of unamortized  investment  (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998,  the FERC accepted  Maine Yankee's new rates for filing,
subject to refund  after a minimum  suspension  period,  and set Maine  Yankee's
Amendatory  Agreements,   rates  and  issues  concerning  the  prudence  of  the
Plant-shutdown decision for hearing.

By Complaint  dated  December 9, 1997,  the Maine Office of the Public  Advocate
("OPA") sought a FERC  investigation  of Maine Yankee's  actions  leading to the
decision  to  shut  down  the  Plant,  including  actions  associated  with  the
management  and operation of Maine Yankee since 1993.  The MPUC had initiated an
investigation in Maine earlier,  raising  generally  similar issues. By decision
dated  May  4,  1998,  the  FERC   consolidated   the  OPA  Complaint  with  the
comprehensive  rate  proceeding.  In  addition,  28  municipal  and  cooperative
utilities that had purchased in the aggregate  approximately  6.2 percent of the
output of the Plant from Maine Yankee's  sponsors (the  "Secondary  Purchasers")
intervened in the FERC  proceeding,  raising  similar  prudence issues and other
issues specific to their status as indirect purchasers from Maine Yankee.

In support of its request for an increase in decommissioning collections,  Maine
Yankee submitted with its initial FERC filing a 1997  decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive  competitive  bid  process  to  engage  a  Decommissioning  Operations
Contractor  ("DOC") to perform certain major  decontamination  and dismantlement
activities at the Plant on a  fixed-price,  turnkey  basis.  As a result of that
process, a consortium headed by Stone & Webster Engineering  Corporation ("Stone
&  Webster")  was  selected  to  perform  such  activities  under a  fixed-price
contract.  The contract provides for, among other undertakings,  construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning  activities  and site  restoration  by the end of 2004.  The DOC
process  resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.

Since the filing of the rate request,  Maine Yankee and the active  intervenors,
including among others the MPUC Staff,  the OPA, Central Maine and other owners,
the  Secondary  Purchasers,  and a  Maine  environmental  group  (the  "Settling
Parties"),  engaged in  extensive  discovery  and  negotiations.  Those  parties
participated in settlement  discussions  that resulted in an Offer of Settlement
filed by those  parties with the FERC on January 19, 1999.  On February 8, 1999,
the FERC Trial Staff recommended that the presiding judge certify the settlement
to the FERC and  that the FERC  approve  it.  Upon  approval  by the  FERC,  the
settlement  would  constitute  a full  settlement  of all  issues  raised in the
consolidated FERC proceeding,  including  decommissioning-cost issues and issues
pertaining  to the  prudence  of the  management,  operation,  and  decision  to
permanently  cease  operation of the Plant. A separately  negotiated  settlement
filed with the FERC on February 5, 1999,  would resolve the issues raised by the
Secondary  Purchasers by limiting the amounts they will pay for  decommissioning
the Plant  and by  settling  other  points of  contention  affecting  individual
Secondary  Purchasers.  On February 24, 1999,  the FERC Trial Staff  recommended
certification and approval of the settlement with the Secondary  Purchasers.  On
March 10, 1999,  the presiding  judge  certified to the FERC that both Offers of
Settlement were  uncontested and joined in the Trial Staff's  comments that both
were "fair, reasonable and in the public interest."

The Offer of  Settlement  provides for Maine Yankee to collect  $33.6 million in
the  aggregate  annually,  effective  January 15, 1998,  consisting of (1) $26.8
million  for  estimated   decommissioning   costs,  and  (2)  $6.8  million  for
ISFSI-related  costs. The original filing with FERC on November 6, 1997,  called
for an aggregate annual collection rate of $36.4 million for decommissioning and
the ISFSI, based on the TLG estimate.  Under the settlement the amount collected
annually could be reduced to  approximately  $26 million if Maine Yankee is able
to (1) use for construction of the ISFSI funds held in trust under Maine law for
spent-fuel disposal, and (2) access approximately $6.8 million being held by the
State of Maine for eventual  payment to the State of Texas pursuant to a compact
for  low-level  nuclear waste  disposal,  the future of which is now in question
after  rejection  of the  selected  disposal  site  in  west  Texas  by a  Texas
regulatory agency.  Both would require  authorizing  legislation in Maine, which
Maine Yankee is committed to use its best efforts to obtain.

The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective  January 15, 1998,  on equity  balances up to maximum  allowed  equity
amounts.  The Settling  Parties also agreed in the  proposed  settlement  not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing,  subject to certain  limitations  including the right to
challenge any accelerated recovery of unamortized  investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee. In addition,  the settlement  contains incentives for Maine Yankee
to achieve further savings in its  decommissioning  and ISFSI-related  costs and
resolves  issues  concerning  restoration  and  future use of the Plant site and
environmental   matters  of  concern  to  certain  of  the  intervenors  in  the
proceeding.

As a separate  part of the Offer of  Settlement,  Central  Maine,  the other two
Maine utilities which own interests in Maine Yankee, the MPUC Staff, and the OPA
entered into a further  agreement  resolving retail rate issues and other issues
specific to the Maine parties,  including those that had been raised  concerning
the prudence of the operation and shutdown of the Plant (the "Maine Agreement").
Under the Maine  Agreement  Central  Maine  would  continue to recover its Maine
Yankee costs in accordance  with its most recent ARP order from the MPUC without
any adjustment reflecting the outcome of the FERC proceeding. To the extent that
Central  Maine has  collected  from its retail  customers  a return on equity in
excess of the 6.50 percent  contemplated by the Offer of Settlement,  no refunds
would be required, but such excess amounts would be credited to the customers to
the extent required by the ARP.

The final major provision of the Maine Agreement  requires the Maine owners, for
the period  from March 1, 2000,  through  December  1,2004,  to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of  Directors  that served as a basis for the Plant  shutdown
decision,  up to a maximum  cumulative  amount of $41 million.  Central  Maine's
share  of that  amount  would  be  $31.16  million  for the  period.  The  Maine
Agreement,  which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.

CMP Group and Central Maine believe that the Offer of Settlement,  including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC  proceeding,  and that  approval of the Offer of Settlement by
the FERC would eliminate  significant  uncertainties  concerning CMP Group's and
Central Maine's future financial performance. Although all of the active parties
to the proceeding,  including the FERC Trial Staff,  support or, with respect to
certain individual provisions, do not oppose, the Offer of Settlement, CMP Group
and Central Maine cannot predict with certainty  whether or in what form it will
be approved by the FERC.

Other Maine Yankee Shareholders.  Periodically-higher nuclear-related costs have
affected  the  financial  condition  of other  stockholders  of Maine  Yankee in
varying  degrees.  A default by a Maine Yankee  stockholder  in making  payments
under its Power  Contract  or  Capital  Funds  Agreement  could  have a material
adverse effect on Maine Yankee,  depending on the magnitude of the default.  CMP
Group and Central  Maine  cannot  predict,  however,  what  effect,  if any, the
financial  and  regulatory   difficulties   experienced  by  some  Maine  Yankee
stockholders might have on Maine Yankee or Central Maine.



<PAGE>


Non-utility Generation

After  enactment of the federal Public Utility  Regulatory  Policies Act of 1978
("PURPA") and companion  legislation in Maine,  Central Maine became an industry
leader in developing  supplies of energy from non-utility  generators  ("NUGs"),
including cogeneration plants and small power producers.  These sources supplied
3.2 billion kilowatt-hours of electricity to Central Maine in 1998, representing
32  percent  of total  generation,  a  decrease  from 35  percent  in 1997.  The
Company's  contracts with non-utility  generators,  however,  which were entered
into pursuant to the mandates of PURPA and vigorous state  implementation of its
policies,  contributed  the largest part of Central  Maine  increased  costs and
resulting rate increases in the years immediately prior to implementation of the
ARP in 1995, and constitute the largest part of its strandable costs.

PURPA provided substantial economic incentives to NUGs by allowing  cogenerators
and small power producers to sell their entire  electrical output to an electric
utility at the utility's  avoided-cost  rate, which has often been substantially
higher  than  market  rates,   while   purchasing   their  own  electric  energy
requirements at the utility's  established  rate for that customer  class.  Thus
Central  Maine in a number of cases has been  required to pay a higher price for
energy  purchased  from a NUG  than  the  NUG,  which  in some  cases is a large
customer  of  Central  Maine,  has  paid  Central  Maine  for the  NUG's  energy
requirements. In addition, prices paid by Central Maine under NUG contracts have
often been well above current wholesale market prices.

Central   Maine  has  reduced  its  NUG  costs  by   implementing   buyouts  and
restructurings  of its NUG  contracts,  whenever  practicable.  As a result,  in
accordance with prior MPUC policy and the ARP, since January 1992 $99 million of
buyout or  restructuring  costs have been included in Deferred Charges and Other
Assets on  Central  Maine's  balance  sheet  and will be  amortized  over  their
respective   fuel  savings   periods.   Central  Maine  will  continue  to  seek
opportunities  to  reduce  its NUG  costs,  but  cannot  predict  what  level of
additional savings it will be able to achieve. Central Maine offered to sell its
NUG power  entitlements as part of the auction of its generating assets, but the
offer attracted insufficient interest to be included in its pending sale.

Financing and Related Considerations

At the annual meeting of the  stockholders of Central Maine on May 15, 1997, the
holders of Central Maine's outstanding preferred stock consented to the issuance
of $350  million in principal  amount of Central  Maine's  medium-term  notes in
addition to the $150  million in principal  amount to which they had  previously
consented.  This expansion of the medium-term  note program to a maximum of $500
million in  principal  amount  outstanding  at any one time was  implemented  to
increase  Central  Maine's  financing  flexibility in  anticipation  of industry
restructuring  and  increased  competition.  During 1998,  Central  Maine issued
medium-term  notes  totaling $312 million in principal  amount and such notes in
the amount of $18 million matured during the year. As of December 31, 1998, $337
million of  medium-term  notes were  outstanding.  During  1998,  Central  Maine
redeemed, repurchased, or paid at maturity a total of approximately $417 million
of mortgage bonds,  preferred stock, and other debt. For a discussion of Central
Maine's 1998 financing activity and its available financing facilities, see Item
7, "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations"-"Liquidity and Capital Resources," below.



Securities Ratings

The current  ratings  assigned  Central  Maine's  securities  by the three major
securities-rating agencies are shown below:

                   Mortgage         Unsecured        Commercial       Preferred
                     Bonds            Notes             Paper           Stock

S&P                 BBB+              BB+               A-3             BB+
Moody's             Baa3              Ba1               P3              Ba1
D&P                 BBB-              BB+               D-3             BB

"Year 2000" Computer Issues

The "Year 2000 problem" arose because many existing  computer  programs use only
the last two digits to refer to a year. Therefore those computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not  corrected,  many  computer  applications  could  fail or  create  erroneous
results, with potentially serious and widespread adverse consequences.

CMP  Group,  through  Central  Maine,  began its Year 2000  problem  remediation
efforts  in  1996,  and  since  that  time  has  developed  a  broad-based   and
comprehensive  project plan for addressing  Year 2000 issues.  The plan includes
both  Information   Technology   ("IT")  and  non-IT  systems,   addresses  both
centralized and distributed  systems,  and encompasses  systems  critical to the
generation,  transmission,  and  distribution  of electric energy as well as the
traditional business systems necessary to the CMP Group System.

As  planned,  by the  end of 1998  CMP  Group  had  completed  much of the  work
associated  with Year  2000  readiness  for IT  infrastructure  and  centralized
business systems. The remaining work in those areas is scheduled to be completed
during the first six months of 1999. All vendors  associated with this remaining
work  have  indicated  availability  of  products  and  services  that CMP Group
believes should permit CMP Group to be Year 2000 ready by June 1999.

CMP Group's target  completion date for Year 2000 power  generation and delivery
systems is also June 1999,  consistent with the DOE's  published  request in May
1998 and the overall electric-utility  industry guidelines prepared by the North
American Electric  Reliability  Council ("NERC").  CMP Group has contracted with
the  appropriate   vendors  to  complete  critical   generation  control  system
remediation  work by June 1999,  and  believes  it is on  schedule  to meet this
target.

In addition to the internal Year 2000 readiness  activities discussed above, CMP
Group is actively  participating  in a joint ISO/NEPOOL  initiative  designed to
assess,  and assure,  power reliability  within the NEPOOL area. This initiative
encompasses all participants,  including  Central Maine,  within the New England
area.

CMP Group also has an active  program in place to identify  and  address  issues
associated  with  third-party   providers.   The  program   addresses   business
relationships  with all  third-party  providers,  but focuses on those suppliers
deemed  critical  to CMP  Group's  business.  At  this  time  CMP  Group  has no
indication that any third-party with which CMP Group has a material relationship
is expecting a Year 2000-related business interruption.  CMP Group will continue
to monitor and assess its third-party relationships.

CMP Group estimates it will incur approximately $4.0 million of costs associated
with  making  the  necessary  modifications  identified  to  date  to  both  the
centralized and non-centralized  systems. As of December 31, 1998, approximately
$3.4 million of such costs has been incurred.

CMP Group recognizes that failure to correct problems  associated with Year 2000
issues has the potential to result in material  operational  and financial risks
if the affected systems either cease to function or produce  erroneous  results.
Such risks could include  inability to operate  fossil  and/or hydro  generating
facilities,  disruptions in the operation of Central  Maine's  transmission  and
distribution  systems,  an  inability  to  access  interconnections  with  other
utilities,  and disruptions to Central Maine's major business systems  (customer
information and service, administrative, financial).

Central  Maine  believes,  however,  that the most  likely  worst case  scenario
resulting from these risks would be a temporary,  and short-term,  disruption of
electric  service.  This could occur  either as a failure on the part of Central
Maine to successfully address all critical Year 2000 issues, as a failure on the
part of a critical  third-party  provider,  or as a failure on the part of other
entities,  including  ISO-New England,  to successfully  maintain the short-term
reliability of power supply and delivery on a regional basis. Central Maine does
not expect that any such  short-term  service  disruption  would have a material
impact on its operations, liquidity, or financial condition.

In order to minimize these risks,  and the potential  recovery  time,  from Year
2000 problems, CMP Group is actively involved in contingency planning.  Although
CMP Group has extensive knowledge and specific  experience in  disaster/recovery
planning  and  execution,  CMP  Group  recognizes  the  importance  of Year 2000
specific contingency  planning.  Accordingly,  Central Maine is participating in
the integrated contingency planning effort headed by the North American Electric
Reliability  Council,  and the Northeast Power  Coordinating  Council.  Further,
Central Maine will be developing  comprehensive  Year 2000 specific  contingency
plans for its own independent operations.

CMP Group  believes  its plans are adequate to attain Year 2000  readiness,  and
that the contingency  plans currently under development both internally and at a
regional level should substantially mitigate the risks discussed above.

Environmental Matters

Federal,  state and local environmental laws and regulations cover air and water
quality,  land  use,  power  plant  and  transmission  line  siting,  noise  and
aesthetics,   solid  and  hazardous  waste  and  other  environmental   matters.
Compliance  with  these  laws and  regulations  impacts  the  manner and cost of
electric  service by requiring,  among other  things,  changes in the design and
operation of existing facilities and changes or delays in the location,  design,
construction and operation of new facilities.  These  environmental  regulations
most significantly affect Central Maine's electric power generating  facilities,
which are to be sold to FPL Group,  as discussed  above.  In  addition,  certain
environmental  proceedings  under  federal  and state  hazardous  substance  and
hazardous waste regulations (such as the Comprehensive  Environmental  Response,
Compensation,  and Liability Act  ("CERCLA") and the Resource  Conservation  and
Recovery Act ("RCRA") and similar state statutes) are discussed below under Item
3,  "Legal  Proceedings"  - "Legal and  Environmental  Matters."  Central  Maine
estimates that its capital  expenditures for improvements  needed to comply with
environmental laws and regulations were approximately $14.3 million for the five
years from 1994 through 1998.

Storm Damage to Central Maine's System

On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck   Central   Maine's   service   territory,   causing  power  outages  for
approximately  280,000 of Central  Maine's  528,000  customers,  and substantial
widespread  damage to Central Maine's  transmission and distribution  system. To
restore its electrical  system,  Central Maine  supplemented  its own crews with
utility and tree-service  crews from throughout the  northeastern  United States
and the Canadian  maritime  provinces,  with  assistance from the Maine national
guard.  Central Maine's incremental  non-capital costs of the repair effort were
$50.7 million, most of which is labor-related.  In addition,  approximately $1.7
million of carrying costs have been deferred as of December 31, 1998.

On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the  incremental  non-capital  costs  associated  with Central Maine's
efforts to restore  service in response to the damage  resulting from the storm.
The order required Central Maine, as part of its annual filing under the ARP, to
file  information  on the  amounts  deferred  under  the  order  and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the 1998 ARP filing Central Maine stated that once the final cost of
the storm was determined and the status of federal  assistance was known Central
Maine would  propose a plan for recovery of its costs.  Based on the MPUC order,
Central  Maine has deferred  $52.4 million in storm related costs as of December
31, 1998. In October 1998, the MPUC staff issued its draft report of its summary
investigation  of the Maine utilities'  response to the January ice storm.  This
report found no basis for formal  adjudicatory  investigation  into the response
and supports the utilities' actions. On May 1, 1998,  President Clinton signed a
Congressional  appropriation  bill that included $130 million for Presidentially
declared  disasters  in 1998,  including  storm-damage  cost  reimbursement  for
electric utilities.  On November 5, 1998 the United States Department of Housing
and Urban  Development  ("HUD")  announced that of those funds, $2.2 million had
been awarded to Maine,  with none designated for utility  infrastructure,  which
Central Maine and the Maine Congressional delegation protested as inadequate and
inconsistent  with  Congressional  intent.  On March 10, 1999,  HUD  published a
notice in the Federal  Register  inviting  parties to re-apply for  storm-damage
cost  reimbursement.  Central  Maine  cannot  predict  what  portion  of its ice
storm-related  costs it will ultimately recover through federal  assistance,  if
any, or from its customers, or when any such recovery will take place.

Employee Information

A local  union  affiliated  with the  International  Brotherhood  of  Electrical
Workers  (AFL-CIO)  represents  operating and  maintenance  employees in each of
Central Maine's operating divisions,  and certain office and clerical employees.
At December 31,  1998,  Central  Maine had 1,607  full-time  employees,  of whom
approximately 45 percent were represented by the union.

In April 1998 Central  Maine and the union agreed to a two-year  labor  contract
extension  that  provided  for an annual wage  increase of 2.5 percent on May 1,
1998 and 2.5 percent on May 1, 1999.

On March 2, 1998,  Central Maine and the Union  reached  agreement on a contract
covering 158 employees in power-generation  positions.  This contract is similar
to the agreement  covering other Central Maine employees except that it provided
for a 2.5 percent  general wage increase  effective  March 1, 1998. The contract
will  expire  on  July  31,  1999  and,  at  the  time  of  the  closing  of the
generation-asset  sale, is expected to be absorbed by FPL Group, along with most
of the generation-related employees.

Item 2.   PROPERTIES.

Existing Facilities

Central Maine's  electric  properties form a single  integrated  system which is
connected at 345 kilovolts and 115  kilovolts  with the lines of Public  Service
Company of New Hampshire at the  southerly end and at 115 kilovolts  with Bangor
Hydro-Electric  Company at the northerly end of Central Maine's system.  Central
Maine's  system is also  connected  with the system of The New  Brunswick  Power
Corporation  and with Bangor  Hydro-Electric  Company,  in each case through the
345-kilovolt interconnection constructed by MEPCO, a 78 percent-owned subsidiary
of Central Maine. At December 31, 1998,  Central Maine had  approximately  2,293
circuit-miles  of overhead  transmission  lines,  19,438  pole-miles of overhead
distribution lines and 1,434 miles of underground and submarine cable.

Central Maine operates 32  hydroelectric  generating  stations,  of which 31 are
owned fully by Central Maine, with an estimated net capability of 373 megawatts,
and it  purchases  an  additional  74  megawatts  of  non-utility  hydroelectric
generation in Maine.  Central  Maine also operates two oil-fired  steam-electric
generating  stations,  William F. Wyman  Station  in  Yarmouth,  Maine and Mason
Station in Wiscasset,  Maine.  Central Maine's share of William F. Wyman Station
has an estimated net capability of 594  megawatts.  Mason Station has five units
totaling 145 megawatts although two of the units (42 megawatts) are retired. The
oil-fired stations are located on tidewater,  permitting  waterborne delivery of
fuel. Central Maine also has internal combustion  generating  facilities with an
estimated  aggregate  net  capability  of 42  megawatts.  These  facilities  are
included in the pending sale of Central Maine's generating assets to FPL Group.

Central Maine also has ownership interests in five nuclear generating facilities
in New England,  three of which have permanently ceased operations.  The largest
is a 38-percent  interest in Maine Yankee Atomic Power Company ("Maine  Yankee")
which, as discussed  above,  has  permanently  shut down its plant in Wiscasset,
Maine.  In addition,  the Company owns a 9.5 percent  interest in Yankee  Atomic
Electric Company ("Yankee Atomic"),  discussed below, which has permanently shut
down  its  plant  located  in  Rowe,  Massachusetts,  a 6  percent  interest  in
Connecticut Yankee Atomic Power Company ("Connecticut Yankee"), discussed below,
which  has  permanently  shut  down its plant in  Haddam,  Connecticut,  and a 4
percent interest in Vermont Yankee Nuclear Power Corporation ("Vermont Yankee"),
which owns an  operating  plant in  Vernon,  Vermont  (collectively,  with Maine
Yankee,  the "Yankee  Companies").  In  addition  to the four Yankee  Companies,
pursuant to a  joint-ownership  agreement,  the Company has a 2.5 percent direct
ownership interest in the Millstone 3 nuclear unit ("Millstone 3") in Waterford,
Connecticut.
<TABLE>
<S>                            <C>                 <C>                    <C>                    <C>               <C> 


                              Maine               Yankee              Connecticut             Vermont          Millstone
                              Yankee              Atomic                  Yankee              Yankee              Unit 3
                              ------              ------        ----      -------             ------       ---    ------

Ownership Share                38%                 9.5%                   6%                     4%                2.5%

Operating Status        Permanently shut    Permanently shut       Permanently shut down    Operating        Operating
                        down August 6,      down February 26,      December 4, 1996
                        1997                1992

Location                Wiscasset, Maine    Rowe, Massachusetts    Haddam,                  Vernon, Vermont  Waterford,
                                                                   Connecticut                               Connecticut

Capacity Share          N/A                 N/A                    N/A                      19 MW            29 MW

Equity Interest at
December 31, 1998       $30.0 Million       $1.9 Million           $6.3 Million             $2.1 Million     N/A
</TABLE>

Maine  Yankee.  In August 1997,  the Board of  Directors of Maine Yankee  Atomic
Power Company voted to permanently  shut down and  decommission the Maine Yankee
plant. The Plant had experienced a number of operational and regulatory problems
and did not operate after  December 6, 1996. The decision to close the Plant was
based on an economic analysis of the costs,  risks and uncertainties  associated
with  operating  the  Plant  compared  to  those  associated  with  closing  and
decommissioning  it. For a detailed  discussion  of the issues  relating  to the
Maine Yankee  Plant,  see Item 1  "Business" - "Permanent  Shutdown of the Maine
Yankee Plant," above.

Connecticut  Yankee.  In December  1996,  the Board of Directors of  Connecticut
Yankee Atomic Power Company voted to permanently  shut down and decommission the
Connecticut  Yankee plant for economic reasons.  The plant did not operate after
July 22, 1996.  Central  Maine  estimates  its share of the cost of  Connecticut
Yankee's  continued  compliance  with regulatory  requirements,  recovery of its
plant  investment,  decommissioning  and closing  the plant to be  approximately
$29.9 million and has recorded a corresponding regulatory asset and liability on
the consolidated  balance sheet.  Central Maine is currently  recovering through
rates  an  amount  adequate  to  recover  these  expenses.  Issues  relating  to
Connecticut Yankee's decommissioning rates, as well as the prudence of operating
that plant and the decision to cease operations, remain pending before the FERC.

Yankee  Atomic.  In 1993 the FERC  approved  a  settlement  agreement  regarding
recovery  of  decommissioning  costs and plant  investment,  and all issues with
respect to the prudence of the decision to  discontinue  operation of the Yankee
Atomic plant.  Central Maine estimates its remaining share of the cost of Yankee
Atomic's  continued  compliance  with regulatory  requirements,  recovery of its
plant  investment,  decommissioning  and closing the plant, to be  approximately
$7.8   million.   This  estimate  has  been  recorded  by  Central  Maine  as  a
corresponding  regulatory  asset and liability on Central Maine's balance sheet.
Central  Maine's current share of costs related to the shutdown of Yankee Atomic
is being recovered through rates.

Vermont Yankee. The Vermont Yankee plant is an operating unit. Its NRC operating
license is scheduled to expire in the year 2012.

Millstone Unit 3. Pursuant to a joint ownership  agreement,  Central Maine has a
2.5  percent  direct  ownership  interest  in the  Millstone  3 nuclear  unit in
Waterford,  Connecticut, which is operated by Northeast Utilities. This facility
was off-line  from March 31, 1996, to July 1998,  due to NRC concerns  regarding
license requirements.  For a discussion of a lawsuit and arbitration claim filed
by Central Maine and other minority  owners of Millstone 3 against the operators
of the unit, see Item 3 "Legal  Proceedings"-"Millstone  Unit No. 3 Litigation,"
below.

Central  Maine is  obligated  to pay its  proportionate  share of the  operating
expenses,  including  depreciation and a return on invested capital,  of each of
the Yankee Companies  referred to above for periods expiring at various dates to
2012.  Pursuant to the joint ownership  agreement for Millstone 3, Central Maine
is similarly  obligated to pay its proportionate share of the operating costs of
Millstone 3. Central  Maine is also  required to pay its share of the  estimated
decommissioning  costs of each of the  Yankee  Companies  and  Millstone  3. The
estimated  decommissioning  costs are paid as a cost of  energy  in the  amounts
allowed in rates by the FERC.

MEPCO.  MEPCO owns and  operates a  345-kilovolt  transmission  interconnection,
completed in 1971, extending from Central Maine's substation at Wiscasset to the
Canadian  border  where  it  connects  with a line  of The New  Brunswick  Power
Corporation  ("NB Power") under an  interconnection  agreement.  MEPCO transmits
power  between NB Power and various New  England  utilities  pursuant to MEPCO's
Open Access Transmission Tariff.

New England  Power Pool  Facilities.  NEPOOL,  of which the Company is a member,
contracted in connection with its  Hydro-Quebec  projects to purchase power from
Hydro-Quebec.  The contracts entitle Central Maine to 44.5 megawatts of capacity
credit in the winter and 127.25  megawatts of capacity credit during the summer.
Central Maine also entered into  facilities-support  agreements for its share of
the   related   transmission   facilities,   with  its  share  of  the   support
responsibility and of associated  benefits being  approximately 7 percent of the
totals.  Central Maine is making  facilities-support  payments on  approximately
$25.4  million,  its  share  of  the  construction  cost  for  the  transmission
facilities incurred through December 31, 1998.

Maine Yankee Low-Level Waste Disposal.  The federal Low-Level  Radioactive Waste
Policy Amendments Act (the "Waste Act"), enacted in 1986, required states either
alone or in  multistate  compacts  to  provide  for the  disposal  of  low-level
radioactive  waste generated within their borders.  Subsequently,  the states of
Maine,  Texas and Vermont  entered  into a compact for the disposal of low-level
waste at a site in  Texas.  The  compact  provides  for  Texas  to take  Maine's
low-level waste over a 30-year period for disposal at a then-planned facility in
west Texas. In return,  Maine would be required to pay $25 million,  assessed to
Maine Yankee by the State of Maine, payable in two equal installments, the first
after  ratification by Congress and the second upon commencement of operation of
the Texas facility;  or, as a possible alternative,  the states could agree to a
financing arrangement for the payment, in which case Maine Yankee's share, along
with interest,  could be paid out over an extended  period of time. In addition,
Maine  Yankee  would be assessed a total of $2.5  million for the benefit of the
Texas  county  in  which  the  facility  would  be  located  and  would  also be
responsible for its pro-rata share of the Texas governing commission's operating
expenses.

The bill providing for  ratification of the compact was before several  sessions
of the Congress  before  finally being approved on September 2, 1998, and signed
by the President on September 21, 1998.  However, on October 22, 1998, the Texas
Natural  Resources  Conservation  Commission  voted  to  deny a  permit  for the
proposed west Texas site for the facility.

Since the Maine Yankee Plant has permanently  stopped operating,  the compact is
less  beneficial  to Maine  Yankee  than it would  have  been if the  Plant  had
remained in operation,  due to the new schedule for Maine Yankee's shipments and
the  uncertainty  associated  with the  schedule  for opening a Texas  facility.
Although other potential  sites in Texas have been proposed by various  parties,
CMP Group and Central Maine cannot  predict  whether or when a facility in Texas
will be licensed and built.  Maine Yankee intends to utilize its on-site storage
facility as well as dispose of low-level  waste at an active South Carolina site
or other available sites in the interim and continue to cooperate with the State
of Maine in pursuing all  appropriate  options.  CMP Group and Central Maine are
unable to predict  whether  or when the state of Maine may  assess any  payments
required under the compact.

Nuclear Insurance. The Price-Anderson Act is a federal statute providing,  among
other  things,  a limit on the maximum  liability for damages  resulting  from a
nuclear incident. Coverage for the liability is provided for by existing private
insurance and retrospective  assessments for costs in excess of those covered by
insurance,  up to  $88.095  million  for  each  reactor  owned,  with a  maximum
assessment of $10 million per reactor in any year.  However,  after  appropriate
exemptive  action by the NRC Maine Yankee,  and therefore its sponsors,  are not
responsible for retrospective  assessments  resulting from any event or incident
occurring after January 7, 1999. Based on Central Maine's stock ownership in the
Yankee companies and its 2.5 percent direct ownership  interest in the Millstone
3 nuclear unit, Central Maine's  retrospective premium for post-January 7, 1999,
events or incidents could be as high as $6 million in any year, for a cumulative
total of $52.9 million.

In addition to the  insurance  required by the  Price-Anderson  Act, the nuclear
generating  facilities mentioned above carry additional nuclear  property-damage
insurance.  This additional  insurance is provided from  commercial  sources and
from the  nuclear  electric  utility  industry's  insurance  company  through  a
combination  of current  premiums  and  retrospective  premium  adjustments.  In
recognition  of the reduced risk posed by the shutdown of the Maine Yankee Plant
and its defueled reactor, Maine Yankee substantially reduced its property-damage
coverage effective January 19, 1999.

Construction Program

Central Maine's plans for improvements and expansion of its facilities are under
continuing review.  Actual construction  expenditures depend on the availability
of  capital  and other  resources,  load  forecasts,  customer  growth,  general
business conditions,  and, starting in 1999, the consummation of the sale of its
generating  assets.  Recent  economic  and  regulatory  considerations  have led
Central  Maine to hold its planned 1999 capital  investment  outlays,  including
deferred  demand-side  management  expenditures,  to minimum levels.  During the
five-year  period ended  December 31, 1998,  Central  Maine's  construction  and
acquisition  expenditures  amounted to $219.7 million  (including  investment in
jointly-owned  projects and excluding MEPCO). The program is currently estimated
at approximately $56 million for 1999 and $228 million for 2000 through 2003.

The following table sets forth Central Maine's estimated capital expenditures as
discussed above,  assuming completion of the generation asset sale in the spring
of 1999:

                                              2000-
                                     1999     2003      Total
Type of Facilities                      (Dollars in Millions)

Generating Projects                     $  3      $  -     $   3
Transmission                               3        22        25
Distribution                              32       132       164
General facilities and Other              18        74        92
                                          --        --        --
Total                                    $56      $228      $284
                                         ===       ===       ===

Additionally,   Central  Maine,  in  conjunction  with  the  Independent  System
Operator-New  England,  is conducting  system impact and  facilities  studies to
accommodate  the  interconnection  of 19 merchant  plants  totaling in excess of
6,000 megawatts  proposing to interconnect to its system and neighboring systems
over the next three years.  One of these facilities has an expected on-line date
in the latter half of 1999.  Central Maine  anticipates  spending  approximately
$25,000,000 in 1999 for the construction and/or upgrade of transmission line and
substation facilities associated with this project as well as two other projects
expected to be on-line in 2000. The extent of transmission upgrades necessary to
accommodate the proposed merchant plants, and the entity ultimately  responsible
for these  costs,  depends on the results of the studies  mentioned  above,  the
number of proposed  plants that  actually  are  developed,  and  approval of the
criteria for determining needed transmission upgrades, which are being developed
within the context of NEPOOL's  Congestion  Management  System be filed later in
1999 as required by the FERC.

Demand-side Management

Central Maine's demand-side-management  initiatives have included programs aimed
at  residential,  commercial and  industrial  customers.  Among the  residential
efforts have been  programs  that offer free or low-cost  weatherization,  water
heater  wraps  and  energy-efficient  light  bulbs.  Among  the  commercial  and
industrial   efforts,   in   addition   to   operating   programs   that   offer
energy-efficient  lighting  products and water-heater  wraps,  Central Maine has
provided incentives to customers who install  conservation  measures of any kind
that increase the efficiency of the use of electricity.

NEPOOL

Central Maine is a member of the New England Power Pool (NEPOOL),  which is open
to electric  utilities in New England under a 1971  agreement  that provides for
coordinated  planning and operation of  approximately 99 percent of the electric
power  production,  purchases  and  transmission  in  New  England.  The  NEPOOL
Agreement,  which  was  recently  revised  to  comply  with  the new  regulatory
requirements discussed in the three succeeding  paragraphs,  imposes obligations
concerning  generating capacity reserve and the use of major transmission lines,
and provides for central dispatch of the region's facilities.

On April 24,  1996,  the FERC issued  Order No. 888,  which  requires all public
utilities that own, control or operate facilities used for transmitting electric
energy  in   interstate   commerce  to  file  open   access   non-discriminatory
transmission  tariffs that offer both  load-based,  network and  contract-based,
point-to-point  service,  including  ancillary  service  to  eligible  customers
containing  minimum terms and  conditions of  non-discriminatory  service.  This
service  must be  comparable  to the  service  they  provide  themselves  at the
wholesale  level;  in fact,  these  utilities must themselves take the wholesale
transmission  service  they  provide  under the filed  tariffs.  The order  also
permits public utilities and  transmitting  utilities the opportunity to recover
legitimate,  prudent and verifiable  wholesale  stranded costs  associated  with
providing  open  access and  certain  other  transmission  services.  It further
requires public utilities to functionally  separate transmission from generation
marketing functions and  communications.  The intent of this order is to promote
the transition of the electric utility industry to open  competition.  Order No.
888  also  clarifies  federal  and  state   jurisdiction  over  transmission  in
interstate commerce and local distribution and provides for deference of certain
issues to state  recommendations.  The FERC subsequently issued Orders No. 888-A
and 888-B which generally reaffirm Order No.
888 and clarify certain terms.

On July 9, 1996,  Central Maine and MEPCO submitted  compliance  filings to meet
the  new  pro-forma   tariff   non-price   minimum   terms  and   conditions  of
non-discriminatory  transmission  service  and since  then have made  additional
filings revising their tariffs in response to subsequent FERC and NEPOOL Orders.
Central Maine and MEPCO have been  transmitting  energy  pursuant to their filed
tariffs, subject to refund.

On April 24, 1996,  the FERC also issued Order No. 889,  which  requires  public
utilities  to   functionally   separate  their  wholesale  power  marketing  and
transmission   operation   functions  and  to  obtain  information  about  their
transmission  system for their own wholesale power  transactions in the same way
their  competitors  do through  the Open  Access  Same-time  Information  System
("OASIS").  The rule also  prescribed  standards  of conduct and  protocols  for
obtaining  the  information.  The  standards  of conduct are designed to prevent
employees of a public  utility  engaged in marketing  functions  from  obtaining
preferential  information.  In 1998,  both  Central  Maine and  MEPCO  submitted
standards of conduct  filings  that  further  clarified  the  separation  of the
wholesale  power marketing and  transmission  operations  functions.  The NEPOOL
Agreement and open-access  transmission  tariff have been revised to reflect the
new regulatory requirements and are pending FERC approval.

Fuel Supply

Central Maine's total kilowatt-hour  production by energy source for each of the
last two years and as estimated for 1999,  assuming completion of the generation
asset sale in the first half of 1999, is shown below.

                                Actual          Estimated
                           1998       1997     1999 Source
Nuclear                        2%         2%         3%
Hydro                         16         16         10
Oil                           35         35          4
Non-utility                   32         35         35
Other purchases               13         10         37
Biomass                        2          2          1
   FPL-Hydro Buyback           -          -          7
   FPL-Oil Buyback             -          -          3
                           -----      -----       ----
                             100%       100%       100%
                             ---        ---       ----

The 1999 estimated  kilowatt-hour  output from oil and purchased  power may vary
depending upon the relative costs of Company-generated power and power purchased
through independent producers and other sources.

Oil.  Central  Maine's  William F. Wyman Station in Yarmouth,  Maine,  its Mason
Station in Wiscasset,  Maine, and its internal  combustion  electric  generating
units are  oil-fired.  Central  Maine's last contract for the supply of fuel oil
requirements at market prices was allowed to expire in 1993.  Since then Central
Maine has been purchasing its fuel-oil requirements on the open market.

The average cost per barrel of fuel oil  purchased  by Central  Maine during the
five calendar years commencing with 1994 was $12.93,  $16.16, $18.18, $17.04 and
$12.39,  respectively.  A substantial  portion of the fuel oil burned by Central
Maine and the other member utilities of NEPOOL is imported. The availability and
cost of oil to Central Maine, both under contract and in the open market,  could
be adversely affected by policies and events in oil-producing  nations and other
factors affecting world supplies and domestic governmental action.

Maine  Yankee  Spent Fuel.  Like other  nuclear  plant  operators,  Maine Yankee
entered into a contract with the United States  Department of Energy ("DOE") for
disposal of its spent  nuclear fuel, as required by the Nuclear Waste Policy Act
of 1982,  pursuant to which a fee of one dollar per  megawatt-hour  was assessed
against net generation of electricity and paid to the DOE quarterly.  Under this
Act, the DOE was given the  responsibility  for  disposal of spent  nuclear fuel
produced in private nuclear reactors. In addition,  Maine Yankee is obligated to
make a  payment  with  respect  to  generation  prior to April 7, 1983 (the date
current DOE  assessments  began).  Maine Yankee  elected  under terms of its DOE
contract to make a single payment of this obligation prior to the first delivery
of spent fuel to DOE,  which was  scheduled  to begin by January 31,  1998.  The
payment  would  consist of $50.4  million (all of which Maine Yankee  previously
collected from its customers,  but for which a reserve was not funded), which is
the  approximate  one-time  fee  charge,  plus  interest  accrued at the 13-week
treasury-bill  rate compounded on a quarterly basis from April 7, 1983,  through
the date of the actual  payment.  Current  costs  incurred by Maine Yankee under
this contract are  recoverable  under the terms of its Power  Contracts with its
sponsoring  utilities,  including  Central  Maine.  Maine Yankee has accrued and
billed  $82.8  million of interest  cost for the period  April 7, 1983,  through
December 31, 1998.

Maine  Yankee has formed a trust to provide for payment of its  long-term  spent
fuel  obligation,  and is funding the trust with deposits at least  semiannually
which began in 1985, with currently  projected  annual deposits of approximately
$1.3 million through December 2003. Deposits are expected to total approximately
$78.2 million,  with the total liability,  including interest due at the time of
disposal,  estimated to be  approximately  $168.7  million at December 31, 2003.
Maine Yankee  estimates  that trust fund deposits plus  estimated  earnings will
meet this total liability if funding continues without material changes.

Maine  Yankee's  spent  fuel is  currently  stored in the spent fuel pool at the
Plant site.  Federal  legislation  enacted in December  1987 directed the DOE to
proceed with the studies necessary to develop and operate a permanent high-level
waste (spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also
provided for the possible development of a Monitored Retrievable Storage ("MRS")
facility and abandoned plans to identify and select a second permanent  disposal
site. An MRS facility would provide temporary storage for high-level waste prior
to  eventual  permanent  disposal.  The DOE has  indicated  that  the  permanent
disposal site is not expected to open before 2010, although originally scheduled
to open in 1998.

In 1997 the two branches of the United States Congress  approved  separate bills
to comprehensively  reform the federal spent nuclear fuel program. In the spring
of 1998 House and Senate members resolved  differences  between the bills, which
would have required the DOE to establish an interim  storage  facility and begin
accepting  spent fuel from nuclear  power plants by 2003.  On June 2, 1998,  the
Senate fell short of the 60 votes  needed to end debate on the bill and the bill
was not brought to a vote in the House.

In 1994 several nuclear utilities other than Maine Yankee filed suit against the
DOE. The utilities  sought a declaration from the United States Court of Appeals
for the District of Columbia  Circuit that the Nuclear  Waste Policy Act of 1982
required the DOE to take  responsibility for spent nuclear fuel in 1998. In July
1996 the court held that the DOE was  obligated  "to start  disposing  of [spent
nuclear  fuel] no later  than  January  31,  1998."  The DOE did not  appeal the
decision,  but announced in December 1996 that it anticipated it would be unable
to start  accepting spent nuclear fuel for disposal by January 31, 1998. A large
number of nuclear utilities and state regulators filed a new lawsuit against the
DOE in January  1997 seeking to force the DOE to honor its  obligation  to store
spent nuclear fuel and seeking other appropriate relief.

In November 1997 the U.S. Court of Appeals for the District of Columbia  Circuit
confirmed  the DOE's  obligation.  On February  19,  1998,  Maine Yankee filed a
petition  in the same court  seeking  to compel  the DOE to take Maine  Yankee's
spent fuel from the Plant site "as soon as physically  possible,"  alleging that
removing  the  spent  fuel on the  DOE's  indicated  schedule  would  delay  the
decommissioning  of the Maine Yankee  Plant  indefinitely.  On May 5, 1998,  the
Court  dismissed  Maine Yankee's  lawsuit,  as well as that of the other nuclear
utilities  and state  regulators,  saying  that  petitioners'  failure to pursue
remedies under the standard  contract  rendered their appeal not  appropriate at
that time for  review.  On June 2, 1998,  Maine  Yankee  filed a claim for money
damages in the U.S.  Court of Federal Claims for the costs  associated  with the
DOE's  failure to begin to take fuel in 1998.  On  November  3, 1998,  the Court
granted  summary  judgment  in favor of Maine  Yankee,  ruling  that the DOE had
violated its contractual  obligations and leaving the amount of damages incurred
by Maine Yankee for later  determination by the Court.  Maine Yankee expects the
hearing  on its claim to take  place in late 1999 or early  2000.  Maine  Yankee
intends to pursue its claim for damages vigorously, but as an alternative to DOE
disposal  is  considering  construction  of an  independent  spent-fuel  storage
installation ("ISFSI") on the Plant site.

Item 3. LEGAL PROCEEDINGS.

Generating  Asset Sale.  For a  discussion  of a lawsuit  involving  the sale of
Central Maine's generating assets, see Item 1. "Business"-"Agreement for Sale of
Generation Assets," above.

Legal and Environmental  Matters.  CMP Group, Central Maine and certain of their
affiliates  are  subject to  regulation  by federal and state  authorities  with
respect to air and water quality,  the handling and disposal of toxic substances
and hazardous and solid wastes,  and the handling and use of chemical  products.
Electric utility companies generally use or generate in their operations a range
of potentially  hazardous  products and  by-products  that are the focus of such
regulation. CMP Group and Central Maine believe that their current practices and
operations  are in compliance  with all existing  environmental  laws except for
such  non-compliance  as  would  not have a  material  adverse  effect  on their
financial  positions.  Central Maine reviews its overall compliance and measures
the liability quarterly by assessing a range of reasonably likely costs for each
identified  site  using  currently  available  information,  including  existing
technology, presently enacted laws and regulations, experience gained at similar
sites,  and the probable level of involvement  and financial  condition of other
potentially   responsible  parties.  These  estimates  include  costs  for  site
investigations,  remediation,  operation and  maintenance,  monitoring  and site
closure.

New and changing environmental requirements could hinder the construction and/or
modification  of  generating   units,   transmission  and  distribution   lines,
substations and other facilities, and could raise operating costs significantly.
As a result, Central Maine may incur significant additional environmental costs,
greater  than  amounts   reserved,   in  connection   with  the  generation  and
transmission  of  electricity  and the storage,  transportation  and disposal of
by-products and wastes. Central Maine may also encounter significantly increased
costs to remedy the  environmental  effects of prior waste handling  activities.
The cumulative  long-term cost impact of  increasingly  stringent  environmental
requirements cannot accurately be estimated.

Central  Maine  has  recorded  a  liability,   based  upon  currently  available
information,  for what it believes are the estimated  environmental  remediation
costs that it expects to incur for  identified  waste  disposal  sites.  In most
cases,   additional  future  environmental  cleanup  costs  are  not  reasonably
estimatable  due to a number of  factors,  including  the unknown  magnitude  of
possible  contamination,  the  appropriate  remediation  methods,  the  possible
effects  of  future  legislation  or  regulation  and the  possible  effects  of
technological  changes.  Central  Maine cannot  predict the schedule or scope of
remediation due to the regulatory  process and  involvement of  non-governmental
parties.  At December 31, 1998, the liability  recorded by Central Maine for its
estimated  environmental  remediation  costs  amounted  to $1.9  million,  which
management  has  determined to be the most  probable  amount within the range of
$1.9 million to $8.6 million. Such costs may be higher if Central Maine is found
to be responsible for cleanup costs at additional sites or identifiable possible
outcomes change.

Millstone  Unit No. 3  Litigation.  On August 7, 1997,  Central  Maine and other
minority  owners of Millstone  Unit No. 3 filed suit in  Massachusetts  Superior
Court against Northeast Utilities and its trustees, and initiated an arbitration
claim against two of its subsidiaries, alleging mismanagement of the unit by the
defendants.  The minority owners are seeking to recover their  additional  costs
resulting from such  mismanagement,  including  their  replacement  power costs.
Since August 1997 the parties have been engaged in resolving  preliminary issues
and in extensive  pre-hearing discovery on a schedule calling for an arbitration
hearing in the fall of 1999.  Central  Maine  cannot  predict the outcome of the
litigation and arbitration or whether the current schedule will be maintained.

Proposed  Federal Income Tax  Adjustments.  On September 3, 1997,  Central Maine
received from the Internal  Revenue  Service  ("IRS") a Revenue  Agent's  Report
summarizing  all  adjustments  proposed  by the IRS as a result  of its audit of
Central  Maine's federal income tax returns for the years 1992 through 1994, and
on September 12, 1997, Central Maine received a notice of deficiency relating to
the proposed disallowances.  There are two significant disallowances among those
proposed by the IRS. The first is a disallowance of Central Maine's write-off of
the  under-collected   balance  of  fuel  and  purchased-power   costs  and  the
unrecovered  balance  of its  unbilled  Electric  Revenue  Adjustment  Mechanism
("ERAM") revenues, both as of December 31, 1994, which were charged to income in
1994 in  connection  with the  adoption  of the  Alternative  Rate Plan  ("ARP")
effective  January 1, 1995. The second major  adjustment  would disallow Central
Maine's 1994 deduction of the cost of the buyout of the Fairfield Energy Venture
purchased-power  contract by Central  Maine in 1994.  The  aggregate tax impact,
including  both federal and state taxes,  of the  unresolved  issues  amounts to
approximately $39.0 million, over 90 percent of which is associated with the two
major disallowances. The two major disallowances relate largely to the timing of
the deductions  and would not affect income except for the  cumulative  interest
impact  which,  through  December  31,  1998,  amounted to $18.8  million,  or a
decrease  in net income of $11.1  million,  and which  could  increase  interest
expense by  approximately  $500,000 per month until either the tax deficiency is
paid or the issues are  resolved  in favor of  Central  Maine,  in which case no
interest  would be due. If the IRS were to prevail,  Central Maine  believes the
deductions  would be  amortized  over  periods of up to twenty,  post-1994,  tax
years.  Central Maine  believes its tax treatment of the  unresolved  issues was
proper and as a result the potential interest has not been accrued.  On December
10,  1997,  Central  Maine  filed a  petition  in the  United  States  Tax Court
contesting  the  entire  amount of the  deficiencies  and  sought  review of the
asserted deficiencies by an IRS Appeals Officer to determine whether all or part
of the  dispute  could be resolved  in advance of a court  determination.  As of
March 17, 1999,  four of the seven issues in dispute had been resolved,  but not
the two  major  disallowances.  Central  Maine  will  continue  to  work  toward
resolving the remaining issues,  but a trial may be necessary for one or more of
those issues. Absent such a resolution, Central Maine plans to pursue vigorously
the Tax Court litigation, but cannot predict the result.

Shareholder  Suit.  On  September  25,  1997,  a lawsuit was filed in the United
States  District  Court for the  Southern  District  of New York by a New Jersey
resident  claiming to be a  shareholder  of Central Maine against the members of
Central  Maine's  board of  directors,  including  the then  President and Chief
Executive  Officer,  and three  former  directors.  The  complaint  contained  a
derivative  claim that the  defendants  recklessly  mismanaged the oversight and
operation of the Maine Yankee Plant and an individual  claim that the defendants
had failed to make timely and adequate  disclosures of information in connection
with issues  surrounding  the Plant.  The complaint did not seek damages against
Central Maine, but requested that the defendants  disgorge the compensation they
had received  during the period of alleged  mismanagement,  pay to Central Maine
costs incurred  allegedly as a result of the claimed actions,  and cause Central
Maine to take steps to prevent such actions.

The defendants  moved to dismiss the suit for failure of the plaintiff to make a
pre-suit demand on Central Maine's board of directors, as required by Maine law,
and on February 18, 1998,  the suit was  dismissed.  On April 2, 1998, the board
received  such a  demand  from  the  plaintiff.  On  December  17,  1998,  after
investigation of plaintiff's allegations, the board rejected the demand.

Item 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      Not applicable.

Item 4.1   EXECUTIVE OFFICERS OF THE REGISTRANT.

CMP Group,  Inc. The following are the present  executive  officers of CMP Group
with all positions and offices held. There are no family  relationships  between
any of them, nor are there any arrangements or understandings  pursuant to which
any were selected as officers.

Name, Age, and Year First Became Officer                Office

   David M. Jagger, 57, 1998         Chairman of the Board of Directors

   Charles H. Abbott, 63, 1998       Vice Chairman of the Board of Directors

   David T. Flanagan, 51, 1998       President and Chief Executive Officer

   Arthur W. Adelberg, 47, 1998      Executive Vice President

   David E. Marsh, 51, 1998          Chief Financial Officer

   Gerald C. Poulin, 57, 1999        Vice President, Generation

   F. Michael McClain, 49, 1998      Vice President, Corporate Development

   Anne M. Pare, 45, 1998            Treasurer, Corporate Counsel and Secretary



Central Maine Power Company. The following are the present executive officers of
Central  Maine  with  all  positions  and  offices  held.  There  are no  family
relationships   between  any  of  them,  nor  are  there  any   arrangements  or
understandings pursuant to which any were selected as officers.

Name, Age, and Year First Became Officer               Office

  David M. Jagger, 57, 1996           Chairman of the Board of Directors

  Charles H. Abbott, 63, 1996         Vice Chairman of the Board of Directors

  Sara J. Burns, 43, 1997             President

  Michael R. Cutter, 45, 1997         Vice President

  Curtis I. Call, 45, 1997            Treasurer

  Anne M. Pare, 45, 1996              Secretary and Clerk

Each of the  executive  officers of CMP Group and Central Maine has for the past
five years  been an officer or  employee  of CMP  Group,  Central  Maine,  or an
affiliate company,  except Messrs. Jagger and Abbott, who have been non-employee
directors since 1988, and Mr. McClain. Mr. McClain joined Central Maine February
23,  1998.  Prior to his  employment  with  Central  Maine,  he was  Group  Vice
President and Chief Operating Officer,  Petroleum Group, Dead River Company from
1981 to 1996.



                                     PART II

Item 5     MARKET FOR THE REGISTRANT'S COMMON EQUITY
           AND RELATED STOCKHOLDER MATTERS.

CMP Group's  common stock has been traded on the New York Stock  Exchange  since
September  1, 1998.  Prior to that date the  numbers in the table below refer to
Central Maine's common stock. As of December 31, 1998, there were 32,590 holders
of record of CMP Group common stock.

                        Price Range of and Dividends on Common Stock

                                Market Price             Dividends
                            High            Low          Declared
1998
First Quarter              $17-13/16      $15-1/4         $0.225
Second Quarter              20-3/8         17-1/16         0.225
Third Quarter               20-1/2         16-15/16        0.225
Fourth Quarter              20             16-3/4          0.225

1997
First Quarter              $11-5/8         10-1/2         $0.225
Second Quarter              12-3/4         10              0.225
Third Quarter               13-9/16        12-1/16         0.225
Fourth Quarter              15-1/2         12-7/8          0.225

Under the most  restrictive  terms of the  Indenture  securing  Central  Maine's
General  and  Refunding   Mortgage  Bonds  and  of  Central  Maine  Articles  of
Incorporation,  no dividend may be paid on the common stock of Central  Maine if
such dividend would reduce  retained  earnings below $29.6 million.  At December
31, 1998,  Central Maine's retained earnings were $76.3 million,  of which $46.7
million was not so restricted.  There are currently no such  restrictions on the
payment of dividends by CMP Group.  Future dividend decisions will be subject to
future  earnings  levels and the  financial  condition  of CMP Group and Central
Maine and will  reflect  the  evaluation  by their  Board of  Directors  of then
existing circumstances.

Item 6.   SELECTED FINANCIAL DATA.

The following table sets forth selected consolidated financial data of CMP Group
and Central Maine for the five years ended December 31, 1994 through 1998.  This
information  should be read in  conjunction  with  "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations" and the consolidated
financial statements and related notes thereto included in Items 7 and 8 hereof.
The selected  consolidated  financial data for the years ended December 31, 1994
through 1998 are derived from the audited  consolidated  financial statements of
Central Maine.



Selected Consolidated Financial Data

(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<S>                                       <C>            <C>           <C>            <C>            <C>           <C>       

                                          CMP Group                                                         Central
                                                                                        Maine
                                            1998           1998          1997           1996           1995          1994
                                            ----           ----          ----           ----           ----          ----

Electric operating revenue                $  938,739     $  938,561    $  954,176     $  967,046     $  916,016    $  904,883
Net income (loss)                             52,910         54,823        13,422         60,229         37,980       (23,265)
Long-term obligations                        346,281        343,834       400,923        587,987        622,251       638,841
Redeemable preferred stock                    18,910         18,910        39,528         53,528         67,528        80,000
Total assets                               2,262,884      2,223,480     2,298,966      2,010,914      1,992,919     2,046,007
Earnings (loss) per common share              $ 1.63         $ 1.56         $0.16          $1.57          $0.86        $(1.04)
Dividends declared per common share
                                               $0.90         $0.675*        $0.90          $0.90          $0.90         $0.90

*1998  fourth  quarter  dividend  of $0.225 per share was  declared  and paid in
January 1999.
</TABLE>

Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS OF CMP GROUP AND CENTRAL MAINE POWER COMPANY

This  is a  combined  Report  on Form  10-K  of CMP  Group  and  Central  Maine.
Therefore,  our Management's  Discussion and Analysis of Financial Condition and
Results of Operations  (MD&A) applies to both CMP Group and Central  Maine.  CMP
Group's consolidated  financial statements include the accounts of CMP Group and
its  wholly  owned  and  controlled   subsidiaries,   including   Central  Maine
(collectively,  the CMP Group System).  Central Maine's  consolidated  financial
statements  include  its  accounts  as well as those  of its  wholly  owned  and
controlled  subsidiaries.  The  MD&A  should  be read in  conjunction  with  the
consolidated financial statements included herein.

Note re Forward-Looking Statements

This  Report  on  Form  10-K  contains  forecast   information  items  that  are
"forward-looking  statements"  as defined in the Private  Securities  Litigation
Reform  Act  of  1995.   Such  statements  are  subject  to  certain  risks  and
uncertainties  which could cause actual results to differ  materially from those
projected.   Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking  statements,  which speak only as of the date hereof.  CMP Group
and Central Maine undertake no obligation to republish  revised  forward-looking
statements  to  reflect  events or  circumstances  after  the date  hereof or to
reflect the occurrence of unanticipated  events.  Readers are urged to carefully
review and consider the factors in the succeeding paragraph.

Factors  that could cause actual  results to differ  materially  include,  among
other  matters,  the outcome of the FERC  proceeding  involving  Maine  Yankee's
rates,  decommissioning  costs and issues  related  to the  closing of the Maine
Yankee nuclear generating plant; the actual costs of  decommissioning  the Maine
Yankee  plant;  failure  to  resolve  any  significant  aspect of the "Year 2000
problem";  electric utility industry restructuring,  including the ongoing state
and federal  activities  that will determine  Central Maine's ability to recover
its stranded costs and establish its revenue  requirements  and rate design as a
transmission-and-distribution  utility  commencing March 1, 2000; the results of
Central Maine's planned sale of its generating  assets;  Central Maine's ability
to recover its costs resulting from the January 1998 ice storms that damaged its
transmission   and   distribution    system;    future   economic    conditions;
earnings-retention   and   dividend-payout   policies;   developments   in   the
legislative,  regulatory,  and  competitive  environments in which CMP Group and
Central Maine operate;  CMP Group's  investment in unregulated  businesses;  and
other  circumstances that could affect  anticipated  revenues and costs, such as
unscheduled  maintenance  or repair  requirements  at  nuclear  plants and other
facilities; and compliance with laws and regulations.

Formation of Holding Company

General.  CMP Group is a holding company organized  effective September 1, 1998,
which owns all of the common stock of Central  Maine and the former  non-utility
subsidiaries of Central Maine. As part of the reorganization,  all of the shares
of Central Maine's common stock were converted into an equal number of shares of
CMP Group common stock,  which are listed on the New York Stock  Exchange  under
the symbol CTP. The reorganization was approved by Central Maine's  shareholders
on May 21,  1998,  and on  various  dates in 1998 by the  appropriate  state and
federal regulatory agencies.

Results of Operations

                                          CMP
                                         Group                    Central Maine
                                                 (dollars in millions)
Net income (loss) Twelve months ended:
     December 31, 1998                    $52.9       $1.63/share         $54.8
     December 31, 1997                      5.2       $0.16/share          13.4
                                          -----                            ----
     Increase                             $47.7                           $41.4

Earnings (loss) applicable to common
stock
   Twelve months ended:
     December 31, 1998               N/A        $50.0          $1.56/share
     December 31, 1997               N/A          5.2          $0.16/share
                                                -----
     Increase                                   $44.8

The 1998  results  benefited  significantly  from a net  benefit of $25  million
related to the expiration of a high-cost  non-utility  power  contract;  a $27.5
million  decrease in purchased power capacity costs,  chiefly due to the closing
of the Maine  Yankee  nuclear  plant and a $4 million  decrease in fuel cost for
Central Maine generation reflecting lower oil prices. In addition, the following
major, non-operating, non-recurring events had a significant impact on earnings:
1) MaineCom,  a subsidiary  of CMP Group,  sold its  40-percent  interest in New
England  Fibre  Communications.  The sale  resulted in a net  after-tax  gain of
approximately $5.7 million or $0.18 per share. 2) Central Maine sold shares then
owned directly in NEON, now a 38.5-percent-owned  equity investment of MaineCom,
as part of the initial public  offering of NEON common stock.  The net after-tax
gain was  approximately  $1.9  million,  or $0.06 per share.  3)  Central  Maine
finalized the sale of  transmission-line  easements and land.  The net after-tax
gain  of  approximately   $5.6  million   resulted  in  increased   earnings  of
approximately $0.17 per share.

CMP Group electric  operating  revenue decreased by $15.4 million or 1.6 percent
to $938.7 million in 1998, and decreased by $12.9 million or 1.3 percent in 1997
to $954.2.  Lower sales  volume due to the January  ice storm,  warmer  weather,
weaker  sales  to the pulp and  paper  industry,  and the  impact  of the  Asian
economic crisis,  were the major reasons for the decreased  revenue in 1998. The
major components of the change in electric operating revenue are as follows:

                                                           1998        1997

Revenue from Central Maine service-area kwh sales         $(20.2)     $ 17.9
Revenues from non-territorial sales                          6.2       (27.1)
Other operating revenue                                      4.5        (1.5)
MEPCO fuel cost recovery                                    (5.9)       (2.2)
                                                            ----        ----
                                                          $(15.4)     $(12.9)

Service  Area Kwh Sales.  Central  Maine's  service  area  sales of  electricity
totaled  approximately  9.05 billion  kilowatt-hours for the year ended December
31, 1998, down slightly from the 9.4 billion kilowatt-hour level of a year ago.

Central Maine's  service-area  sales for the years 1998, 1997 and 1996 are shown
in the following table:

         (Kilowatt-hours in millions)
                        1998                 1997                 1996
                        ----                 ----                 ----
                             %                     %                    %
                   KWH     change       KWH     change       KWH      change
   Residential     2,761    (2.0)%      2,817      (0.4)%    2,829      1.0%
   Commercial      2,563     1.3        2,529       1.6      2,489      0.5
   Industrial      3,487    (7.8)       3,784       2.6      3,689      4.0
   Wholesale and
      lighting       242     6.1          228       5.3        217     58.9
                  ------                -----               ------
   Total Service-
     Area Sales    9,053    (3.2)%      9,358       1.5 %    9,224      2.9%
                   =====                =====                =====

The primary factors in the service-area  kilowatt-hour sales overall decrease in
1998 were the reduction in  residential  sales due to warm winter  temperatures,
customer outages resulting from the January 1998 ice storm and lost sales in the
paper industry within the industrial sector.

The primary factors in the  service-area  kilowatt-hour  sales increases in 1997
were the  growth  experienced  by the  paper  mills  and  strong  sales to other
industrial sectors.  Nearly half of that growth directly related to an expansion
by a large industrial customer.  The increase in 1996 was residential customers'
taking advantage of Central Maine's water-heating  programs,  increased sales in
the pulp and paper industry, and the addition of a wholesale customer.

The average number of residential customers increased by 4,607 in 1998, 4,822 in
1997 and 5,157 in 1996,  while average usage per residential  customer  declined
3.0 percent in 1998, 1.5 percent in 1997 and 0.15 percent in 1996.

The 1998 increase in commercial sales reflects increased sales in the retail and
service sectors, which rebounded strongly after the warm winter temperatures and
the ice storm experienced  early in 1998, due to the relatively  healthy economy
and a strong tourist season in Central Maine's service territory.

Industrial   sales   levels  are   significantly   affected   by  sales  to  the
pulp-and-paper   industry,  which  accounts  for  approximately  56  percent  of
industrial sales and approximately 22 percent of total service-area sales. Sales
to the  pulp-and-paper  sector decreased by 14.4 percent in 1998, 0.8 percent in
1997  and  increased  by 3.7  percent  in  1996.  The  decrease  in 1998 was due
primarily  to the  closing of two pulp and paper mills and the  expiration  of a
buy-sell  contract with a third paper mill.  In addition,  the weakness in Asian
economies progressively impacted Maine's manufacturing sector in 1998, resulting
in lower than expected kwh sales in the industrial  sector. The decrease in 1997
was due primarily to the  permanent  shutdown of one of the paper mills in 1997.
The increase in 1996 reflects special  arrangements  Central Maine has made with
several  paper  companies  to back  down some of their  self-generation  and buy
electricity from Central Maine at a discounted rate. Refer to "Alternative  Rate
Plan"  and  "Competition  and  Economic  Development,"  below,  and  Note  4  to
Consolidated   Financial   Statements,    "Commitments   and   Contingencies   -
Competition,"  for additional  information  regarding Central Maine's actions to
preserve its remaining large-industrial-customer base and other customer groups.
Sales to all other  industrial  customers  as a group  increased  2.2 percent in
1998, 8.2 percent in 1997 and 4.5 percent in 1996.

Operating Expenses

Central Maine's purchased power-energy expense decreased by $50 million in 1998.
The decrease is due primarily to the buyout,  restructuring,  and  expiration of
contracts with non-utility generators.  Central Maine's purchased power-capacity
expense decreased $27.5 million in 1998 due primarily to the permanent  shutdown
of the Maine Yankee Plant in August 1997.

Central Maine incurred additional expenses of $46.0 million in 1997 over 1996 to
replace Maine Yankee energy and pay its share of capacity  charges at the plant.
In addition,  shutdowns at Millstone  Unit No. 3 and  Connecticut  Yankee Plants
increased 1997 replacement-power cost by $5.0 million.

CMP Group maintenance expense increased $7.1 million for the year ended December
31, 1998 compared to 1997.  This  increase was due primarily to Central  Maine's
operations  personnel  working in maintenance  capacities as a result of the ice
storm in the first quarter, and to subsequent cleanup efforts.

Federal and state income taxes fluctuate with the level of pre-tax  earnings and
the regulatory  treatment of taxes by the MPUC. This expense  increased by $33.5
million in 1998 as compared to 1997, as a result of higher pre-tax  earnings for
the year ended  December  31, 1998.  The decrease of $23.9  million in 1997 from
1996 is a reflection of lower pre-tax  earnings for the year ended  December 31,
1997.

Other Income and Expense

Equity in Earnings  of  Associated  Companies  for CMP Group  decreased  by $6.3
million for the year ended December 31, 1998,  compared to 1997. The decrease is
due primarily to losses recognized due to start-up costs of NEON. See "Expansion
of Lines of Business" below for further discussion.


CMP Group's  gain on sale of  investments  and  properties  increased in 1998 by
$22.5  million  and by $12.9  million  for Central  Maine.  The  increase is due
primarily to the following:

                                                 CMP Group         Central Maine

 Sale of New England Fibre by MaineCom             $  9.5            $  -
 Sale of stock in NEON                                3.1               3.1
 Gas pipeline easement sales                          6.4               6.4
 Sale of land                                         3.6               3.6
 Other - miscellaneous                                (.1)              (.2)
                                                   ------            ------
                                                    $22.5             $12.9
                                                     ====              ====

CMP Group Other Interest Expense  increased by $0.7 million for the year 1998 as
compared to 1997.  The increase was due  primarily to higher levels of borrowing
on Central Maine's revolving credit facility to meet working capital needs.

Other interest  expense  increased in 1997 over 1996 primarily due to additional
interest incurred for tax audit settlements and amended returns interest.

In July 1997,  Central Maine redeemed $14 million of its 8 7/8% Series Preferred
Stock at par, under the mandatory and optional  sinking-fund  provisions of that
series.  On July 1, 1998,  Central Maine  redeemed the final $7 million of its 8
7/8%  Preferred  Stock  under the  mandatory  sinking-fund  provision,  reducing
dividends in total by approximately  $932 thousand for 1998 compared to 1997. On
April 1, 1998  Central  Maine  redeemed all of its 7 7/8%  Preferred  Stock ($30
million),  reducing  dividends by approximately  $1.8 million for the year ended
December  31,  1998,  compared to 1997.  On June 8, 1998,  $11.6  million of the
outstanding 7.99% Preferred Stock was repurchased, further reducing dividends by
approximately  $697 thousand for the year ended  December 31, 1998,  compared to
1997.

Alternative Rate Plan

On January 1, 1995,  Central  Maine's ARP was put into  effect.  Instead of rate
changes based on the level of costs  incurred and capital  investments,  the ARP
provides for one annual adjustment of an inflation-based  cap on each of Central
Maine's  rates,  with no  separate  reconciliation  and  recovery  of  fuel  and
purchased-power costs. Under the ARP, the MPUC is continuing to regulate Central
Maine's operations and prices, provide for continued recovery of deferred costs,
and  specify a range for its rate of  return.  The MPUC  confirmed  in its order
approving  the ARP that the ARP is  intended to comply  with the  provisions  of
Statement of Financial  Accounting Standards No. 71, "Accounting for the Effects
of Certain  Types of  Regulation."  As a result,  Central Maine will continue to
apply the  provisions  of SFAS No.  71 to its  accounting  transactions  and its
future  financial  statements.  See Note 3,  "Regulatory  matters,"  of Notes to
Consolidated  Financial  Statements - "Meeting the Requirements of SFAS No. 71,"
below.

The ARP contains a mechanism that provides  price-caps on Central Maine's retail
rates  to be  adjusted  annually  on  each  July 1,  commencing  in  1995,  by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism,  and (4) flow-through items and mandated costs. The price cap applies
to all of Central  Maine's retail rates,  and includes fuel and purchased  power
costs that previously had been treated  separately.  Under the ARP, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.

A specified  standard  inflation  index is the basis for each  annual  price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general  productivity  offset of 1.0%,  and a second  formula-based  offset that
started in 1996 and was  intended to reflect the limited  effect of inflation on
Central Maine's purchased-power costs during the proposed five-year initial term
of the ARP.

The sharing  mechanism may adjust the subsequent year's July price-cap change in
the event Central Maine's earnings are outside a range of 350 basis points above
or below  Central  Maine's  allowed  return on equity  (starting  at the  10.55%
allowed  return in 1995) and  indexed  annually  for  changes in capital  costs.
Outside that range,  profits and losses could be shared equally by Central Maine
and its  customers  in  computing  the  price-cap  adjustment.  The ROE used for
earnings  sharing is scheduled to be increased to 11.5%  effective with the July
1999 price change.

The ARP also  provides for partial  flow-through  to  ratepayers of cost savings
from non-utility  generator  contract  buy-outs and  restructuring,  recovery of
energy-management  costs,  and penalties for failure to attain  customer-service
and  energy-efficiency  targets.  The ARP also generally  defines mandated costs
that would be recoverable by Central Maine notwithstanding the index-based price
cap. To receive such  treatment,  the annual  revenue  requirement  related to a
mandated  cost must  exceed $3  million  and have a  disproportionate  effect on
Central Maine or the electric-power industry.

On May 13, 1998,  Central Maine submitted its 1998 ARP compliance  filing to the
MPUC. In keeping with its pledge of limiting  increases to the inflation  index,
Central Maine voluntarily  limited its request to 1.78%, which was the inflation
rate for 1997 under the ARP.  Central  Maine also  proposed a rate  reduction of
approximately  ten percent  contingent on the  consummation  of, and  ratemaking
associated with,  Central Maine's planned sale of generating  assets. The filing
also reported  information on the costs of restoring  service to Central Maine's
customers  after the January  1998 ice storm,  as  required by the earlier  MPUC
order allowing Central Maine to defer those costs.  Effective July 11, 1998, the
MPUC approved a stipulated  1.33% increase.  The amount of the increase  remains
subject to change,  based on the outcome of the pending FERC proceeding  related
to the  permanent  shutdown  of the  Maine  Yankee  plant.  Depending  on FERC's
decision, the price increase could increase or decrease,  ranging from a ceiling
of 1.78% to a floor of 0.22%.  However,  the Offer of Settlement  pending before
the FERC in Maine  Yankee's  rate  case,  which has been  approved  by the MPUC,
provides that the 1998 ARP increase will not be adjusted.

The components of the last three ARP price increases approved by the MPUC are as
follows:

                                            1998         1997         1996
                                            ----         ----         ----

Inflation Index                             1.78%         2.12%        2.55%
Productivity Offset                        (1.00)        (1.00)       (1.00)
Qualifying Facility Offset                  (.29)         (.42)            -
Earnings Sharing                            1.12              -         .32
Flowthrough and Mandated Items              (.28)          .40         (.61)
                                            ----         -----         -----
                                            1.33%         1.10%        1.26%
                                            ====          ====         ====






Electric-Utility Industry Restructuring

Stranded  Costs.  The  enactment  by Congress  of the Energy  Policy Act of 1992
accelerated  planning by electric  utilities,  including  Central  Maine,  for a
transition  to a more  competitive  industry.  In Maine,  legislation  that will
restructure the  electric-utility  industry by March 1, 2000, was enacted by the
Maine  Legislature  in May 1997,  and is  discussed in detail under this heading
below.  Such a departure  from  traditional  regulation,  however,  could have a
substantial impact on the value of utility assets and on the ability of electric
utilities to recover their costs through rates. In the absence of full recovery,
utilities   would  find  their   above-market   costs  to  be   "stranded",   or
unrecoverable, in the new competitive setting.

Central Maine has substantial  exposure to cost stranding  relative to its size.
In general,  its  stranded  costs  reflect the excess  costs of Central  Maine's
purchased-power obligations over the market value of the power, and the costs of
deferred  charges  and other  regulatory  assets.  The major  portion of Central
Maine's  stranded  costs is related  to  above-market  costs of  purchased-power
obligations arising from Central Maine's long-term,  noncancelable contracts for
the purchase of capacity  and energy from NUGs,  with lesser  estimated  amounts
related to Central Maine's deferred regulatory assets.

There is a high degree of uncertainty  that surrounds  stranded-cost  estimates,
resulting  from  having to rely on  projections  and  assumptions  about  future
conditions,  including,  among others, estimates of the future market for power.
Higher  market  rates lower  stranded-cost  exposure,  while lower  market rates
increase it. In addition to market-related impacts, any estimate of the ultimate
level  of  stranded   costs  depends  on  such  factors  as  state  and  federal
regulations,  the extent,  timing and form that competition for electric service
will take, the ongoing level of Central  Maine's costs of  operations,  regional
and national economic conditions, growth of Central Maine's sales, the timing of
any changes that may occur from state and federal  initiatives on restructuring,
and the extent to which  regulatory  policies and decisions  address recovery of
stranded  costs,  including  the  application  of value from the sale of Central
Maine's generating assets.

The  estimated  market rate for power is based on  anticipated  regional  market
conditions  and future costs of  producing  power.  The present  value of future
purchased-power  obligations and Central Maine's  generating  costs reflects the
underlying costs of those sources of generation in place today,  with reductions
for contract expirations and continuing depreciation.  Deferred regulatory-asset
totals  include the  current  uncollected  balances  and  existing  amortization
schedules for purchased-power  contract  restructuring and buyouts negotiated by
Central  Maine to lessen the  impact of these  obligations,  along  with  energy
management costs, financing costs, and other regulatory commitments.

Maine  Restructuring  Legislation.  The  1997  Maine  restructuring  legislation
requires the MPUC, when retail access to generation  begins on March 1, 2000, to
provide a "reasonable  opportunity" to recover  stranded costs through the rates
of  the  transmission-and-distribution  company,  comparable  to  the  utility's
opportunity to recover stranded costs before the implementation of retail access
under the legislation.  Stranded costs are defined as the legitimate, verifiable
and  unmitigable  costs  made  unrecoverable  as a result  of the  restructuring
required by the  legislation  and will be  determined by the MPUC as provided in
the legislation.  The MPUC has been conducting separate adjudicatory proceedings
to  determine  the  stranded  costs  for  each  Maine  utility,  along  with the
corresponding  revenue  requirements and stranded-cost  charges to be charged by
each transmission-and-distribution utility. The first phase of the Central Maine
proceeding was completed in early 1999 and is discussed  under the heading "MPUC
Proceeding on Stranded Costs, Revenue Requirements, and Rate Design," below.

In addition,  the legislation  requires utilities to use all reasonable means to
reduce their potential  stranded costs and to maximize the value from generation
assets and contracts. The MPUC must consider a utility's efforts to mitigate its
stranded  costs in  determining  the  amount of the  utility's  stranded  costs.
Stranded costs and the related rates charged to customers will be  prospectively
adjusted as necessary to correct  substantial  inaccuracies in the year 2003 and
at least every three years thereafter.

The principal restructuring  provisions of the legislation provide for customers
to have direct  retail  access to generation  services and for  deregulation  of
competitive    electric    providers,    commencing    March   1,   2000,   with
transmission-and-distribution  companies continuing to be regulated by the MPUC.
By that date,  subject to  possible  extensions  of time  granted by the MPUC to
improve  the sale  value of  generation  assets,  investor-owned  utilities  are
required  to  divest  all  generation  assets  and  generation-related  business
activities,  with two major exceptions: (1) non-utility generator contracts with
qualifying facilities and contracts with demand-side  management or conservation
providers,  brokers or hosts,  and (2)  ownership  interests  in  nuclear  power
plants.  However,  the MPUC can require  Central Maine to divest its interest in
Maine Yankee  Atomic  Power  Company on or after  January 1, 2009.  As discussed
below  under  "Agreement  for Sale of  Generating  Assets,"  Central  Maine  has
contracted  to sell its  non-nuclear  generating  assets and,  after a favorable
court decision,  is proceeding  toward completing the sale by April 7, 1999. The
legislation also requires investor-owned utilities,  after February 29, 2000, to
sell  their  rights to the  capacity  and  energy  from all  generation  assets,
including the  purchased-power  contracts that had not previously  been divested
pursuant to the legislation, with certain immaterial exceptions.

Upon the  commencement  of retail access on March 1, 2000,  Central Maine,  as a
transmission-and-distribution  utility, will be prohibited from selling electric
energy  to  retail  customers.  Any  competitive  electricity  provider  that is
affiliated  with  Central  Maine  would be allowed to sell  electricity  outside
Central Maine's service  territory without  limitation as to amount,  but within
Central  Maine's  service  territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service  territory,  as determined by the MPUC. CMP Group does not now intend to
engage in the sale of electric energy after March 1, 2000.

Other features of the legislation include the following:

       (a) After the effective date of the  legislation,  if an entity purchases
10 percent or more of the stock of a  distribution  utility,  including  Central
Maine,  the purchasing  entity and any related  entity would be prohibited  from
selling generation service to any retail customer in Maine.
       (b)  The  legislation  encourages  the  generation  of  electricity  from
renewable  resources  by  requiring  competitive  providers,  as a condition  of
licensing,  to  demonstrate  to the MPUC that no less than 30  percent  of their
portfolios  of supply  sources for retail  sales in Maine are  accounted  for by
renewable resources.
       (c) The  legislation  requires  the MPUC to  ensure  that  standard-offer
service is available to all consumers,  but any competitive  provider affiliated
with Central Maine would be limited to providing  such service for only up to 20
percent of the electric load in Central Maine's service territory.
       (d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1, 2000,
the providing of billing and metering services will be subject to competition.
       (e) A customer who  significantly  reduces or eliminates  consumption  of
electricity  due to  self-generation,  conversion  to an  alternative  fuel,  or
demand-side  management  may not be assessed an exit fee or re-entry  fee in any
form  for  such   reduction   or   elimination   of   consumption   or  for  the
re-establishment of service with a transmission-and-distribution utility.
       (f)  Finally,  the  legislation  provides  for  programs  for  low-income
assistance, energy conservation research and development on renewable resources,
assistance for utility  employees laid off as a result of the  legislation,  and
recovery of nuclear-plant  decommissioning  costs "[a]s required by federal law,
rule or order", all funded through  transmission-and-distribution  utility rates
and charges.

Legislative  bills that would amend certain  provisions of the 1997  legislation
have been submitted to the 1999 session of the Maine Legislature.  CMP Group and
Central Maine cannot predict whether any changes to the 1997 legislation will be
enacted.

MPUC Proceeding on Stranded Costs,  Revenue  Requirements,  and Rate Design. The
MPUC has completed  the first phase of the  proceeding  contemplated  by Maine's
restructuring legislation that will ultimately determine the recovery of Central
Maine's stranded costs, its revenue requirements, and the design of its rates to
be effective when Central Maine becomes a transmission-and-distribution  utility
at the time retail  access to  generation  begins in Maine on March 1, 2000.  On
December 23, 1998,  the MPUC Hearing  Examiners in the  proceeding  issued their
report,  in the form of a recommended  decision.  Central Maine disagreed with a
number   of  the   individual   recommendations   in  the   stranded-costs   and
revenue-requirements  areas and filed exceptions to those  recommendations.  The
MPUC  deliberated  the  recommendations  on February 10 and 11, 1999,  indicated
disagreement with some of the  recommendations,  and issued its written order on
March 19, 1999.

The MPUC stressed in its order that it was deciding the "principles" by which it
would set Central Maine's  transmission-and-distribution  rates, effective March
1, 2000, but was not calculating the rates themselves  because such calculations
at that time would rely  excessively on estimates.  The MPUC pointed out that it
would  hold a "Phase  II"  hearing to set the  actual  rates and  determine  the
recoverable  stranded  costs  after  processing  information  expected to become
available during 1999.

With respect to stranded costs,  the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding pursuant
to   its    mandate    under    the    restructuring    statute    to    provide
transmission-and-distribution utilities a reasonable opportunity to recover such
costs that is  equivalent to the  utility's  opportunity  to recover these costs
prior  to the  commencement  of  retail  access.  The  MPUC  also  reviewed  the
prescribed methodology for determining the amount of a utility's stranded costs,
including  among other  factors the  application  of excess value from  divested
generation  assets to offset  stranded costs. At the beginning of the proceeding
Central Maine had estimated its total  stranded costs to be  approximately  $1.3
billion.

In the  area  of  revenue  requirements,  the  Phase I  order  did  not  include
definitive amounts, but did contain the MPUC's conclusions as to the appropriate
cost of  common  equity  for  Central  Maine as a  transmission-and-distribution
company beginning March 1, 2000. Central Maine had recommended a 12-percent cost
of common  equity  with a  55-percent  common  equity  component  in the capital
structure.  The MPUC, after weighing conflicting  recommendations,  decided on a
common-equity  cost  of  10.50  percent  with a  common-equity  component  of 47
percent, and an overall weighted-average cost of capital of 8.68 percent.

In dealing with rate design,  the MPUC limited  itself in the first phase of the
proceeding primarily to establishing principles that would guide it in designing
Central  Maine's rates to be effective March 1, 2000. The MPUC indicated that it
would focus on (1)  facilitating  the  transition  to a  competitive  market for
generation,  and (2) implementing a "no-losers" policy,  i.e., that the new rate
design  would  cause no Central  Maine  customer's  bill to increase on March 1,
2000. Applying the latter principle,  the MPUC rejected a newly designed standby
rate  for  self-generators  proposed  by  Central  Maine  in  favor  of a design
generally similar to Central Maine's current rate for the class. The MPUC stated
that it planned to undertake a comprehensive  rate design and  alternative  rate
plan proceeding for Central Maine prior to March 1, 2002, when it could consider
experience      gained     with     the     cost     structures     of     other
transmission-and-distribution  utilities after the commencement of retail access
to generation.

The Phase I order resulted from an extended  proceeding with many points of view
represented  and covers a wide  variety  of  rate-related  subjects.  Definitive
findings by the MPUC in a number of the subject  areas await the second phase of
the  proceeding,  which must be completed  before  March 1, 2000.  CMP Group and
Central Maine cannot  predict the  definitive  amount of stranded costs the MPUC
will  determine  that Central Maine will be entitled to recover  pursuant to the
mandate of the  restructuring  statute,  or the  revenue  requirements  and rate
design that will result from Phase II of the MPUC proceeding.

Agreement for Sale of Generation Assets

On January 6, 1998,  Central Maine  announced  that it had reached  agreement to
sell  all  of its  hydro,  fossil  and  biomass  power  plants  with a  combined
generating  capacity  of 1,185  megawatts  for $846  million in cash,  including
approximately $18 million for assets of Union Water, to Florida-based FPL Group.
The related  book value for these  assets was  approximately  $218.9  million at
December 31, 1998. In addition, as part of its agreement with FPL Group, Central
Maine  entered  into energy  buy-back  agreements  to assist in  fulfilling  its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage  facilities to FPL Group for an
additional  $3.6 million ($1.5 million for the assets and $2.1 million for lease
revenue  associated with the properties  that CMP will retain),  including $1.15
million  for Union Water  assets.  The  related  book value of these  assets was
approximately $11.9 million at December 31, 1998.

Central  Maine's  interests  in the power  entitlements  from  approximately  50
power-purchase agreements with non-utility generators representing approximately
488  megawatts,  its  2.5-percent  interest in the Millstone  Unit No. 3 nuclear
generating  unit in Waterford,  Connecticut,  its  3.59-percent  interest in the
output of the Vermont Yankee nuclear  generating plant in Vernon,  Vermont,  and
its entitlement in the NEPOOL Phase II  interconnection  with  Hydro-Quebec  all
attracted  insufficient  interest to be included  in the pending  sale.  Central
Maine will continue to seek buyers for those assets. Central Maine did not offer
for sale its  interests  in the Maine  Yankee  (Wiscasset,  Maine),  Connecticut
Yankee (Haddam,  Connecticut)  and Yankee Atomic (Rowe,  Massachusetts)  nuclear
generating plants, all of which are in the process of being decommissioned.

Substantially  all of the generating  assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture").  Therefore,  substantially all of the proceeds
from sale must be deposited  initially  with the trustee  under the Indenture at
the  closing  of the sale to free  the  generating  assets  from the lien of the
Indenture.  Central  Maine plans to use some of the proceeds on deposit with the
trustee to redeem or repurchase bonds under the terms of the Indenture,  and may
discharge the Indenture. In addition, the proceeds could provide the flexibility
to redeem or repurchase  outstanding equity securities.  Central Maine must also
provide for payment of applicable  taxes resulting from the sale. The manner and
timing of the ultimate application of the sale proceeds after closing are in any
event subject to various factors,  including  Indenture  provisions,  regulatory
requirements, market conditions and terms of outstanding securities.

On November 17, 1998, FPL Group announced that its subsidiary, FPL Energy Maine,
Inc. ("FPL Energy") had filed a civil action in the United States District Court
for the Southern  District of New York  requesting a  declaratory  judgment that
Central Maine could not meet essential terms of the January agreement. FPL Group
asserted that based on October 1998 FERC rulings on transmission access, as well
as other  issues,  it  believed  that  Central  Maine  could not comply with the
conditions  in the purchase  contract and that FPL Energy should not be bound to
complete the transaction.

FPL Energy  contended in its complaint  that the FERC rulings (1)  constituted a
material adverse effect under the purchase agreement and substantially  lessened
the value of Central Maine's  generating assets, and (2) precluded Central Maine
from obtaining all federal,  state and local consents and approvals required for
the ownership,  operation and  maintenance of the generating  assets in a manner
substantially  consistent with Central Maine's historical ownership,  operation,
and maintenance thereof, as required by the purchase agreement. In addition, FPL
Energy  asserted  that the FERC rulings  limited the ability of the  prospective
buyer  to  get  power  from  the  Central  Maine  generating  assets  to  market
unconstrained  by transmission  limitations  resulting from new generators being
added to the NEPOOL system, and therefore,  based on the doctrine of frustration
of  purpose,  FPL  Energy  should be  "excused  without  further  obligation  or
liability from effecting the purchase of [Central Maine's]  generating  assets."
Central Maine, FPL Energy,  NEPOOL,  and other parties interested in New England
transmission-access issues requested rehearing of the FERC rulings.

On November 23, 1998, the MPUC granted its approval of the sale to FPL Energy of
the generating assets contemplated by the purchase  agreement,  finding the sale
to be in the public  interest.  The MPUC also made the  findings  required  as a
prerequisite  to a FERC  designation  of the  generating  facilities  as "exempt
wholesale generators," which had been requested by FPL Energy.

On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL  Energy,  after  making  the  required  finding  that the sale was
consistent  with  the  public  interest,   and  accepted  certain   implementing
agreements  for filing.  In discussing an issue raised by an intervenor the FERC
stated that by purchasing  the  generating  assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier  transmission-access
rulings.  The FERC  granted its approval of the  transfer of  hydroelectric  and
water  storage  licenses  on  December  28,  1998,  and the  approval by FERC of
exempt-wholesale-generator  status for the generating facilities, was granted on
February 24, 1999.

On March 11,  1999,  the  hearing  on FPL  Energy's  request  for a  declaratory
judgment was held in the United States District Court for the Southern  District
of New York. On the same day the  presiding  judge ruled that FPL Energy was not
entitled to the declaratory  judgment and entered judgment for Central Maine and
its affiliated defendants on all counts of the complaint. Thereafter on that day
FPL Energy announced that it would not appeal the decision, but would proceed to
a closing  of the sale on or  before  April 7,  1999,  as  required  by the sale
agreement, and the parties are preparing for the closing.

Expansion of Lines of Business

General.  CMP Group is also preparing for  competition by expanding its business
opportunities through investments that capitalize on core competencies. MaineCom
Services is a subsidiary that arranges,  through other  investments  fiber-optic
data  service  for bulk  carriers,  offering  support  for cable  television  or
"super-cellular"   personal   communication   vendors,   and   providing   other
telecommunications  consulting  services.  TeleSmart is a wholly-owned  accounts
receivable  management  subsidiary.   Another  wholly-owned  subsidiary,   CNEX,
formerly CMP International  Consultants,  provides utility consulting  (domestic
and  international)  and research.  The  wholly-owned  Union Water Power Company
provides  management  of  rivers  and  recreational   facilities,   locating  of
underground utility facilities and infrared  photography,  real estate brokerage
and  management,   modular  housing,  engineering  and  environmental  services,
integrated energy solutions,  and utility construction  services.  Union Water's
operating  divisions  include On Target Utility  Services,  UnionLand  Services,
Maine HomeCrafters,  E/PRO, and Combined Energies(TM).  These subsidiaries often
utilize  skills of former  Central Maine  employees  and  regularly  compete for
business with other companies.

Natural Gas Distribution. CMP Group and Energy East, through subsidiaries,  have
entered into a  joint-venture  agreement to pursue  opportunities  to distribute
natural gas at retail in many Maine  communities  that are not currently  served
with that fuel. They would offer natural-gas  service in several areas of Maine,
primarily the Augusta,  Bangor,  Bath-Brunswick,  Bethel, Windham and Waterville
areas, none of which currently has a natural-gas  distribution  system in place.
The gas would be drawn from two new gas-pipeline  projects now under development
by unrelated  parties that would carry  Canadian gas through  Maine and into the
regional energy market using substantial portions of electric  transmission-line
corridors  owned  by  Central  Maine  and  MEPCO.  On July  24,  1998,  the MPUC
authorized the joint venture to serve the areas it had applied to serve. The new
company (now "CMP Natural Gas,  L.L.C.",  equally owned by  subsidiaries  of CMP
Group and Energy East) would face competition from a new gas utility  affiliated
with Bangor Hydro-Electric Company in the Bangor area, and in the Bath-Brunswick
area, from an existing gas utility,  Northern  Utilities,  Inc.,  which has been
serving other areas of Maine,  including the Portland and Lewiston-Auburn areas.
CMP Group's level of investment is dependent on the overall economic feasibility
of natural gas as a competitive energy option in Maine, a sufficient  expression
of customer  interest in gas service from CMP Natural Gas, and the prospects for
achieving an acceptable return on investment.

Fiber Optic Network.  CMP Group,  through its wholly-owned  subsidiary  MaineCom
Services, owns 38.5 percent of the common stock of Northeast Optic Network, Inc.
("NEON"),  which is a  facilities-based  provider of  technologically  advanced,
high-bandwidth, fiber optic transmission capacity for communications carriers on
local loop,  inter-city and interstate  facilities.  NEON is currently expanding
its fiber optic  network to encompass  over 1,000 fiber optic cable route miles,
or more than 65,000 fiber strand miles,  in New England and New York,  utilizing
primarily electric-utility  rights-of-way,  including some of Central Maine's in
Maine and some owned by other electric utilities including Northeast  Utilities,
another substantial minority stockholder, in Connecticut,  Massachusetts and New
Hampshire.  As  of  December  31,  1998,  NEON  had  completed  construction  of
approximately  600 route miles, or 49,000 fiber miles, of its planned system and
is currently  engineering,  constructing,  or acquiring additional routes with a
goal of  creating  a  continuous  fiber  optic  link  between  New York City and
Portland,  Maine,  with access into and around  Boston and numerous  other major
service areas in the Northeast.

On August 5, 1998, NEON completed  initial public  offerings of $48.0 million of
common stock and $180.0 million of senior notes,  and Central Maine,  as part of
the  common-stock  offering,  sold some of the  shares in NEON it then owned for
proceeds of approximately $3.1 million.  In addition,  with some of the proceeds
of the offering NEON repaid approximately $18 million Central Maine had advanced
under an earlier  construction  loan  agreement.  CMP Group  believes there is a
growing  need for such a fiber optic  network in the  Northeast  and that NEON's
outside financing will provide substantial assistance in completing construction
of the network, but cannot predict the results of this venture. The common stock
of NEON is listed on the Nasdaq Stock Market's  National Market under the symbol
"NOPT".

Permanent Shutdown of Maine Yankee Plant

On August 6, 1997,  the Board of Directors of Maine Yankee voted to  permanently
cease power operations at its nuclear generating plant at Wiscasset,  Maine (the
"Plant")  and to begin  decommissioning  the  Plant.  As  reported  in detail in
Central Maine's Annual Report on Form 10-K for the year ended December 31, 1997,
the Plant had  experienced a number of operational  and regulatory  problems and
did not  operate  after  December  6,  1996.  The  decision  to close  the Plant
permanently  was  based  on  an  economic  analysis  of  the  costs,  risks  and
uncertainties  associated with operating the Plant compared to those  associated
with closing and  decommissioning it. The Plant's operating license from the NRC
was scheduled to expire on October 21, 2008.

FERC Rate Case. On November 6, 1997,  Maine Yankee  submitted to FERC for filing
certain  amendments to the Power  Contracts (the  "Amendatory  Agreements")  and
revised  rates to  reflect  the  decision  to shut down the Plant and to request
approval of an increase in the  decommissioning  component of its formula rates.
Maine Yankee's  submittal also requested  certain other rate changes,  including
recovery of unamortized  investment  (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998,  the FERC accepted  Maine Yankee's new rates for filing,
subject to refund  after a minimum  suspension  period,  and set Maine  Yankee's
Amendatory  Agreements,   rates  and  issues  concerning  the  prudence  of  the
Plant-shutdown decision for hearing.

By Complaint  dated  December 9, 1997,  the Maine Office of the Public  Advocate
("OPA") sought a FERC  investigation  of Maine Yankee's  actions  leading to the
decision  to  shut  down  the  Plant,  including  actions  associated  with  the
management  and operation of Maine Yankee since 1993.  The MPUC had initiated an
investigation in Maine earlier,  raising  generally  similar issues. By decision
dated  May  4,  1998,  the  FERC   consolidated   the  OPA  Complaint  with  the
comprehensive  rate  proceeding.  In  addition,  28  municipal  and  cooperative
utilities that had purchased in the aggregate  approximately  6.2 percent of the
output of the Plant from Maine Yankee's  sponsors (the  "Secondary  Purchasers")
intervened in the FERC  proceeding,  raising  similar  prudence issues and other
issues specific to their status as indirect purchasers from Maine Yankee.

In support of its request for an increase in decommissioning collections,  Maine
Yankee submitted with its initial FERC filing a 1997  decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive  competitive  bid  process  to  engage  a  Decommissioning  Operations
Contractor  ("DOC") to perform certain major  decontamination  and dismantlement
activities at the Plant on a  fixed-price,  turnkey  basis.  As a result of that
process, a consortium headed by Stone & Webster Engineering  Corporation ("Stone
&  Webster")  was  selected  to  perform  such  activities  under a  fixed-price
contract.  The contract provides for, among other undertakings,  construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning  activities  and site  restoration  by the end of 2004.  The DOC
process  resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.

Since the filing of the rate request,  Maine Yankee and the active  intervenors,
including among others the MPUC Staff,  the OPA, Central Maine and other owners,
the  Secondary  Purchasers,  and a  Maine  environmental  group  (the  "Settling
Parties"),  engaged in  extensive  discovery  and  negotiations.  Those  parties
participated in settlement  discussions  that resulted in an Offer of Settlement
filed by those  parties with the FERC on January 19, 1999.  On February 8, 1999,
the FERC Trial Staff recommended that the presiding judge certify the settlement
to the FERC and  that the FERC  approve  it.  Upon  approval  by the  FERC,  the
settlement  would  constitute  a full  settlement  of all  issues  raised in the
consolidated FERC proceeding,  including  decommissioning-cost issues and issues
pertaining  to the  prudence  of the  management,  operation,  and  decision  to
permanently  cease  operation of the Plant. A separately  negotiated  settlement
filed with the FERC on February 5, 1999,  would resolve the issues raised by the
Secondary  Purchasers by limiting the amounts they will pay for  decommissioning
the Plant  and by  settling  other  points of  contention  affecting  individual
Secondary  Purchasers.  On February 24, 1999,  the FERC Trial Staff  recommended
certification and approval of the settlement with the Secondary  Purchasers.  On
March 10, 1999,  the presiding  judge  certified to the FERC that both Offers of
Settlement were  uncontested and joined in the Trial Staff's  comments that both
were "fair, reasonable and in the public interest."

The Offer of  Settlement  provides for Maine Yankee to collect  $33.6 million in
the  aggregate  annually,  effective  January 15, 1998,  consisting of (1) $26.8
million  for  estimated   decommissioning   costs,  and  (2)  $6.8  million  for
ISFSI-related  costs. The original filing with FERC on November 6, 1997,  called
for an aggregate annual collection rate of $36.4 million for decommissioning and
the ISFSI, based on the TLG estimate.  Under the settlement the amount collected
annually could be reduced to  approximately  $26 million if Maine Yankee is able
to (1) use for construction of the ISFSI funds held in trust under Maine law for
spent-fuel disposal, and (2) access approximately $6.8 million being held by the
State of Maine for eventual  payment to the State of Texas pursuant to a compact
for  low-level  nuclear waste  disposal,  the future of which is now in question
after  rejection  of the  selected  disposal  site  in  west  Texas  by a  Texas
regulatory agency.  Both would require  authorizing  legislation in Maine, which
Maine Yankee is committed to use its best efforts to obtain.

The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective  January 15, 1998,  on equity  balances up to maximum  allowed  equity
amounts.  The Settling  Parties also agreed in the  proposed  settlement  not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing,  subject to certain  limitations  including the right to
challenge any accelerated recovery of unamortized  investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee. In addition,  the settlement  contains incentives for Maine Yankee
to achieve further savings in its  decommissioning  and ISFSI-related  costs and
resolves  issues  concerning  restoration  and  future use of the Plant site and
environmental   matters  of  concern  to  certain  of  the  intervenors  in  the
proceeding.

As a separate  part of the Offer of  Settlement,  Central  Maine,  the other two
Maine utilities which own interests in Maine Yankee, the MPUC Staff, and the OPA
entered into a further  agreement  resolving retail rate issues and other issues
specific to the Maine parties,  including those that had been raised  concerning
the prudence of the operation and shutdown of the Plant (the "Maine Agreement").
Under the Maine  Agreement  Central  Maine  would  continue to recover its Maine
Yankee costs in accordance  with its most recent ARP order from the MPUC without
any adjustment reflecting the outcome of the FERC proceeding. To the extent that
Central  Maine has  collected  from its retail  customers  a return on equity in
excess of the 6.50 percent  contemplated by the Offer of Settlement,  no refunds
would be required, but such excess amounts would be credited to the customers to
the extent required by the ARP.

The final major provision of the Maine Agreement  requires the Maine owners, for
the period from March 1, 2000,  through  December  1, 2004,  to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of  Directors  that served as a basis for the Plant  shutdown
decision,  up to a maximum  cumulative  amount of $41 million.  Central  Maine's
share  of that  amount  would  be  $31.16  million  for the  period.  The  Maine
Agreement,  which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.

CMP Group and Central Maine believe that the Offer of Settlement,  including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC  proceeding,  and that  approval of the Offer of Settlement by
the FERC would eliminate  significant  uncertainties  concerning CMP Group's and
Central Maine's future financial performance. Although all of the active parties
to the proceeding,  including the FERC Trial Staff,  support or, with respect to
certain individual provisions, do not oppose, the Offer of Settlement, CMP Group
and Central Maine cannot predict with certainty  whether or in what form it will
be approved by the FERC.

Other Maine Yankee Shareholders.  Periodically-higher nuclear-related costs have
affected  the  financial  condition  of other  stockholders  of Maine  Yankee in
varying  degrees.  A default by a Maine Yankee  stockholder  in making  payments
under its Power  Contract  or  Capital  Funds  Agreement  could  have a material
adverse effect on Maine Yankee,  depending on the magnitude of the default.  CMP
Group and Central  Maine  cannot  predict,  however,  what  effect,  if any, the
financial  and  regulatory   difficulties   experienced  by  some  Maine  Yankee
stockholders might have on Maine Yankee or Central Maine.

Interests in Other Nuclear Plants

In December  1996,  the Board of Directors of  Connecticut  Yankee  Atomic Power
Company voted to permanently shut down and  decommission the Connecticut  Yankee
plant for  economic  reasons.  The plant did not  operate  after July 22,  1996.
Central Maine estimates its share of the cost of Connecticut  Yankee's continued
compliance  with  regulatory  requirements,  recovery  of its plant  investment,
decommissioning  and closing the plant to be approximately $29.9 million and has
recorded a  corresponding  regulatory  asset and  liability on the  consolidated
balance  sheet.  Central Maine is currently  recovering  through rates an amount
adequate to recover these  expenses.  Issues  relating to  Connecticut  Yankee's
decommissioning  rates,  as well as the prudence of operating that plant and the
decision to cease operations, remain pending before the FERC.

In  1993  the  FERC  approved  a  settlement  agreement  regarding  recovery  of
decommissioning  costs and plant investment,  and all issues with respect to the
prudence of the decision to  discontinue  operation of the Yankee  Atomic plant.
Central  Maine  estimates  its  remaining  share of the cost of Yankee  Atomic's
continued  compliance  with  regulatory  requirements,  recovery  of  its  plant
investment,  decommissioning  and closing the plant,  to be  approximately  $7.8
million.  This estimate has been  recorded by Central  Maine as a  corresponding
regulatory asset and liability on Central Maine's balance sheet. Central Maine's
current  share of costs  related  to the  shutdown  of  Yankee  Atomic  is being
recovered through rates.

The Vermont  Yankee plant is an operating  unit.  Its NRC  operating  license is
scheduled to expire in the year 2012.

Pursuant to a joint ownership agreement,  Central Maine has a 2.5 percent direct
ownership  interest in the Millstone 3 nuclear unit in  Waterford,  Connecticut,
which is operated by Northeast Utilities.  This facility was off-line from March
31, 1996, to July 1998, due to NRC concerns regarding license requirements.

On August 7, 1997, Central Maine and other minority owners of Millstone Unit No.
3 filed suit in Massachusetts Superior Court against Northeast Utilities and its
trustees,  and initiated an arbitration  claim against two of its  subsidiaries,
alleging  mismanagement  of the unit by the defendants.  The minority owners are
seeking to recover their  additional  costs  resulting from such  mismanagement,
including their replacement power costs. Since August 1997 the parties have been
engaged in resolving  preliminary issues and in extensive  pre-hearing discovery
on a schedule  calling for an arbitration  hearing in the fall of 1999.  Central
Maine cannot predict the outcome of the  litigation  and  arbitration or whether
the current schedule will be maintained.

Central  Maine is  obligated  to pay its  proportionate  share of the  operating
expenses,  including  depreciation and a return on invested capital,  of each of
the Yankee Companies  referred to above for periods expiring at various dates to
2012.  Pursuant to the joint ownership  agreement for Millstone 3, Central Maine
is similarly  obligated to pay its proportionate share of the operating costs of
Millstone 3. Central  Maine is also  required to pay its share of the  estimated
decommissioning  costs of each of the  Yankee  Companies  and  Millstone  3. The
estimated  decommissioning  costs are paid as a cost of  energy  in the  amounts
allowed in rates by the FERC.

Non-Utility Generators

In accordance with prior MPUC policy and the ARP, $99 million of  power-purchase
contract buy-out or restructuring costs incurred since January 1992 are included
in Deferred  Charges and Other Assets on Central  Maine's balance sheet and will
be amortized  over their  respective  fuel savings  periods.  Central  Maine has
restructured  43 contracts  representing  389  megawatts of capacity that should
result in approximately $231 million in fuel savings over the next five years.

During 1998 Central Maine purchased or restructured two power-purchase contracts
which it expects  will  result in savings to its  customers  the  equivalent  of
approximately $40.5 million in net present value.

On February 12, 1999, Central Maine restructured a power-purchase  contract with
a NUG in  Livermore,  Maine,  which  it  expects  will  save its  customers  the
equivalent of $20.4 million in net present value.

On December 31,  1998,  two  contracts  with NUGs from which  Central  Maine was
obligated to purchase electricity at substantially  above-market prices expired.
As a result,  Central Maine expects to reduce power  purchases by  approximately
$2.7 million.

Open-Access Transmission Service Ruling

On April 24,  1996,  the FERC issued  Order No. 888,  which  requires all public
utilities that own, control or operate facilities used for transmitting electric
energy  in   interstate   commerce  to  file  open   access   non-discriminatory
transmission  tariffs that offer both  load-based,  network and  contract-based,
point-to-point  service,  including  ancillary  service  to  eligible  customers
containing  minimum terms and  conditions of  non-discriminatory  service.  This
service  must be  comparable  to the  service  they  provide  themselves  at the
wholesale  level;  in fact,  these  utilities must themselves take the wholesale
transmission  service  they  provide  under the filed  tariffs.  The order  also
permits public utilities and  transmitting  utilities the opportunity to recover
legitimate,  prudent and verifiable  wholesale  stranded costs  associated  with
providing  open  access and  certain  other  transmission  services.  It further
requires public utilities to functionally  separate transmission from generation
marketing functions and  communications.  The intent of this order is to promote
the transition of the electric utility industry to open  competition.  Order No.
888  also  clarifies  federal  and  state   jurisdiction  over  transmission  in
interstate commerce and local distribution and provides for deference of certain
issues to state  recommendations.  The FERC subsequently issued Orders No. 888-A
and 888-B which generally reaffirm Order No. 888 and clarify certain terms.

On July 9, 1996,  Central Maine and MEPCO submitted  compliance  filings to meet
the  new  pro-forma   tariff   non-price   minimum   terms  and   conditions  of
non-discriminatory  transmission  service  and since  then have made  additional
filings revising their tariffs in response to subsequent FERC and NEPOOL Orders.
Central Maine and MEPCO have been  transmitting  energy  pursuant to their filed
tariffs, subject to refund.

On April 24, 1996,  the FERC also issued Order No. 889,  which  requires  public
utilities  to   functionally   separate  their  wholesale  power  marketing  and
transmission   operation   functions  and  to  obtain  information  about  their
transmission  system for their own wholesale power  transactions in the same way
their  competitors  do through  the Open  Access  Same-time  Information  System
("OASIS").  The rule also  prescribed  standards  of conduct and  protocols  for
obtaining  the  information.  The  standards  of conduct are designed to prevent
employees of a public  utility  engaged in marketing  functions  from  obtaining
preferential  information.  In 1998,  both  Central  Maine and  MEPCO  submitted
standards of conduct  filings  that  further  clarified  the  separation  of the
wholesale  power marketing and  transmission  operations  functions.  The NEPOOL
Agreement and open-access  transmission  tariff have been revised to reflect the
new regulatory requirements and are pending FERC approval.

Competition and Economic Development

Central Maine faces  competition in several aspects of its traditional  business
and anticipates that competition will continue to put pressure on both sales and
the  prices  Central  Maine can charge for its  product.  Alternative  fuels and
modifications  to regulations  that in the past had restricted  competition from
suppliers outside of Central Maine's service territory have expanded  customers'
energy options,  even before the commencement of retail  competition on March 1,
2000. As a result,  Central Maine continues to pursue  retention of its customer
base. This increasingly  competitive environment has resulted in Central Maine's
entering into arrangements with its wholesale customers, as well as with certain
industrial, commercial, and residential customers, to provide their energy needs
at prices and margins lower than the current averages.

Pursuant to the pricing-flexibility  provisions of the ARP, Central Maine offers
special  prices  for  high-use  residential  customers  and for  industrial  and
commercial    customers    with   the   capacity   to   change   fuel   sources.
Economic-Development  price  contracts  and  the  Maine-Made  Incentive  Program
support Central Maine's  business-development  initiatives. In 1994, the Company
lowered tariffs for its large  general-service  customers and executed  separate
five-year   definitive   agreements  with  18  individual   customers  providing
additional   reductions.   Approximately  44  percent  of  annual  service  area
kilowatt-hour  sales and 31 percent of annual revenues are covered under special
tariffs  allowed  under the pricing  flexibility  provisions  of the ARP.  These
reductions in rates were offered to customers after  consideration of associated
NUG cost reductions,  savings from further NUG  consolidations and other general
cost reductions.

"Year 2000" Computer Issues

The "Year 2000 problem" arose because many existing  computer  programs use only
the last two digits to refer to a year. Therefore those computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not  corrected,  many  computer  applications  could  fail or  create  erroneous
results, with potentially serious and widespread adverse consequences.

CMP  Group,  through  Central  Maine,  began its Year 2000  problem  remediation
efforts  in  1996,  and  since  that  time  has  developed  a  broad-based   and
comprehensive  project plan for addressing  Year 2000 issues.  The plan includes
both  Information   Technology   ("IT")  and  non-IT  systems,   addresses  both
centralized and distributed  systems,  and encompasses  systems  critical to the
generation,  transmission,  and  distribution  of electric energy as well as the
traditional business systems necessary to the CMP Group System.

As  planned,  by the  end of 1998  CMP  Group  had  completed  much of the  work
associated  with Year  2000  readiness  for IT  infrastructure  and  centralized
business systems. The remaining work in those areas is scheduled to be completed
during the first six months of 1999. All vendors  associated with this remaining
work  have  indicated  availability  of  products  and  services  that CMP Group
believes should permit CMP Group to be Year 2000 ready by June 1999.

CMP Group's target  completion date for Year 2000 power  generation and delivery
systems is also June 1999,  consistent with the DOE's  published  request in May
1998 and the overall electric-utility  industry guidelines prepared by the North
American Electric  Reliability  Council ("NERC").  CMP Group has contracted with
the  appropriate   vendors  to  complete  critical   generation  control  system
remediation  work by June 1999,  and  believes  it is on  schedule  to meet this
target.

In addition to the internal Year 2000 readiness  activities discussed above, CMP
Group is actively  participating  in a joint ISO/NEPOOL  initiative  designed to
assess,  and assure,  power reliability  within the NEPOOL area. This initiative
encompasses all participants,  including  Central Maine,  within the New England
area.

CMP Group also has an active  program in place to identify  and  address  issues
associated  with  third-party   providers.   The  program   addresses   business
relationships  with all  third-party  providers,  but focuses on those suppliers
deemed  critical  to CMP  Group's  business.  At  this  time  CMP  Group  has no
indication that any third-party with which CMP Group has a material relationship
is expecting a Year 2000-related business interruption.  CMP Group will continue
to monitor and assess its third-party relationships.

CMP Group estimates it will incur approximately $4.0 million of costs associated
with  making  the  necessary  modifications  identified  to  date  to  both  the
centralized and non-centralized  systems. As of December 31, 1998, approximately
$3.4 million of such costs has been incurred.

CMP Group recognizes that failure to correct problems  associated with Year 2000
issues has the potential to result in material  operational  and financial risks
if the affected systems either cease to function or produce  erroneous  results.
Such risks could include  inability to operate  fossil  and/or hydro  generating
facilities,  disruptions in the operation of Central  Maine's  transmission  and
distribution  systems,  an  inability  to  access  interconnections  with  other
utilities,  and disruptions to Central Maine's major business systems  (customer
information and service, administrative, financial).

Central  Maine  believes,  however,  that the most  likely  worst case  scenario
resulting from these risks would be a temporary,  and short-term,  disruption of
electric  service.  This could occur  either as a failure on the part of Central
Maine to successfully address all critical Year 2000 issues, as a failure on the
part of a critical  third-party  provider,  or as a failure on the part of other
entities,  including  ISO-New England,  to successfully  maintain the short-term
reliability of power supply and delivery on a regional basis. Central Maine does
not expect that any such  short-term  service  disruption  would have a material
impact on its operations, liquidity, or financial condition.

In order to minimize these risks,  and the potential  recovery  time,  from Year
2000 problems, CMP Group is actively involved in contingency planning.  Although
CMP Group has extensive knowledge and specific  experience in  disaster/recovery
planning  and  execution,  CMP  Group  recognizes  the  importance  of Year 2000
specific contingency  planning.  Accordingly,  Central Maine is participating in
the integrated contingency planning effort headed by the North American Electric
Reliability  Council,  and the Northeast Power  Coordinating  Council.  Further,
Central Maine will be developing  comprehensive  Year 2000 specific  contingency
plans for its own independent operations.

CMP Group  believes  its plans are adequate to attain Year 2000  readiness,  and
that the contingency  plans currently under development both internally and at a
regional level should substantially mitigate the risks discussed above.

Liquidity and Capital Resources

Increases in Central  Maine's  retail rates are limited by Central  Maine's ARP.
For a discussion of the ARP,  including a 1.33-percent  rate increase  effective
July 11, 1998, and a proposed rate reduction  contingent on the  consummation of
Central  Maine's  planned  sale  of  generating  assets  in  1999,  see  Note 3,
"Regulatory Matters" - "Alternative Rate Plan."

Approximately  $158.3 million and $159.8 million of cash was provided during the
year ended December 31, 1998 for CMP Group and Central Maine, respectively, from
net income before  non-cash  items,  primarily  depreciation,  amortization  and
deferred income taxes. During that period  approximately $66.8 million and $73.5
million of cash was used for  fluctuations in certain assets and liabilities and
from other operating activities for CMP Group and Central Maine, respectively.

Included  in net  income is $19.1  million  for CMP Group and $9.5  million  for
Central Maine  representing  gains  associated  with the sale of investments and
properties.

Investing  activities,  primarily  construction  expenditures,   utilized  $17.4
million in cash  during 1998 for  generation,  transmission,  distribution,  and
general  construction  expenditures for CMP Group and $9.1 for Central Maine. In
order to  accommodate  existing and future loads on its electric  system Central
Maine,  CMP Group's major  subsidiary,  is engaged in a continuing  construction
program.  Central  Maine's  plans  for  improvements  and  expansions,  its load
forecast and its power-supply  sources are under a process of continuing review.
Actual  construction  expenditures  depend upon the  availability of capital and
other resources, load forecasts, the timing of its divestiture of its generating
assets,  customer growth and general business  conditions.  The ultimate nature,
timing and amount of financing for Central Maine's total construction  programs,
refinancing and  energy-management  capital  requirements  will be determined in
light of market conditions, earnings and other relevant factors.

CMP Group  received  proceeds of  approximately  $21.3  million from the sale of
investments and properties.  In addition,  Central Maine received  approximately
$20.1 million resulting from the sale of four subsidiaries to CMP Group.

During 1998 CMP Group paid  dividends  on common stock of $28.9  million,  while
preferred-stock dividends, paid by Central Maine, utilized $6.7 million of cash.
In addition, Central Maine reacquired 1.2 million shares of stock from CMP Group
for $19 million following the holding company formation.

Central Maine's Articles of Incorporation  limit certain unsecured  indebtedness
that may be outstanding to 20% of capitalization, as defined without the consent
of the holders of Central Maine's preferred stock; 20% of defined capitalization
amounted to $143  million as of December 31, 1998.  Unsecured  indebtedness,  as
defined,  amounted to $131 million as of December 31, 1998. Central Maine's $500
million medium-term note program, having received the consent of Central Maine's
preferred stockholders in May 1997, is not included in "unsecured  indebtedness"
for purposes of the 20-percent limitation.

At the annual meeting of the  stockholders of Central Maine on May 15, 1997, the
holders of Central Maine's outstanding preferred stock consented to the issuance
of $350  million in principal  amount of Central  Maine's  medium-term  notes in
addition to the $150  million in principal  amount to which they had  previously
consented.  This expansion of the  medium-term  note program was  implemented to
increase Central Maine's financing  flexibility in anticipation of restructuring
and increased competition.

During  1998  Central  Maine  issued  $312  million   principal  amount  of  its
medium-term  notes and paid $18 million at  maturity,  making a total of $337 of
medium-term  notes  outstanding  at  December  31, 1998 of which $10 million was
short-term.  During the year  Central  Maine  redeemed,  repurchased  or paid at
maturity the following General and Refunding Mortgage Bonds (stated in principal
amounts) and Dividend  Series  Preferred  Stock (in par value),  a total of $351
million:

         March 30      Series R Bonds,  7-7/8% ($50 million) 
         March 30      Series N Bonds,  8.50% ($11 million)
         April 1       Preferred Stock,  7-7/8% Series ($30 million)
         April 15      Series U Bonds,  7.54% ($25 million) 
         June 8        Preferred Stock, 7.99% Series ($11.6 million) 
         June 15       Series P Bonds, 7.66% ($31.3 million) 
         July 1        Preferred Stock, 8 7/8% Series ($7 million)
         August 15     Series S Bonds,  6.03% ($60 million)  
         November 1    Series T Bonds,  6.25% ($75  million) 
         December 31   Series O Bonds, 7-3/8% ($50 million)


For further  details on the financing  activities of Central Maine and CMP Group
during 1998, see Item 8, "Notes to Consolidated Financial Statements" - Note 10,
"Capitalization and Interim Financing," below.

To support its short-term capital  requirements,  in October 1996, Central Maine
entered  into  a  $125  million  Credit  Agreement  with  several  banks,   with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement  originally  had  two  credit  facilities:  a $75  million,  364-day
revolving  credit facility and a $50-million,  3-year revolving credit facility.
Effective  December 15, 1998, the banks'  commitments under the 364-day facility
were reduced  from $75 million to $25 million by  agreement of the parties,  and
other  provisions  were amended to reflect the  reorganization  of Central Maine
into a holding-company structure and recognize other changed circumstances. Both
credit  facilities  require annual fees on the total credit lines.  The fees are
based on Central Maine's credit ratings and allow for various  borrowing options
including  LIBOR-priced,   base-rate-priced  and  competitive-bid-priced  loans.
Access to commercial paper markets has been  substantially  precluded based upon
Central  Maine's  past  credit  ratings.  The amount of  outstanding  short-term
borrowing  will  fluctuate  with  day-to-day  operational  needs,  the timing of
long-term  financing,  and market  conditions.  Central Maine had $55 million in
outstanding notes as of December 31, 1998 under the credit facilities.

On August 5, 1998, the MPUC approved Central Maine's  application to purchase up
to 11 million shares of its outstanding  common stock over a three-year  period,
with a limitation of three million shares that may be  repurchased  prior to the
closing  of the sale of Central  Maine's  generating  assets.  The amount of any
stock  purchases  and their timing by Central  Maine or CMP Group will depend on
the need for equity in the respective  Company's capital  structure,  investment
opportunities and other considerations.  Neither Central Maine nor CMP Group has
adopted a formal stock-purchase plan.

Environmental Matters

CMP Group  and its  subsidiaries  assess  compliance  with laws and  regulations
related to hazardous substance  remediation on an ongoing basis. At December 31,
1998,  Central  Maine had an accrued  liability of $1.9 million for  remediation
costs at  various  sites.  The costs at  identified  sites may be  significantly
higher if, among other things,  other  potentially  responsible  parties are not
financially  able to contribute to these costs or identified  possible  outcomes
change. See Note 4, "Commitments and  Contingencies." - "Legal and Environmental
Matters" for further discussion of this matter.

Storm Damage Central Maine's System

On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck   Central   Maine's   service   territory,   causing  power  outages  for
approximately  280,000 of Central  Maine's  528,000  customers,  and substantial
widespread  damage to Central Maine's  transmission and distribution  system. To
restore its electrical  system,  Central Maine  supplemented  its own crews with
utility and tree-service  crews from throughout the  northeastern  United States
and the Canadian  maritime  provinces,  with  assistance from the Maine national
guard.  Central Maine's incremental  non-capital costs of the repair effort were
$50.7 million, most of which is labor-related.  In addition,  approximately $1.7
million of carrying costs have been deferred as of December 31, 1998.

On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the  incremental  non-capital  costs  associated  with Central Maine's
efforts to restore  service in response to the damage  resulting from the storm.
The order required Central Maine, as part of its annual filing under the ARP, to
file  information  on the  amounts  deferred  under  the  order  and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the 1998 ARP filing Central Maine stated that once the final cost of
the storm was  determined  and the status of federal  assistance  was  finalized
Central Maine would propose a plan for recovery of its costs.  Based on the MPUC
order,  Central  Maine has deferred  $52.4  million in storm related costs as of
December 31, 1998.  In October  1998,  the MPUC staff issued its draft report of
its summary  investigation of the Maine  utilities'  response to the January ice
storm. This report found no basis for formal adjudicatory investigation into the
response and supports the utilities' actions. On May 1, 1998,  President Clinton
signed a  Congressional  appropriation  bill  that  included  $130  million  for
Presidentially   declared  disasters  in  1998,   including   storm-damage  cost
reimbursement  for  electric  utilities.  On November 5, 1998 the United  States
Department  of Housing and Urban  Development  ("HUD")  announced  that of those
funds,  $2.2 million had been awarded to Maine, with none designated for utility
infrastructure,  which  Central  Maine  and the Maine  Congressional  delegation
protested as inadequate and inconsistent with Congressional intent. On March 10,
1999,  HUD  published  a notice in the  Federal  Register  inviting  parties  to
re-apply for storm-damage cost reimbursement.  Central Maine cannot predict what
portion  of its ice  storm-related  costs  it will  ultimately  recover  through
federal  assistance,  if any, or from its  customers,  or when any such recovery
will take place.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

CMP Group is exposed to interest  rate risk  through the use of  fixed-rate  and
variable-rate  debt and preferred  stock as sources of capital.  Its exposure to
changes in  applicable  interest  rates has  increased  during 1998,  due to its
issuance of $312 million of medium-term  notes during the year,  $227 million of
which bear floating,  LIBOR-based,  rates. Most of the floating-rate medium-term
notes issued during 1998 replaced  fixed-rate mortgage bonds or other fixed-rate
securities.

                                     Variable Long Term         Fixed Long Term

 Weighted Average Rates                          6.63%                     7.46%

 Balance at December 31, 1998                 $278,704                  $321,476

 Maturity Period                           1999 - 2018               1999 - 2023





Item 8. FINANCIAL STATEMENTS AND
           SUPPLEMENTARY DATA.

Index to Financial Statements and Financial Statement Schedules

Management report on responsibility for financial reporting              57

Report of Independent Accountants                                        58

Consolidated Financial Statements                                        59

CMP Group, Inc.

     Consolidated  Statement of Earnings for the three years ended
     December 31, 1998, 1997 and 1996                                    59

     Consolidated Balance Sheet as of December 31, 1998 and 1997         60

     Consolidated  Statement  of  Capitalization  and  Interim  
     Financing  as of December 31, 1998 and 1997                         62

     Consolidated  Statement  of Changes in  Stockholders'  Equity 
     for the three years ended December 31, 1998, 1997 and 1996          63

     Consolidated Statement of Cash Flows for the three years ended 
     December 31, 1998, 1997 and 1996                                    64

Central Maine Power Company

     Consolidated  Statement of Earnings for the three years ended
     December 31, 1998, 1997 and 1996                                    65

     Consolidated Balance Sheet as of December 31, 1998 and 1997         66

     Consolidated  Statement  of  Capitalization  and  Interim  
     Financing  as of December 31, 1998 and 1997                         68

     Consolidated  Statement  of Changes in  Stockholders'  Equity
     for the three years ended December 31, 1998, 1997 and 1996          69

     Consolidated Statement of Cash Flows for the three years ended
     December 31, 1998, 1997 and 1996                                    70

Notes to Consolidated  Financial  Statements - CMP Group, Inc. 
and Central Maine Power Company                                          71

Financial Statement Schedule:

Central Maine Power Company
     Schedule II - Valuation and Qualifying Accounts                    128



                              Report of Management

The  Managements  of CMP Group and its  subsidiaries  ("CMP  Group") and Central
Maine Power Company and its subsidiaries  ("Central  Maine") are responsible for
the  consolidated  financial  statements and the related  financial  information
appearing  in this annual  report.  The  financial  statements  are  prepared in
conformity  with generally  accepted  accounting  principles and include amounts
based  on  informed  estimates  and  judgments  of  management.   The  financial
information  included elsewhere in this report is consistent,  where applicable,
with the financial statements.

CMP Group and Central Maine  maintain a system of internal  accounting  controls
that are designed to provide reasonable assurance that the respective assets are
safeguarded,   transactions   are  executed  in  accordance  with   management's
authorization,  and  the  financial  records  are  reliable  for  preparing  the
financial  statements.  While no  system of  internal  accounting  controls  can
prevent the  occurrence of errors or  irregularities  with  absolute  assurance,
management's  objective is to maintain a system of internal  accounting controls
that meets their goals in a cost-effective manner.

CMP Group and Central Maine have policies and procedures in place to support and
document  the  internal  accounting  controls  that are revised on a  continuing
basis.  Internal  auditors conduct reviews,  provide ongoing  assessments of the
effectiveness  of selective  internal  controls,  and report their  findings and
recommendations for improvement to management.

The  Board of  Directors  of CMP  Group  have  established  an Audit  Committee,
composed entirely of outside directors,  which oversees the financial  reporting
process  on  behalf  of the  Board  of  Directors.  The  Audit  Committee  meets
periodically  with management,  internal  auditors,  and the independent  public
accountants to review accounting,  auditing,  internal accounting controls,  and
financial  reporting  matters.  The internal auditors and the independent public
accountants have full and free access to meet with the Audit Committee,  with or
without management present, to discuss auditing or financial reporting matters.

PricewaterhouseCoopers LLP, independent public accountants, has been retained to
audit CMP Group and  Central  Maine's  consolidated  financial  statements.  The
accompanying  report of independent  public accountants is based on their audit,
conducted in accordance with generally accepted auditing standards,  including a
review  of  selected  internal  accounting  controls  and  tests  of  accounting
procedures and records.


David T. Flanagan                              Sara J. Burns
CMP Group, Inc.                                Central Maine Power Company
President and Chief Executive Officer          President

David E. Marsh                                 Curtis I. Call
CMP Group, Inc.                                Central Maine Power Company
Chief Financial Officer                        Treasurer



                        Report of Independent Accountants

To the Shareholders and Directors of
   CMP Group, Inc. and the Shareholders and
   Directors of Central Maine Power Company

In our opinion, the accompanying consolidated financial statements listed in the
accompanying  index present fairly, in all material  respects,  the consolidated
financial  position of CMP Group,  Inc. and its  subsidiaries  ("CMP  Group") at
December 31, 1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period  ended  December  31,
1998 and the consolidated  financial position of Central Maine Power Company and
its  subsidiaries  ("Central  Maine") at  December  31,  1998 and 1997,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity  with generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule listed in the  accompanying  index presents  fairly,  in all
material  respects,  the  information set forth therein when read in conjunction
with the related consolidated  financial statements.  These financial statements
and financial  statement  schedule are the  responsibility  of management of CMP
Group and Central Maine;  our  responsibility  is to express an opinion on these
financial  statements and financial  statement  schedule based on our audits. We
conducted our audits of these  statements in accordance with generally  accepted
auditing  standards  which  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP
Portland, Maine
January 26, 1999




<TABLE>
<S>                                                                       <C>              <C>             <C>     


                       CONSOLIDATED FINANCIAL STATEMENTS

                        CMP Group, Inc. and Subsidiaries
                       Consolidated Statement Of Earnings
              For the years ended December 31, 1998, 1997 and 1996
                (Dollars in thousands, except per-share amounts)

                                                                           1998              1997               1996

Revenues (Notes 1 and 3)
     Electric operating revenues                                          $938,739         $954,176        $967,046
     Other non-utility revenues                                             11,588            2,070             859
                                                                          --------        ---------      ----------
        Total Revenues                                                     950,327          956,246         967,905
                                                                           -------          -------         -------

Operating Expenses
     Fuel used for company generation (Notes 1 and 9)                       30,898           34,946          16,827
     Purchased power
        Energy (Notes 1 and 9)                                             369,411          419,144         407,926
        Other (capacity) (Note 9)                                           85,321          112,810         108,720
     Other operation                                                       213,489          210,513         183,688
     Maintenance                                                            41,051           33,973          37,537
     Depreciation and amortization (Note 1)                                 56,493           54,132          53,694
     Taxes other than income taxes                                          27,783           28,303          27,861
                                                                          --------         --------        --------
        Total Operating Expenses                                           824,446          893,821         836,253
                                                                           -------          -------         -------

Operating Income                                                           125,881           62,425         131,652
                                                                           -------          -------         -------

Other Income (Expense)
     Equity in earnings of associated companies (Note 9)                       (60)           6,260           6,138
     Allowance for equity funds used during construction (Note 1)              653              642             851
     Other, net                                                              1,383            3,639           4,709
     Minority interest in consolidated net income                             (205)            (233)            (48)
     Gain on sale of investments and properties                             22,912              418             601
                                                                          --------        ---------      ----------
        Total Other Income (Expense)                                        24,683           10,726          12,251
                                                                          --------          -------        --------

Interest Charges
     Long-term debt (Note 10)                                               43,276           44,346          47,966
     Other interest (Note 10)                                                8,366            7,660           4,341
     Allowance for borrowed funds used during construction (Note 1)           (495)            (439)           (655)
                                                                         ---------        ---------      -----------
        Total Interest Charges                                              51,147           51,567          51,652
                                                                           -------          -------        --------

Income Before Income Taxes and Preferred Dividends                          99,417           21,584          92,251
     Income taxes (Notes 2 and 3)                                           41,698            8,162          32,022
     Dividends on Preferred Stock of Subsidiary                              4,809            8,209           9,452
                                                                           -------         --------       ---------
Net Income                                                                 $52,910        $   5,213       $  50,777
                                                                            ======         ========        ========

Weighted Average Number Of Shares Of Common
     Stock Outstanding                                                  32,442,685       32,442,752      32,442,752

Earnings Per Share Of Common Stock (Basic and Diluted)                       $1.63            $0.16           $1.57

Dividends Declared Per Share Of Common Stock                                 $0.90            $0.90           $0.90
</TABLE>

The accompanying notes are an integral part of these financial statements
<TABLE>
<S>                                                                              <C>               <C>        


                                     CMP Group, Inc. and Subsidiaries
                                        Consolidated Balance Sheet
                                        December 31, 1998 and 1997
                                          (Dollars in thousands)

                                  ASSETS                                              1998              1997
                                                                                      ----              ----

Current Assets
    Cash and cash equivalents                                                    $    30,540       $    20,841
    Accounts receivable, less allowance for uncollectible accounts of
    $3,136 in 1998 and $2,400 in 1997
       Service   - billed                                                             81,169            84,323
                 - unbilled (Notes 1 and 3)                                           53,296            46,807
       Other accounts receivable                                                      13,753            15,247
    Inventories, at average cost
       Fuel oil                                                                        5,879             5,390
       Materials and supplies                                                         13,126            11,779
    Funds on deposit with trustee (Note 10)                                                1            61,694
    Prepayments and other current assets                                              10,268             9,110
                                                                                 -----------      ------------
          Total Current Assets                                                       208,032           255,191
                                                                                  ----------        ----------

Electric Property, at original cost (Notes 9 and 10)                               1,750,837         1,674,876
    Less: Accumulated depreciation (Notes 1 and 9)                                   694,410           634,384
                                                                                  ----------        ----------
          Net electric property in service                                         1,056,427         1,040,492
                                                                                   ---------         ---------

    Construction work in progress (Note 4)                                            19,538            15,105
    Nuclear fuel, less accumulated amortization of $9,316 in 1998 and
    $9,035 in 1997                                                                     1,147             1,157
                                                                                ------------      ------------
          Total net electric property                                              1,077,112         1,056,754

Investments In Associated Companies, at equity (Notes 1 and 9)                        71,880            76,509
                                                                                 -----------       -----------
    Total Net Electric Property and Investments in Associated Companies
                                                                                   1,148,992         1,133,263

Deferred Charges And Other Assets
    Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1)
                                                                                      78,539            84,026
    Yankee Atomic purchased-power contract (Note 9)                                    7,761            13,056
    Connecticut Yankee purchased-power contract (Note 9)                              29,913            36,877
    Maine Yankee purchased-power contract (Note 9)                                   273,895           329,206
    Regulatory assets - deferred taxes (Note 2)                                      235,451           236,632
    Other deferred charges and other assets (Notes 1 and 3)                          280,301           210,715
                                                                                  ----------        ----------
          Deferred Charges and Other Assets, Net                                     905,860           910,512
                                                                                  ----------        ----------

          Total Assets                                                            $2,262,884        $2,298,966
                                                                                   =========         =========
</TABLE>

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

<TABLE>
<S>                                                  <C>                          <C>                <C>       


                                     CMP Group, Inc. and Subsidiaries
                                        Consolidated Balance Sheet
                                        December 31, 1998 and 1997
                                          (Dollars in thousands)

                   STOCKHOLDERS' EQUITY AND LIABILITIES                               1998               1997
                                                                                      ----               ----

Current Liabilities and Interim Financing
    Interim financing (see separate statement) (Note 10)                          $  298,356         $  238,000
    Sinking-fund requirements (Note 10)                                               11,455              9,411
    Accounts payable                                                                  90,960             97,080
    Dividends payable                                                                  7,304              9,202
    Accrued interest                                                                   7,524             11,201
    Accrued income taxes (Note 2)                                                     19,911              3,001
    Miscellaneous current liabilities                                                 15,909             15,762
                                                                                 -----------        -----------
       Total Current Liabilities and Interim Financing                               451,419            383,657
                                                                                  ----------         ----------

Commitments and Contingencies (Notes 4 and 9)

Reserves and Deferred Credits
    Accumulated deferred income taxes (Note 2)                                       376,043            350,912
    Unamortized investment tax credits (Note 2)                                       29,064             30,533
    Yankee Atomic purchased-power contract (Note 9)                                    7,761             13,056
    Connecticut Yankee purchased-power contract (Note 9)                              29,913             36,877
    Maine Yankee purchased-power contract (Note 9)                                   273,895            329,206
    Regulatory liabilities - deferred taxes (Note 2)                                  58,376             56,852
    Other reserves and deferred credits (Note 5)                                     116,805            104,257
                                                                                  ----------         ----------
       Total Reserves and Deferred Credits                                           891,857            921,693
                                                                                  ----------         ----------

Long-Term Debt (see separate statement) (Note 10)
    Mortgage debt                                                                    117,683            259,563
    Other long-term obligations                                                      228,598            141,360
                                                                                  ----------         ----------
       Total Long-Term Obligations                                                   346,281            400,923
                                                                                  ----------         ----------

Redeemable Preferred Stock                                                            18,910             39,528
                                                                                 -----------        -----------

Stockholders' Equity (see separate statement) (Note 10)
    Common-stock                                                                     162,213            162,214
    Other paid in capital                                                            285,835            277,168
    Reacquired common stock                                                             (827)                 -
    Retained earnings                                                                 71,668             48,212
    Preferred stock                                                                   35,528             65,571
                                                                                 -----------        -----------
       Total Stockholders' Equity                                                    554,417            553,165
                                                                                  ----------         ----------

       Total Stockholders' Equity and Liabilities                                 $2,262,884         $2,298,966
                                                                                   =========          =========
</TABLE>

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

<TABLE>
<S>                                                                <C>            <C>            <C>           <C> 



                                          CMP Group, Inc. and Subsidiaries
                           CONSOLIDATED STATEMENT OF CAPITALIZATION AND INTERIM FINANCING
                                               (Dollars in thousands)

                                                                                  December 31
                                                                                  -----------
                                                                          1998                          1997
                                                                          ----                          ----
                                                                 Amount            %           Amount           %
Capitalization (Note 10)
Common-Stock Investment:
Common stock, par value $5 per share:
    Authorized - 80,000,000 shares
    Outstanding - 32,442,552 shares in 1998 and
    32,442,752 in 1997                                         $   162,213                    $  162,214
Other paid-in capital                                              285,835                       277,168
Reacquired common stock, at cost (55,510 shares)                      (827)
Retained earnings                                                   71,668                        48,212
                                                               -----------                   -----------
Total Common-Stock Investment                                      518,889        42.6%          487,594       39.6
                                                                ----------      ------        ----------     ------
Preferred Stock - not subject to mandatory redemption
                                                                    35,528         2.9            65,571        5.3
                                                               -----------      ------       -----------     ------
Redeemable Preferred Stock - subject to mandatory
redemption                                                          27,910                        46,528
Less: current sinking fund requirements                              9,000                         7,000
                                                              ------------                  ------------
Redeemable Preferred Stock - subject to mandatory
redemption                                                          18,910         1.6            39,528        3.2
                                                               -----------      ------       -----------     ------
Long-Term Obligations:
Mortgage bonds                                                     118,717                       421,000
Less: unamortized debt discount                                      1,034                         1,437
                                                              ------------                  ------------
Total Mortgage Bonds                                               117,683                       419,563
                                                                ----------                    ----------
Total Medium-Term Notes                                            327,000                        43,000
                                                                ----------                   -----------
Other Long-Term Obligations:
Lease obligations                                                   32,773                        34,517
Pollution-control facility and other notes                         153,280                        84,254
                                                                ----------                   -----------
Total Other Long-Term Obligations                                  186,053                       118,771
                                                                ----------                    ----------
Less: Current Sinking Fund Requirements and Current
Maturities                                                         284,455                       180,411
                                                                ----------                    ----------
Total Long-Term Obligations                                        346,281        28.4           400,923       32.6
                                                                ----------      ------        ----------     ------
Total Capitalization                                               919,608        75.5           993,616       80.7
                                                                ----------      ------        ----------     ------
Interim Financing (Note 10):
Short-term obligations                                              15,000                        60,000
Current maturities of long-term obligations                        283,356                       178,000
                                                                ----------                   -----------
Total Interim Financing                                            298,356        24.5           238,000       19.3
                                                                ----------      ------       -----------     ------
Total Capitalization and Interim Financing                      $1,217,964       100.0%       $1,231,616      100.0%
                                                                 =========       =====         =========      =====
</TABLE>

The accompanying notes are an integral part of these financial statements

<TABLE>
<S>                <C> <C>         <C>          <C>           <C>                     <C>        <C>         <C>          <C>    


                        CMP Group, Inc. and Subsidiaries
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                             (Dollars in thousands)

                                         For the three years ended December 31, 1998
                                               Amount at      Other      Reacquired
                                                  par       paid-in        common     Retained               Preferred
                                      Shares     value      capital         stock     earnings     Shares       Stock       Total
                                      ------   ---------    -------       --------    --------     ------     ---------

Balance - December 31, 1995        32,442,752   $162,214      $276,287                   $51,504    655,713    $65,571     $555,576
                                   ----------
Net Income                                                                                60,229                             60,229
Dividends declared:
    Common stock                                                                         (29,199)                           (29,199)
    Preferred stock                                                                       (9,452)                            (9,452)
Reacquired preferred stock                                         536                      (536)                                 -
Capital stock expense
                                                                    (5)                                                          (5)

Balance - December 31, 1996        32,422,752    162,214       276,818         -          72,546    655,713     65,571      577,149
                                   ----------    -------       -------      -------       ------    -------     ------      -------
Net Income                                                                                13,422                             13,422
Dividends declared:
    Common stock                                                                         (29,199)                           (29,199)
    Preferred stock                                                                       (8,209)                            (8,209)
Reacquired preferred stock                                         348                      (348)                                 -
Capital stock expense
                                                                     2                                                            2
                                                         -           -                           -         -           -          -
Balance - December 31, 1997        32,422,752    162,214       277,168         -          48,212    655,713     65,571      553,165
                                   ----------    -------       -------      -------       ------    -------     ------      -------
Net Income                                                                                57,718                             57,718
Dividends declared:
    Common stock                                                                         (29,198)                           (29,198)
    Preferred stock                                                                       (4,809)                            (4,809)
Common stock                             (200)        (1)           (2)                       (1)                                (4)
Reacquired common stock                                                        (827)                                           (827)
Increase in equity of investee                                   9,413                                                        9,413
(Note 8)
Preferred stock                                                                                   (300,430)    (30,043)     (30,043)
Reacquired preferred stock                                        (771)                     (254)                            (1,025)
Capital stock expense                                               27                                                           27
                                  ------------------------------------      -------   ----------- ---------------------- ----------

Balance - December 31, 1998        32,442,552   $162,213      $285,835        $(827)     $71,668    355,283    $35,528     $554,417
                                   ----------    =======       =======         ====       ======    =======     ======      =======
</TABLE>


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

<TABLE>
<S>                                                                       <C>           <C>          <C>      




                                         CMP Group, Inc.
                              CONSOLIDATED STATEMENT OF CASH FLOWS
                                     (Dollars in thousands)
                                                                                Year ended December 31
                                                                            1998          1997         1996
                                                                                     
CASH FROM OPERATION
    Net income                                                            $ 52,910      $  5,213     $  50,777
    Items not requiring (not providing) cash:
       Depreciation                                                         47,130        44,170        44,104
       Amortization                                                         38,873        34,291        34,881
       Deferred income taxes and investment tax credits, net                20,016        (2,204)        3,318
       Allowance for equity funds used during construction                    (653)         (642)         (851)
    Preferred stock dividends of subsidiary                                  4,809         8,209         9,452
    Gain on sale of investments and properties                             (19,108)            -             -
    Changes in certain assets and liabilities:
       Accounts receivable                                                  (2,999)        1,257        (3,565)
       Other current assets                                                 (1,158)          390          (308)
       Inventories                                                          (1,836)        4,259        (4,884)
       Accounts payable                                                     (9,785)        4,617       (16,862)
       Accrued taxes and interest                                           13,233         2,856        (4,970)
       Miscellaneous current liabilities                                       147        (5,580)        7,472
    Deferred ice storm cost                                                (52,433)            -             -
    Deferred energy-management costs                                        (2,615)       (1,940)       (5,222)
    Maine Yankee outage accrual                                                  -       (10,350)        8,280
    Purchased power contracts                                              (22,500)            -           (75)
    Other, net                                                              13,194         7,664         3,961
                                                                           -------      --------     ---------
          Net Cash Provided by Operating Activities                         77,225        92,210       125,508
                                                                           -------       -------       -------

INVESTING ACTIVITIES
       Construction expenditures                                           (42,405)      (40,306)      (46,922)
       Investments in and loans to affiliates                              (17,800)       (4,769)      (12,059)
       Repayment of loan by affiliates                                      17,800             -             -
       Proceeds from sale of investments and properties                     21,347             -             -
       Changes in accounts payable - investing activities                    3,665          (734)        1,889
                                                                          --------     ---------    ----------
          Net Cash Used by Investing Activities                            (17,393)      (45,809)      (57,092)
                                                                            -------      --------     ---------

FINANCING ACTIVITIES
    Issuances:
       Revolving credit agreement                                           50,000        52,500         7,500
       Medium-term notes                                                   302,000             -        10,000
       Other long-term obligations                                               -             -           870
       Short-term obligations, net                                          10,000             -             -
    Redemptions:
       Mortgage bonds                                                     (302,283)            -       (11,500)
       Preferred stock                                                     (48,618)      (14,000)      (14,000)
       Medium-term notes                                                   (18,000)      (25,000)      (34,000)
       Finance Authority of Maine                                           (7,400)       (6,800)       (6,300)
       Other long-term obligations                                          (6,049)         (645)       (1,780)
       Short-term obligations, net                                         (55,000)            -             -
    Funds on deposit with trustee                                           61,693        (2,182)      (29,593)
    Purchase of treasury stock                                                (827)            -             -
    Dividends:
       Common stock                                                        (28,943)      (29,220)      (29,220)
       Preferred stock of subsidiary                                        (6,706)       (8,520)       (9,763)
                                                                          ---------     --------    -----------
          Net Cash Used by Financing Activities                            (50,133)      (33,867)     (117,786)
                                                                           --------      -------      ---------
          Net Increase (Decrease) in Cash                                    9,699        12,534       (49,370)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                20,841         8,307        57,677
                                                                           -------      --------      --------
CASH AND CASH EQUIVALENTS, END OF YEAR                                    $ 30,540      $ 20,841    $    8,307
                                                                           =======       =======     =========
Supplemental Cash-Flow Information:
    Cash paid during the year for:
    Interest (net of amounts capitalized)                                $  50,256      $ 47,551     $  47,835
    Income taxes                                                         $   6,581      $  7,105     $  32,632
</TABLE>

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  instruments  purchased  having a maturity of three  months or less to be
cash equivalents.

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

<TABLE>
<S>                                                                       <C>              <C>             <C>     


                       CONSOLIDATED FINANCIAL STATEMENTS

                  Central Maine Power Company and Subsidiaries
                       Consolidated Statement Of Earnings
              For the years ended December 31, 1998, 1997 and 1996
                (Dollars in thousands, except per-share amounts)


                                                                           1998             1997            1996
                                                                           ----             ----            ----
Revenues (Notes 1 and 3)
     Electric operating revenues                                          $938,561         $954,176        $967,046
     Other non-utility revenues                                              2,969            2,070             859
                                                                         ---------        ---------      ----------
        Total Revenues                                                     941,530          956,246         967,905
                                                                           -------          -------         -------

Operating Expenses
     Fuel used for company generation (Notes 1 and 9)                       30,898           34,946          16,827
     Purchased power
        Energy (Notes 1 and 9)                                             369,411          419,144         407,926
        Other (capacity) (Note 9)                                           85,321          112,810         108,720
     Other operation                                                       204,286          210,513         183,688
     Maintenance                                                            40,961           33,973          37,537
     Depreciation and amortization (Note 1)                                 56,257           54,132          53,694
     Taxes other than income taxes                                          27,747           28,303          27,861
                                                                          --------         --------        --------
        Total Operating Expenses                                           814,881          893,821         836,253
                                                                           -------          -------         -------

Operating Income                                                           126,649           62,425         131,652
                                                                           -------         --------         -------

Other Income (Expense)
     Equity in earnings of associated companies (Note 9)                     1,762            6,260           6,138
     Allowance for equity funds used during construction (Note 1)              653              642             851
     Other, net                                                              2,097            3,639           4,709
     Minority interest in consolidated net income                             (205)            (233)            (48)
     Gain on sale of investments and properties                             13,314              418             601
                                                                          --------       ----------      ----------
        Total Other Income (Expense)                                        17,621           10,726          12,251
                                                                          --------         --------        --------

Interest Charges
     Long-term debt (Note 10)                                               43,223           44,346          47,966
     Other interest (Note 10)                                                8,286            7,660           4,341
     Allowance for borrowed funds used during construction (Note 1)           (495)            (439)           (655)
                                                                        ----------       ----------      -----------
        Total Interest Charges                                              51,014           51,567          51,652
                                                                          --------         --------        --------

Income Before Income Taxes                                                  93,256           21,584          92,251
     Income taxes (Notes 2 and 3)                                           38,433            8,162          32,022
                                                                          --------        ---------        --------
Net Income                                                                  54,823           13,422          60,229
     Dividends on Preferred Stock                                            4,809            8,209           9,452
                                                                         ---------        ---------       ---------
Earnings Applicable to Common  Stock                                     $  50,014       $    5,213       $  50,777
                                                                          ========        =========        ========

Weighted Average Number Of Shares Of Common
     Stock Outstanding                                                  32,113,357       32,442,752      32,442,752

Earnings Per Share Of Common Stock (Basic and Diluted)                       $1.56            $0.16           $1.57

Dividends Declared Per Share Of Common Stock                                 $0.675*          $0.90           $0.90

*1998  fourth  quarter  dividend  of $0.225 per share was  declared  and paid in
January 1999.
</TABLE>

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

<TABLE>
<S>                                                                              <C>               <C>        

                               Central Maine Power Company and Subsidiaries
                                        Consolidated Balance Sheet
                                        December 31, 1998 and 1997
                                          (Dollars in thousands)

                                  ASSETS                                               1998              1997
                                                                                       ----              ----

Current Assets
    Cash and cash equivalents                                                    $    22,628       $    20,841
    Accounts receivable, less allowance for uncollectible accounts of
    $3,136 in 1998 and $2,400 in 1997
       Service   - billed                                                             81,082            84,323
                 - unbilled (Notes 1 and 3)                                           53,110            46,807
       Other accounts receivable                                                      12,698            15,247
    Inventories, at average cost
       Fuel oil                                                                        5,879             5,390
       Materials and supplies                                                         12,755            11,779
    Funds on deposit with trustee (Note 10)                                                1            61,694
    Prepayments and other current assets                                              10,161             9,110
                                                                                 -----------      ------------
          Total Current Assets                                                       198,314           255,191
                                                                                  ----------        ----------

Electric Property, at original cost (Notes 9 and 10)                               1,750,777         1,674,876
    Less: Accumulated depreciation (Notes 1 and 9)                                   694,463           634,384
                                                                                  ----------        ----------
          Net electric property in service                                         1,056,314         1,040,492
                                                                                   ---------         ---------

    Construction work in progress (Note 4)                                            19,483            15,105
    Nuclear fuel, less accumulated amortization of $9,316 in 1998 and                  1,147             1,157
                                                                                ------------      ------------
    $9,035 in 1997
          Total net electric property                                              1,076,944         1,056,754

Investments In Associated Companies, at equity (Notes 1 and 9)                        48,406            76,509
                                                                                 -----------       -----------
    Total Net Electric Property and Investments in Associated Companies
                                                                                   1,125,350         1,133,263

Deferred Charges And Other Assets
    Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1)
                                                                                      78,539            84,026
    Yankee Atomic purchased-power contract (Note 9)                                    7,761            13,056
    Connecticut Yankee purchased-power contract (Note 9)                              29,913            36,877
    Maine Yankee purchased-power contract (Note 9)                                   273,895           329,206
    Regulatory assets - deferred taxes (Note 2)                                      235,451           236,632
    Other deferred charges and other assets (Notes 1 and 3)                          274,257           210,715
                                                                                  ----------        ----------
          Deferred Charges and Other Assets, Net                                     899,816           910,512
                                                                                  ----------        ----------

          Total Assets                                                            $2,223,480        $2,298,966
                                                                                   =========         =========
</TABLE>

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

<TABLE>
<S>                                                  <C>                          <C>                <C>       


                               Central Maine Power Company and Subsidiaries
                                        Consolidated Balance Sheet
                                        December 31, 1998 and 1997
                                          (Dollars in thousands)

                   STOCKHOLDERS' EQUITY AND LIABILITIES                                1998              1997
                                                                                       ----              ----

Current Liabilities and Interim Financing
    Interim financing (see separate statement) (Note 10)                          $  298,183         $  238,000
    Sinking-fund requirements (Note 10)                                               11,455              9,411
    Accounts payable                                                                  93,012             97,080
    Dividends payable                                                                      5              9,202
    Accrued interest                                                                   7,491             11,201
    Income taxes payable to parent company (Note 2)                                   20,822              3,001
    Miscellaneous current liabilities                                                 15,455             15,762
                                                                                 -----------        -----------
       Total Current Liabilities and Interim Financing                               446,423            383,657
                                                                                  ----------         ----------

Commitments and Contingencies (Notes 4 and 9)

Reserves and Deferred Credits
    Accumulated deferred income taxes (Note 2)                                       372,243            350,912
    Unamortized investment tax credits (Note 2)                                       29,064             30,533
    Yankee Atomic purchased-power contract (Note 9)                                    7,761             13,056
    Connecticut Yankee purchased-power contract (Note 9)                              29,913             36,877
    Maine Yankee purchased-power contract (Note 9)                                   273,895            329,206
    Regulatory liabilities - deferred taxes (Note 2)                                  58,376             56,852
    Other reserves and deferred credits (Note 5)                                     111,506            104,257
                                                                                  ----------         ----------
       Total Reserves and Deferred Credits                                           882,758            921,693
                                                                                  ----------         ----------

Long-Term Debt (see separate statement) (Note 10)
    Mortgage debt                                                                    117,683            259,563
    Other long-term obligations                                                      226,151            141,360
                                                                                  ----------         ----------
       Total Long-Term Obligations                                                   343,834            400,923
                                                                                  ----------         ----------

Redeemable Preferred Stock                                                            18,910             39,528
                                                                                 -----------        -----------

Stockholders' Equity (see separate statement) (Note 10)
    Common-stock                                                                     162,213            162,214
    Other paid in capital                                                            276,422            277,168
    Reacquired common stock                                                          (19,000)                 -
    Retained earnings                                                                 76,349             48,212
    Preferred stock                                                                   35,571             65,571
                                                                                 -----------        -----------
       Total Stockholders' Equity                                                    531,555            553,165
                                                                                  ----------         ----------

       Total Stockholders' Equity and Liabilities                                 $2,223,480         $2,298,966
                                                                                   =========          =========
</TABLE>

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


<TABLE>
<S>                                                                <C>            <C>            <C>           <C> 


                                    Central Maine Power Company and Subsidiaries
                           CONSOLIDATED STATEMENT OF CAPITALIZATION AND INTERIM FINANCING
                                               (Dollars in thousands)

                                                                                  December 31
                                                                                  -----------
                                                                          1998                          1997
                                                                          ----                          ----
                                                                 Amount            %           Amount           %
Capitalization (Note 10)
Common-Stock Investment:
Common stock, par value $5 per share:
    Authorized - 80,000,000 shares
    Outstanding - 31,211,471 shares in 1998 and
    32,442,752 in 1997                                         $   162,213                    $  162,214
Other paid-in capital                                              276,422                       277,168
Reacquired common stock (1,231,081 shares)                         (19,000)                            -
Retained earnings                                                   76,349                        48,212
                                                               -----------                   -----------
Total Common-Stock Investment                                      495,984        41.6%          487,594       39.6
                                                                ----------      ------        ----------     ------
Preferred Stock - not subject to mandatory redemption
                                                                    35,571         3.0            65,571        5.3
                                                               -----------      ------       -----------     ------
Redeemable Preferred Stock - subject to mandatory
redemption                                                          27,910                        46,528
Less: current sinking fund requirements                              9,000                         7,000
                                                              ------------                  ------------
Redeemable Preferred Stock - subject to mandatory
redemption                                                          18,910         1.6            39,528        3.2
                                                               -----------      ------       -----------     ------
Long-Term Obligations:
Mortgage bonds                                                     118,717                       421,000
Less: unamortized debt discount                                      1,034                         1,437
                                                              ------------                  ------------
Total Mortgage Bonds                                               117,683                       419,563
                                                                ----------                    ----------
Total Medium-Term Notes                                            327,000                        43,000
                                                                ----------                   -----------
Other Long-Term Obligations:
Lease obligations                                                   32,773                        34,517
Pollution-control facility and other notes                         150,833                        84,254
                                                                ----------                   -----------
Total Other Long-Term Obligations                                  183,606                       118,771
                                                                ----------                    ----------
Less: Current Sinking Fund Requirements and Current
Maturities                                                         284,455                       180,411
                                                                ----------                    ----------
Total Long-Term Obligations                                        343,834        28.8           400,923       32.6
                                                                ----------      ------        ----------     ------
Total Capitalization                                               894,299        75.0           993,616       80.7
                                                                ----------      ------        ----------     ------
Interim Financing (Note 10):
Short-term obligations                                              15,000                        60,000
Current maturities of long-term obligations                        283,183                       178,000
                                                                ----------                   -----------
Total Interim Financing                                            298,183        25.0           238,000       19.3
                                                                ----------      ------       -----------     ------
Total Capitalization and Interim Financing                      $1,192,482       100.0%       $1,231,616      100.0%
                                                                 =========       =====         =========      =====
</TABLE>

The accompanying notes are an integral part of these financial statements
<TABLE>
<S>                           <C>           <C>          <C>                 <C>                <C>        <C>        <C>     


                                                      Central Maine Power Company
                                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                             (Dollars in thousands)

                   For the three years ended December 31, 1998
                                                          Other     Reacquired
                                            Amount at    paid-in       common     Retained                Preferred
                                   Shares   par value     capital      stock      earnings       Shares      Stock        Total
                                                                 
Balance - December 31, 1995     32,442,752    $162,214     $276,287            $    $ 51,504      655,713    $65,571    $555,576
Net income                                                                            60,229                              60,229
Dividends declared:
    Common stock                                                                     (29,199)                            (29,199)
    Preferred stock                                                                   (9,452)                             (9,452)
Reacquired preferred stock                                      536                     (536)                                  -
Capital stock expense                                                                                                         (5)
                              ------------------------------------   ------------------------ ----------------------  ------------
                                                                 (5)
Balance - December 31, 1996     32,442,752     162,214      276,818                   72,546      655,713     65,571     577,149
                                ----------     -------      -------  ------------    -------      -------     ------     -------

Net income                                                                            13,422                              13,422
Dividends declared:
    Common stock                                                                     (29,199)                            (29,199)
    Preferred stock                                                                   (8,209)                             (8,209)
Reacquired preferred stock                                      348                     (348)                                  -
Capital stock expense                                                                                                          2
                              -------------------------------------  -----------------------  ----------------------  ------------
                                                                  2
Balance - December 31, 1997     32,442,752     162,214      277,168                   48,212      655,713     65,571     553,165
                                ----------     -------      -------  ------------     ------      -------     ------     -------

Net income                                                                            54,823                              54,823
Dividends declared:
    Common stock                                                                     (21,622)                            (21,622)
    Preferred stock                                                                   (4,809)                             (4,809)
Common stock - Retired                (200)         (1)          (2)                      (1)                                 (4)
Reacquired common stock         (1,231,081)                              (19,000)                                        (19,000)
Preferred stock                                                                                  (300,000    (30,000)    (30,000)
Reacquired preferred stock                                     (771)                    (254)                             (1,025)
Capital stock expense                                            27                                                            27
                              -------------------------------------  -----------------------  ----------------------  -----------

Balance - December 31, 1998     31,211,471    $162,213     $276,422     $(19,000)    $76,349      355,713    $35,571    $531,555
                                ==========     =======      =======      =======      ======      =======     ======     =======
</TABLE>

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

<TABLE>
<S>                                                                      <C>           <C>           <C>      




                                   Central Maine Power Company
                              CONSOLIDATED STATEMENT OF CASH FLOWS
                                     (Dollars in thousands)
                                                                                Year ended December 31
                                                                               1998          1997         1996
CASH FROM OPERATION
    Net income                                                           $  54,823     $  13,422     $  60,229
    Items not requiring (not providing) cash:
       Depreciation                                                         47,130        44,170        44,104
       Amortization                                                         38,868        34,291        34,881
       Deferred income taxes and investment tax credits, net                19,653        (2,204)        3,318
       Allowance for equity funds used during construction                    (653)         (642)         (851)
    Gain on sale of investments and properties                              (9,545)            -             -
    Changes in certain assets and liabilities:
       Accounts receivable                                                    (513)        1,257        (3,565)
       Other current assets                                                 (1,051)          390          (308)
       Inventories                                                          (1,465)        4,259        (4,884)
       Accounts payable                                                     (7,764)        4,617       (16,862)
       Accrued taxes and interest                                           14,111         2,856        (4,970)
       Miscellaneous current liabilities                                      (307)       (5,580)        7,472
    Deferred Ice storm costs                                               (52,433)            -             -
    Deferred energy-management costs                                        (2,615)       (1,940)       (5,222)
    Maine Yankee outage accrual                                                  -       (10,350)        8,280
    Purchased power contracts                                              (22,500)            -           (75)
    Other, net                                                               1,016         7,664         3,961
                                                                         ---------     ---------     ---------
          Net Cash Provided by Operating Activities                         76,755        92,210       125,508
                                                                          --------      --------       -------

INVESTING ACTIVITIES
       Construction expenditures                                           (42,384)      (40,306)      (46,922)
       Investments in loans to affiliates                                  (18,661)       (4,769)      (12,059)
       Repayment of loan by affiliates                                      17,800             -             -
       Sale of subsidiaries to CMP Group, Inc.                              20,093             -             -
       Proceeds from sale of investments and properties                     10,347             -             -
       Changes in accounts payable - investing activities                    3,696          (734)        1,889
                                                                         ---------    ----------    ----------
          Net Cash Used by Investing Activities                             (9,109)      (45,809)      (57,092)
                                                                          ---------     ---------     ---------

FINANCING ACTIVITIES
    Issuances:
       Revolving credit agreement                                           50,000        52,500         7,500
       Medium-term notes                                                   302,000             -        10,000
       Other long-term obligations                                                             -           870
       Short-term obligations, net                                          10,000             -             -
    Redemptions:
       Mortgage bonds                                                     (302,283)            -       (11,500)
       Preferred stock                                                     (48,618)      (14,000)      (14,000)
       Medium-term notes                                                   (18,000)      (25,000)      (34,000)
       Finance Authority of Maine                                           (7,400)       (6,800)       (6,300)
       Other long-term obligations                                          (3,602)         (645)       (1,780)
       Short-term obligations, net                                         (55,000)            -             -
    Funds on deposit with trustee                                           61,693        (2,182)      (29,593)
    Treasury stock                                                         (19,000)            -             -
    Dividends:
       Common stock                                                        (28,943)      (29,220)      (29,220)
       Preferred stock                                                      (6,706)       (8,520)       (9,763)
                                                                         ----------    ---------    -----------
          Net Cash Used by Financing Activities                            (65,859)      (33,867)     (117,786)
                                                                          ---------     --------      ---------
          Net Increase (Decrease) in Cash                                    1,787        12,534       (49,370)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              20,841         8,307        57,677
                                                                          --------     ---------      --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                 $  22,628     $  20,841    $    8,307
                                                                          ========      ========     =========
Supplemental Cash-Flow Information Cash paid during the year for:
    Interest (net of amounts capitalized)                                $  50,251     $  47,551     $  47,835
    Income taxes                                                        $    6,563    $    7,105     $  32,632
</TABLE>

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  instruments  purchased  having a maturity of three  months or less to be
cash equivalents.

The accompanying notes are an integral part of these financial statements



Notes to Consolidated Financial Statements

Note 1:  Summary of Significant Accounting Policies

General Description

CMP Group was  organized  effective  September 1, 1998, at which time all of the
shares of Central  Maine were  converted  into an equal  number of shares of CMP
Group.  CMP  Group  owns all of the  shares  of  Central  Maine  and the  former
non-utility  subsidiaries of Central Maine (TeleSmart,  MaineCom, CNEX and Union
Water Power Company) in addition to New England Gas Development  Corporation,  a
newly formed subsidiary.

Central  Maine is a public  utility  primarily  engaged in the sale of  electric
energy  at  the  wholesale  and  retail  levels  to   residential,   commercial,
industrial, and other classes of customers in the State of Maine.

Financial Statements

The  consolidated  financial  statements  include CMP Group and Central Maine, a
regulated  electric utility  subsidiary of CMP Group.  CMP Group's  consolidated
financial  statements include the accounts of CMP Group and its wholly owned and
controlled  subsidiaries,  including Central Maine. Central Maine's consolidated
financial  statements  include its accounts as well as those of its wholly owned
and controlled  subsidiaries.  Certain immaterial  majority owned  subsidiaries,
which were previously accounted for on the equity method, have been consolidated
for the year ended December 31, 1998.  Central  Maine's  financial  position and
results of operations account for substantially all of CMP Group's  consolidated
financial position and results of operations. For all periods prior to September
1, 1998,  the  historical  financial  position and results of  operations of CMP
Group  reflect the  activity of Central  Maine.  All  intercompany  accounts and
transactions have been eliminated in the consolidated financial statements.  The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Stock-Based Compensation

CMP Group accounts for employee stock-based compensation in accordance with SFAS
No. 123,  "Accounting for Stock-Based  Compensation".  This statement encourages
companies  to adopt a fair value  approach to valuing  stock  options that would
require  compensation  cost to be  recognized  based on the fair  value of stock
options  granted.  CMP Group has  elected,  as  permitted  by the  standard,  to
continue to follow its  intrinsic  value based  method of  accounting  for stock
options  consistent  with APB Opinion No. 25,  "Accounting  for Stock  Issued to
Employees." Under the intrinsic  method,  compensation cost for stock options is
measured as the  excess,  if any, of the quoted  market  price of the  company's
stock at the measurement date over the exercise price.



Earnings per Share

Stock options and performance shares granted to date under CMP Group's long-term
incentive  plan  resulted  in  potential  incremental  shares  of  common  stock
outstanding for purposes of computing both basic and diluted  earnings per share
for the twelve months ending December 31, 1998.  These  incremental  shares were
not material in the periods  presented  and did not cause  diluted  earnings per
share to differ from basic earnings per share.

Reclassification

Certain amounts from prior years financial  statements have been reclassified to
conform to the current year presentation.

Impact of New Accounting Standards

FAS  No.  131   "Disclosures   about  Segments  of  an  Enterprise  and  Related
Information"  became  effective for periods  beginning  after December 15, 1997.
This  pronouncement  provides  disclosure  requirements  as well as guidance for
determining  reportable  segments.  Based  on the  operating  results  regularly
reviewed by the entities' chief operating decision-makers, CMP Group and Central
Maine have determined that there are no material reportable segments.

In June 1998,  the FASB issued  SFAS No. 133,  Accounting  for  Derivatives  and
Hedging  Activities.  The new standard  applies to all entities and is effective
for all fiscal  quarters of fiscal years  beginning  after June 15,  1999,  with
earlier adoption encouraged.  It requires companies to record derivatives on the
balance  sheet  at  their  fair  value  depending  on  the  intended  use of the
derivative.  Based on CMP Group and Central Maine's current  business  practices
the adoption of this standard is not anticipated to have a significant impact on
their financial statements.

Regulation

The rates, operations,  accounting, and certain other practices of Central Maine
and MEPCO are subject to the regulatory authority of the MPUC and the FERC.

Electric Operating Revenues

Electric  operating revenues include amounts billed to customers and an estimate
of unbilled sales, for services rendered but not yet billed.

Utility Plant

Utility  plant  is  stated  at  original  cost of  construction.  The  costs  of
replacements  of property  units are  capitalized.  Maintenance  and repairs and
replacements  of minor items are  expensed as  incurred.  The  original  cost of
property  retired,  net of salvage  value,  and the related costs of removal are
charged to accumulated depreciation.

Central  Maine and its  subsidiaries  utility plant in service as of December 31
was comprised as follows:

                                                                      Average
                                                  Average            Remaining
                                                  Service          Service Life
                     1998             1997         Life*             12/31/98
                     ----             ----        ------           ------------

 Generation      $   535,550     $   514,815       37.6 years        20.0 years
 Transmission        282,677         250,109       41.6 years        24.2 years
 Distribution        724,224         704,345       37.7 years        28.5 years
 General             208,326         205,607       18.6 years        12.8 years
             
                  $1,750,777      $1,674,876
                   =========       =========

*Based on Central Maine's last depreciation  represcription study as of December
31, 1992.

Depreciation

Depreciation of electric property is calculated using the straight-line  method.
The weighted  average  composite rate was 3.1 percent in 1998 and 3.0 percent in
1997 and 1996.

Allowance for Funds Used During Construction (AFC)

Central Maine and its subsidiaries capitalize AFC as part of construction costs.
AFC represents the composite  interest and equity costs of capital funds used to
finance that  portion of  construction  costs not yet eligible for  inclusion in
rate base. AFC is capitalized in "Utility plant" with offsetting noncash credits
to "Other income" and "Interest." The composite AFC rates were 8.8 percent,  9.7
percent, and 8.7 percent in 1998, 1997, and 1996, respectively.

Deferred Charges and Other Assets

CMP  Group  defers  and  amortizes  certain  costs in a manner  consistent  with
authorized or probable  ratemaking  treatment.  CMP Group  capitalizes  carrying
costs  as a part of  certain  deferred  charges,  principally  energy-management
costs,  and classifies such carrying costs as other income.  The following table
depicts the  components  of deferred  charges and other  assets at December  31,
1998, and 1997:

(Dollars in thousands)                               1998            1997
                                                     ----            ----
NUG contract buy-outs and restructuring (Note 9)   $ 98,752      $  92,946
1998 ice storm costs                                 52,433              -
Energy-management costs                              28,418         31,995
Postretirement benefits (Note 5)                     19,604         20,900
Financing costs                                      17,121         18,560
Environmental site clean-up costs (Note 4)            8,766          7,891
Non-operating property, net                           7,427          7,624
Workers Compensation                                  4,650          5,350
Other                                                37,086         25,449
                                                   --------        -------
  Sub-Total Central Maine                           274,257        210,715
CMP Group - Other                                     6,044              -
                                                   --------        -------
  Total - CMP Group                                $280,301       $210,715
                                                    =======        =======

Certain costs are being  amortized  and recovered in rates over periods  ranging
from three to 30 years.  Amortization  expense  for the next five years is shown
below:

(Dollars in thousands)        Amount
1999                          $28,811
2000                           27,664
2001                           23,896
2002                           22,749
2003                           13,414

Recoverable Costs of Seabrook I and Abandoned Projects

The recoverable  after-tax  investments in Seabrook I and abandoned projects are
reported as assets, pursuant to May 1985 and February 1991 MPUC rate orders. CMP
Group is  allowed a current  return on these  assets  based on  Central  Maine's
authorized rate of return.  In accordance  with these rate orders,  the deferred
taxes related to these  recoverable  costs are amortized over periods of four to
10 years. As of December 31, 1998,  substantially  all deferred taxes related to
Seabrook I have been amortized.  The recoverable  investments as of December 31,
1998, and 1997 are as follows:

                                            December 31             Recovery
(Dollars in thousands)                 1998           1997       periods ending
                                       ----           ----       --------------
Recoverable costs of:
Seabrook I                             $141,084      $141,084          2015
Other Projects                           57,491        57,491          2001
                                        -------       -------
                                        198,575       198,575
                                        -------       -------
Less: accumulated amortization          119,861       114,035
Less: related income taxes                  175           514
                                      ---------     ---------
  Total Net Recoverable Investment     $ 78,539      $ 84,026
                                        =======       =======

Note 2:  Income Taxes

The  components  of federal and state  income-tax  provisions  reflected  in CMP
Group's Consolidated Statement of Earnings are as follow:

                                                  Year ended December 31
(Dollars in thousands)                     1998           1997           1996
                                           -----          ----           ----
Federal:
Current                                   $17,640       $  8,534        $21,682
Deferred                                   14,837         (5,922)         5,751
Investment tax credits, net                (1,469)        (1,455)          (464)
Regulatory deferred                         2,054          5,390           (623)
                                          -------          -----        -------
  Total Federal Taxes                      33,062          6,547         26,346
                                           ------          -----         ------
State:
Current                                   $ 4,052       $  1,831       $  7,022
Deferred                                    3,933         (1,720)           (10)
Regulatory deferred                           651          1,504         (1,336)
                                         --------          -----        -------
  Total State Taxes                         8,636          1,615          5,676
                                          -------          -----        -------
  Total Federal and State Income Taxes    $41,698         $8,162        $32,022
                                           ======          =====         ======

Federal income tax,  excluding federal regulatory  deferred taxes,  differs from
the amount of tax  computed  by  multiplying  income  before  federal tax by the
statutory  federal rate. The following  table  reconciles the statutory  federal
rate to a rate  determined by dividing the total federal  income-tax  expense by
income before that expense:
<TABLE>
<S>                                           <C>                 <C>       <C>                <C>         <C>              <C>  

                                                                          Year ended December 31
                                                      1998                            1997                          1996
                                                      ----                            ----                          ----
                                             Amount            %             Amount           %            Amount           %
(Dollars in thousands)
Income tax expense at statutory federal
rate                                          $30,090             35.0%     $  6,990           35.0%       $30,301          35.0%
                                               ------             -----        -----           ----         ------          ----
Permanent differences:
Investment tax-credit amortization
                                               (1,469)            (1.7)       (1,469)          (7.3)        (1,482)         (1.7)
Dividend-received deduction
and equity in earnings (losses) of
associated companies                            2,077              2.5        (1,911)          (9.6)        (1,895)         (2.2)
Other, net                                        168              0.2           (80)           (.4)          (293)         (0.3)
                                             --------            -----       -------          -----        -------          ----
                                               30,866             36.0         3,530           17.7         26,631          30.8
                                               ------             ----         -----           ----         ------          ----
Effect of timing differences for items
 which receive flow through treatment:
Tax-basis repairs                                (559)            (0.7)       (1,020)          (5.1)        (1,229)         (1.4)
Depreciation differences flowed through
in prior years                                  3,127              3.6         2,923           14.6          2,327           2.7
Accelerated flowback of deferred taxes
on loss on abandoned generating projects
                                                1,700              2.0         1,700            8.5          1,708           1.9
Benefits related to Section 1245 Losses
                                               (1,210)            (1.4)       (1,818)          (9.1)             -           -
IRS audit resolution regarding
depreciation methods                                -              -             852            4.3         (3,230)         (3.7)
Loss on Reacquired Debt                           436              0.5           540            2.7            537           0.6
Flowback of Excess Federal Deferred
Taxes due to TRA86                             (1,129)            (1.3)       (1,005)          (5.0)         (520)          (0.6)
Other, net                                       (169)            (0.2)          845            4.2            122           0.1
                                             --------             ----        ------           ----        -------         -----
  Federal Income Tax Expense and
  Effective Rate                              $33,062             38.5        $6,547           32.8%       $26,346          30.4%
</TABLE>


CMP Group and Central  Maine record  deferred  income-tax  expense in accordance
with regulatory authority;  it also defers investment and energy tax credits and
amortizes  them  over the  estimated  lives of the  assets  that  generated  the
credits.

A valuation  allowance has not been recorded at December 31, 1998,  and 1997, as
CMP Group  expects that all  deferred  income tax assets will be realized in the
future.

Accumulated deferred income taxes consisted of the following in 1998 and 1997:
(Dollars in thousands)                                         1998       1997
                                                               ----       ----
Deferred tax assets resulting from:
   Investment tax credits, net                               $ 20,034   $ 21,047
   Regulatory liabilities                                      29,081     25,188
   Alternative minimum tax                                      6,135      6,053
   All other                                                   35,073     27,072
                                                             --------    -------
                                                               90,323     79,360
Deferred tax liabilities resulting from:
   Property                                                   300,996    295,293
   Abandoned plant                                             54,138     57,921
   Regulatory assets                                          111,407     77,572
                                                              -------   --------
                                                              466,541    430,786
   Accumulated deferred income taxes, end of year, net       $376,218   $351,426
                                                              =======    =======

Accumulated deferred income taxes, recorded as:
   Accumulated deferred income taxes                         $376,043   $350,912
   Recoverable costs of Seabrook 1 and abandoned projects,
    net                                                           175        514
                                                            ---------  ---------
                                                             $376,218   $351,426

Note 3:  Regulatory Matters

Alternative Rate Plan

On January 1, 1995,  Central  Maine's ARP was put into  effect.  Instead of rate
changes based on the level of costs  incurred and capital  investments,  the ARP
provides for one annual adjustment of an inflation-based  cap on each of Central
Maine's  rates,  with no  separate  reconciliation  and  recovery  of  fuel  and
purchased-power costs. Under the ARP, the MPUC is continuing to regulate Central
Maine's operations and prices, provide for continued recovery of deferred costs,
and  specify a range for its rate of  return.  The MPUC  confirmed  in its order
approving  the ARP that the ARP is  intended to comply  with the  provisions  of
Statement of Financial  Accounting Standards No. 71, "Accounting for the Effects
of Certain  Types of  Regulation."  As a result,  Central Maine will continue to
apply the  provisions  of SFAS No.  71 to its  accounting  transactions  and its
future  financial  statements.  See "Meeting the  Requirements  of SFAS No. 71,"
below.

The ARP contains a mechanism that provides  price-caps on Central Maine's retail
rates  to be  adjusted  annually  on  each  July 1,  commencing  in  1995,  by a
percentage combining (1) a price index, (2) a productivity offset, (3) a sharing
mechanism,  and (4) flow-through items and mandated costs. The price cap applies
to all of Central  Maine's retail rates,  and includes fuel and purchased  power
costs that previously had been treated  separately.  Under the ARP, fuel expense
is no longer subject to reconciliation or specific rate recovery, but is subject
to the annual indexed price-cap changes.

A specified  standard  inflation  index is the basis for each  annual  price-cap
change. The inflation index is reduced by the sum of two productivity factors, a
general  productivity  offset of 1.0%,  and a second  formula-based  offset that
started in 1996 and was  intended to reflect the limited  effect of inflation on
Central Maine's purchased-power costs during the proposed five-year initial term
of the ARP.

The sharing  mechanism may adjust the subsequent year's July price-cap change in
the event Central Maine's earnings are outside a range of 350 basis points above
or below  Central  Maine's  allowed  return on equity  (starting  at the  10.55%
allowed  return in 1995) and  indexed  annually  for  changes in capital  costs.
Outside that range,  profits and losses could be shared equally by Central Maine
and its  customers  in  computing  the  price-cap  adjustment.  The ROE used for
earnings  sharing is scheduled to be increased to 11.5%  effective with the July
1999 price change.

The ARP also  provides for partial  flow-through  to  ratepayers of cost savings
from non-utility  generator  contract  buy-outs and  restructuring,  recovery of
energy-management  costs,  and penalties for failure to attain  customer-service
and  energy-efficiency  targets.  The ARP also generally  defines mandated costs
that would be recoverable by Central Maine notwithstanding the index-based price
cap. To receive such  treatment,  the annual  revenue  requirement  related to a
mandated  cost must  exceed $3  million  and have a  disproportionate  effect on
Central Maine or the electric-power industry.

On May 13, 1998,  Central Maine submitted its 1998 ARP compliance  filing to the
MPUC. In keeping with its pledge of limiting  increases to the inflation  index,
Central Maine voluntarily  limited its request to 1.78%, which was the inflation
rate for 1997 under the ARP.  Central  Maine also  proposed a rate  reduction of
approximately  ten percent  contingent on the  consummation  of, and  ratemaking
associated with,  Central Maine's planned sale of generating  assets. The filing
also reported  information on the costs of restoring  service to Central Maine's
customers  after the January  1998 ice storm,  as  required by the earlier  MPUC
order allowing Central Maine to defer those costs.  Effective July 11, 1998, the
MPUC approved a stipulated  1.33% increase.  The amount of the increase  remains
subject to change,  based on the outcome of the pending FERC proceeding  related
to the  permanent  shutdown  of the  Maine  Yankee  plant.  Depending  on FERC's
decision, the price increase could increase or decrease,  ranging from a ceiling
of 1.78% to a floor of 0.22%.  However,  the Offer of Settlement  pending before
the FERC in Maine  Yankee's  rate  case,  which has been  approved  by the MPUC,
provides that the 1998 ARP increase will not be adjusted.


The components of the last three ARP price increases approved by the MPUC are as
follows:

                                          1998         1997         1996
                                          ----         ----         ----

 Inflation Index                          1.78%         2.12%        2.55%
 Productivity Offset                     (1.00)        (1.00)       (1.00)
 Qualifying Facility Offset               (.29)         (.42)           -
 Earnings Sharing                         1.12             -          .32
 Flowthrough and Mandated Items           (.28)          .40         (.61)
                                          ----         -----         -----
                                          1.33%         1.10%        1.26%
                                          ====          ====         ====

Electric-Utility Industry Restructuring

Stranded  Costs - The  enactment  by Congress  of the Energy  Policy Act of 1992
accelerated  planning by electric  utilities,  including  Central  Maine,  for a
transition  to a more  competitive  industry.  In Maine,  legislation  that will
restructure the  electric-utility  industry on March 1, 2000, was enacted by the
Maine  Legislature  in May 1997,  and is  discussed in detail under this heading
below.  Such  departure  from  traditional  regulation,  however,  could  have a
substantial impact on the value of utility assets and on the ability of electric
utilities to recover their costs through rates. In the absence of full recovery,
utilities   would  find  their   above-market   costs  to  be   "stranded",   or
unrecoverable, in the new competitive setting.

Central Maine has substantial  exposure to cost stranding  relative to its size.
In general,  its  stranded  costs  reflect the excess  costs of Central  Maine's
purchased-power obligations over the market value of the power, and the costs of
deferred  charges  and other  regulatory  assets.  The major  portion of Central
Maine's  stranded  costs is related  to  above-market  costs of  purchased-power
obligations arising from Central Maine's long-term,  noncancelable contracts for
the purchase of capacity  and energy from NUGs,  with lesser  estimated  amounts
related to Central Maine's deferred regulatory assets.

There is a high degree of uncertainty  that surrounds  stranded-cost  estimates,
resulting  from  having to rely on  projections  and  assumptions  about  future
conditions,  including,  among others, estimates of the future market for power.
Higher  market  rates lower  stranded-cost  exposure,  while lower  market rates
increase it. In addition to market-related impacts, any estimate of the ultimate
level  of  stranded   costs  depends  on  such  factors  as  state  and  federal
regulations,  the extent,  timing and form that competition for electric service
will take, the ongoing level of Central  Maine's costs of  operations;  regional
and national economic conditions, growth of Central Maine's sales, the timing of
any changes that may occur from state and federal  initiatives on restructuring;
and the extent to which  regulatory  policies and decisions  ultimately  address
recovery of strandable costs including the application of value from the sale of
Central Maine's generating assets.

The  estimated  market rate for power is based on  anticipated  regional  market
conditions  and future costs of  producing  power.  The present  value of future
purchased-power  obligations and Central Maine's  generating  costs reflects the
underlying costs of those sources of generation in place today,  with reductions
for contract expirations and continuing depreciation.  Deferred regulatory-asset
totals  include the  current  uncollected  balances  and  existing  amortization
schedules for purchased-power  contract  restructuring and buyouts negotiated by
Central  Maine to lessen the  impact of these  obligations,  along  with  energy
management costs, financing costs, and other regulatory commitments.

Maine  Restructuring  Legislation  - The 1997  Maine  restructuring  legislation
requires the MPUC, when retail access to generation  begins on March 1, 2000, to
provide a "reasonable  opportunity" to recover  stranded costs through the rates
of  the  transmission-and-distribution  company,  comparable  to  the  utility's
opportunity to recover stranded costs before the implementation of retail access
under the legislation.  Stranded costs are defined as the legitimate, verifiable
and  unmitigable  costs  made  unrecoverable  as a result  of the  restructuring
required by the  legislation  and will be  determined by the MPUC as provided in
the legislation.  The MPUC has been conducting separate adjudicatory proceedings
to  determine  the  stranded  costs  for  each  Maine  utility,  along  with the
corresponding  revenue  requirements and stranded-cost  charges to be charged by
each transmission-and-distribution utility. The first phase of the Central Maine
proceeding  was  completed in early 1999 and is discussed in this note under the
heading  "MPUC  Proceeding on Stranded  Costs,  Revenue  Requirements,  and Rate
Design," below.

In addition,  the legislation  requires utilities to use all reasonable means to
reduce their potential  stranded costs and to maximize the value from generation
assets and contracts. The MPUC must consider a utility's efforts to mitigate its
stranded  costs in  determining  the  amount of the  utility's  stranded  costs.
Stranded costs and the related rates charged to customers will be  prospectively
adjusted as necessary to correct  substantial  inaccuracies in the year 2003 and
at least every three years thereafter.

The principal restructuring  provisions of the legislation provide for customers
to have direct  retail  access to generation  services and for  deregulation  of
competitive    electric    providers,    commencing    March   1,   2000,   with
transmission-and-distribution  companies continuing to be regulated by the MPUC.
By that date,  subject to  possible  extensions  of time  granted by the MPUC to
improve  the sale  value of  generation  assets,  investor-owned  utilities  are
required  to  divest  all  generation  assets  and  generation-related  business
activities,  with two major exceptions: (1) non-utility generator contracts with
qualifying facilities and contracts with demand-side  management or conservation
providers,  brokers or hosts,  and (2)  ownership  interests  in  nuclear  power
plants.  However,  the MPUC can require  the  Company to divest its  interest in
Maine Yankee  Atomic  Power  Company on or after  January 1, 2009.  As discussed
below  under  "Agreement  for Sale of  Generating  Assets,"  Central  Maine  has
contracted  to sell its  non-nuclear  generating  assets and,  after a favorable
court decision,  is proceeding toward a completion of the sale by April 7, 1999.
The legislation also requires investor-owned utilities, after February 29, 2000,
to sell their  rights to the  capacity  and energy from all  generation  assets,
including the  purchased-power  contracts that had not previously  been divested
pursuant to the legislation, with certain immaterial exceptions.

Upon the  commencement  of retail access on March 1, 2000,  Central Maine,  as a
transmission-and-distribution  utility, will be prohibited from selling electric
energy  to  retail  customers.  Any  competitive  electricity  provider  that is
affiliated  with  Central  Maine  would be allowed to sell  electricity  outside
Central Maine's service  territory without  limitation as to amount,  but within
Central  Maine's  service  territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service  territory,  as determined by the MPUC. CMP Group does not now intend to
engage in the sale of electric energy after March 1, 2000.


Other features of the legislation include the following:
       (a) After the effective date of the  legislation,  if an entity purchases
10 percent or more of the stock of a  distribution  utility,  including  Central
Maine,  the purchasing  entity and any related  entity would be prohibited  from
selling generation service to any retail customer in Maine.
       (b)  The  legislation  encourages  the  generation  of  electricity  from
renewable  resources  by  requiring  competitive  providers,  as a condition  of
licensing,  to  demonstrate  to the MPUC that no less than 30  percent  of their
portfolios  of supply  sources for retail  sales in Maine are  accounted  for by
renewable resources.
       (c) The  legislation  requires  the MPUC to  ensure  that  standard-offer
service is available to all consumers,  but any competitive  provider affiliated
with Central Maine would be limited to providing  such service for only up to 20
percent of the electric load in Central Maine's service territory.
       (d) Beginning March 1, 2002, or, by MPUC rule, as early as March 1, 2000,
the providing of billing and metering services will be subject to competition.
       (e) A customer who  significantly  reduces or eliminates  consumption  of
electricity  due to  self-generation,  conversion  to an  alternative  fuel,  or
demand-side  management  may not be assessed an exit fee or re-entry  fee in any
form  for  such   reduction   or   elimination   of   consumption   or  for  the
re-establishment of service with a transmission-and-distribution utility.
       (f)  Finally,  the  legislation  provides  for  programs  for  low-income
assistance, energy conservation research and development on renewable resources,
assistance for utility  employees laid off as a result of the  legislation,  and
recovery of nuclear-plant  decommissioning  costs "[a]s required by federal law,
rule or order", all funded through  transmission-and-distribution  utility rates
and charges.

Legislative  bills that would amend certain  provisions of the 1997  legislation
have been submitted to the 1999  legislative  session of the Maine  Legislature.
CMP Group and  Central  Maine  cannot  predict  whether  any changes to the 1997
legislation will be enacted.

MPUC Proceeding on Stranded Costs, Revenue  Requirements,  and Rate Design. - As
noted  above,  the  MPUC  has  completed  the  first  phase  of  the  proceeding
contemplated by Maine's restructuring legislation that will ultimately determine
the recovery of Central Maine's  stranded costs, its revenue  requirements,  and
the  design  of  its  rates  to  be  effective  when  Central  Maine  becomes  a
transmission-and-distribution  utility at the time retail  access to  generation
begins  in Maine on March 1,  2000.  On  December  23,  1998,  the MPUC  Hearing
Examiners in the  proceeding  issued their report,  in the form of a recommended
decision.   Central   Maine   disagreed   with  a  number   of  the   individual
recommendations in the stranded-costs and  revenue-requirements  areas and filed
exceptions to those recommendations. The MPUC deliberated the recommendations on
February   10  and  11,   1999,   indicated   disagreement   with  some  of  the
recommendations, and issued its written order on March 19, 1999.

The MPUC stressed in its order that it was deciding the "principles" by which it
would set Central Maine's  transmission-and-distribution  rates, effective March
1, 2000, but was not calculating the rates themselves  because such calculations
at that time would rely  excessively on estimates.  The MPUC pointed out that it
would  hold a "Phase  II"  hearing to set the  actual  rates and  determine  the
recoverable  stranded  costs  after  processing  information  expected to become
available during 1999.

With respect to stranded costs,  the MPUC indicated that it would set the amount
of recoverable stranded costs for Central Maine later in the proceeding pursuant
to   its    mandate    under    the    restructuring    statute    to    provide
transmission-and-distribution utilities a reasonable opportunity to recover such
costs that is  equivalent to the  utility's  opportunity  to recover these costs
prior  to the  commencement  of  retail  access.  The  MPUC  also  reviewed  the
prescribed methodology for determining the amount of a utility's stranded costs,
including  among other  factors the  application  of excess value from  divested
generation  assets to offset  stranded costs. At the beginning of the proceeding
Central Maine had estimated its total  stranded costs to be  approximately  $1.3
billion.

In the  area  of  revenue  requirements,  the  Phase I  order  did  not  include
definitive amounts, but did contain the MPUC's conclusions as to the appropriate
cost of  common  equity  for  Central  Maine as a  transmission-and-distribution
company beginning March 1, 2000. Central Maine had recommended a 12-percent cost
of common  equity  with a  55-percent  common  equity  component  in the capital
structure.  The MPUC, after weighing conflicting  recommendations,  decided on a
common-equity  cost  of  10.50  percent  with a  common-equity  component  of 47
percent, and an overall weighted-average cost of capital of 8.68 percent.

In dealing with rate design,  the MPUC limited  itself in the first phase of the
proceeding primarily to establishing principles that would guide it in designing
Central  Maine's rates to be effective March 1, 2000. The MPUC indicated that it
would focus on (1)  facilitating  the  transition  to a  competitive  market for
generation,  and (2) implementing a "no-losers" policy,  i.e., that the new rate
design  would  cause no Central  Maine  customer's  bill to increase on March 1,
2000. Applying the latter principle,  the MPUC rejected a newly designed standby
rate  for  self-generators  proposed  by  Central  Maine  in  favor  of a design
generally similar to Central Maine's current rate for the class. The MPUC stated
that it planned to undertake a comprehensive  rate design and  alternative  rate
plan proceeding for Central Maine prior to March 1, 2002, when it could consider
experience      gained     with     the     cost     structures     of     other
transmission-and-distribution  utilities after the commencement of retail access
to generation.

The Phase I order resulted from an extended  proceeding with many points of view
represented  and covers a wide  variety  of  rate-related  subjects.  Definitive
findings by the MPUC in a number of the subject  areas await the second phase of
the  proceeding,  which must be completed  before  March 1, 2000.  CMP Group and
Central Maine cannot  predict the  definitive  amount of stranded costs the MPUC
will  determine  that Central Maine will be entitled to recover  pursuant to the
mandate of the  restructuring  statute,  or the  revenue  requirements  and rate
design that will result from Phase II of the MPUC proceeding.

Agreement for Sale of Generation Assets

On January 6, 1998,  Central Maine  announced  that it had reached  agreement to
sell  all  of its  hydro,  fossil  and  biomass  power  plants  with a  combined
generating  capacity  of 1,185  megawatts  for $846  million in cash,  including
approximately $18 million for assets of Union Water, to Florida-based FPL Group.
The related book value for these  assets was  approximately  $ 218.9  million at
December 31, 1998. In addition, as part of its agreement with FPL Group, Central
Maine  entered  into energy  buy-back  agreements  to assist in  fulfilling  its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage  facilities to FPL Group for an
additional  $3.6 million ($1.5 million for the assets and $2.1 million for lease
revenue  associated with the properties  that CMP will retain),  including $1.15
million  for Union Water  assets.  The  related  book value of these  assets was
approximately $11.9 million at December 31, 1998.

Central  Maine's  interests  in the power  entitlements  from  approximately  50
power-purchase agreements with non-utility generators representing approximately
488  megawatts,  its  2.5-percent  interest in the Millstone  Unit No. 3 nuclear
generating  unit in Waterford,  Connecticut,  its  3.59-percent  interest in the
output of the Vermont Yankee nuclear  generating plant in Vernon,  Vermont,  and
its entitlement in the NEPOOL Phase II  interconnection  with  Hydro-Quebec  all
attracted  insufficient  interest to be included  in the pending  sale.  Central
Maine will continue to seek buyers for those assets. Central Maine did not offer
for sale its  interests  in the Maine  Yankee  (Wiscasset,  Maine),  Connecticut
Yankee (Haddam,  Connecticut)  and Yankee Atomic (Rowe,  Massachusetts)  nuclear
generating plants, all of which are in the process of being decommissioned.

Substantially  all of the generating  assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture").  Therefore,  substantially all of the proceeds
from sale must be deposited  initially  with the trustee  under the Indenture at
the  closing  of the sale to free  the  generating  assets  from the lien of the
Indenture.  Central  Maine plans to use some of the proceeds on deposit with the
trustee to redeem or repurchase bonds under the terms of the Indenture,  and may
discharge the Indenture. In addition, the proceeds could provide the flexibility
to redeem or repurchase  outstanding equity securities.  Central Maine must also
provide for payment of applicable  taxes resulting from the sale. The manner and
timing of the ultimate application of the sale proceeds after closing are in any
event subject to various factors,  including  Indenture  provisions,  regulatory
requirements, market conditions and terms of outstanding securities.

On November 17, 1998, FPL Group announced that its subsidiary, FPL Energy Maine,
Inc. ("FPL Energy") had filed a civil action in the United States District Court
for the Southern  District of New York  requesting a  declaratory  judgment that
Central Maine could not meet essential terms of the January agreement. FPL Group
asserted that based on October 1998 FERC rulings on transmission access, as well
as other  issues,  it  believed  that  Central  Maine  could not comply with the
conditions  in the purchase  contract and that FPL Energy should not be bound to
complete the transaction.

FPL Energy  contended in its complaint  that the FERC rulings (1)  constituted a
material adverse effect under the purchase agreement and substantially  lessened
the value of Central Maine's  generating assets, and (2) precluded Central Maine
from obtaining all federal,  state and local consents and approvals required for
the ownership,  operation and  maintenance of the generating  assets in a manner
substantially  consistent with Central Maine's historical ownership,  operation,
and maintenance thereof, as required by the purchase agreement. In addition, FPL
Energy  asserted  that the FERC rulings  limited the ability of the  prospective
buyer  to  get  power  from  the  Central  Maine  generating  assets  to  market
unconstrained  by transmission  limitations  resulting from new generators being
added to the NEPOOL system, and therefore,  based on the doctrine of frustration
of  purpose,  FPL  Energy  should be  "excused  without  further  obligation  or
liability from effecting the purchase of [Central Maine's]  generating  assets."
Central Maine, FPL Energy,  NEPOOL,  and other parties interested in New England
transmission-access issues requested rehearing of the FERC rulings.

On November 23, 1998, the MPUC granted its approval of the sale to FPL Energy of
the generating assets contemplated by the purchase  agreement,  finding the sale
to be in the public  interest.  The MPUC also made the  findings  required  as a
prerequisite  to a FERC  designation  of the  generating  facilities  as "exempt
wholesale generators," which had been requested by FPL Energy.

On November 24, 1998, the FERC approved the sale of the Central Maine generating
assets to FPL  Energy,  after  making  the  required  finding  that the sale was
consistent  with  the  public  interest,   and  accepted  certain   implementing
agreements  for filing.  In discussing an issue raised by an intervenor the FERC
stated that by purchasing  the  generating  assets FPL Energy would be "stepping
into the shoes of Central Maine" with respect to access to the Central Maine and
NEPOOL transmission system, but did not disturb the earlier  transmission-access
rulings.  The FERC  granted its approval of the  transfer of  hydroelectric  and
water  storage   licenses  on  December  28,  1998,  the  approval  by  FERC  of
exempt-wholesale-generator  status for the generating facilities, was granted on
February 24, 1999.

On March 11,  1999,  the  hearing  on FPL  Energy's  request  for a  declaratory
judgment was held in the United States District Court for the Southern  District
of New York. On the same day the  presiding  judge ruled that FPL Energy was not
entitled to the declaratory  judgment and entered judgment for Central Maine and
its affiliated defendants on all counts of the complaint. Thereafter on that day
FPL Energy announced that it would not appeal the decision, but would proceed to
a closing  of the sale on or  before  April 7,  1999,  as  required  by the sale
agreement, and the parties are preparing for the closing.

Storm Damage to Central Maine's System

On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck   Central   Maine's   service   territory,   causing  power  outages  for
approximately  280,000 of Central  Maine's  528,000  customers,  and substantial
widespread  damage to Central Maine's  transmission and distribution  system. To
restore its electrical  system,  Central Maine  supplemented  its own crews with
utility and tree-service  crews from throughout the  northeastern  United States
and the Canadian  maritime  provinces,  with  assistance from the Maine national
guard.  Central Maine's incremental  non-capital costs of the repair effort were
$50.7 million, most of which is labor-related.  In addition,  approximately $1.7
million of carrying costs have been deferred as of December 31, 1998.

On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the  incremental  non-capital  costs  associated  with Central Maine's
efforts to restore  service in response to the damage  resulting from the storm.
The order required Central Maine, as part of its annual filing under the ARP, to
file  information  on the  amounts  deferred  under  the  order  and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the 1998 ARP filing Central Maine stated that once the final cost of
the storm was  determined  and the status of federal  assistance  was  finalized
Central Maine would propose a plan for recovery of its costs.  Based on the MPUC
order,  Central  Maine has deferred  $52.4  million in storm related costs as of
December 31, 1998.  In October  1998,  the MPUC staff issued its draft report of
its summary  investigation of the Maine  utilities'  response to the January ice
storm. This report found no basis for formal adjudicatory investigation into the
response and supports the utilities' actions. On May 1, 1998,  President Clinton
signed a  Congressional  appropriation  bill  that  included  $130  million  for
Presidentially   declared  disasters  in  1998,   including   storm-damage  cost
reimbursement  for  electric  utilities.  On November 5, 1998 the United  States
Department  of Housing and Urban  Development  ("HUD")  announced  that of those
funds,  $2.2 million had been awarded to Maine, with none designated for utility
infrastructure,  which  Central  Maine  and the Maine  Congressional  delegation
protested as inadequate and inconsistent with Congressional intent. On March 10,
1999,  HUD  published  a notice in the  Federal  Register  inviting  parties  to
re-apply for storm-damage cost reimbursement.  Central Maine cannot predict what
portion  of its ice  storm-related  costs  it will  ultimately  recover  through
federal  assistance,  if any, or from its  customers,  or when any such recovery
will take place.

Meeting the Requirements of SFAS No. 71

Central Maine  continues to meet the  requirements  of SFAS No. 71. The standard
provides  specialized  accounting  for  regulated  enterprises,  which  requires
recognition of "regulatory"  assets and liabilities  that enterprises in general
could not record.  Examples of regulatory  assets include  deferred income taxes
associated with  previously  flowed through items,  NUG buyout costs,  losses on
abandoned plants,  deferral of postemployment  benefit costs, and losses on debt
refinancing.  If an entity no longer meets the requirements of SFAS No. 71, then
regulatory assets and liabilities must be written off.

The ARP provides  incentive-based  rates intended to recover the cost of service
plus a rate of return on Central Maine's  investment  together with a sharing of
the  costs or  earnings  between  ratepayers  and the  shareholders  should  the
earnings  be less  than or exceed a target  rate of  return.  Central  Maine has
received recognition from the MPUC that the rates implemented as a result of the
ARP continue to provide specific recovery of costs deferred in prior periods.

The 1997  legislation  enacted in Maine  providing  for  industry  restructuring
specifically  addressed the issue of cost recovery of regulatory assets stranded
as a result of industry  restructuring.  Specifically,  the legislation requires
the MPUC, when retail access begins,  to provide a "reasonable  opportunity" for
the    recovery    of    stranded    costs    through    the    rates   of   the
transmission-and-distribution  company,  comparable to the utility's opportunity
to recover stranded costs before the  implementation  of retail access under the
legislation.  As  provided  for in EITF 97-4,  "Deregulation  of the  Pricing of
Electricity,"  Central  Maine will  continue  to record  regulatory  assets in a
manner consistent with SFAS No. 71 as long as future recovery is probable, since
the Maine  legislation  provides the  opportunity to recover  regulatory  assets
including stranded costs through the rates of the  transmission-and-distribution
company. Central Maine anticipates that once a detailed plan for deregulation of
generation  is  known,  the  application  of  SFAS  No.  71 to  the  unregulated
generation  segment will no longer  apply and Central  Maine will be required to
discontinue  SFAS No. 71 for any remaining  generation  segment of its business.
Central  Maine  further   anticipates,   based  on  current  generally  accepted
accounting principles,  that SFAS No. 71 will continue to apply to the regulated
distribution and transmission segments of its business.  Future regulatory rules
or  other  circumstances  could  cause  the  application  of SFAS  No.  71 to be
discontinued,   which  could  result  in  a  non-cash  write-off  of  previously
established regulatory assets.

Note 4: Commitments and Contingencies

Construction Program

Central  Maine's plans for improving  and  expanding  generating,  transmission,
distribution  facilities,  and power-supply sources are under continuing review.
Actual  construction  expenditures  will depend upon the availability of capital
and other  resources,  load forecasts,  customer  growth,  and general  business
conditions.  Central Maine's current forecast of capital expenditures,  assuming
completion of the generation asset sale in the spring of 1999, for the five-year
period 1999 through 2003, is as follows:

(Dollars in millions)                     1999         2000-2003      Total
                                          ----         ---------      -----
Type of Facilities:
Generating projects                        $ 3           $  -         $   3
Transmission                                 3              22           25
Distribution                                32             132          164
General facilities and other                18              74           92
                                            --             ---          ---
Total Estimated Capital Expenditures       $56            $228         $284
                                            ==             ===          ===

Customer Retention

Central Maine entered into  five-year  definitive  agreements  with 18 customers
that  lock-in  non-cumulative  rate  reductions  of 15% for the three years 1995
through  1997,  16% for 1998,  and 18% for 1999,  below the  December  1,  1994,
levels.  These  contracts also protect these customers from price increases that
might otherwise be allowed under the ARP. The participating  customers agreed to
take  electrical  service  from  Central  Maine for five years and not to switch
fuels,  install  new  self-generation  equipment,  or seek  another  supplier of
electricity for existing electrical load during that period. New electrical load
in excess of a stated  minimum  level  could be  served  by other  sources,  but
Central Maine could compete for that load.

Central Maine believes that without offering the competitive pricing provided in
the  agreements,  a  number  of  these  customers  would be  likely  to  install
additional  self-generation  or take other steps to decrease  their  electricity
purchases  from  Central  Maine.  The revenue loss from such a usage shift could
have been substantial.

Central  Maine  estimates  that based on the rate  reductions  provided in these
agreements,  its gross  revenues were  approximately  $45 million lower in 1996,
approximately  $65 million lower in 1997 and  approximately $62 million lower in
1998,  than would have been the case if these  customers  continued  to pay full
retail rates without reducing their purchases from the Company.

However, these rate reductions were negotiated giving consideration to important
related cost  savings.  Electricity  price  changes  affect the cost of some NUG
power   contracts.   The   reduction  in  rates  to  large   customers   reduced
purchased-power  costs by  approximately  $22  million  as a result  of  linkage
between retail tariffs and some contract prices.

Operating Lease Obligations

Central Maine has a number of  operating-lease  agreements  primarily  involving
computer and other office  equipment,  land, and  telecommunications  equipment.
These leases are noncancelable and expire on various dates through 2007.

Following is a schedule by year of future minimum rental payments required under
the operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1998:

(Dollars in thousands)            Amount
1999                            $  5,605
2000                               5,033
2001                               4,330
2002                               4,257
2003                               4,238
Thereafter                         1,070
                                 $24,533

Rent expense under all operating  leases was  approximately  $6.3 million,  $6.1
million,  and $5 million for the years ended  December 31, 1998,  1997 and 1996,
respectively.

Legal and Environmental Matters

Central Maine and certain of its affiliates are subject to regulation by federal
and state  authorities  with respect to air and water quality,  the handling and
disposal of toxic  substances  and hazardous and solid wastes,  and the handling
and use of  chemical  products.  Electric  utility  companies  generally  use or
generate in their  operations  a range of  potentially  hazardous  products  and
by-products that are the focus of such  regulation.  Central Maine believes that
its  current  practices  and  operations  are in  compliance  with all  existing
environmental  laws except for such  non-compliance as would not have a material
adverse effect on Central Maine's financial position.  Central Maine reviews its
overall compliance and measures the liability  quarterly by assessing a range of
reasonably  likely  costs for each  identified  site using  currently  available
information,   including  existing   technology,   presently  enacted  laws  and
regulations,  experience  gained at similar  sites,  and the  probable  level of
involvement and financial  condition of other potentially  responsible  parties.
These estimates include costs for site  investigations,  remediation,  operation
and maintenance, monitoring and site closure.

New and changing environmental requirements could hinder the construction and/or
modification  of  generating   units,   transmission  and  distribution   lines,
substations and other facilities, and could raise operating costs significantly.
As a result, Central Maine may incur significant additional environmental costs,
greater  than  amounts   reserved,   in  connection   with  the  generation  and
transmission  of  electricity  and the storage,  transportation  and disposal of
by-products and wastes. Central Maine may also encounter significantly increased
costs to remedy the  environmental  effects of prior waste handling  activities.
The cumulative  long-term cost impact of  increasingly  stringent  environmental
requirements cannot accurately be estimated.

Central  Maine  has  recorded  a  liability,   based  upon  currently  available
information,  for what it believes are the estimated  environmental  remediation
costs that it expects to incur for  identified  waste  disposal  sites.  In most
cases,   additional  future  environmental  cleanup  costs  are  not  reasonably
estimable  due to a number  of  factors,  including  the  unknown  magnitude  of
possible  contamination,  the  appropriate  remediation  methods,  the  possible
effects  of  future  legislation  or  regulation  and the  possible  effects  of
technological  changes.  Central  Maine cannot  predict the schedule or scope of
remediation due to the regulatory  process and  involvement of  non-governmental
parties.  At December 31, 1998, the liability  recorded by Central Maine for its
estimated  environmental  remediation  costs  amounted  to $1.9  million,  which
management  has  determined to be the most  probable  amount within the range of
$1.9 million to $8.6 million. Such costs may be higher if Central Maine is found
to be responsible for cleanup costs at additional sites or identifiable possible
outcomes change.

Proposed  Federal Income Tax  Adjustments - On September 3, 1997,  Central Maine
received from the Internal  Revenue  Service  ("IRS") a Revenue  Agent's  Report
summarizing  all  adjustments  proposed  by the IRS as a result  of its audit of
Central  Maine's federal income tax returns for the years 1992 through 1994, and
on September 12, 1997, Central Maine received a notice of deficiency relating to
the proposed disallowances.  There are two significant disallowances among those
proposed by the IRS. The first is a disallowance of Central Maine's write-off of
the  under-collected   balance  of  fuel  and  purchased-power   costs  and  the
unrecovered  balance  of its  unbilled  Electric  Revenue  Adjustment  Mechanism
("ERAM") revenues, both as of December 31, 1994, which were charged to income in
1994 in  connection  with the  adoption  of the  Alternative  Rate Plan  ("ARP")
effective  January 1, 1995. The second major  adjustment  would disallow Central
Maine's 1994 deduction of the cost of the buyout of the Fairfield Energy Venture
purchased-power  contract by Central  Maine in 1994.  The  aggregate tax impact,
including  both federal and state taxes,  of the  unresolved  issues  amounts to
approximately $39.0 million, over 90 percent of which is associated with the two
major disallowances. The two major disallowances relate largely to the timing of
the deductions  and would not affect income except for the  cumulative  interest
impact  which,  through  December  31,  1998,  amounted to $18.8  million,  or a
decrease  in net income of $11.1  million,  and which  could  increase  interest
expense by  approximately  $500,000 per month until either the tax deficiency is
paid or the issues are  resolved  in favor of  Central  Maine,  in which case no
interest  would be due. If the IRS were to prevail,  Central Maine  believes the
deductions  would be  amortized  over  periods of up to twenty,  post-1994,  tax
years.  Central Maine  believes its tax treatment of the  unresolved  issues was
proper and as a result the potential interest has not been accrued.  On December
10,  1997,  Central  Maine  filed a  petition  in the  United  States  Tax Court
contesting  the  entire  amount of the  deficiencies  and  sought  review of the
asserted deficiencies by an IRS Appeals Officer to determine whether all or part
of the  dispute  could be resolved  in advance of a court  determination.  As of
March 17, 1999,  four of the seven issues in dispute had been resolved,  but not
the two  major  disallowances.  Central  Maine  will  continue  to  work  toward
resolving the remaining issues,  but a trial may be necessary for one or more of
those issues. Absent such a resolution, Central Maine plans to pursue vigorously
the Tax Court litigation, but cannot predict the result.

Nuclear Insurance

The  Price-Anderson  Act is a federal statute  providing,  among other things, a
limit on the maximum  liability for damages  resulting from a nuclear  incident.
Coverage for the  liability is provided for by existing  private  insurance  and
retrospective  assessments for costs in excess of those covered by insurance, up
to $88.095  million for each reactor  owned,  with a maximum  assessment  of $10
million per reactor in any year. However,  after appropriate exemptive action by
the NRC Maine  Yankee,  and  therefore its  sponsors,  are not  responsible  for
retrospective  assessments  resulting from any event or incident occurring after
January 7, 1999.  Based on  Central  Maine's  stock  ownership  in four  nuclear
generating  facilities  and its 2.5  percent  direct  ownership  interest in the
Millstone 3 nuclear unit, Central Maine's retrospective premium for post-January
7, 1999,  events or incidents  could be as high as $6 million in any year, for a
cumulative total of $52.9 million.

In addition to the  insurance  required by the  Price-Anderson  Act, the nuclear
generating  facilities mentioned above carry additional nuclear  property-damage
insurance.  This additional  insurance is provided from  commercial  sources and
from the  nuclear  electric  utility  industry's  insurance  company  through  a
combination  of current  premiums  and  retrospective  premium  adjustments.  In
recognition  of the reduced risk posed by the shutdown of the Maine Yankee Plant
and its defueled reactor, Maine Yankee substantially reduced its property-damage
coverage effective January 19, 1999.

Joint Venture

CMP  Group  and  Energy  East,  through   subsidiaries,   have  entered  into  a
joint-venture agreement to distribute natural gas to many Maine communities that
are not now served with that fuel.  On July 24, 1998,  the MPUC  authorized  the
provision of such service by the joint venture.  CMP Group's level of investment
is dependent on the overall economic feasibility of natural gas as a competitive
energy  option in Maine,  a sufficient  expression  of customer  interest in gas
service from CMP Natural  Gas, and the  prospects  for  achieving an  acceptable
return on  investment.  CMP  Natural  Gas,  L.L.C.,  which is owned  equally  by
subsidiaries of CMP Group and Energy East, is positioning itself to offer gas in
the Augusta and Bangor areas, and in other communities  including Bath,  Bethel,
Brunswick, Windham, Rumford, and Waterville.

Note 5:  Pension and Other Benefits

Pension Benefits

CMP Group has two separate  non-contributory,  defined-benefit  plans that cover
substantially all of its union and non-union employees. CMP Group funding policy
is to contribute  amounts to the separate  plans that are sufficient to meet the
funding  requirements set forth in the Employee  Retirement  Income Security Act
(ERISA),  plus  such  additional  amounts  as  CMP  Group  may  determine  to be
appropriate.  Plan  benefits  under the non-union  retirement  plan are based on
average  final  earnings,  as defined  within the plan,  and length of  employee
service;  benefits under the union plan are based on average career earnings and
length of employee service.

A summary of the  components of net periodic  pension cost for the non-union and
union defined-benefit plans in 1998, 1997 and 1996 follows:
<TABLE>
<S>                                    <C>             <C>             <C>             <C>            <C>             <C>   

                                               1998                           1997                            1996
                                               ----                           ----                            ----
                                       Non-                            Non-                           Non-
(Dollars in thousands)                union           Union           union           Union          union           Union
                                      -----           -----           -----           -----          -----           -----
Service cost                           $2,791          $1,969          $2,375          $1,694         $2,334          $1,780
Interest cost                           6,170           4,170           5,727           3,973          5,225           3,852
Expected return on plan
   assets                              (6,364)         (3,987)         (5,734)         (3,519)        (5,441)         (3,359)
Amortization on
   unrecognized transition
(asset)/obligation                         29            (270)             29            (270)            29            (270)
Amortization of
   unrecognized prior
   service cost                           155             129             155             129            155             129
Amortization of
   unrecognized (gain)/
   loss                                 -               -                 (14)          -              -               -
                                     --------        --------          ------        --------       --------        ----
Net periodic
   pension cost                        $2,781          $2,011          $2,538          $2,007         $2,302          $2,132
                                        =====           =====           ======          ======         =====           =====
</TABLE>

Assumptions used in accounting for the non-union and union defined-benefit plans
in 1998, 1997 and 1996 are as follows:

                                                   1998       1997       1996
                                                   ----       ----       ----
Weighted average discount rate                      6.50%     7.00%      7.50%
Rate of increase in future compensation levels      4.50%     4.50%      4.50%
Expected long-term return on assets                 8.75%     8.75%      8.50%

The following table sets forth the change in benefit obligations,  the change in
plan assets,  and the funded  status on CMP Group  balance sheet at December 31,
1998, and 1997:

<TABLE>
<S>                                                      <C>                 <C>                 <C>             <C>          
                                                                    Non-Union                                Union
                                                                    ---------                                -----
                                                             1998                1997              1998               1997
                                                             ----                ----              ----               ----

Change in Benefit Obligation
Projected Benefit Obligation at Beginning of Year        $  87,606,945       $  75,569,512       $60,806,647     $  55,687,980
Service Cost                                                 2,790,886           2,375,101         1,969,293         1,693,530
Interest Cost                                                6,170,100           5,727,139         4,170,129         3,973,237
Actuarial (Gain)/Loss                                        9,812,272           8,737,997         4,839,188         2,627,316
Benefits Paid                                               (4,760,258)         (4,802,804)       (3,099,550)       (3,175,416)
                                                          ------------        ------------       -----------      ------------
Projected Benefit Obligation at End of Year               $101,619,945       $  87,606,945       $68,685,707     $  60,806,647

Change in Plan Assets
Fair Value of Assets at Beginning of Year                $  85,706,828       $  77,996,183       $54,803,329     $  48,090,441
Actual Return on Plan Assets                                15,698,483          10,682,687        10,249,172         7,285,549
Employer Contributions                                       2,967,216           1,830,762         4,006,793         2,602,755
Benefits Paid                                               (4,760,258)         (4,802,804)       (3,099,550)       (3,175,416)
                                                          ------------        ------------       -----------      ------------
Fair Value of Assets at End of Year                      $  99,612,269       $  85,706,828       $65,959,744      $ 54,803,329

</TABLE>

<TABLE>
<S>                       <C>                            <C>                 <C>                 <C>             <C>           


                                                                    Non-Union                                Union
                                                                    ---------                                -----
                                                             1998                1997              1998               1997
                                                             ----                ----              ----               ----

Funded Status at December 31                             $  (2,007,676)      $  (1,900,117)      $(2,725,963)    $  (6,003,318)
Unrecognized Transition (Asset)/Obligation                     104,583             133,634        (1,134,557)       (1,404,689)
Unrecognized Prior Service Cost                              1,473,873           1,629,207         1,223,028         1,352,027
Unrecognized (Gain)/Loss                                   (15,536,708)        (16,014,958)       (6,306,647)       (4,883,992)
                                                           -----------         -----------        ----------      ------------
Net Amount Recognized - Accrued Benefit Cost              $(15,965,928)       $(16,152,234)      $(8,944,139)     $(10,939,972)
</TABLE>

Savings Plan

CMP  Group  offers an  employee  savings  plan to all  eligible  employees.  The
non-union  plan allows  participants  to invest from 2% to 15% of their salaries
among several alternatives. The employer contribution equals 60% of the first 5%
(total of 3%) of the employees' contribution.

As part of the collective bargaining agreement, effective in May 1997, the union
plan allows  maximum  deferrals  of up to 16% of their  salaries  among  several
alternatives.  The employer  contribution  equals 60% of the first 5% and 50% of
the next 2% invested,  bringing the maximum  employer  contribution  to 4% if an
employee defers 7% of compensation.

CMP Group's  contributions  to the savings plan trust were $1.9 million in 1998,
$1.8 million in 1997 and $1.7 million in 1996.

Post-Retirement Benefits

In addition to pension and  savings-plan  benefits,  CMP Group provides  certain
health-care and  life-insurance  benefits for  substantially  all of its retired
employees.

The MPUC approved a rulemaking on SFAS No. 106,  effective  July 20, 1993,  that
adopted the accrual  method of accounting for the expected cost of such benefits
during the employees'  years of service,  and authorized the  establishment of a
regulatory  asset for the deferral of such costs until they are  "phased-in" for
ratemaking  purposes.  The  effect  of the  change  can be  reflected  in annual
expenses  over the active  service  life of  employees  or a period of 20 years,
rather than in the year of adoption.

The MPUC  prescribes the maximum  amortization  period of the average  remaining
service  life of active  employees  or 20 years,  whichever  is longer,  for the
transition  obligation.  CMP Group is utilizing a 20 year  amortization  period.
Segregation  in an external  fund is required  for amounts  collected  in rates.
Central Maine (CMP Group was not formed until  September 1998) funded $3 million
in  November  1997 and July 1998 and plans to monitor  and fund the same  amount
annually in order to meet its obligation.

As a result of the MPUC order,  CMP Group records the cost of these  benefits by
charging   expense  in  the  period   recovered   through   rates.   The  annual
post-retirement  benefit  expense is  currently  included in rates as well as an
amount designed to recover the deferred  balance over a period of 20 years.  The
amounts  included  in rates in 1998,  1997 and 1996  were  $10.8,  $9.7 and $9.8
million,  respectively.  With the  reduction  in the  deferred  account  of $1.5
million  in 1998 and,  $1.8  million in 1997.  The total  amount  deferred  as a
regulatory  asset as of  December  31,  1998 and 1997 was $19.6  million and $21
million,   respectively.   A  summary  of  the   components   of  net   periodic
postretirement benefit cost for the plan in 1998, 1997 and 1996 follows:

(Dollars in thousands)                                1998      1997      1996
                                                      ----      ----      ----
Service cost                                        $  1,867  $ 1,201   $ 1,347
Interest cost                                          5,438    4,702     5,720
Expected return on plan assets                          (360)       -         -
Amortization of unrecognized transition obligation     3,704    3,704     4,080
Amortization of prior service cost                         -        -        35
Amortization of unrecognized (gain)/loss                 (80)  (1,029)     (329)
                                                   ---------    -----   -------
Postretirement benefits expense                       10,569    8,578    10,853
Deferred postretirement benefits expense                 -       -       (1,056)
                                                   ---------- --------  -------
Postretirement Benefit Expense Recognized in the
  Statement of Earnings                             $ 10,569  $ 8,578   $ 9,797
                                                     =======    =====    ======

The following table sets forth the change in benefit obligation,  change in plan
assets and the funded status of the plan,  and the  liability  recognized on CMP
Group's balance sheet at December 31, 1998 and 1997:

(Dollars in thousands)                             1998            1997
                                                   ----            ----

Change in Benefit Obligation
Benefit obligation at beginning of year           $ 69,749       $ 73,903
Service cost                                         1,867          1,201
Interest cost                                        5,438          4,702
Estimated benefits paid                             (6,334)        (5,401)
Actuarial (gain)/loss                               16,232         (4,656)
                                                   -------        -------
Benefit obligation at end of year                   86,952         69,749

Change in Plan Assets
Fair value of plan assets at beginning of year       3,025            849
Actual return on plan assets                           711             66
Employer contribution                                9,100          7,511
Estimated benefits paid                             (6,334)        (5,401)
                                                   -------        -------
Fair value of plan assets at end of year             6,502          3,025

Funded Status                                      (80,450)       (66,724)
Unrecognized transition (asset)/obligation          51,859         55,563
Unrecognized prior service cost                          4              5
Unrecognized actuarial (gain)/loss                  (3,718)       (19,680)
                                                   -------        -------
Accrued benefit cost                              $(32,305)      $(30,836)
                                                   =======        =======

The assumed  health-care  cost-trend  rate was an average gross medical trend of
approximately  6% for 1998 reducing to 5% overall in the year 2020.  Rates range
from 5.6% to 6.5% for 1997  reducing to 5.0%  overall over a period of 25 years.
Rates range from 5.7% to 6.8% for 1996, reducing to 5.0% overall,  over a period
of 10  years.  The  effect of a  one-percentage-point  increase  in the  assumed
health-care cost-trend rate for each future year would increase the aggregate of
the service and  interest-cost  components  of the net  periodic  postretirement
benefit  cost  by  $1.1  million  and  the  accumulated  postretirement  benefit
obligation  ("APBO")  by $11.0  million.  The  effect of a  one-percentage-point
decrease in the assumed  healthcare  cost-trend  rate for each future year would
decrease the  aggregate of the service and  interest-cost  components of the net
periodic  postretirement  benefit  cost by $947  thousand  and the  APBO by $9.3
million.  Additional  assumptions  used in  accounting  for  the  postretirement
benefit plan in 1998, 1997 and 1996 are as follows:

                                                   1998       1997       1996
                                                   ----       ----       ----
Weighted-average discount rate                     6.50%       7.00%      7.50%
Rate of increase in future compensation levels     4.50%       4.50%      4.50%

CMP Group is exploring  alternatives  for mitigating the cost of  postretirement
benefits and for funding its obligations.  These alternatives include mechanisms
to fund the obligation prior to actual payment of benefits,  plan-design changes
to limit future expense increases,  and additional cost-control and cost-sharing
programs.

Note 6:  Incentive Compensation

Stock options  granted are  exerciseable at the market price of the common stock
on the date of the grant.  They expire  seven  years from their grant date.  One
third options vest annually,  commencing on the first  anniversary of the option
grant date. Upon vesting stock options are exerciseable during periods of active
employment or within thirty (30) days after termination of employment,  provided
termination did not occur due to cause.

Stock options granted for the year 1998 are summarized as follows:

                                                           Weighted Average
                                                            Exercise Price
                                              Shares

Outstanding at the beginning of 1997               -
Granted during the year                      253,925             $17.375
Expired/canceled during the year              11,929             $17.375
                                              ------
Outstanding as of December 31, 1998          241,996             $17.375
                                             =======

The stock  options were granted with a grant date fair value of $2.28.  The fair
value was  estimated  using the  Black-Scholes  option  pricing  model  with the
following weighted average assumptions:

   Expected option life                                 7 Years
   Risk free interest rate                              6.00%
   Expected volatility                                  0.154%
   Dividend yield                                       5.10%

CMP Group  uses the  intrinsic  value  based  method to  recognize  compensation
expense related to stock options. No compensation expense was recognized in 1998
related to stock options  granted,  since they contained an exercise price equal
to the fair market value on the date of the grant.  Had  compensation  costs for
stock  options  been  determined  based on the fair value at the grant dates for
awards  under  this plan  consistent  with the method of SFAS No.  123,  the CMP
Group's net income and  earnings  per share  would have been  reduced to the pro
forma amounts indicated as follows:

                                               1998

     Net Income:
         As Reported                          $52,910
         Pro Forma                            $52,583
     Earnings Per Share:
         As Reported                          $1.63
         Pro Forma                            $1.62

Performance Shares - Performance shares are shares of CMP Group stock granted at
the end of a 3-year performance cycle, based on achievement of performance goals
that are directly linked to increasing  shareholder  value. If the goals are not
achieved at the end of the 3-year cycle,  the performance  shares are forfeited.
Contingently  issuable performance shares for the three year period beginning in
1997 and 1998,  totaled 61,437 and 66,906, respectively.

CMP Group is accruing the compensation expense associated with these shares over
the  applicable  three year period.  The total  expense  recognized  in 1998 was
approximately $743 thousand.

Note 7:  Transactions with Affiliated Companies

Central  Maine  provides  certain  services  to CMP Group and its  subsidiaries,
including  administrative  support  services  and pension and  employee  benefit
arrangements.  Charges related to those services have been determined based on a
combination  of direct  charges  and  allocations  designed  to recover  Central
Maine's cost.  These  assessments  are reflected as an offset to Central Maine's
expenses and totaled  approximately  $3 million for the year ended  December 31,
1998.

CMP Group provides  certain  managerial  services to its  subsidiaries.  Charges
related to those services have been determined  based on a combination of direct
charges and allocation in order to recover the majority of their expenses. These
assessments  are  reflected  as an offset to CMP  Group's  expenses  and totaled
approximately $1.2 million for the year ended December 31, 1998.

In addition,  a subsidiary of CMP Group  provides  certain real estate and river
management  services  charged  to  Central  Maine  at  cost  and  environmental,
engineering,  utility  locator and  construction  services based on a contracted
rate.  These  expenses  amounted to $2.7 million for the year ended December 31,
1998.

As of December  31,  1998,  Central  Maine's  accounts  receivable  and accounts
payable balances include the following balances with affiliated companies:

                                     (dollars in thousands)
                             Accounts Receivable    Accounts Payable

 CMP Group                           $   180                $1,590
 MainePower                               43                   604
 CNEX                                    190                   138
 MaineCom                                138                     -
 TeleSmart                                78                    36
 Union Water                             950                 1,386
                                      ------                 -----
                                      $1,579                $3,754
                                       =====                 =====

Note 8:  Fiber Optic Network

In July 1998,  MaineCom's  equity  investments,  FiveCom,  Inc.,  and FiveCom of
Maine, LLC reorganized along with other related companies to form a new company,
Northeast  Optic  Network,  Inc.  ("NEON").  MaineCom's  ownership  interest  of
53.5-percent in the new company was equal to its combined  ownership interest in
FiveCom and FiveCom of Maine.

In August 1998 NEON  issued 4 million  new shares of common  stock at $12.00 per
share on the open market in an initial public offering  ("IPO").  NEON's IPO had
the effect of decreasing  MaineCom's  ownership  interest from  53.5-percent  to
approximately  40-percent.  The shares  were  issued at an amount  greater  than
MaineCom's  per  share  investment,  resulting  in  an  increase  in  MaineCom's
investment  in NEON of  $15.9  million.  In  accordance  with  the  SEC's  Staff
Accounting  Bulletins  ("SAB") 51 and 84 MaineCom  increased  additional paid in
capital by $9.4 million and deferred tax reserve liability by $6.5 million.  CMP
Group's  accounting  policy  for such  transactions  is to  recognize  a gain in
income.  However,  the above  transaction  was reflected in  additional  paid in
capital as required by the SEC SAB's.

In conjunction with the IPO,  Central Maine sold 282,023 NEON shares,  resulting
in a net after tax gain of  approximately  $1.9 million and further reducing its
(now MaineCom's)  ownership percentage to 38.5-percent of the outstanding common
shares.

NEON is a facilities-based provider of technologically advanced, high-bandwidth,
fiber optic  transmission  capacity for  communications  carriers on local loop,
inter-city  and  interstate  facilities.  NEON is currently  expanding its fiber
optic  network to encompass  over 1,000 fiber optic cable route  miles,  or more
than 65,000 fiber strand miles, in New England and New York, utilizing primarily
electric-utility  rights-of-way,  including some of Central Maine's in Maine and
some owned by other electric utilities  including Northeast  Utilities,  another
substantial  minority  stockholder,   in  Connecticut,   Massachusetts  and  New
Hampshire.  As  of  December  31,  1998,  NEON  had  completed  construction  of
approximately  600 route miles, or 49,000 fiber miles, of its planned system and
is currently  engineering,  constructing,  or acquiring additional routes with a
goal of  creating  a  continuous  fiber  optic  link  between  New York City and
Portland,  Maine,  with access into and around  Boston and numerous  other major
service areas in the Northeast.

CMP Group believes there is a growing need for such a fiber optic network in the
Northeast and that NEON's outside financing will provide substantial  assistance
in completing  construction  of the network,  but cannot  predict the results of
this venture.

Note 9:  Capacity Arrangements

Power Agreements

Central Maine, through certain equity interests, is entitled to a portion of the
generating capacity and energy production of four nuclear generating  facilities
(the Yankee  companies),  three of which have been permanently shut down, and is
obligated  to  pay  its  proportionate  share  of  costs,  which  include  fuel,
depreciation,  operation-and-maintenance expenses, a return on invested capital,
and the estimated cost of decommissioning the nuclear plants.

Pertinent data related to these power agreements as of December 31, 1998, are as
follows:
<TABLE>
<S>                                      <C>              <C>            <C>              <C>     

(Dollars in thousands)                  Maine Yankee      Vermont       Connecticut     Yankee Atomic
                                                          Yankee          Yankee

Ownership share                                 38%              4%             6%             9.5%
                                                --               -              -              ---
Operating Status                       Permanently       Operating    Permanently      Permanently
                                       shutdown                       shutdown         shutdown
                                       August 6, 1997                 December 4,      February 26,
                                                                      1996             1992
Contract expiration date                      2008            2012           1998             2000
Capacity (MW)                                    -             531              -                -
Company's share of: Capacity (MW)
                                                 -              19              -                -
1998 energy and capacity costs           $  41,631        $  7,012       $  4,737         $  4,513
Long-term obligations and redeemable
preferred stock                          $  75,461        $  7,884       $  8,894                -
Estimated decommissioning obligation
                                          $273,895         $16,272        $29,913         $  7,761
Accumulated decommissioning fund
                                         $  80,812        $  7,620        $14,992          $14,313
</TABLE>

Under the terms of its  agreements,  Central Maine pays its ownership  share (or
entitlement  share) of estimated  decommissioning  expense to each of the Yankee
companies and records such payments as a cost of purchased power.

Permanent Shutdown of Maine Yankee Plant

On August 6, 1997,  the Board of Directors of Maine Yankee voted to  permanently
cease power operations at its nuclear generating plant at Wiscasset,  Maine (the
"Plant") and to begin  decommissioning the Plant. The Plant experienced a number
of  operational  and  regulatory  problems and did not operate after December 6,
1996.  The  decision  to close the Plant  permanently  was based on an  economic
analysis of the costs,  risks and  uncertainties  associated  with operating the
Plant  compared to those  associated  with closing and  decommissioning  it. The
Plant's  operating  license from the NRC was  scheduled to expire on October 21,
2008.

Central Maine  continues to incur costs,  which are  substantially  less than in
1997,  in  connection  with its 38% share of Maine Yankee as well as  additional
costs for  replacement  power since the Plant has been shut down. For the twelve
months ended  December  31, 1998,  such costs  amounted to  approximately  $41.6
million  for  Central  Maine,  $3.1  million  related to energy  costs and $38.5
million for capacity charges.  The power formerly received from Maine Yankee has
been primarily  replaced with two long-term  purchased power  arrangements  that
Central Maine has made with Canadian sources through February 2000.

Central Maine's 38% ownership  interest in Maine Yankee's common equity amounted
to $30 million as of December 31, 1998, and under Maine Yankee's Power Contracts
and Additional  Power  Contracts,  Central Maine is  responsible  for 38% of the
costs of  decommissioning  the Plant. Maine Yankee's most recent estimate of the
cost  of  decommissioning  is  $380.6  million,  based  on a  1997  study  by an
independent engineering  consultant,  plus estimated costs of interim spent-fuel
storage of $127.6  million,  for an estimated  total cost of $508.2  million (in
1997 dollars).  This would result in approximately $36.4 million being collected
annually   from   Maine   Yankee's   sponsors.   The   previous   estimate   for
decommissioning,  by the same consultant,  was $316.6 million (in 1993 dollars),
which  resulted in  approximately  $14.9 million being  collected  annually from
Maine Yankee's sponsors pursuant to a 1994 Federal Energy Regulatory  Commission
("FERC")  rate order.  Through  December  31, 1998,  Maine Yankee had  collected
approximately $212.7 million for its decommissioning obligations.

FERC Rate Case. On November 6, 1997,  Maine Yankee  submitted to FERC for filing
certain  amendments to the Power  Contracts (the  "Amendatory  Agreements")  and
revised  rates to  reflect  the  decision  to shut down the Plant and to request
approval of an increase in the  decommissioning  component of its formula rates.
Maine Yankee's  submittal also requested  certain other rate changes,  including
recovery of unamortized  investment  (including fuel) and certain changes to its
billing formula, consistent with the non-operating status of the Plant. By Order
dated January 14, 1998,  the FERC accepted  Maine Yankee's new rates for filing,
subject to refund  after a minimum  suspension  period,  and set Maine  Yankee's
Amendatory  Agreements,   rates  and  issues  concerning  the  prudence  of  the
Plant-shutdown decision for hearing.

By Complaint  dated  December 9, 1997,  the Maine Office of the Public  Advocate
("OPA") sought a FERC  investigation  of Maine Yankee's  actions  leading to the
decision  to  shut  down  the  Plant,  including  actions  associated  with  the
management  and operation of Maine Yankee since 1993.  The MPUC had initiated an
investigation in Maine earlier,  raising  generally  similar issues. By decision
dated  May  4,  1998,  the  FERC   consolidated   the  OPA  Complaint  with  the
comprehensive  rate  proceeding.  In  addition,  28  municipal  and  cooperative
utilities that had purchased in the aggregate  approximately  6.2 percent of the
output of the Plant from Maine Yankee's  sponsors (the  "Secondary  Purchasers")
intervened in the FERC  proceeding,  raising  similar  prudence issues and other
issues specific to their status as indirect purchasers from Maine Yankee.

In support of its request for an increase in decommissioning collections,  Maine
Yankee submitted with its initial FERC filing a 1997  decommissioning cost study
performed by TLG Services, Inc. ("TLG"). During 1998, Maine Yankee engaged in an
extensive  competitive  bid  process  to  engage  a  Decommissioning  Operations
Contractor  ("DOC") to perform certain major  decontamination  and dismantlement
activities at the Plant on a  fixed-price,  turnkey  basis.  As a result of that
process, a consortium headed by Stone & Webster Engineering  Corporation ("Stone
&  Webster")  was  selected  to  perform  such  activities  under a  fixed-price
contract.  The contract provides for, among other undertakings,  construction of
an independent spent fuel storage installation ("ISFSI") and completion of major
decommissioning  activities  and site  restoration  by the end of 2004.  The DOC
process  resulted in fixing certain costs that had been estimated in the earlier
decommissioning cost estimate performed by TLG.

Since the filing of the rate request,  Maine Yankee and the active  intervenors,
including among others the MPUC Staff,  the OPA, Central Maine and other owners,
the  Secondary  Purchasers,  and a  Maine  environmental  group  (the  "Settling
Parties"),  engaged in  extensive  discovery  and  negotiations.  Those  parties
participated in settlement  discussions  that resulted in an Offer of Settlement
filed by those  parties with the FERC on January 19, 1999.  On February 8, 1999,
the FERC Trial Staff recommended that the presiding judge certify the settlement
to the FERC and  that the FERC  approve  it.  Upon  approval  by the  FERC,  the
settlement  would  constitute  a full  settlement  of all  issues  raised in the
consolidated FERC proceeding,  including  decommissioning-cost issues and issues
pertaining  to the  prudence  of the  management,  operation,  and  decision  to
permanently  cease  operation of the Plant. A separately  negotiated  settlement
filed with the FERC on February 5, 1999,  would resolve the issues raised by the
Secondary  Purchasers by limiting the amounts they will pay for  decommissioning
the Plant  and by  settling  other  points of  contention  affecting  individual
Secondary  Purchasers.  On February 24, 1999,  the FERC Trial Staff  recommended
certification and approval of the settlement with the Secondary Purchasers.

The Offer of  Settlement  provides for Maine Yankee to collect  $33.6 million in
the  aggregate  annually,  effective  January 15, 1998,  consisting of (1) $26.8
million  for  estimated   decommissioning   costs,  and  (2)  $6.8  million  for
ISFSI-related  costs. The original filing with FERC on November 6, 1997,  called
for an aggregate annual collection rate of $36.4 million for decommissioning and
the ISFSI, based on the TLG estimate.  Under the settlement the amount collected
annually could be reduced to  approximately  $26 million if Maine Yankee is able
to (1) use for construction of the ISFSI funds held in trust under Maine law for
spent-fuel disposal, and (2) access approximately $6.8 million being held by the
State of Maine for eventual  payment to the State of Texas pursuant to a compact
for  low-level  nuclear waste  disposal,  the future of which is now in question
after  rejection  of the  selected  disposal  site  in  west  Texas  by a  Texas
regulatory agency.  Both would require  authorizing  legislation in Maine, which
Maine Yankee is committed to use its best efforts to obtain.

The Offer of Settlement also provides for recovery of all unamortized investment
(including fuel) in the Plant, together with a return on equity of 6.50 percent,
effective  January 15, 1998,  on equity  balances up to maximum  allowed  equity
amounts.  The Settling  Parties also agreed in the  proposed  settlement  not to
contest the effectiveness of the Amendatory Agreements submitted to FERC as part
of the original filing,  subject to certain  limitations  including the right to
challenge any accelerated recovery of unamortized  investment under the terms of
the Amendatory Agreements after a required informational filing with the FERC by
Maine Yankee. In addition,  the settlement  contains incentives for Maine Yankee
to achieve further savings in its  decommissioning  and ISFSI-related  costs and
resolves  issues  concerning  restoration  and  future use of the Plant site and
environmental   matters  of  concern  to  certain  of  the  intervenors  in  the
proceeding.

As a separate  part of the Offer of  Settlement,  Central  Maine,  the other two
Maine utilities which own interests in Maine Yankee, the MPUC Staff, and the OPA
entered into a further  agreement  resolving retail rate issues and other issues
specific to the Maine parties,  including those that had been raised  concerning
the prudence of the operation and shutdown of the Plant (the "Maine Agreement").
Under the Maine  Agreement  Central  Maine  would  continue to recover its Maine
Yankee costs in accordance  with its most recent ARP order from the MPUC without
any adjustment reflecting the outcome of the FERC proceeding. To the extent that
Central  Maine has  collected  from its retail  customers  a return on equity in
excess of the 6.50 percent  contemplated by the Offer of Settlement,  no refunds
would be required, but such excess amounts would be credited to the customers to
the extent required by the ARP.

The final major provision of the Maine Agreement  requires the Maine owners, for
the period  from March 1, 2000,  through  December  1,2004,  to hold their Maine
retail ratepayers harmless from the amounts by which the replacement power costs
for Maine Yankee exceed the replacement power costs assumed in the report to the
Maine Yankee Board of  Directors  that served as a basis for the Plant  shutdown
decision,  up to a maximum  cumulative  amount of $41 million.  Central  Maine's
share  of that  amount  would  be  $31.16  million  for the  period.  The  Maine
Agreement,  which was approved by the MPUC on December 22, 1998, also sets forth
the methodology for calculating such replacement power costs.

CMP Group and Central Maine believe that the Offer of Settlement,  including the
Maine Agreement, constitutes a reasonable resolution of the issues raised in the
Maine Yankee FERC  proceeding,  and that  approval of the Offer of Settlement by
the FERC would eliminate  significant  uncertainties  concerning CMP Group's and
Central Maine's future financial performance. Although all of the active parties
to the proceeding,  including the FERC Trial Staff,  support or, with respect to
certain individual provisions, do not oppose, the Offer of Settlement, CMP Group
and Central Maine cannot predict with certainty  whether or in what form it will
be approved by the FERC.

Condensed  financial  information  on Maine Yankee  Atomic  Power  Company is as
follows:
<TABLE>
<S>                                                              <C>                <C>               <C>     

(Dollars in thousands)                                            1998              1997              1996
                                                                  ----              ----              ----
Earnings:
Operating revenues                                               $  110,608         $238,586          $185,661
Operating income                                                     13,430           18,170            17,150
Net income                                                            6,295            9,037             8,106
Earnings applicable to common stock                                   4,916            7,613             6,637

Central Maine's Equity Share of Net Earnings                   $      1,868      $     2,893        $    2,522
                                                                -----------       ----------         ---------
Investment:
Net electric property and nuclear fuel                        $         687      $    17,938          $222,360
Current assets                                                       20,896           71,098            44,979
Deferred charges and other assets                                 1,161,715        1,279,107           334,722
                                                                  ---------        ---------           -------
Total Assets                                                      1,183,298        1,368,143           602,061
                                                                  ---------        ---------           -------
Less:
Redeemable preferred stock                                           16,800           17,400            18,000
Long-term obligations                                               201,614          270,299           223,572
Current liabilities                                                  15,122           35,518            34,265
Reserves and deferred credits                                       870,856          966,561           255,472
                                                                  ---------        ---------           -------
Net Assets                                                      $    78,906      $    78,365         $  70,752
                                                                 ----------       ----------          --------
Company's Equity in Net Assets                                  $    29,984      $    29,779         $  26,886
                                                                 ==========       ==========          ========
</TABLE>

Other Nuclear Investments

In December  1996,  the Board of Directors of  Connecticut  Yankee  Atomic Power
Company  announced  a  permanent  shutdown of the  Connecticut  Yankee  plant in
Haddam, Connecticut, and decided to decommission the plant for economic reasons.
The  Company  has  a  6%  equity  interest  in  Connecticut   Yankee,   totaling
approximately  $6.3 million at December 31, 1998.  Central  Maine  estimates its
share of the cost of Connecticut  Yankee's continued  compliance with regulatory
requirements, recovery of its plant investments, decommissioning and closing the
plant to be approximately  $29.9 million and has recorded a regulatory asset and
a liability  on the  consolidated  balance  sheet.  Central  Maine is  currently
recovering through rates an amount adequate to recover these expenses.

On February 26, 1992, the Board of Directors of Yankee Atomic  Electric  Company
(Yankee Atomic) decided to permanently discontinue power operation at the Yankee
Atomic Plant in Rowe, Massachusetts,  and to decommission that facility. Central
Maine relied on Yankee Atomic for less than 1% of the Company's system capacity.
Its 9.5% equity  investment  in Yankee  Atomic is  approximately  $1.9  million.
Central Maine has estimated its remaining  share of the cost of Yankee  Atomic's
continued  compliance  with  regulatory  requirements,  recovery  of  its  plant
investments,  decommissioning  and closing the plant, to be  approximately  $7.8
million.

Central Maine has  approximately a 60% ownership  interest in the jointly owned,
Company-operated,  620-megawatt  oil-fired  W. F.  Wyman Unit No. 4. See Note 3,
"Regulatory  Matters" - "Agreement for Sale of Generation Assets." Central Maine
also has a 2.5%  ownership  interest in the  Millstone  Unit No. 3 nuclear plant
operated by Northeast Utilities,  and is entitled to approximately a 29-megawatt
share of that unit's capacity.  Central Maine's plant in service,  nuclear fuel,
decommissioning  fund, and related  accumulated  depreciation  and  amortization
attributable to these units as of December 31, 1998, and 1997 were as follows:
<TABLE>
<S>                                                      <C>            <C>             <C>           <C>     

                                                                 Wyman 4                    Millstone 3
                                                                 -------                    -----------
(Dollars in thousands)                                    1998            1997           1998          1997
                                                          ----            ----           ----          ----
Plant in service, nuclear fuel and decommissioning
fund                                                     $116,075       $116,367        $112,907      $112,227
Accumulated depreciation and amortization                  69,028         66,239          45,433        42,412
</TABLE>

Power-Pool Agreements

The New England Power Pool, of which Central Maine is a member,  has  contracted
in its Hydro-Quebec Projects to purchase power from Hydro-Quebec.  The contracts
entitle  Central  Maine to 44.5  megawatts of capacity  credit in the winter and
127.25 megawatts of capacity credit during the summer. Central Maine has entered
into  facilities-support  agreements  for its share of the related  transmission
facilities.   Central  Maine's  share  of  the  support  responsibility  and  of
associated benefits is approximately 7%.

Central  Maine is making  facilities-support  payments  on  approximately  $25.4
million,  its remaining share of the  construction  cost for these  transmission
facilities  incurred through December 31, 1998. These  obligations are reflected
on  the  Company's  consolidated  balance  sheet  as  lease  obligations  with a
corresponding charge to electric property.

Non-Utility Generators

Central Maine has entered into a number of long-term,  non-cancelable  contracts
for the purchase of capacity and energy from non-utility  generators  (NUG). The
agreements  generally  have  terms of five to 30 years,  with  expiration  dates
ranging from 1999 to 2023.  They require Central Maine to purchase the energy at
specified prices per  kilowatt-hour,  which are often above market prices. As of
December 31, 1998,  facilities having 508 megawatts of capacity covered by these
contracts were  in-service.  The costs of purchases under all of these contracts
amounted to $265 million in 1998,  $306.4 million in 1997, and $313.4 million in
1996.

Central Maine's estimated  contractual  obligations with NUGs as of December 31,
1998, are as follows:

(Dollars in               Amount
  millions)
1999                        $   280
2000                            281
2001                            260
2002                            267
2003                            271
2004 - 2023                   1,857
                              -----
                             $3,216

Note 10:  Capitalization and Interim Financing

Retained Earnings

Under  terms  of the  most  restrictive  test in  Central  Maine's  General  and
Refunding Mortgage  Indenture and Central Maine's Articles of Incorporation,  no
dividend may be paid on the common stock of Central Maine if such dividend would
reduce  retained  earnings  below $29.6 million.  At December 31, 1998,  Central
Maine's retained earnings were $76.3 million, of which $46.7 million were not so
restricted.  There  are no  such  restrictions  on CMP  Group.  Future  dividend
decisions will be subject to future earnings levels and the financial  condition
of CMP Group and Central Maine and will reflect the evaluation by their Board of
Directors of then existing circumstances.

Mortgage Bonds

Substantially  all of Central Maine's  electric-utility  property and franchises
are subject to the lien of the General and Refunding Mortgage.

Central Maine's outstanding mortgage bonds may be redeemed at established prices
plus accrued  interest to the date of redemption,  subject to certain  refunding
limitations.  Bonds  may also be  redeemed  under  certain  conditions  at their
principal  amount  plus  accrued  interest by means of cash  deposited  with the
trustee under certain provisions of the mortgage indenture.  Under the Indenture
such cash may be applied at any time, at the direction of Central Maine,  to the
redemption  of bonds  outstanding  under the  Indenture  at a price equal to the
principal  amount of the bonds being  redeemed,  without  premium,  plus accrued
interest to the date fixed for  redemption.  Such cash may also be  withdrawn by
Central  Maine by  substitution  of  allocated  property  additions or available
bonds.  At December 31,  1998,  there was  approximately  $1,000 of such cash on
deposit with the trustee.

Mortgage Bonds outstanding as of December 31, 1998, and 1997 were as follows:

Central Maine Power Company
General and Refunding Mortgage Bonds:
                                     Interest
 Series             Maturity           rate           1998           1997
 ------             --------           ----           ----           ----
                                            (Dollars in thousands)
    U      1998-April 15              7.54%       $                  $ 25,000
                                                             -
    S      1998-August 15             6.03                   -         60,000
    T      1998-November 1            6.25                   -         75,000
    O      1999-January 1            7 3/8                   -         50,000
    P      2000-January 15            7.66              43,717         75,000
    N      2001-September 15          8.50                   -         11,000
    Q      2008-March 1               7.05              75,000         75,000
    R      2023-June 1               7 7/8                             50,000
                                                       -------       --------
                                                          -
Total Mortgage Bonds                                  $118,717       $421,000
                                                      =======         =======

During 1998, Central Maine paid at maturity or redeemed the following  principal
amounts of its General and Refunding Mortgage Bonds: on March 30, $50 million of
Series R 7-7/8%,  Due 2023;  on the same day $11 million of Series N 8.50%,  Due
2001;  on April 15, $25 million of Series U 7.54%,  Due 1998;  on June 15, $31.3
million of Series P 7.66%, Due 2000; on August 15, $60 million  principal amount
of Series S 6.03%,  Due 1998;  on November 1, $75  million  principal  amount of
Series T 6.25%,  Due 1998; and on December 31, $50 million  principal  amount of
Series O 7.375%, Due 1999. No premiums were paid by Central Maine for the bonds.

Limitations on Unsecured Indebtedness

Central Maine's Articles of Incorporation  limit certain unsecured  indebtedness
that may be outstanding to 20 percent of capitalization,  as defined without the
consent of the holders of Central Maine's preferred stock; 20 percent of defined
capitalization  amounted to $143  million as of  December  31,  1998.  Unsecured
indebtedness,  as defined,  amounted to $131  million as of December  31,  1998.
Central  Maine's $500 million  medium-term  note  program,  having  received the
consent of Central Maine's  preferred  stockholders in May 1997, is not included
in "unsecured indebtedness" for purposes of the 20-percent limitation.

Medium-Term Notes

At the annual meeting of the  stockholders of Central Maine on May 15, 1997, the
holders of Central Maine's outstanding preferred stock consented to the issuance
of $350  million in principal  amount of Central  Maine's  medium-term  notes in
addition to the $150  million in principal  amount to which they had  previously
consented in 1989. As of December 31, 1998,  $337 million of  medium-term  notes
were outstanding of which $10 million are classified as short-term.  Interest on
fixed-rate  notes is  payable on March 1 and  September  1,  while  interest  on
floating-rate notes is payable on the dates indicated thereupon.

Medium-Term Notes outstanding as of December 31, 1998, and 1997 were as follows:

(Dollars in thousands)
Maturity                                Interest rate     1998           1997
                                        -------------     ----           ----
Series A:
2000                                            9.65%     $  5,000      $ 5,000
Series B:
1998                                            5.32             -        8,000
Series C:
1999-2001                                  5.67-7.81       127,000       30,000
Series D:
1999-2000                                  5.52-7.04       205,000       -
                                                           -------        -----
Medium-Term Notes                                          337,000       43,000
   Less:  Amount Due Within One Year                        10,000       -
                                                          --------        -----
Total Medium-Term Notes                                   $327,000      $43,000
                                                           =======       ======

Pollution-Control Facility and Other Notes

Pollution-control  facility and other notes outstanding as of December 31, 1998,
and 1997 were as follows:
<TABLE>
<S>                                                  <C>                <C>                 <C>              <C>          
(Dollars in thousands)
Series                                         Interest rate            Maturity                1998           1997
------                                         -------------            --------                ----           ----
Central Maine Power Company:
Yarmouth Installment Notes                            6 3/4%    June 1, 2002                 $   9,330        $ 9,805
Yarmouth Installment Notes                            6 3/4     December 1, 2003                 1,000          1,000
Industrial Development
  Authority of the State of
  New Hampshire Notes                                 7 3/8     May 1, 2014                     19,500         19,500
Finance Authority of Maine                             8.16     January 1, 2005                 45,929         53,329
Revolving Credit Agreement                           6.1125     October 22, 1999                50,000              -
Maine Electric Power Company, Inc.:
Promissory Notes                                     Variable*  November 1, 2000                   420            620
NORVARCO: Promissory Note                             10.48     November 1, 2020                24,090              -
NORVARCO: Senior Note                                  7.05     November 1, 2020                 1,747              -
Union Water Power Company-Bank Notes
                                                       7.99     December 2011                    1,163              -
Union Water Power Company-Bank Notes
                                                    Variable**  October 2018                     1,284              -
                                                                                              --------         ------
Pollution-Control Facility and Other Notes
                                                                                               154,463         84,254
Less:  Amount Due Within One Year                                                                1,183              -
                                                                                             ---------         ------

                                                                                              $153,280        $84,254
                                                                                               =======         ======

</TABLE>                                                
  *The average rate was 6.48% in 1998 and 6.5% in 1997.
**The average rate was 8.25% in 1998.

The bonds  issued by the  Industrial  Development  Authority of the State of New
Hampshire  are  supported  by loan  agreements  between  Central  Maine  and the
Authority. The bonds are subject to redemption at the option of Central Maine at
their principal amount plus accrued interest and premium, beginning in 2001.

On October  26,  1994,  FAME  issued  $79.3  million of  Taxable  Electric  Rate
Stabilization  Revenue Notes Series 1994A (FAME  notes).  FAME and Central Maine
entered into a loan  agreement  under which Central Maine issued FAME a note for
approximately  $66.4  million,  evidencing a loan in that amount.  The remaining
$12.9  million of  FAME-notes  proceeds  over the $66.4  million was placed in a
capital-reserve  account. The amount in the capital-reserve  account is equal to
the highest  amount of  principal  and  interest on the FAME notes to accrue and
come due in any year the FAME notes are outstanding. The amounts invested in the
capital reserve account are initially invested in government securities designed
to generate  interest  income at a rate equal to the interest on the FAME notes.
Under the terms of the loan agreement,  Central Maine is also responsible for or
receives the benefit from the interest rate  differential  and investment  gains
and losses on the capital reserve account.

Capital Lease Obligations

CMP Group leases some of its buildings and equipment  under lease  arrangements,
and accounts for certain transmission agreements as capital leases using periods
expiring  between 2006 and 2021.  The net book value of property  under  capital
leases was $29.4  million and $31.2  million at  December  31,  1998,  and 1997,
respectively.  Assets  acquired  under  capital  leases are recorded as electric
property at the lower of fair-market  value or the present value of future lease
payments,  in accordance  with practices  allowed by the MPUC, and are amortized
over their  contract  terms.  The  related  obligation  is  classified  as other
long-term  debt.  Under the terms of the lease  agreements,  executory costs are
excluded from the minimum lease payments.

Estimated  future minimum lease payments for the five years ending  December 31,
2003,  together  with the present value of the minimum  lease  payments,  are as
follows:

(Dollars in thousands)                                           Amount
                                                                 ------
1999                                                             $ 5,257
2000                                                               5,088
2001                                                               4,919
2002                                                               4,749
2003                                                               4,580
Thereafter                                                        47,024
                                                                  ------
Total minimum lease payments                                      71,617
Less: amounts representing interest                               38,844
                                                                  ------
Present Value of Net Minimum Lease Payments                      $32,773
                                                                  ======

Sinking-Fund Requirements

Consolidated  sinking-fund  requirements  for long-term  obligations,  including
capital  lease  payments  and maturing  debt  issues,  for the five years ending
December 31, 2003, are as follows:

                                    (Dollars in thousands)
           Sinking fund   Maturing debt
                                             Total
1999            2,455         282,000        284,455
2000           10,519         128,717        139,236
2001           10,949          10,000         20,949
2002           18,766               -         18,766
2003           11,889               -         11,889

Disclosure of Fair Value of Financial Instruments

The methods  and  assumptions  used to estimate  the fair value of each class of
financial  instruments  for which it is  practicable  are discussed  below.  The
carrying  amounts  of cash and  temporary  investments  approximate  fair  value
because of the short maturity of these investments. The fair value of redeemable
preferred  stock and  pollution-control  facility  and  other  notes is based on
quoted  market  prices  as of  December  31,  1998 and 1997.  The fair  value of
long-term  obligations  is based on quoted market prices for the same or similar
issues,  or on the current rates offered to the particular  company based on the
weighted average life of each class of instruments.

The  estimated  fair  values  of the CMP  Group's  financial  instruments  as of
December 31, 1998, and 1997 are as follows:
<TABLE>
<S>                                                      <C>              <C>             <C>              <C>      

                                                                   1998                            1997
                                                         Carrying                        Carrying
(Dollars in thousands)                                     amount        Fair value        amount        Fair value
                                                       
Redeemable preferred stock                               $  27,910        $  28,747       $  46,528        $  48,247
Mortgage bonds                                             118,717          120,782         421,000          421,151
Medium-term notes                                          327,000          326,226          43,000           43,378
Pollution-control facility and other notes                 153,280          157,771          84,254           83,163

</TABLE>


Cumulative Preferred Stock

Preferred-stock  balances  outstanding  as of December 31, 1998 and 1997 were as
follows:

(Dollars in thousands, except per-share amounts)
                                         Current shares
                                          outstanding      1998         1997
Preferred Stock - Not Subject to
Mandatory Redemption:
$25 par value - authorized 2,000,000
  shares; outstanding:                            None    $      -       $    -
$100 par value noncallable -authorized
  5,713 shares; outstanding 6% voting            5,713         571          571
$100 par value callable - authorized
  2,300,000* shares; outstanding:
3.50% series (redeemable at $101)              220,000      22,000       22,000
4.60% series (redeemable at $101)               30,000       3,000        3,000
4.75% series (redeemable at $101)               50,000       5,000        5,000
5.25% series (redeemable at $102)               50,000       5,000        5,000
7 7/8% series (optional redemption after
  9/1/97, at $100)                                               -       30,000
6% stock owned by CMP Group, Inc.                  533         (43)       -
                                                            -------      ------
Total                                                      $35,528      $65,571
                                                            ======       ======
Redeemable Preferred Stock - Subject to
  Mandatory Redemption:
Flexible Money Market  Preferred  Stock, 
Series A - 7.999%  (279,100  shares in
1998, 395,275 sharesin 1997 and 1996)          189,100      27,910       39,528
8 7/8% series (redeemable at $101                            -            7,000
Total                                                      $27,910      $46,528

*Total  authorized  $100  par  value  callable  is  2,300,000   shares.   Shares
outstanding are classified as Not Subject to Mandatory Redemption and Subject to
Mandatory Redemption.

Sinking-fund  provisions  for the 8 7/8%  Series  Preferred  Stock  require  the
Company to redeem all shares at par plus an amount equal to dividends accrued to
the redemption date on the basis of 70,000 shares  annually  commencing on July,
1996.  The Company  also has the  non-cumulative  right to redeem up to an equal
amount of the respective  number of shares  annually,  beginning in 1996, at par
plus  an  amount  equal  to  dividends  accrued  to  the  redemption  date.  The
sinking-fund  requirement  for the five-year  period ending December 31, 2000 is
$7.0 million  annually  beginning in 1996.  The Company  redeemed $14 million of
these  shares at par in 1996 and 1997  pursuant to the  mandatory  and  optional
sinking-fund  provisions.  On July 1, 1998 Central  Maine  redeemed the final $7
million of its Preferred Stock 8 7/8% Series through its mandatory  sinking fund
provisions.  In  connection  with the Central Maine common stock  conversion,  a
number of holders of the 6% preferred stock requested  payment at fair value for
their shares pursuant to section 910 of the Maine Business  Corporation Act. CMP
Group  purchased  533 shares  from  various  shareholders  of  Central  Maine 6%
preferred stock.

Sinking-fund provisions for the Flexible Money Market Preferred Stock, Series A,
7.999%,  require  Central Maine to redeem all shares at par plus an amount equal
to  dividends  accrued  to the  redemption  date on the basis of  90,000  shares
annually  beginning in October 1999.  Central Maine also has the  non-cumulative
right to redeem up to an equal number of shares  annually  beginning in 1999, at
par plus an amount  equal to  dividends  accrued  to the  redemption  date.  The
sinking-fund requirement for the period 1998 through 2001 is $9 million annually
with a final sinking fund requirement of $910 thousand in 2002.

On April 1, 1998,  Central Maine redeemed all of the outstanding  300,000 shares
of its Preferred Stock 7-7/8% Series at a redemption price of $100 per share. No
accrued dividends were paid on the preferred stock since the redemption date was
a regular dividend payment date.

Interim Financing and Credit Agreements

Central Maine uses funds obtained from  short-term  borrowing to provide initial
financing for construction and other corporate purposes.

To support its short-term capital  requirements,  in October 1996, Central Maine
entered  into  a  $125  million  Credit  Agreement  with  several  banks,   with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement  originally  had  two  credit  facilities:  a $75  million,  364-day
revolving  credit facility and a $50-million,  3-year  revolving credit facility
that  matures on October 22,  1999.  Effective  December  15,  1998,  the banks'
commitments  under the 364-day  facility  were  reduced  from $75 million to $25
million,  and other  provisions  were amended to reflect the  reorganization  of
Central  Maine into a  holding-company  structure  and  recognize  other changed
circumstances.  Both credit  facilities  require annual fees on the total credit
lines.  The fees are  based on  Central  Maine's  credit  ratings  and allow for
various   borrowing  options  including   LIBOR-priced,   base-rate-priced   and
competitive-bid-priced  loans.  Access  to  commercial  paper  markets  has been
substantially  precluded  based upon Central  Maine's past credit  ratings.  The
amount of  outstanding  short-term  borrowing  will  fluctuate  with  day-to-day
operational needs, the timing of long-term financing, and market conditions. The
amount of  outstanding  short-term  borrowing  will  fluctuate  with  day-to-day
operational  needs, the timing of long-term  financing,  and market  conditions.
Central Maine had $5.0 million  outstanding  under the 364-day  revolving credit
facility at 6.63% and $50 million  outstanding under the 3-year revolving credit
facility at 6.11%.

CMP Group and its subsidiaries had a total of $16.4 million outstanding, made up
of revolving credit facility and other short-term  financings as of December 31,
1998.

Note 11:  Quarterly Financial Data (Unaudited)

CMP Group's unaudited,  consolidated  quarterly financial data pertaining to the
results of operations are shown below.
<TABLE>
<S>                                                 <C>                <C>                <C>                <C>     

(Dollars in thousands, except per-
   share amounts)                                                          Quarter ended
                                                 March 31*          June 30*         September 30        December 31
                                                 --------           -------          ------------        -----------
1998
Electric operating revenues                         $248,745           $208,216           $234,056           $247,722
Operating income                                      39,934             14,326             26,370             45,251
Net income (loss)                                     16,398                572             17,440             18,500
Earnings (loss) per common share*                       .51                .02                .54                .57
</TABLE>

For the years prior to 1998, CMP Group,  Inc. was not in existence;  the figures
for the years 1996 and 1997 are the same as Central Maine's.

*Same results as Central Maine.  CMP Group was formed September 1, 1998.

Central Maine's unaudited,  consolidated  quarterly financial data pertaining to
the results of operations are shown below.
<TABLE>
<S>                                                 <C>                <C>                <C>                <C>     

 (Dollars in thousands, except per-
   share amounts)                                                          Quarter ended
                                                 March 31            June 30         September 30        December 31
                                                 --------            -------         ------------        -----------
1998
Electric operating revenues                         $248,745           $208,216           $234,027           $247,573
Operating income                                      39,934             14,326             25,753             46,636
Net income (loss)                                     18,295              1,646             13,135             21,747
Earnings (loss) per common share*                       .51                .02                .38                .67
1997
Electric operating revenues                         $268,367           $210,074           $226,134           $249,601
Operating income                                      27,513              8,881              7,394             19,491
Net income (loss)                                     16,027             (2,539)            (5,845)             5,779
Earnings (loss) per common share*                      .43                (.15)              (.24)               .12
1996
Electric operating revenues                         $274,139           $216,358           $228,987           $247,562
Operating income                                      39,601             20,495             14,667             32,909
Net income                                            27,857              9,096              3,392             19,884
Earnings per common share*                              .78                .20                .04                .54
</TABLE>

*Earnings per share are  computed  using the  weighted-average  number of common
  shares outstanding during the applicable quarter.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH
           ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

Not Applicable.

                                    PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS
             OF THE REGISTRANT.

        See the  information  under the heading  "Election of  Directors" in the
registrants' definitive proxy material for its annual meeting of shareholders to
be held on May 20, 1999,  and Item 4.1,  Executive  Officers of the  Registrant,
above, both of which are hereby incorporated herein by reference.

Item 11.     EXECUTIVE COMPENSATION.

        See the information  under the heading "Board  Committees,  Meetings and
Compensation"  and the  heading  "Executive  Compensation"  in the  registrants'
definitive  proxy material for its annual meeting of  shareholders to be held on
May 20, 1999, which is hereby incorporated herein by reference.

Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
             OWNERS AND MANAGEMENT.

        See the  information  under  the  heading  "Security  Ownership"  in the
registrants' definitive proxy material for its annual meeting of shareholders to
be held on May 20, 1999, which is hereby incorporated herein by reference.

Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        See the information under the heading,  "Board Committees,  Meetings and
Compensation"  in the  registrants'  definitive  proxy  material  for its annual
meeting of shareholders to be held on May 20, 1999, which is hereby incorporated
herein by reference.



<PAGE>


                                     PART IV

Item 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
             AND REPORTS ON FORM 8-K.

      (a) List of documents filed as part of this report:

          (1)   Financial Statements and Supplementary Data
                See the Index to Financial Statements and Schedules under Item 8
                in Part II hereof, where these documents are listed, on page 56.
          (2) Exhibits - see (c) below.

      (b)  Reports on Form 8-K.  The Company filed the following reports on Form
           8-K during the last quarter of 1998 and thereafter to date:

Date of Report                                    Items Reported

November 17, 1998                                   Item 5

CMP Group and Central  Maine  reported  that FPL Group was seeking a declaratory
judgment in the United States  District  Court for the Southern  District of New
York that Central Maine could not meet  essential  terms of its January 6, 1998,
agreement  to sell its  non-nuclear  generating  assets  to FPL  Group  and that
therefore  FPL Group  should be excused  from  completing  its  purchase  of the
assets.

Date of Report                                    Items Reported

January 19, 1999                                    Item 5

 a) The registrants reported on the status of the FPL Group declaratory judgment
action discussed above.

 b) The  registrants  reported on an Offer of Settlement  filed with the FERC in
Maine Yankee's decommissioning rate case.

 c)  The  registrants  reported on the status of the MPUC  proceeding on Central
     Maine's stranded costs, revenue requirements, and rate design.

 d)  CMP Group reported on a bylaw provision dealing with shareholder  proposals
     and nominations of directors by shareholders.


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrants  have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.

                                      CMP GROUP, INC.



Date:   March 31, 1999                By /s/ David E. Marsh
      ----------------                  -------------------
                                         David E. Marsh
                                         Chief Financial Officer
                                         (Duly Authorized Officer)


                                      CENTRAL MAINE POWER COMPANY



Date:   March 31, 1999                By /s/ Curtis I. Call
      ----------------                  -------------------
                                         Curtis I. Call
                                         Treasurer
                                         (Duly Authorized Officer)



<TABLE>
<S>                                        <C>                                                  <C> 

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrants and in the capacities and on the dates indicated.

Signature                                  Title                                                Date

CMP Group, Inc.:
/s/ David T. Flanagan                      President and Chief Executive Officer; Director      March 31, 1999
-----------------------------
David T. Flanagan
(Principal Executive Officer)

 /s/ David E. Marsh                        Chief Financial Officer                              March 31, 1999
------------------------------
David E. Marsh
(Principal Financial Officer)

 /s/ Michael W. Caron                                                                           March 31, 1999
----------------------------
Michael W. Caron
(Principal Accounting Officer)


Central Maine Power Company:

 /s/ Sara J. Burns                         President; Director                                  March 31, 1999
---------------------------------
Sara J. Burns
(Principal Executive Officer)

 /s/ Curtis I. Call                        Treasurer                                            March 31, 1999
-----------------------------------
Curtis I. Call
(Principal Financial Officer)

 /s/ Michael W. Caron                      Comptroller                                          March 31, 1999
-----------------------------
Michael W. Caron
(Principal Accounting Officer)

CMP Group, Inc. and Central Maine Power Company:

 /s/ David M. Jagger                       Chairman of the Board of Directors                   March 31, 1999
-------------------------------
David M. Jagger

 /s/ Charles H. Abbott                     Vice Chairman of the Board of Directors              March 31, 1999
------------------------------
Charles H. Abbott

 /s/ Charleen M. Chase                     Director                                             March 31, 1999
-----------------------------
Charleen M. Chase

 /s/ Duane D. Fitzgerald                   Director                                             March 31, 1999
------------------------------
Duane D. Fitzgerald

 /s/ David T. Flanagan                     Director                                             March 31, 1999
------------------------------
David T. Flanagan

 /s/ Robert H. Gardiner                    Director                                             March 31, 1999
------------------------------
Robert H. Gardiner

 /s/ Peter J. Moynihan                     Director                                             March 31, 1999
-----------------------------
Peter J. Moynihan

 /s/ William J. Ryan                       Director                                             March 31, 1999
------------------------------
William J. Ryan

 /s/ Kathryn M. Weare                      Director                                             March 31, 1999
---------------------------
Kathryn M. Weare

 /s/ Lyndel J. Wishcamper                  Director                                             March 31, 1999
-------------------------
Lyndel J. Wishcamper
</TABLE>

                                  EXHIBIT INDEX

The following designated exhibits, as indicated below, are either filed herewith
or have heretofore been filed with the Securities and Exchange  Commission under
the Securities  Act of 1933,  the Securities  Exchange Act of 1934 or the Public
Utility Holding Company Act of 1935 and are incorporated  herein by reference to
such  filings.  Reference  is made to Item 8 of this Form 10-K for a listing  of
certain financial information and statements incorporated by reference herein.

NOTE: In this exhibit  index the "Company" or "Central  Maine" refers to Central
Maine Power  Company.  "CMP Group"  refers to CMP Group,  Inc.  All exhibits are
Central Maine exhibits unless otherwise designated.

<TABLE>
<S>      <C>          <C>                                                  <C>                               <C>
                                                                                                            Prior
       Exhibit                          Description of                                                     Exhibit
         No.                                Document                                SEC Docket                No.
     EXHIBIT 2:       PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
                      LIQUIDATION OR SUCCESSION

                      Not Applicable.
         2-1          Form Of Agreement And Plan Of Merger                 333-49677                          2
     
     EXHIBIT 3:       ARTICLES OF INCORPORATION AND BY-LAWS
                      Incorporated herein by reference:
         3-1          Articles of Incorporation, as amended.               Annual Report on Form 10-K        3.1
                                                                           for year ended December 31,
                                                                           1992
        3-1.1         Form of Articles of Amendment of CMP Group           333-49677                         3.1
         3-2          Bylaws, as amended.                                  Annual Report on Form 10-K        3.2
                                                                           for year ended December 31,
                                                                           1996
        3-2.1         Form of By laws of CMP Group                         333-49677                         3.2
     EXHIBIT 4:       INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
                      Incorporated herein by reference:
         4-1          General and Refunding Mortgage between the Company   2-58251                           2.18
                      and The First National Bank of Boston, as Trustee,
                      dated as of April 15, 1976, relating to the Series
                      A Bonds.
         4-2          First Supplemental Indenture dated as of March 15,   2-60786                           2.19
                      1977 to the General and Refunding Mortgage.
         4-3          Supplemental Indenture to the General and            Annual Report on Form 10-K         A
                      Refunding Mortgage Indenture dated as of October     for the year ended December
                      1, 1978 relating to the Series B Bonds.              31, 1978
         4-4          Supplemental Indenture to the General and            Quarterly Report on Form           A
                      Refunding Mortgage Indenture dated as of October     10-Q for the quarter ended
                      1, 1979, relating to the Series C Bonds.             September 30, 1979
        4.10          Supplemental Indenture to the General and            33-9232                           4.16
                      Refunding Mortgage Indenture dated as of December
                      1, 1986, relating to the Series I Bonds.
        4.14          Indenture, dated as of August 1, 1989, between the   33-29626                          4.1
                      Company and The Bank of New York, Trustee,
                      relating to the Medium-Term Notes.
        4.15          First Supplemental Indenture, dated as of August     Current Report on Form 8-K        4.15
                      7, 1989, relating to the Medium-Term Notes, Series   dated August 16, 1989
                      A, and supplementing the Indenture relating to the
                      Medium-Term Notes.
       4.15.1         Second Supplemental Indenture, dated as of January Current
                      Report  on  Form  8-K  4.1  10,  1992,   relating  to  the
                      Medium-Term  Notes,  dated  January 28, 1992 Series B, and
                      supplementing  the Indenture  relating to the  Medium-Term
                      Notes.
       4.15.2         Third Supplemental Indenture,  dated as of December Annual
                      Report on Form  10-K  4.15.2  15,  1994,  relating  to the
                      Medium-Term  Notes,  for year ended December 31, Series C,
                      and  supplementing  the  Indenture  relating  1994  to the
                      Medium-Term Notes.
       4.15.3         Fourth Supplemental Indenture, dated as of           333-35235                         4.4
                      February 26, 1998, relating to the Medium-Term
                      Notes,  Series D, and supplementing the Indenture relating
                      to the Medium-Term Notes.
        4.17          Supplemental Indenture to the General and            Current Report on Form 8-K        4.1
                      Refunding Mortgage Indenture, dated as of            dated September 17, 1991
                      September 15, 1991, relating to the Series N Bonds.
        4.18          Supplemental Indenture to the General and            Current Report on Form 8-K        1.2
                      Refunding Mortgage Indenture, dated as of December   dated December 10, 1991
                      1, 1991, relating to the Series O Bonds.
        4.19          Supplemental Indenture to the General and            Annual Report on Form 10-K        4.19
                      Refunding Mortgage Indenture, dated as of December   for year ended December 31,
                      15, 1992, relating to the Series P Bonds.            1992
        4.20          Supplemental Indenture to the General and            Current Report on Form 8-K        4.1
                      Refunding Mortgage Indenture, dated as of February   dated March 1, 1993
                      15, 1993, relating to the Series Q Bonds.
        4.21          Supplemental Indenture to the General and            Current Report on Form 8-K        4.1
                      Refunding Mortgage Indenture, dated as of May 20,    dated May 20, 1993
                      1993, relating to the Series R Bonds.
        4.22          Supplemental Indenture to the General and            Current Report on Form 8-K        4.1
                      Refunding Mortgage Indenture, dated as of August     dated November 30, 1993
                      15, 1993, relating to the Series S Bonds.
        4.23          Supplemental Indenture to the General and            Current Report on Form 8-K        4.2
                      Refunding Mortgage Indenture, dated as of November   dated November 30, 1993
                      1, 1993, relating to the Series T Bonds.
        4.24          Supplemental Indenture to the General and            Annual Report on Form 10-K        4.24
                      Refunding Mortgage Indenture, dated as of April      for year ended December 31,
                      12, 1994, relating to the Series U Bonds.            1994
        4.26          Supplemental Indenture to the General and            Annual Report on Form 10-K        4.26
                      Refunding Mortgage Indenture, dated as of February   for year ended December 31,
                      15, 1996, evidencing the succession of State         1995
                      Street Bank and Trust Company as Trustee
     EXHIBIT 9:       VOTING TRUST AGREEMENT
                      Not applicable.
     EXHIBIT 10:      MATERIAL CONTRACTS
                      Incorporated herein by reference:
        10-1          Agreement dated April 1, 1968 between the Company    2-30554                           4.27
                      and Northeast Utilities Service Company relating
                      to services in connection with the New England
                      Power Pool and NEPEX.
        10-2          Form of New England Power Pool Agreement dated as    2-55385                           4.8
                      of September 1, 1971 as amended to November 1,
                      1975.
        10-3          Agreement setting forth Supplemental NEPOOL          2-50198                           5.10
                      Understandings dated as of April 2, 1973.
        10-4          Sponsor Agreement dated as of August 1, 1968 among   2-32333                           4.27
                      the Company and the other sponsors of Vermont
                      Yankee Nuclear Power Corporation.
        10-5          Power Contract dated as of February 1, 1968          2-32333                           4.28
                      between the Company and Vermont Yankee Nuclear
                      Power Corporation.
        10-6          Amendment to Exhibit 10.5 dated as of June 1, 1972.  2-46612                          13-21
        10-7          Capital Funds Agreement dated as of February 1,      2-32333                           4.29
                      1968 between the Company and Vermont Yankee
                      Nuclear Power Corporation.
        10-8          Amendment to Exhibit 10.7 dated as of March 12,      70-4611                           B-3
                      1968.
        10-9          Stockholder Agreement dated as of May 20, 1968       2-32333                           4.30
                      among the Company and the other stockholders of
                      Maine Yankee Atomic Power Company.
        10-10         Power Contract dated as of May 20, 1968 between      2-32333                           4.31
                      the Company and Maine Yankee Atomic Power Company.
       10-10.1        Amendment No. 1 to Exhibit 10-10 dated as of March   Annual Report on Form 10-K       10-1.1
                      1, 1984.                                             for the year ended December
                                                                           31, 1985 of Maine Yankee
                                                                           Atomic Power company (File
                                                                           No. 1-6554)
       10-10.2        Amendment No. 2 to Exhibit 10-10 dated as of         Annual Report on Form 10-K       10-1.2
                      January 1, 1984.                                     for the year ended December
                                                                           31, 1985 of Maine Yankee
                                                                           Atomic Power Company (File
                                                                           No. 1-6554)
       10-10.3        Amendment No. 3 to Exhibit 10-10 dated as of         Annual Report on Form 10-K       10-1.3
                      October 1, 1984.                                     for the year ended December
                                                                           31, 1985 of Maine Yankee
                                                                           Atomic Power Company (File
                                                                           No. 1-6554)
       10-10.4        Additional Power Contract between the Company and    Annual Report on Form 10-K       10-1.4
                      Maine Yankee Atomic Power Company dated February     for the year ended December
                      1, 1984.                                             31, 1985 of Maine Yankee
                                                                           Atomic Power Company (File
                                                                           No. 1-6554)
        10-11         Capital Funds Agreement dated as of May 20, 1968     2-32333                           4.32
                      between the Company and Maine Yankee Atomic Power
                      Company.
       10-11.1        Amendment No. 1 to Exhibit 10-11 dated as of         Annual Report on Form 10-K       10-2.1
                      August 1, 1985.                                      for the year ended December
                                                                           31, 1985 of Maine Yankee
                                                                           Atomic Power Company (File
                                                                           No. 1-6554)
        10-25         Agreement dated as of May 1, 1973 for Joint          2-48966                          13-57
                      Ownership, Construction and Operation of New
                      Hampshire Nuclear Units among Public Service
                      Company of New Hampshire and certain other
                      utilities, including the Company.
        10-42         Twentieth Amendment to Exhibit 10-25 dated as of     Annual Report on Form 10-K       10-42
                      September 19, 1986.                                  for the year ended December
                                                                           31, 1986
        10-46         Participation Agreement, dated June 20, 1969 among   2-35073                          4.23.1
                      Maine Electric Power Company, Inc., the Company
                      and certain other utilities.
        10-47         Power Purchase and Transmission Agreement dated      2-35073                          4.23.2
                      August 1, 1969, among Maine Electric Power
                      Company,  Inc.,  the Company and certain other  utilities,
                      relating to purchase  and  transmission  of power from The
                      New Brunswick Electric Power
                      Commission.
        10-48         Agreement amending Exhibit 10-47 dated June 24,      2-37987                           4.41
                      1970.
        10-49         Agreement supplementing Exhibit 10-47 dated          2-51545                          5.7.4
                      December 1, 1971.
        10-50         Assignment Agreement dated March 20, 1972, between   2-51545                          5.7.5
                      Maine Electric Power Company, Inc., and the New
                      Brunswick Electric Power Commission.
        10-51         Capital Funds Agreement dated as of September 1,     2-24123                          4.19.1
                      1964 among Connecticut Yankee Atomic Power
                      Company, the Company and certain other utilities.
        10-52         Power Contract dated as of July 1, 1964 among        2-24123                          4.19.2
                      Connecticut Yankee Atomic Power Company, the
                      Company and certain other utilities.
        10-53         Stockholder Agreement dated as of July 1, 1964       2-24123                          4.19.3
                      among the stockholders of Connecticut Yankee
                      Atomic Power Company, including the Company.
        10-54         Connecticut Yankee Transmission Agreement dated as 2-24123
                      4.19.4 of  October  1,  1964  among  the  stockholders  of
                      Connecticut Yankee Atomic Power Company, including
                      the Company.
        10-55         Agreements with Yankee Atomic Electric  Company each dated
                      June 30, 1959, as follows:
       10-55.1        Stock Agreement.                                     2-15553                          4.17.1
       10-55.2        Power Contract.                                      2-15553                          4.17.2
       10.55.3        Research Agreement.                                  2-15553                          4.17.3
        10-56         Transmission Agreement with Cambridge Electric       2-15553                           4.18
                      Light Company and other sponsoring stockholders of
                      Yankee Atomic Electric Company.
        10-57         Agreement for Joint Ownership, Construction and      2-52900                           5.16
                      Operation of Wyman Unit No. 4 dated November 1,
                      1974 among the Company and certain utilities.
        10-58         Amendment to Exhibit 10-57 dated as of June 30,      2-55458                           5.48
                      1975.
        10-59         Amendment to Exhibit 10-57 dated as of August 16,    2-58251                           5.19
                      1976.
        10-60         Amendment to Exhibit 10-57 dated as of December      2-68184                           5.31
                      31, 1978.
        10-61         Transmission Agreement dated November 1, 1974        2-54449                          13-57
                      among the Company and certain other utilities,
                      relating to Wyman Unit No. 4.
        10-62         Sharing Agreement--1979 Connecticut Nuclear Unit     2-50142                           2.43
                      dated September 1, 1973 among the Company and
                      certain other utilities, relating to Millstone
                      Unit No. 3.
        10-63         Amendment to Exhibit 10-62 dated as of August 1,     2-51999                           5.16
                      1974, relating to Millstone Unit
                      No. 3.
        10-64         Agreement dated as of February 25, 1977 among the    2-58251                           5.24
                      Company, the Connecticut Light and Power Company,
                      the Hartford Electric Light Company and Western
                      Massachusetts Electric Company, relating to
                      Millstone Unit No. 3.
        10-70         Project  Agreement dated December 5, 1984 among the Annual
                      Report on Form 10-K 10-69 Company,  the Cities of Lewiston
                      and Auburn,  Maine for the year ended December and certain
                      other  parties,   relating  to  development  31,  1984  of
                      hydro-electric plant.
        10-73         Trust Indenture dated as of June 1, 1977 between     2-60786                           5.27
                      the Town of Yarmouth and Casco Bank & Trust
                      Company, as trustee,  relating to the Town of Yarmouth's 6
                      3/4% Pollution  Control Revenue Bonds (Central Maine Power
                      Company, 1977 Series A).
        10-74         Installment Sale Agreement dated as of June 1,       2-60786                           5.28
                      1977 between the Town of Yarmouth and the Company.
        10-75         Agreements Relating to $11,000,000 Floating/Fixed
                      Rate Pollution Control Revenue Refunding Bonds:
       10-75.1        Bond Purchase Agreement dated as of May 1, 1984.     Quarterly Report on Form          28.3
                                                                           10-Q for the quarter ended
                                                                           June 30, 1984
       10-75.2        Loan Agreement dated as of May 1, 1984.              Quarterly Report on Form          28.4
                                                                           10-Q for the quarter ended
                                                                           June 30, 1984
        10-76         Agreements Relating to $8,500,000 Floating/Fixed
                      Rate Pollution Control Revenue Bonds:
       10-76.1        Bond Purchase Agreement dated December 28, 1984.     Annual Report on Form 10-K      10-77.1
                                                                           for year ended December 31,
                                                                           1984
       10-76.2        Loan Agreement dated as of December 1, 1984.         Annual Report on Form 10-K      10-77.2
                                                                           for year ended December 31,
                                                                           1984
       10-77.1        Indenture of Trust dated as of March 14, 1988        Annual Report on Form 10-K       10-1.4
                      between Maine Yankee Atomic Power Company and        for year ended December 31,
                      Maine National Bank relating to decommissioning      1987, of Maine Yankee Atomic
                      trust funds.                                         Power Company (1-6554)
     10-77.1(a)       Amended and Restated Indenture of Trust dated as     Annual Report on Form 10-K       10-6.1
                      of January 1, 1993 between Maine Yankee Atomic       for year ended December 31,
                      Power Company and The Bank of New York relating to   1992, of Maine Yankee Atomic
                      decommissioning trust funds.                         Power Company (1-6554)
       10-77.2        Indenture of Trust dated as of October 16, 1985      Annual Report on Form 10-K        10-7
                      between the Company and Norstar Bank of Maine        for year ended December 31,
                      relating to the spent fuel disposal funds.           1985, of Maine Yankee Atomic
                                                                           Power Company (1-6554)
        10-78         Form of Agreement of Purchase and Sale dated Annual Report
                      on Form 10-K 10.79  February  19, 1986 between the Company
                      and  Eastern  for  the  year  ended   December   Utilities
                      Associates, relating to the sale of the 31, 1985 Company's
                      Seabrook Project interest.
        10-79         Addendum to Agreement of Purchase and Sale dated Quarterly
                      Report  on Form 2.1  June 23,  1986,  among  the  Company,
                      Eastern 10-Q for the quarter ending  Utilities  Associates
                      and EUA Power Corporation,  June 30, 1986 amending Exhibit
                      10-78.
        10-80         Agreement, dated as of October 29, 1986, between Quarterly
                      Report on Form 2.1 the Company and EUA Power  Corporation,
                      relating  to 10-Q for the  quarter  ended  the sale of the
                      Company's  interest  in the  Seabrook  September  30, 1986
                      Project.
        10-81         Credit Agreement, dated as of October 15, 1986,      Quarterly Report on Form          2.2
                      among the Company, various banks and Continental     10-Q for the quarter ended
                      Illinois National Bank and Trust Company of          September 30, 1986
                      Chicago, as agent, establishing the terms of a $40
                      million unsecured credit facility.
        10-86         Labor  Agreement  dated as of May 1, 1989  between  Annual
                      Report on Form 10-K 10.86 the Company  (Northern,  Western
                      and Southern  for the year ended  December  Division)  and
                      Local 1837 of the  International  31, 1989  Brotherhood of
                      Electrical Workers.
       10-86.1        Agreement dated as of November 25, 1991 extending    Annual Report on Form 10-K      10.86.1
                      Labor Contract.                                      for year ended December 31,
                                                                           1991
        10-89         1987 Executive Incentive Plan, as amended January    Annual Report on Form 10-K       10.89
                      20, 1993.*                                           for year ended December 31,
                                                                           1992
        10-90         Deferred Compensation Plan for Non-Employee          Annual Report on Form 10-K       10.90
                      Directors, as amended and restated effective         for year ended December 31,
                      February 1, 1992.*                                   1992
        10-91         Retirement Plan for Outside  Directors,  as amended Annual
                      Report on Form 10-K 10.91 and restated effective April 24,
                      1991.* for year ended December 31,
                                                                           1992
        10-93         Central Maine Power Company Long-Term Incentive      Annual Report on Form 10-K       10.93
                      Plan.*                                               for year ended December 31,
                                                                           1993.
       10-93.1        Transfer of 10-93 to CMP Group                       333-49643                          -
       10-94.1        Central Maine Power Company Supplemental Executive   Annual Report on Form 10-K      10-94.1
                      Retirement  Plan,  as Amended and Restated  Effective  for
                      year ended  December 31,  January 1, 1993,  and as further
                      Amended Effective 1995 January 1, 1996.*
        10-95         Competitive Advance and Revolving Credit Facility    Annual Report on Form 10-K       10.95
                      between the Company and Chemical Bank dated as of    for year ended December 31,
                      November 7, 1994.                                    1994
        10-98         Credit Agreement dated as of October 23, 1996,       Annual Report on Form 10-K       10-98
                      between the Company and certain banks.               for year ended December 31,
                                                                           1996
       10-98.1        Amendment of 10-98 dated as of December 15, 1998     Filed herewith
       10-98.2        Credit Agreement dated as of December 15, 1998,      Filed herewith
                      between Central Maine and certain banks
        10-99         Asset Purchase Agreement, dated as of January 6,     333-35235                         99.2
                      1998, by and between the Company, other sellers,
                      and National Energy Holdings, Inc.
       10.100         Employment Agreement between CMP Group and David     Annual Report on Form 10-K       10.100
                      T. Flanagan dated December 31, 1997                  for year ended December 31,
                                                                           1997
       10.101         Employment Agreement between CMP Group and Arthur    Annual Report on Form 10-K       10.101
                      W. Adelberg dated January 1, 1998                    for year ended December 31,
                                                                           1997
       10.102         Employment Agreement between CMP Group and David     Annual Report on Form 10-K       10.102
                      E. Marsh dated January 1, 1998                       for year ended December 31,
                                                                           1997
       10.103         Employment Agreement between CMP Group and Gerald    Annual Report on Form 10-K       10.103
                      C. Poulin dated January 1, 1998                      for year ended December 31,
                                                                           1997
       10.104         Employment Agreement between the Company and Sara    Annual Report on Form 10-K       10.104
                      J. Burns dated June 30, 1997                         for year ended December 31,
                                                                           1997
       10-105         Employment Agreement between CMP Group and F.        Filed herewith                     -
                      Michael McClain dated August 26, 1998
       10-106         Employment Agreement between Central Maine and       Filed herewith                     -
                      Michael R. Cutter dated June 30, 1997
       10-107         Employment Agreement between Central Maine and       Filed herewith                     -
                      Curtis I. Call dated June 30, 1997
       10-108         Employment Agreement between CMP Group and Anne M.   Filed herewith                     -
                      Pare dated June 30, 1997
 *Management  contract or compensatory plan or arrangement  required to be filed
 in response to Item 14(c) of Form 10-K.
     EXHIBIT 11:      STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                      Not Applicable.
     EXHIBIT 12:      STATEMENTS RE COMPUTATION OF RATIOS
                      Not Applicable.
     EXHIBIT 13:      ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR
                      QUARTERLY REPORT TO SECURITY HOLDERS
                      Not Applicable.
     EXHIBIT 16:      LETTER RE CHANGE IN CERTIFYING ACCOUNTANT

                      Not Applicable.
     EXHIBIT 18:      LETTER RE CHANGE IN ACCOUNTING PRINCIPLES
                      Not Applicable.
     EXHIBIT 21:       SUBSIDIARIES OF THE REGISTRANTS                     Filed herewith
     EXHIBIT 22:      PUBLISHED REPORT CONCERNING MATTERS SUBMITTED TO
                      VOTE OF SECURITY HOLDERS
                      Not Applicable.
     EXHIBIT 23:      CONSENTS OF EXPERTS AND COUNSEL
        23-1          Consent of PricewaterhouseCoopers LLP to the         Filed herewith
                      incorporation by reference of their reports
                      included or incorporated by reference herein in
                      the Company's Registration Statements (File Number
                      33-36679, 33-39826, 33-44754, 33-51611, 33-56939
                      and 333-35235) and CMP Group's Registration
                      Statements (File Number 333-49677, 333-49643, and
                      33-39826).
     EXHIBIT 24:      POWER OF ATTORNEY

                      Not Applicable.
     EXHIBIT 27:      FINANCIAL DATA SCHEDULE                              Filed herewith
     EXHIBIT 28:      INFORMATION FROM REPORTS FURNISHED TO STATE
                      INSURANCE REGULATORY AUTHORITIES

                      Not Applicable.
     EXHIBIT 99:      ADDITIONAL EXHIBITS
                      To be filed under cover of a Form 10-K/A amendment of this
                      Form  10-K  within  180  days  after  December  31,  1998,
                      pursuant to Rule 15d-21 under the Securities  Exchange Act
                      of 1934:
     99-1             and -2  Information,  financial  statements  and  exhibits
                      required  by Form 11-K with  respect to  certain  employee
                      savings plans maintained by the Company.
</TABLE>


                                                 Central Maine Power Company
                                                      Form 10-K - 1998
                                                         Schedule II
                                                         Page 1 of 3

                           Central Maine Power Company

                        VALUATION AND QUALIFYING ACCOUNTS
                      For the Year Ended December 31, 1998
                             (Dollars in Thousands)

<TABLE>
<S>                                           <C>               <C>         <C>                <C>               <C>    

                                                                    Additions
                                                             Charged        Charged to
                                           Balance           to costs          other                            Balance
                                         at Beginning          and           accounts-        Deductions         at end
Description                               of Period          Expenses        describe         -describe        of period

Reserves deducted from assets to which they apply:


  Uncollectible accounts                      $ 2,400           $5,644      $   -              $4,908(A)         $ 3,136

Reserves not applied against assets:

  Casualty and insurance                      $ 1,500         $ 1,379              $          $   516(C)         $ 2,363
  Workers' compensation                         8,494           1,485            294(B)         1,779(C)           8,494
  Hazardous material
   clean-up                                     2,108            (368)                           (188)(D)          1,928
     Total                                    $12,102          $2,496           $294           $2,107            $12,785
</TABLE>

Notes:  

(A)  Amounts charged off as uncollectible  after deducting  customers'  deposits
     and recoveries of accounts previously charged off.
(B)  Amounts transferred to capital and billable accounts.
(C)  Principally  payments  for various  injuries  and  damages and  expenses in
     connection therewith. (D) Amounts charged to regulatory asset account.



                                                  Central Maine Power Company
                                                       Form 10-K - 1998
                                                          Schedule II
                                                          Page 2 of 3

                           Central Maine Power Company

                        VALUATION AND QUALIFYING ACCOUNTS
                      For the Year Ended December 31, 1997
                             (Dollars in Thousands)
<TABLE>
<S>                                           <C>               <C>         <C>                <C>               <C>    


                                                                    Additions
                                                             Charged        Charged to
                                           Balance           to costs          other                            Balance
                                         at Beginning          and           accounts-        Deductions         at end
Description                               of Period          Expenses        describe         -describe        of period

Reserves deducted from assets to which they apply:


  Uncollectible accounts                      $ 4,177           $5,514      $   -              $7,291(A)         $ 2,400

Reserves not applied against assets:

  Casualty and insurance                      $ 1,275         $ 1,862              $          $ 1,637(C)         $ 1,500
  Workers' compensation                         7,994           1,692            423(B)         1,615(C)           8,494
  Hazardous material
   clean-up                                     3,639           1,069                           2,600(D)           2,108
     Total                                    $12,908          $4,623           $423           $5,852            $12,102
</TABLE>

Notes: 

(A)  Amounts charged off as uncollectible  after deducting  customers'  deposits
     and recoveries of accounts previously charged off.
(B)  Amounts transferred to capital and billable accounts.
(C)  Principally  payments  for various  injuries  and  damages and  expenses in
     connection therewith. (D) Amounts charged to regulatory asset account.



                                               Central Maine Power Company
                                                    Form 10-K - 1998
                                                       Schedule II
                                                       Page 3 of 3

                           Central Maine Power Company

                        VALUATION AND QUALIFYING ACCOUNTS
                      For the Year Ended December 31, 1996
                             (Dollars in Thousands)
<TABLE>
<S>                                           <C>              <C>          <C>                <C>               <C>    

                                                                    Additions
                                                             Charged        Charged to
                                           Balance           to costs          other                            Balance
                                         at Beginning          and           accounts-        Deductions         at end
Description                               of Period          Expenses        describe         -describe        of period

Reserves deducted from assets to which they apply:


  Uncollectible accounts                      $ 3,313          $7,396       $   -              $6,532(A)         $ 4,177

Reserves not applied against assets:

  Casualty and insurance                      $ 1,275        $    798              $          $   798(C)         $ 1,275
  Workers' compensation                         6,400           2,820            270(B)         1,496(C)           7,994
  Hazardous material
   clean-up                                     3,540             895                             796(D)           3,639
     Total                                    $11,215          $4,513           $270           $3,090            $12,908
</TABLE>

Notes: 

(A)  Amounts charged off as uncollectible  after deducting  customers'  deposits
     and recoveries of accounts previously charged off.
(B)  Amounts charged to capital accounts.
(C)  Principally  payments  for various  injuries  and  damages and  expenses in
     connection therewith. (D) Amounts charged to regulatory asset account.