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, 1997


              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 file number 1-5139

                           CENTRAL MAINE POWER COMPANY
             (Exact name of registrant as specified in its charter)

                    Maine                                     01-0042740
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)


83 Edison Drive, Augusta, Maine                                  04336
(Address of principal executive                                (Zip Code)
offices)

Registrant's telephone number, including area code:  (207) 623-3521

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

                                                         Name of each exchange
         Title of each class                             on which registered

Preferred Stock, 7 7/8% Series                          New York Stock Exchange
------------------------------                          -----------------------

Common Stock, $5 Par Value                              New York Stock Exchange
--------------------------                              -----------------------

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

            6% Preferred Stock, $100 Par Value (Voting, Noncallable)
                                (Title of class)

           Dividend Series Preferred Stock, $100 Par Value (Callable)
                                (Title of class)


<PAGE>


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

         Yes  x   No

      Indicate by check mark 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 _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  $561,549,726  on
March 23, 1998 (based,  in the case of the common  stock of the Company,  on the
last  reported  sale price  thereof on the New York Stock  Exchange on March 23,
1998).


                   (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. The number of shares
of the  Company's  Common  Stock,  $5 par value  (being the only class of common
stock of the Company), outstanding on March 23, 1998, was 32,442,752 shares.


                       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 the Company's 1998 Annual
Meeting of Shareholders are incorporated by reference in Part III hereof.



<PAGE>


                           CENTRAL MAINE POWER COMPANY

                        INFORMATION REQUIRED IN FORM 10-K


                                                                     Page

Note re Forward-looking Statements                                     1

Item Number                                             Part I

Item 1.    Business                                                    1
Item 2.    Properties                                                 18
Item 3.    Legal Proceedings                                          26
Item 4.    Submission of Matters to a Vote of
           Security Holders                                           28
Item 4.1.  Executive Officers of the Registrant                       29

                                          Part II

Item 5.    Market for the Registrant's Common
           Equity and Related Stockholder Matters                     30
Item 6.    Selected Financial Data                                    30
Item 7.    Management's Discussion and Analysis of Financial 
           Condition and Results of Operations                        31
Item 8.    Financial Statements and Supplementary Data                52
Item 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure                        90

                                          Part III

Item 10.   Directors and Executive Officers of the Registrant         91
Item 11.   Executive Compensation                                     91
Item 12.   Security Ownership of Certain Beneficial Owners
           and Management                                             91
Item 13.   Certain Relationships and Related Transactions             91

                                          Part IV

Item 14.   Exhibits, Financial Statement Schedules, and
           Reports on Form 8-K                                        92

           Signatures                                                 94


<PAGE>



                       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. The Company
undertakes  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 also urged to carefully review
and consider the various disclosures made by the Company which attempt to advise
interested parties of the facts which affect the Company's business.

      Factors  that could cause  actual  results to differ  materially  include,
among other  matters,  the permanent  closure and  decommissioning  of the Maine
Yankee nuclear generating plant and resulting regulatory proceedings; the actual
costs of decommissioning the Maine Yankee plant; outages at the other generating
units in which the Company  holds  interests;  electric  utility  restructuring,
including the ongoing state and federal activities; the results of the Company's
planned sale of its  generating  assets;  the  Company's  ability to recover its
costs resulting from the January 1998 ice storms;  future  economic  conditions;
earnings-retention   and   dividend-payout   policies;   developments   in   the
legislative,  regulatory,  and  competitive  environments  in which the  Company
operates,  including  regulatory  treatment  of stranded  costs;  the  Company's
investments 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.  Central Maine Power Company (the "Company") is an investor-owned
Maine public utility  incorporated in 1905. The Company 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. The Company is also
diversifying into new lines of business,  largely through its subsidiaries.  See
"Expansion of Lines of Business",  below.  Its principal  executive  offices are
located at 83 Edison Drive,  Augusta,  Maine 04336,  where its general telephone
number is (207) 623-3521.

      The  Company  is  the   largest   electric   utility  in  Maine,   serving
approximately  528,000  customers  in its  11,000  square-mile  service  area in
southern  and central  Maine and having $954  million in  consolidated  electric
operating  revenues in 1997 (reflecting  consolidation  of financial  statements
with a majority-owned subsidiary, Maine Electric Power Company, Inc. ("MEPCO")).
The Company'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.  The Company'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 60 percent of
the  Company's   industrial   sales  and   approximately  24  percent  of  total
service-area sales.

      Financial  Results.  On  January  30,  1998,  the  Company  announced  its
financial results for 1997. The Company reported  earnings  applicable to common
stock of $5.2  million  ($0.16 per share),  including  $3.9  million  ($0.12 per
share) earned in the fourth  quarter.  Earnings for 1996 were $50.8 million,  or
$1.57 per share.  Replacement-power  costs and other costs  related to the Maine
Yankee nuclear plant,  which was permanently  closed on August 6, 1997, were the
main factors that eroded 1997 earnings from their 1996 level.

      The Company's  electric  operating  revenues for 1997 were $954.2 million,
down 1.3  percent  from the 1996 level of $967  million.  Lower  non-territorial
energy  sales  resulting  from Maine  Yankee's  being  off-line and reducing the
Company's total energy supply were the principal reason for the decline in total
revenues.  See "Permanent  Shutdown of Maine Yankee Plant" below.  Revenues from
the Company's service area rose 2.2 percent in 1997 to $890.2 million, on energy
sales of 9.36 billion kilowatt-hours, up 1.5 percent from 1996.

      The Company  incurred  $46.0 million in additional  costs to replace Maine
Yankee power and pay its share of increased  repair and other operating costs at
Maine Yankee in 1997. With the decommissioning  process commencing,  the Company
expects that its share of Maine Yankee operating costs could decrease by as much
as $30 million in 1998.

      Despite the $75 million in annual Maine  Yankee-related  costs imbedded in
the current  determination  of the Company's  required  revenues for  ratemaking
purposes  and  despite   success  in   controlling   other  costs,   the  higher
nuclear-related  costs  incurred  by the Company in 1997  reduced  earnings to a
level that  triggered  the  low-earnings  bandwidth  provisions of the Company's
Alternative  Rate Plan ("ARP").  The Company has been operating under provisions
of the ARP since January  1995.  The ARP was  structured  to provide  reasonable
assurance of continued recovery of costs of services,  including past deferrals;
improve the stability and  predictability  of prices;  reduce  regulatory costs;
offer  financial  incentives for improved  efficiencies;  and permit  regulatory
consideration of cost recovery for significant unforeseen events.

      Such an  event,  in the form of a severe  ice  storm,  struck  the  region
January 7 to 9, 1998,  cutting power to some 280,000  customers in the Company's
service  area.  A January  15 order of the  Maine  Public  Utilities  Commission
("MPUC")  allows the Company to defer  incremental  costs  incurred in restoring
service  and report them in its 1998 ARP  filing.  Incremental  costs of the ice
storm are  estimated at $60 million to $65 million.  The Company is pursuing all
available means of mitigating cost impacts, including seeking federal relief.

      The Company remains committed to its public pledge to hold price increases
at or below the rate of inflation.  In its annual ARP compliance filing in March
1998, the Company requested a price-cap increase of 1.8 percent, consistent with
that pledge.

      On May 29,  1997,  the Governor of Maine signed into law a bill enacted by
the Maine  Legislature  that will  restructure the electric  utility industry in
Maine by March 1,  2000.  See  "Restructuring  Legislation  and  Divestiture  of
Generation Assets" section below for further discussion.

      The Maine Yankee shutdown,  the ARP,  industry  restructuring,  strandable
costs,  the  pending  sale  of  the  Company's   generating  assets,  and  other
significant developments are discussed in succeeding sections of this report. In
some cases more complete information is included in Management's  Discussion and
Analysis of Financial Condition and Results of Operations, which appears in Item
7 of this report, or in the Notes to Consolidated  Financial  Statements for the
year ended  December 31, 1997,  which appear in Item 8 of this report.  In those
cases Items 7 and 8 should be read in conjunction  with the sections below for a
full discussion of the subjects covered in that manner.

      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. In addition,  for further discussion of information  required to be
furnished in response to this Item, see Items 7 and 8.

Topic                                                      Page

Regulation and Rates                                         3
Agreement for Sale of Company's Generation Assets            5
Industry Restructuring and Strandable Costs                  6
Proposed Formation of Holding Company                        9
Expansion of Lines of Business                               9
Non-utility Generation                                      10
Permanent Shutdown of Maine Yankee Plant                    11
Financing and Related Considerations                        15
Environmental Matters                                       17
Employee Information                                        17

Regulation and Rates

      General. The Company 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.
The Company 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 the Company 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 the Company 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  construction  permits or
operating  licenses have already been issued,  or impose new  conditions on such
permits or 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.  For a
discussion of regulatory issues preceding the permanent  cessation of operations
at the Maine Yankee Plant,  see "Permanent  Shutdown of the Maine Yankee Plant,"
below.

      The United States  Environmental  Protection  Agency  ("EPA")  administers
programs  which  affect  the  Company'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. The Company
is also  subject  to  regulation  by  various  state,  local and  other  federal
authorities  with  regard to  environmental  matters  and land use.  For further
discussion  of  environmental  considerations  as they affect the  Company,  see
"Environmental  Matters",  below,  and Item 3, "Legal  Proceedings" - "Legal and
Environmental Matters."

      Under  the  Federal  Power  Act,  the  Company's   hydroelectric  projects
(including  storage  reservoirs)  on navigable  waters of the United  States are
required to be licensed by the FERC. The Company 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.  Thirteen licenses expired in 1993,
one expired in 1997,  and fourteen  expire after 2000. The Company has filed all
applications  for  relicensing  the projects  whose  licenses were  scheduled to
expire in 1993 and has been  authorized  to continue to operate  those  projects
pending  action  on  relicensing  by  the  FERC.  The  Company's   hydroelectric
generating  facilities  are  included in the  generating  assets the Company has
contracted  to sell to FPL Group,  Inc.  For further  discussion  of the pending
sale, see "Agreement for Sale of Company's Generating Assets," below.

      The United  States has the right upon or after  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
the Company's licensed projects.

      Rate  Regulation.  Effective  January 1,  1995,  rate  regulation  for the
Company underwent a fundamental change with the implementation of the ARP, which
replaced traditional  regulation.  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 the Company's  rates,  with no
separate  reconciliation and recovery of fuel and  purchased-power  costs. Under
the ARP, the MPUC is continuing to regulate the Company'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."
See Note 3 of Notes to Consolidated Financial Statements for more information on
the ARP.

Agreement for Sale of Company's Generation Assets

      On April 28,  1997,  the  Company  announced a plan to seek  proposals  to
purchase  its  generating  assets and, as part of an auction  process,  received
final bids on December 10, 1997. On January 6, 1998, the Company  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 to  Florida-based  FPL Group, the winning bidder in the auction process.
In addition,  as part of its agreement with FPL Group,  the Company entered into
energy buy-back  agreements to assist in fulfilling its obligation to supply its
customers with power until March 1, 2000.

      The hydropower  assets to be included in the sale represent  approximately
373 megawatts of generating  capacity.  The fossil-fueled assets included in the
sale  consist of the  Company's  interest in the William F. Wyman steam plant in
Yarmouth,  Maine,  the largest of the Company's three  fossil-fueled  generating
assets, at 594 megawatts,  Mason Station in Wiscasset,  Maine, at 145 megawatts,
and Cape Station in South  Portland,  Maine,  at 42 megawatts.  The sole biomass
plant is the 31-megawatt unit in Fort Fairfield,  Maine, owned by a wholly-owned
subsidiary of the Company.

      The Company'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 III 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  present  sale.  The Company  will
continue to seek buyers for those assets. The Company 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.

      The electric utility  restructuring law passed by the Maine Legislature in
the spring of 1997  requires  the  Company to divest its  generating  plants and
power-purchase  agreements by March 1, 2000,  when its customers will be free to
choose among competitive energy suppliers, but the Company elected to conduct an
earlier sale.

      Substantially  all of the  generating  assets  included  in the  sale  are
subject to the lien of the Company'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 with the trustee under the Indenture at
the  closing  of the sale to free  the  generating  assets  from the lien of the
Indenture.  Proceeds  on deposit  with the trustee may be used by the Company to
redeem or  repurchase  bonds  under the terms of the  Indenture,  including  the
possible discharge of the Indenture. In addition, the proceeds could provide the
flexibility to redeem or repurchase  outstanding equity securities.  The Company
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,
market conditions and terms of outstanding securities.

      The bid value in excess of the  remaining  investment  in the power plants
will reduce the Company's  stranded costs and other costs, which could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars.  However,  the Company will incur  incremental costs as a result of the
power  buy-back  arrangements  in excess of the  pre-sale  costs of capacity and
energy from the plants being sold,  which will  effectively  lower the amount of
sale proceeds available to reduce stranded and other costs. The Company believes
that the reduction in stranded and other costs could permit a reduction in rates
for the Company's customers.

      The sale is subject to various closing conditions,  including the approval
of state and federal  regulatory  agencies,  which approval  process the Company
expects  could  take  approximately  four to twelve  months,  and is  subject to
consents of covenant waivers from certain of the Company's lenders.  The Company
cannot predict whether or in what form such approvals,  consents or waivers will
be obtained.

      The Company  believes that  consummation of the asset sale described above
would  constitute  significant  progress in resolving some of the  uncertainties
regarding  the  effects  of  electric-utility   industry  restructuring  on  the
Company's investors;  however, significant risks and uncertainties would remain.
These  include,   in  addition  to  those   enumerated   above  under  "Note  re
Forward-looking  Statements," but are not limited to: (1) the possibility that a
state or  federal  regulatory  agency  will  impose  adverse  conditions  on its
approval  of the asset  sale;  (2) the  possibility  that new  state or  federal
legislation  will be implemented  that will increase the risks to such investors
from those  contemplated  by current  legislation;  and (3) the  possibility  of
legislative,  regulatory or judicial  decisions that would reduce the ability of
the Company to recover its  stranded  costs from that  contemplated  by existing
law.

Industry Restructuring and Strandable Costs

      The  enactment  by Congress of the Energy  Policy Act of 1992  accelerated
planning by electric  utilities,  including  the Company,  for a transition to a
more competitive industry.  Significant legislative steps have been taken toward
competition in general and  non-discriminatory  transmission access as discussed
below. Legislation that will restructure the electric-utility  industry in Maine
by March 1, 2000,  was  enacted  by the Maine  Legislature  in May 1997,  and is
discussed in detail  under this  heading  below.  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.

      The Company has  substantial  exposure to cost  stranding  relative to its
size. In general,  its stranded  costs reflect the excess costs of the Company'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 the Company's
strandable costs is related to above-market costs of purchased-power obligations
arising from the Company's long-term,  noncancelable  contracts for the purchase
of capacity and energy from NUGs, with lesser  estimated  amounts related to the
Company'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 strandable costs depends on state and federal regulations; the
extent,  timing and form that  competition  for electric  service will take; the
ongoing  level of the  Company's  costs of  operations;  regional  and  national
economic  conditions;  growth of the Company's  sales; the timing of any changes
that may occur from state and  federal  initiatives  on  restructuring;  and the
extent to which regulatory  policies  ultimately  address recovery of strandable
costs.

      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 the Company'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 the Company to lessen the impact of these obligations,  along with
energy management costs, financing costs, and other regulatory commitments.

Restructuring  Legislation  and MPUC  Proceeding.  The 1997 Maine  restructuring
legislation  requires  the  MPUC,  when  retail  access  begins,  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
unmitigatable costs made unrecoverable as a result of the restructuring required
by the  legislation  and  would be  determined  by the MPUC as  provided  in the
legislation.   The  MPUC  must  conduct  separate  adjudicatory  proceedings  to
determine  the  stranded  costs for each utility and the  corresponding  revenue
requirements    and    stranded-cost    charges    to   be   charged   by   each
transmission-and-distribution  utility.  Those  proceedings must be completed by
July 1, 1999.  The MPUC has initiated  the  proceeding  that will  determine the
Company's stranded costs,  corresponding  revenue requirements and stranded-cost
charges  to be  charged  by it when it  becomes a  transmission-and-distribution
utility and has scheduled  completion of the  proceeding  for the second half of
1998. On December 5, 1997, the Company filed direct  testimony in the proceeding
estimating its future revenue  requirements  as a  transmission-and-distribution
utility and providing an updated estimate of its strandable costs,  which are to
be  defined by the MPUC  later in the  proceeding.  The  Company  estimated  its
strandable  costs at  approximately  $1.3 billion and explained the  assumptions
underlying the estimate. The estimate was developed without consideration of the
Company's own generating assets,  most of which are under contract to be sold to
FPL  Group in  1998.  The  Company's  strandable  costs,  therefore,  should  be
partially  mitigated by the results of the sale.  In its estimate of  strandable
costs the Company  used a  methodology  consistent  with one used earlier by the
MPUC. The Company cannot predict the results of the proceeding.

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  electricity 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  above under  "Agreement  for
Sale of Company's  Generating  Assets," the Company has  contracted  to sell its
non-nuclear  generating assets and is seeking regulatory approvals for the sale.
The bill also requires  investor-owned  utilities,  after  February 28, 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 minor exceptions.

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

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 the Company,
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 the Company  would be limited to  providing  such service for only up to 20
percent of the electric load in the Company'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.

The  Company has stated that it supports  the  legislation  ultimately  enacted,
which reflects  protracted  negotiations  and  compromises  among the interested
constituencies,  and is evaluating means of mitigating its strandable costs. The
Company   believes,   however,   that  some  of  the   limitations   imposed  on
transmission-and-distribution  utilities in the  legislation are unnecessary and
inappropriate in the contemplated competitive environment.

Proposed Formation of Holding Company

      To  prepare  further  for  the  restructured   electric  utility  industry
contemplated  by the  legislation,  on  December 8, 1997,  the Company  filed an
application  with the MPUC for  authorization  to create a holding  company that
would have as  subsidiaries  the Company,  the  Company's  existing  non-utility
subsidiaries  and other  entities.  The Company  believes that a holding company
structure will  facilitate the Company's  transition to a partially  deregulated
electricity  market that is  scheduled to open access to  electricity  for Maine
consumers  beginning on March 1, 2000.  Competing as an electric energy provider
in that market as of that date will  require the  creation of an energy  company
that is legally  separate  from the  Company.  The  Company  also  proposed  the
creation of an affiliated energy marketing affiliate in the MPUC filing.

      The  Company's  application  to the MPUC also  requested  approval  of the
creation of a limited  liability  company in which a proposed new  subsidiary of
the  holding  company  would  hold  a  fifty  percent  member-ship  interest  to
participate  in the  natural  gas  distribution  business  in  Maine,  with  the
remaining  fifty percent  interest  being held by New York State  Electric & Gas
Corporation  ("NYSEG") or its  affiliate.  For further  discussion  of the NYSEG
joint venture, see "Expansion of Lines of Business," below.

      The proposed  holding  company  formation must also be approved by federal
regulators,  including the Securities and Exchange  Commission and the FERC, and
by the holders of the Company's common stock and 6% Preferred Stock. The Company
is taking steps to pursue these approvals, but cannot predict the outcome.

Expansion of Lines of Business

      The  Company is  preparing  for  competition  by  expanding  its  business
opportunities  through  subsidiaries that capitalize on core  competencies.  One
subsidiary,  MaineCom  Services,  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 credit and collections subsidiary. Another
wholly-owned  subsidiary,  CMP  International   Consultants,   provides  utility
consulting  (domestic and  international)  and  research,  and  engineering  and
environmental services. The 100-percent 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, and utility construction services. The subsidiaries
often utilize  skills of former  Company  employees  and  regularly  compete for
business  with  other  companies.  In  addition,  a division  of the  Company is
focusing on retail competition by developing  effective marketing techniques and
energy-efficient services and products.

As noted above,  the Company and NYSEG have signed a joint-venture  agreement to
distribute  natural gas to many Maine  communities that are not currently served
with that fuel.  The Company and NYSEG propose to offer  natural-gas  service in
five areas of Maine, primarily the Augusta, Bangor, Bath-Brunswick,  Rumford and
Waterville  areas.  None  of  the  60  towns  in  those  areas  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, after receipt of additional  regulatory  approvals,  through
Maine and into the regional energy market using substantial portions of electric
transmission-line  corridors  owned by the Company  and MEPCO  under  agreements
entered  into on March 16,  1998.  On March 9, 1998,  the MPUC gave  preliminary
approval  to  the  Company-NYSEG  proposal,  subject  to  final  approval  after
submission of detailed  plans on  financing,  construction,  and other  matters.
Competing  applications to serve some of the areas have been filed.  The Company
cannot predict the outcome of the MPUC proceeding.  The Company will continue to
evaluate the opportunity to be a provider of natural gas to Maine customers, and
the economics thereof,  including  monitoring progress of the planned pipelines,
competitive considerations and relevant regulatory decisions.

FiveCom  LLC  ("FiveCom"),   a   majority-owned   subsidiary  of  the  Company's
wholly-owned   MaineCom  Services,  is  building  a  fiber-optic  cable  network
connecting  cities in New England  and plans to sell  capacity on the network to
telephone   companies,   Internet   providers,   and  other   telecommunications
businesses.  FiveCom has used transmission-line  corridors owned by the Company,
and a substantial part of the expanded network in Connecticut and  Massachusetts
will occupy  utility  corridors  of Northeast  Utilities,  which owns a minority
interest in FiveCom. The Company's equity investment in MaineCom Services at the
end of 1997 was $15.9 million.  In addition,  the Company is providing up to $30
million  to  FiveCom  through  a  loan   arrangement  for  the  development  and
construction  of the  expanded  network,  and for working  capital.  The Company
believes there is a growing need for such a fiber-optic  network in New England,
but cannot predict the results of this venture.

Non-utility Generation

      After enactment of the federal Public Utility  Regulatory  Policies Act of
1978  ("PURPA")  and  companion  legislation  in Maine,  the  Company  became an
industry  leader in developing  supplies of energy from  non-utility  generators
("NUGs"), including cogeneration plants and small power producers. These sources
supplied  3.6  billion  kilowatt-hours  of  electricity  to the Company in 1997,
representing  35 percent of total  generation,  an  increase  from 32 percent in
1996. 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 the Company's  increased costs
and resulting rate increases in the years immediately prior to implementation of
the ARP in 1995,  and  constitute  the largest part of the Company's  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 of the utility's  established rate for that customer class.
Thus the Company 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 the Company, has paid the Company for the NUG's energy requirements.
In addition, prices paid by the Company under NUG contracts have often been well
above current  wholesale  market prices.  On October 31, 1997, a contract with a
major NUG  supplier  expired,  which will result in an annual cost  reduction of
approximately $25 million for the Company, commencing November 1, 1997.

      In accordance with prior MPUC policy and the ARP, $93 million of buyout or
restructuring  costs since January 1992 have been  included in Deferred  Charges
and Other Assets on the Company's balance sheet and will be amortized over their
respective fuel savings periods. The Company will continue to seek opportunities
to reduce its NUG costs, but cannot predict what level of additional  savings it
will be able to achieve.  The Company 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.

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 the Company's  Annual Report on Form 10-K for the year ended  December
31, 1996,  its Quarterly  Reports on Form 10-Q for the quarters  ended March 31,
1997,  June 30, 1997 and September 30, 1997 and its Current  Reports on Form 8-K
dated May 15,  1997 and August 1, 1997,  and  reported  in more  condensed  form
below, the Plant experienced a number of operational and regulatory problems and
has been shut down since  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.

      Recent Operating  History.  The Plant provided reliable and low-cost power
from the time it commenced  operations in late 1972 to 1995.  Beginning in early
1995,  however,  Maine Yankee  encountered  various  operational  and regulatory
difficulties  with the  Plant.  In 1995,  the Plant was shut down for almost the
entire  year to  repair  a large  number  of steam  generator  tubes  that  were
exhibiting defects.  Shortly before the Plant was to go back on-line in December
1995,  a group with a history of  opposing  nuclear  power  released an undated,
unsigned,  anonymous  letter  alleging  that  in 1988  Yankee  Atomic  (then  an
affiliated  consultant of Maine Yankee) and Maine Yankee had used the results of
a faulty  computer  code as a basis to apply to the NRC for an  increase  in the
Plant's power output. In response to the allegation, on January 3, 1996, the NRC
issued a  Confirmatory  Order  that  restricted  the Plant to 90  percent of its
licensed thermal operation level, which restriction was still in effect when the
Plant was permanently shut down.

      As a result of the controversy  associated with the allegations,  the NRC,
at the request of the  Governor of Maine,  conducted  an  intensive  Independent
Safety  Assessment  ("ISA")  of the  Plant in the  summer  and fall of 1996.  On
October 7, 1996, the NRC issued its ISA report, which found that while the Plant
had been operated  safely and could continue to operate,  there were  weaknesses
that needed to be addressed, which would require substantial additional spending
by Maine Yankee. On December 10, 1996, Maine Yankee responded to the ISA report,
acknowledged  many of the  weaknesses,  and committed to revising its operations
and procedures to address the NRC's criticisms.

      Another result of the  controversy  associated with the allegations was an
investigation  of Maine Yankee  initiated by the NRC's Office of  Investigations
("OI"),  which, in turn, referred certain issues to the United States Department
of Justice ("DOJ") for possible criminal prosecution. Subsequently, on September
27, 1997, the DOJ, through the United States Attorney for Maine,  announced that
its review had  revealed  insufficient  grounds for  criminal  prosecution.  The
Company believes that the OI investigation,  however, could ultimately result in
the imposition of civil penalties,  including fines, on Maine Yankee and expects
resolution of outstanding NRC enforcement action in 1998.

      In 1996 the Plant was generally in operation at the 90-percent  level from
late January to early December,  except for a two-month  outage from mid-July to
mid-September.  The Plant was shut down again on  December  6, 1996,  to address
several  concerns,  and has not operated  since then.  The  precipitating  event
causing  the  shutdown  was the need to evaluate  and  resolve  cable-separation
compliance  issues,  and on December  18,  1996,  the NRC issued a  Confirmatory
Action Letter  requiring the Plant to remain shut down until Maine Yankee's plan
for resolving the cable-separation issues was accepted by the NRC. Subsequently,
Maine Yankee uncovered additional issues, including among others the possibility
of  having  to   replace   defective   fuel   assemblies,   address   additional
cable-separation  issues,  and  determine  the  condition  of the Plant's  steam
generators, which contributed to further operational uncertainty. On January 29,
1997, the Plant was placed on the NRC's Watch List, and on January 30, 1997, the
NRC issued a supplemental Confirmatory Action Letter requiring the resolution of
additional concerns before the Plant could be restarted.

      In December 1996 Maine Yankee requested  proposals from several  utilities
with large and  successful  nuclear  programs to provide a management  team, and
ultimately  contracted with Entergy Nuclear,  Inc., effective February 13, 1997,
for management  services that included  providing a new president and regulatory
compliance  officer.  The  Entergy-provided  management  team made  progress  in
addressing  technical  issues,  but  a  number  of  operational  and  regulatory
uncertainties  remained. On May 27, 1997, the Board of Directors of Maine Yankee
voted to minimize  spending while preserving the options of restarting the Plant
or  conveying   ownership   interests  to  a  third  party.  After  unsuccessful
negotiations  with  one  prospective  purchaser,  Maine  Yankee  found  no other
interest in purchasing the Plant and, based on its economic analysis, closed the
Plant permanently.

      As required by the NRC, on August 7, 1997,  Maine Yankee  certified to the
NRC that  Maine  Yankee  had  permanently  ceased  operations  and that all fuel
assemblies had been  permanently  removed from the Plant's  reactor  vessel.  On
August 27, 1997, Maine Yankee filed the required Post-Shutdown Activities Report
with the NRC,  describing  its planned  post-shutdown  activities and a proposed
schedule.

      Costs. The Company has been incurring substantial costs in connection with
its  38-percent  share of Maine Yankee costs,  as well as  additional  costs for
replacement power while the Plant has been out of service. For the twelve months
ended December 31, 1997, such costs amounted to approximately $132.3 million for
the Company:  $72.8 million due to basic operations and maintenance costs, $54.0
million  due to  replacement  power  costs  and  $5.5  million  associated  with
incremental  costs of  operations  and  maintenance.  The Maine  Yankee  Board's
decision to close the Plant mitigated the costs the Company would otherwise have
incurred  in 1997  through  a  phasing  down of Maine  Yankee's  operations  and
maintenance  costs,  with Maine  Yankee's  workforce  having been  reduced  from
approximately  475 to  214  employees  as of  December  31,  1997,  and  further
reductions  planned,  but did not reduce the need to buy replacement  energy and
capacity.  The amount of costs for replacement  energy and capacity varies based
on the  Company's  power  requirements  and market  conditions,  but the Company
expects  such costs to be within a range of  approximately  $5.0 million to $5.5
million per month during 1998,  based on current  energy and capacity  needs and
market conditions.  Under the electric utility restructuring legislation enacted
by the Maine Legislature in May 1997 discussed above, the Company's  obligations
to provide  replacement  power will  terminate on March 1, 2000,  along with its
other power-supply  obligations.  The impact of the nuclear-related costs on the
Company  was the major  obstacle  to  achieving  satisfactory  results  in 1997,
despite the  approximately  $75  million in annual  Maine  Yankee-related  costs
embedded in the current  determination  of the Company's  required  revenues for
ratemaking  purposes and despite success in controlling  other operating  costs.
See "Financial Results," above.

      The  Company's  38-percent  ownership  interest in Maine  Yankee's  common
equity  amounted  to $29.8  million as of  December  31,  1997,  and under Maine
Yankee's  Power  Contracts  and  Additional  Power  Contracts,  the  Company  is
responsible  for 38 percent  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).   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 FERC rate order. Through December 31,
1997,  Maine  Yankee  had  collected   approximately   $199.5  million  for  its
decommissioning obligations.

      On November 6, 1997,  Maine Yankee  submitted the new estimate to the FERC
as part of a rate case reflecting the fact that the Plant is no longer operating
and has entered the decommissioning phase. If the FERC accepts the new estimate,
the amount of Maine Yankee's collections for decommissioning would rise from the
$14.9 million  previously  allowed by the FERC to approximately  $36 million per
year.  Several  interested  parties  have  intervened  in the  FERC  proceeding,
including the MPUC.

      On  September  1,  1997,  Maine  Yankee  estimated  the sum of the  future
payments  for  the  closing,  decommissioning  and  recovery  of  the  remaining
investment  in Maine  Yankee  to be  approximately  $930  million,  of which the
Company's  38-percent  share would be  approximately  $353 million.  Legislation
enacted in Maine in 1997 calling for restructuring the electric utility industry
provides for recovery of decommissioning costs, to the extent allowed by federal
regulation,  through  the  rates  charged  by the  transmission-and-distribution
companies.  Based on the legislation and regulatory precedent established by the
FERC in its opinion relating to the decommissioning of the Yankee Atomic nuclear
plant, the Company believes that it is entitled to recover  substantially all of
its share of such costs from its  customers  and as of  December  31,  1997,  is
carrying  on  its   consolidated   balance  sheet  a  regulatory   asset  and  a
corresponding liability in the amount of $329 million, which is the $353 million
discussed  above net of the  Company's  post-September  1, 1997  cost-of-service
payments to Maine Yankee.

      Management  Audit. On September 2, 1997, the MPUC released the report of a
consultant it had retained to perform a management audit of Maine Yankee for the
period January 1, 1994, to June 30, 1997. The report contained both positive and
negative  conclusions,  the latter  including:  that Maine Yankee's  decision in
December  1996 to proceed  with the steps  necessary  to  restart  the Plant was
"imprudent",  that  Maine  Yankee's  May 27,  1997  decision  to reduce  restart
expenses while exploring a possible sale of the Plant was "inappropriate", based
on the consultant's finding that a more objective and comprehensive  competitive
analysis at that time "might have indicated a benefit for restarting" the Plant;
and that those  decisions  resulted in Maine Yankee  incurring  $95.9 million in
"unreasonable"  costs.  On  October  24,  1997,  the MPUC  issued  a  Notice  of
Investigation  initiating an investigation  of the shutdown  decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant to extend its review to include those areas. The Company believes the
report's  negative  conclusions  are  unfounded  and may be  contradictory.  The
Company has been charging its share of the Maine Yankee expenses to income,  and
believes it would have substantial  constitutional and jurisdictional grounds to
challenge any effort in an MPUC proceeding to alter wholesale Maine Yankee rates
made effective by the FERC. On November 7, 1997,  Maine Yankee initiated a legal
challenge to the MPUC investigation in the Maine Supreme Judicial Court alleging
that such an investigation falls exclusively within the jurisdiction of the FERC
and that the MPUC  investigation is therefore barred on constitutional  grounds.
The  Company  filed  a  similar  legal  challenge  on the  same  day.  The  MPUC
subsequently stayed its investigation pending the outcome of Maine Yankee's FERC
rate  case,  in  which  the MPUC is  participating,  while  indicating  that its
consultant would continue its extended review. Based on preliminary  indications
from the  consultant,  the Company  expects the report on the extended review to
call for  additional  disallowances,  which Maine  Yankee has said it expects to
contest vigorously.

      Maine Yankee Debt  Restructuring  and FERC Rate  Proceeding.  Maine Yankee
entered into agreements in August 1997 with the holders of its outstanding First
Mortgage Bonds and its lender banks (the  "Standstill  Agreements")  under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit  agreements.  The
parties also agreed in the Standstill Agreements to maintain Maine Yankee's bank
borrowings at a level below that of the prior aggregate bank commitments,  which
level Maine Yankee considered adequate for its foreseeable needs. The Standstill
Agreements,  as extended in October 1997, were to terminate on January 15, 1998,
by which date Maine Yankee was to have reached  agreement on  restructured  debt
arrangements  reflecting its decommissioning  status. Maine Yankee's rate filing
with the FERC  reflected  the Plant's  decommissioning  status and  requested an
effective  date of January 15, 1998,  for the amendments to Maine Yankee's Power
Contracts and Additional Power Contracts,  which revise Maine Yankee's wholesale
rates and  clarify and confirm the  obligations  of Maine  Yankee's  sponsors to
continue to pay their shares of Maine Yankee's costs during the  decommissioning
period.

      On January 14, 1998,  the FERC issued an "Order  Accepting  for Filing and
Suspending Power Sales Contract Amendment,  and Establishing Hearing Procedures"
(the "FERC  Order") in which the FERC  accepted for filing the rates  associated
with the amended  Power  Contracts  and made them  effective  January 15,  1998,
subject to refund. The FERC also granted intervention requests,  including among
others those of the MPUC,  Maine  Yankee's  largest  bondholder,  and two of its
lender  banks,  denied the request of an intervenor  group to summarily  dismiss
part of the filing,  and ordered that a public  hearing be held  concerning  the
prudence of Maine  Yankee's  decision to shut down the Plant and on the justness
and  reasonableness  of Maine  Yankee's  proposed rate  amendments.  The Company
expects the  prudence  issue to be pursued  vigorously  by several  intervenors,
including  among others the MPUC,  which  stayed its own prudence  investigation
pending the outcome of the FERC proceeding after the jurisdictional challenge by
Maine  Yankee and the  Company  discussed  above.  The  hearing in the FERC rate
proceeding is scheduled to begin on December 1, 1998. The Company cannot predict
the outcome of the FERC proceeding.

      On January 15,  1998,  Maine  Yankee,  its  bondholders  and lender  banks
revised the  Standstill  Agreements  and extended  their term to April 15, 1998,
subject  to  satisfying  certain  milestone  obligations  during the term of the
extension.  One such  obligation  was that Maine Yankee must have  accepted,  by
February 12, 1998,  an  underwritten  commitment to refinance its bonds and bank
debt, subject only to closing  conditions  reasonably capable of being satisfied
by April 15, 1998, and reasonably  satisfactory  to the  bondholders  and banks.
Maine  Yankee  accepted  such  a  commitment  prior  to the  deadline,  received
regulatory  approval of the  refinancing  on March 9, 1998,  and is  negotiating
final  loan  documentation  and  preparing  for a closing  before  April 15. The
proposed refinancing  consists of an extendible  three-year bank credit facility
and an eight-year term loan facility.

      Other Maine Yankee  Shareholders:  Higher  nuclear-related  costs are also
affecting  other  stockholders  of  Maine  Yankee  in  varying  degrees.  Bangor
Hydro-Electric   Company,  a  Maine-based  7  percent  stockholder,   cited  its
"deteriorating"  financial condition,  suspended its common stock dividend,  and
eventually  obtained  rate relief.  Maine Public  Service  Company,  a 5 percent
stockholder, cited problems in satisfying financial covenants in loan documents,
reduced its common stock dividend substantially in early March 1997 and obtained
rate  relief.   Northeast   Utilities  (20  percent  stockholder  through  three
subsidiaries),  which is also adversely  affected by the substantial  additional
costs  associated  with the  three  shut-down  Millstone  nuclear  units and the
permanently shut-down Connecticut Yankee unit, as well as significant regulatory
issues  in  Connecticut  and  New  Hampshire,   has  implemented  an  indefinite
suspension  of its  quarterly  common  stock  dividends.  Largely as a result of
nuclear-related  costs,  Northeast Utilities reported a loss of $135 million for
1997 and continues to experience  difficulty in  satisfying  loan  covenants.  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, and would constitute a
default under Maine Yankee's bond indenture and its two major credit  agreements
unless cured within  applicable  grace periods by the defaulting  stockholder or
other stockholders.  The Company cannot predict,  however,  what effect, if any,
the financial  difficulties being experienced by some Maine Yankee  stockholders
will have on Maine Yankee or the Company.

Financing and Related Considerations

      Financing  Activity.  During  1997 the  Company  issued no notes under its
Medium-Term Note program.  Notes in the amount of $25 million matured during the
year, reducing the total of outstanding  Medium-Term Notes at the end of 1997 to
$43 million from $68 million at the end of 1996.

      On February 24, 1998, the Company issued a two year 6.38% Medium-Term Note
in the principal amount of $30 million,  and on March 20, 1998,  issued 18-month
6.35%  Medium-Term  Notes in the  aggregate  principal  amount  of $30  million,
raising the total outstanding to $103 million.

      The  Company's  Articles of  Incorporation  limit the amount of  unsecured
indebtedness  the  Company  may incur  without the consent of the holders of the
Company's  preferred stock to 20 percent of the Company's total  capitalization.
At the end of 1997, 20 percent of such capitalization  amounted to $211 million.
In 1989 holders of the Company's  preferred  stock  consented to the issuance of
unsecured  Medium-Term  Notes in an  aggregate  principal  amount  of up to $150
million  outstanding  at any one time,  so such notes up to that amount were not
included in the 20-percent limitation.  At its annual meeting of stockholders on
May 15, 1997,  however,  the Company  obtained the consent of the holders of its
preferred stock to issue an additional $350 million of Medium-Term  Notes, up to
$500 million  outstanding  at any one time,  in order to increase its  financing
flexibility in anticipation of industry restructuring and increased competition.

      To support its short-term capital  requirements,  on October 23, 1996, the
Company  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 has two credit facilities:  a $75 million,  364-day revolving credit
facility that currently  matures on October 21, 1998, and a $50-million,  3-year
revolving  credit  facility  that  matures  on October  22,  1999.  Both  credit
facilities  require annual fees on the total credit lines. The fees are based on
the Company'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,  as a result  of
downgrading  of  the  Company's  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  Company  had $60
million  outstanding as of December 31, 1997, under the 364-day revolving credit
facility, all of which had been paid as of March 25, 1998.

      On February 26, 1998, the Company called for redemption on March 30, 1998,
all of the outstanding $11 million principal amount of its General and Refunding
Mortgage  Bonds,  Series N 8.50% Due 2001, at a redemption  price equal to their
principal amount plus accrued interest to the date fixed for redemption.  On the
same day the Company also called for  redemption  on March 30, 1998,  all of the
outstanding $50 million  principal amount of its General and Refunding  Mortgage
Bonds,  Series R 7-7/8%  Due 2023,  also at a  redemption  price  equal to their
principal  amount plus accrued  interest.  The bond redemptions are being funded
from the  approximately  $61.7  million on deposit  with the  trustee  under the
renewal and replacement fund and release provisions of the Company's General and
Refunding  Mortgage  Indenture.  On February  27, 1998,  the Company  called for
redemption  on April 1,  1998,  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  are being paid on the preferred  stock since the  redemption
date is a regular dividend payment date.

      Securities  Ratings. On February 20, 1998, Duff & Phelps Credit Rating Co.
("D & P")  reaffirmed  and placed on Rating  Watch - Up the debt  ratings of the
Company.  On  January  6, 1998,  Standard  & Poor's  Corp.  ("S & P") placed the
Company's  credit  ratings on Credit Watch with positive  implications.  Also on
January 6, 1998, Moody's Investors Service  ("Moody's")  confirmed the Company's
senior  secured debt rating,  while also  revising the rating  outlook to stable
from  negative.  The credit  rating  agencies'  actions  were in response to the
Company's  announcement  of its agreement to sell its  generation  assets to FPL
Group, Inc. and its plan for divestiture.  Earlier,  on May 1, 1997, Moody's had
downgraded  the Company's  credit  ratings of all classes of  securities  citing
"adverse  financial   pressures  linked  to  prolonged  nuclear  plant  outages,
especially  at the Maine Yankee  plant as well as  uncertainty  surrounding  the
timing  and extent of  recovery  of the  Company's  sizable  potential  stranded
costs." The current ratings assigned the Company's securities by the three major
securities-rating agencies are shown below:

                   Mortgage         Unsecured        Commercial       Preferred
                     Bonds            Notes             Paper           Stock

S&P                 BB+               BB                B               B+
Moody's             Baa3              Ba1               P3              Ba1
D&P                 BBB-              BB+               D3              BB

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 the Company'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."  The  Company
estimates that its capital  expenditures for improvements  needed to comply with
environmental laws and regulations were approximately $21.4 million for the five
years from 1993 through 1997.

Employee Information

      A local union affiliated with the International  Brotherhood of Electrical
Workers (AFL-CIO) represents operating and maintenance  employees in each of the
Company's operating  divisions,  and certain office and clerical  employees.  At
December  31,  1997,  the  Company  had  1,677  full-time  employees,   of  whom
approximately 43 percent were represented by the union.

      In April  1995 the  Company  and the union  agreed to a  three-year  labor
contract extension that provided for an annual wage increase of 2 percent on May
1, 1995, 2 percent on May 1, 1996, and a reopening of wage  negotiations for the
year  commencing May 1, 1997. The wage  negotiations  resulted in a general wage
increase of 2.25 percent for the third year.  The contract  will expire on April
30, 1998, and negotiations for a new contract are in progress.

      On March 3,  1998,  the  Company  and the  Union  reached  agreement  on a
contract  covering 158 employees in  power-generation  positions.  This contract
will be the same as the current  agreement  except  that it  provides  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.



<PAGE>


Item 2.   PROPERTIES.

Existing Facilities

      The electric  properties  of the Company 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 the Company's system. The
Company'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 the  Company.  At December  31,  1997,  the Company had  approximately  2,293
circuit-miles  of overhead  transmission  lines,  19,514  pole-miles of overhead
distribution  lines and 1,384 miles of  underground  and  submarine  cable.  The
maximum one-hour firm system net peak load experienced by the Company during the
summer of 1997 was  approximately  1,337 megawatts on July 28, 1997. At the time
of the annual peak, the Company's net capability was 1,825 megawatts,  including
298 megawatts of capability from the Maine Yankee Plant. After the loss of Maine
Yankee capability,  the Company entered into replacement  contractual  purchases
resulting in a net capability of 1,680 megawatts.  In December 1997, at the time
of the winter peak of 1,322  megawatts,  the  Company's  net  capability,  after
further contractual purchases, was 1,806 megawatts.

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

      The Company has ownership  interests in five nuclear  generating plants in
New England.  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,  which  has  been  off-line  for
regulatory  reasons since March 31, 1996. See Item 7,  "Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations"  for more
information.


<PAGE>
<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        Currently
                        down August 6,      down February 26,      December 4, 1996                          off-line since
                        1997                1992                                                             March 31, 1996

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

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

Equity Interest at
December 31, 1997
                        $29.8 Million       $2.2 Million           $6.6 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  experienced  a number of  operational  and  regulatory
problems  and has been shut down since  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. 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 the
Connecticut Yankee plant for economic reasons, and to decommission the plant. An
economic  analysis  conducted by  Connecticut  Yankee  estimated  that the early
closing of the plant would save over $100 million  (net present  value) over its
remaining  license life to the year 2007,  compared  with the costs of continued
operation.  The plant did not operate after July 22, 1996. The Company 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  $36.9  million  and  has  recorded  a
corresponding  regulatory asset and liability on the consolidated balance sheet.
The Company is currently  recovering through rates an amount adequate to recover
these expenses.

      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.  The Company  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
$13.1  million.  This  estimate has been recorded by the Company as a regulatory
asset and a liability  on the  Company's  balance  sheet.  As part of the MPUC's
decision in the Company's  1993 base-rate  case, the Company's  current share of
costs related to the  deactivation 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, the Company 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
has been  off-line  for  regulatory  reasons  since March 31,  1996,  due to NRC
concerns  regarding license  requirements.  Millstone Unit No. 3, along with two
other  units at the same  site  owned by  Northeast  Utilities,  is on the NRC's
"watch list" in "Category 3," which  requires  formal NRC action before the unit
can be restarted. The Company cannot predict when it will return to service.

      The Company 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, the Company is
similarly  obligated to pay its  proportionate  share of the operating  costs of
Millstone  3. The  Company 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 the Company'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 -  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 the Company to 44.5  megawatts of capacity
credit in the winter and 127.25  megawatts of capacity credit during the summer.
The Company 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.  The
Company is making  facilities-support  payments on approximately  $27.1 million,
its share of the  construction  cost for the  transmission  facilities  incurred
through December 31, 1997.

      Maine Yankee Decommissioning - On November 6, 1997, Maine Yankee submitted
a new  decommissioning  cost  estimate  to the  FERC  as  part  of a  rate  case
reflecting  the fact that the Plant is no longer  operating  and has entered the
decommissioning phase. If the FERC accepts the new estimate, the amount of Maine
Yankee's  collections  for  decommissioning  would  rise from the $14.9  million
previously  allowed by the FERC to approximately  $36 million per year.  Several
interested  parties have  intervened  in the FERC  proceeding,  including  state
regulators.  The Company  cannot predict the result of the FERC case. The market
value of Maine  Yankee's  accumulated  decommissioning  fund was $199.5  million
(including interest earned) as of December 31, 1997.

      Maine Yankee Low-Level Waste Disposal.  The federal Low-Level  Radioactive
Waste  Policy  Amendments  Act (the  "Waste  Act"),  enacted  in 1986,  required
operating  disposal  facilities  to accept  low-level  nuclear  waste from other
states until December 31, 1992.  Maine did not satisfy its milestone  obligation
under the Waste Act requiring  submission of a site license  application  by the
end of 1991, and therefore became subject to surcharges on its waste and did not
have access to regulated disposal facilities after the end of 1992. Maine Yankee
then began storing all low-level waste generated at an on-site storage facility.
On July 1, 1995,  however,  the State of South Carolina  restored  access to its
facility and Maine Yankee began to ship  low-level  waste to the South  Carolina
facility for disposal.

      The  states  of  Maine,   Texas  and  Vermont   have  been   pursuing  the
implementation  of 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 planned  facility  in west Texas.  In return,
Maine would be required to pay $25 million, assessed to the Company 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. 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 Maine Low-Level  Radioactive Waste Authority suspended its search
for a suitable disposal site in Maine and ceased operations in 1994.

      The compact is before the  Congress for  ratification  and was approved by
the House of  Representatives in October 1997. The Senate deferred action on the
bill until 1998. Since the 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  anticipated  schedule for opening the Texas  facility.  The Company  cannot
predict  whether the final required  ratification  of the Texas compact or other
regulatory  approvals  will be  obtained,  but Maine  Yankee has stated  that it
intends to utilize its on-site storage  facility as well as dispose of low-level
waste at the South  Carolina  site or other  available  sites in the interim and
continue  to  cooperate  with the  State of Maine in  pursuing  all  appropriate
options.

      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 $79.3 million for each reactor owned, with a maximum
assessment of $10 million per reactor in any year.  Based on the Company's stock
ownership  in four  nuclear  generating  facilities  and its 2.5 percent  direct
ownership interest in the Millstone 3 nuclear unit, the Company's  retrospective
premium  could be as high as $6 million in any year,  for a cumulative  total of
$47.6  million,  exclusive of the effect of  inflation  indexing and a 5-percent
surcharge  in the  event  that  total  public  liability  claims  from a nuclear
incident should exceed the funds available to pay such claims.

      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.
Based on current  premiums and the  Company's  indirect and direct  ownership in
nuclear generating  facilities,  this adjustment could range up to approximately
$3.6 million annually.

Construction Program

      The Company'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 1998, the consummation of the sale
of its generating assets. Recent economic and regulatory considerations have led
the Company to hold its  planned  1998  capital  investment  outlays,  including
deferred  demand-side  management  expenditures,  to minimum levels.  During the
five-year  period ended  December  31,  1997,  the  Company's  construction  and
acquisition  expenditures  amounted to $231.8 million  (including  investment in
jointly-owned  projects and excluding MEPCO). The program is currently estimated
at approximately $56 million for 1998 and $219 million for 1999 through 2002.

      The   following   table  sets  forth  the  Company's   estimated   capital
expenditures as discussed  above,  assuming  completion of the generation  asset
sale in the fall of 1998:

                                                  1999-
                                         1998     2002      Total
Type of Facilities                         (Dollars in Millions)

Generating Projects                      $ 5     $   0     $   5
Transmission                               3        14        17
Distribution                              31       131       162
General facilities and Other              17        74        91
                                          --        --        --
Total                                    $56      $219      $275
                                         ===       ===      ====

Demand-side Management

      The Company'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,  the Company has
provided incentives to customers who install  conservation  measures of any kind
that increase the efficiency of the use of electricity.

NEPOOL

      The Company is a member of the New England Power Pool  (NEPOOL),  which is
open to all investor-owned,  municipal and cooperative 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.

      On July 9, 1996,  the Company and MEPCO  submitted  compliance  filings to
meet  the new pro  forma  tariff  non-price  minimum  terms  and  conditions  of
non-discriminatory  transmission service. Since then, the Company and MEPCO have
made  additional  filings  reviving their tariffs in response to subsequent FERC
Orders. In addition, on February 21, 1997, the Company filed a revised tariff to
comport with the NEPOOL Open Access Transmission Tariff. Since July 9, 1997, the
Company and MEPCO have been transmitting energy pursuant to their filed tariffs,
subject to refund.  FERC  subsequently  issued  Orders No. 888-A and 888-B which
generally reaffirm Order No. 888 and clarify certain terms.

      On April 24, 1996,  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.  The  Company  participated  in  efforts to develop a
regional OASIS for New England,  which became operational  January 3, 1997. FERC
has also approved a New England Power  Pool-wide Open Access Tariff,  subject to
refund and issuance of further orders. The Company  participated in revising the
New England Power Pool Agreement to comply with the new regulatory requirements.
The revised agreement is pending FERC approval.



<PAGE>


Fuel Supply

      The Company's total kilowatt-hour  production by energy source for each of
the last two  years  and as  estimated  for  1998,  assuming  completion  of the
generation asset sale in the fall of 1998, is shown below.

                                Actual               Estimated
Source                     1997          1996           1998
------                     ----          ----           ----
Nuclear                       2%          19%             2%
Hydro                        16           17             12
Oil                          35           16             14
Non-utility                  35           32             34
Other purchases              10           14             28
Biomass                       2            2              2
  FPL-Hydro Buyback           -            -              4
  FPL-Oil Buyback             -            -              4
                            ---          ---            ---
                            100%         100%           100%
                            ---          ---            ---

      The 1998 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. The  Company's  William F. Wyman Station in Yarmouth,  Maine,  and its
internal combustion electric generating units are oil-fired.  The Company's last
contract for the supply of fuel oil requirements at market prices was allowed to
expire  in  1993.  Since  then the  Company  has been  purchasing  its  fuel-oil
requirements on the open market.

      The average cost per barrel of fuel oil  purchased  by the Company  during
the five calendar years commencing with 1993 was $13.12,  $12.93, $16.16, $18.18
and $17.04,  respectively.  A substantial  portion of the fuel oil burned by the
Company and the other member  utilities of NEPOOL is imported.  The availability
and cost of oil to the  Company,  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 this
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 the Company. Maine Yankee has accrued and billed
$76.2  million of interest cost for the period April 7, 1983,  through  December
31, 1997.

      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 $2.1 million through December 1999. Deposits are expected to total
approximately $74.6 million, with the total liability, including interest due at
the time of disposal,  estimated to be approximately  $139.9 million at December
31,  1999.  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.

      On April 15, 1997,  the United States Senate  approved the "Nuclear  Waste
Policy Act of 1997" (S. 104), which would reform the federal policy for managing
spent  nuclear  fuel and instruct  the DOE to develop an  integrated  management
system,  including a central  storage  facility,  for such fuel.  The bill would
require the DOE to accept such nuclear fuel from commercial nuclear power plants
and would establish a licensing process that would result in the storage of such
fuel at a central federal facility beginning no later than June 30, 2003, if all
the necessary approvals are obtained. The DOE would also be required to continue
site  characterization  work at Yucca Mountain as a permanent  disposal site. On
October 30, 1997, the House of Representatives  approved a bill (H.R. 1270) with
generally similar objectives. Action to resolve the differences in the two bills
was deferred to 1998.

      In June 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  that the Nuclear  Waste  Policy Act of
1982 required the DOE to take  responsibility for spent nuclear fuel in 1998. On
July 23, 1996,  the court held that the DOE is 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. On November 14, 1997,
the U.S. Court of Appeals for the District of Columbia  Circuit  confirmed 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. The Company cannot predict the result of the proceeding.

Item 3.   LEGAL PROCEEDINGS.

Legal and Environmental Matters.

      The Company is 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.  The Company 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 the  Company's
financial position.  The Company 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, the Company 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. The Company 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.

      On October 1, 1996, the American Institute of Certified Public Accountants
issued  Statement  of Position  96-1,  "Environmental  Remediation  Liabilities"
("SOP").  The  principal  objective of the SOP is to improve the manner in which
existing authoritative  accounting literature is applied by entities to specific
situations of recognizing,  measuring and disclosing  environmental  remediation
liabilities.  The SOP became  effective  January 1, 1997. This SOP has not had a
material impact on the company's financial position or results of operations.

      The Company  has  recorded a  liability,  based upon  currently  available
information,  for what it believes are the estimated  environmental  remediation
costs that the Company 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.  The Company  cannot  predict  the  schedule or scope of
remediation due to the regulatory  process and  involvement of  non-governmental
parties.  At December 31, 1997,  the  liability  recorded by the Company for its
estimated  environmental  remediation  costs  amounted  to $2.1  million,  which
management  has  determined to be the most  probable  amount within the range of
$2.1 million to $8.0  million.  Such costs may be higher if the Company 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, the Company
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 the
Company's  federal  income tax returns for the years 1992 through  1994,  and on
September 12, 1997, the Company 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 the Company'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 ARP effective  January 1, 1995. The
second major  adjustment would disallow the Company's 1994 deduction of the cost
of the buyout of the Fairfield  Energy Venture  purchased-power  contract by the
Company 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,  1997,  amounted  to $13.1  million,  or a  decrease  in net  income of $7.8
million,  and which could increase interest expense  approximately  $441,000 per
month  until  either the tax  deficiency  is paid or the issues are  resolved in
favor of the Company, in which case no interest would be due. If the IRS were to
prevail,  the Company believes the deductions would be amortized over periods of
up to twenty,  post-1994,  tax years.  The Company believes its tax treatment of
the  unresolved  issues  was  proper  and as a  result  the  potential  interest
discussed above has not been accrued.  On December 10, 1997, the Company filed a
petition  in the United  States Tax Court  contesting  the entire  amount of the
deficiencies.  The Company plans to seek review of the asserted  deficiencies by
an IRS Appeals  Officer to  determine  whether all or part of the dispute can be
resolved  in advance of a court  determination.  Absent such a  resolution,  the
Company 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 the Company against the current members
of the Company's Board of Directors, including the President and Chief Executive
Officer of the Company,  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
failed to make timely and adequate disclosures of information in connection with
issues  surrounding  the Plant.  The complaint did not seek damages  against the
Company,  but  requested  that the  defendants  disgorge the  compensation  they
received  during the period of alleged  mismanagement,  pay to the Company costs
incurred allegedly as a result of the claimed actions,  and cause the Company to
take steps to prevent such actions.

      The  defendants  moved to dismiss  the suit for failing to make a pre-suit
demand,  as  required  by Maine law,  and on  February  18,  1998,  the suit was
dismissed.  The Company cannot predict  whether a proper demand will be made and
the suit refiled,  but the Board and the Company  believe such a suit is without
merit.

      Maine Yankee  Secondary  Purchasers.  Upon the  permanent  shutdown of the
Maine Yankee  Plant,  26 municipal and  cooperative  utilities  (the  "Secondary
Purchasers")  that had purchased  Maine Yankee power under  identical  contracts
with Maine Yankee's  sponsors,  including the Company,  stopped making  payments
under their contracts, claiming that the decision to permanently close the Plant
constituted a breach of those contracts. The Secondary Purchasers had contracted
in 1971 for a total of 6.2847  percent of the output of the Plant,  but only the
two Secondary Purchasers from Maine contracted with the Maine sponsors,  and one
of the  two has  continued  to pay  its  Maine  Yankee  obligations.  Under  its
secondary  contract the  non-paying  Maine  Secondary  Purchaser,  Houlton Water
Company,  has a 0.4073-percent  Maine Yankee payment obligation derived pro rata
from the shares of the Company (76 percent),  Bangor Hydro-Electric  Company (14
percent) and Maine Public  Service  Company (10 percent).  On December 15, 1997,
the sponsors  filed a Complaint  with the FERC  seeking to compel the  Secondary
Purchasers  to pay their  respective  shares  of Maine  Yankee  costs  under the
contracts  and to modify the contracts to require such payments to continue past
the  present  termination  date of the  contracts  throughout  the period of the
Plant's  decommissioning.  The Secondary Purchasers are contesting the Complaint
at FERC and on January 19, 1998, filed a motion with the Superior Court of Maine
to  compel  arbitration  of  the  contract  disputes,  which  the  sponsors  are
contesting.  The Company  believes the  Secondary  Purchasers  are  obligated to
continue making payments under the contracts,  but cannot predict the outcome of
the proceedings.

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

      Not applicable.



<PAGE>


Item 4.1   EXECUTIVE OFFICERS OF THE REGISTRANT.

      The following are the present  executive  officers of the Company 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, 56, 1996       Chairman of the Board of Directors

Charles H. Abbott, 62, 1996     Vice Chairman of the Board of Directors

David T. Flanagan, 50, 1984     President and Chief Executive Officer

Arthur W. Adelberg, 46, 1985    Executive Vice President

David E. Marsh, 50, 1986        Chief Financial Officer

Sara J. Burns, 44, 1997         Chief Operating Officer, Distribution Services

Gerald C. Poulin, 56, 1984      Chief Operating Officer, Energy Services

Richard A. Crabtree, 51, 1978   Vice President, Retail Operations*

Michael R. Cutter, 44, 1997     Vice President, Operations Support

F. Michael McClain, 48, 1998    Vice President, Corporate Development

Curtis A. Mildner, 44, 1994     Vice President, Retail Marketing and Sales

Curtis I. Call, 44, 1997        Treasurer

Anne M. Pare, 44, 1996          Secretary and Clerk

Each of the  executive  officers  has for the past five years been an officer or
employee  of the  Company,  except  Messrs.  Jagger  and  Abbott,  who have been
non-employee  directors since 1988, and Mr. Mildner and Mr. McClain. Mr. Mildner
joined the Company as Vice President,  Marketing,  on February 7, 1994. Prior to
his employment by the Company, he had been employed since 1987 by Hussey Seating
Company  of  Berwick,  Maine,  as  Vice  President,  Marketing,  and in  related
capacities.  Mr. McClain joined the Company in his current  capacity on February
23, 1998. Prior to his employment with the Company,  he was Group Vice President
and Chief Operating Officer, Petroleum Group, Dead River Company (1981-1996).

*Mr. Crabtree resigned from the position of Vice President,  Retail  Operations,
effective  May 1,  1997  and was  elected  President  of  MaineCom  Services,  a
subsidiary of the Company.


<PAGE>


                                     PART II

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

         The Company's common stock is traded on the New York Stock Exchange. As
of  December  31,  1997,  there were 35,532  holders of record of the  Company's
common stock.

                  Price Range of and Dividends on Common Stock

                              Market Price          Dividends
                             High         Low        Declared
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


1996
First Quarter              $16 1/4      $13 1/4       $0.225
Second Quarter              14 1/2       12 1/4        0.225
Third Quarter               13 7/8       11 5/8        0.225
Fourth Quarter              12 3/8       11            0.225



      Under the most restrictive  terms of the indenture  securing the Company's
General  and  Refunding   Mortgage  Bonds  and  of  the  Company's  Articles  of
Incorporation,  no  dividend  may be paid on the common  stock of the Company if
such dividend would reduce  retained  earnings below $29.6 million.  At December
31, 1997, the Company's  retained  earnings were $48.2  million,  of which $18.6
million was not so  restricted.  Future  dividend  decisions  will be subject to
future  earnings  levels and the  financial  condition  of the  Company and will
reflect the  evaluation  by the  Company's  Board of Directors of then  existing
circumstances.

Item 6.   SELECTED FINANCIAL DATA.

      The following table sets forth selected consolidated financial data of the
Company  for  the  five  years  ended  December  31,  1993  through  1997.  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, 1993
through 1997 are derived from the audited  consolidated  financial statements of
the Company.



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


Selected Consolidated Financial Data

(Dollars in Thousands, Except Per Share Amounts)
                                          1997             1996             1995             1994            1993

Electric operating revenue             $  954,176       $  967,046       $  916,016       $  904,883      $  893,577
Net income (loss)                          13,422           60,229           37,980          (23,265)         61,302
Long-term obligations                     400,923          587,987          622,251          638,841         581,844
Redeemable preferred stock                 39,528           53,528           67,528           80,000          80,000
Total assets                            2,298,966        2,010,914        1,992,919        2,046,007       2,004,862
Earnings (loss) per common share
                                            $0.16            $1.57            $0.86           $(1.04)         $ 1.65
Dividends declared per common share

                                            $0.90            $0.90            $0.90            $0.90           $1.395
</TABLE>
Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.

                       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. The Company
undertakes  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 also urged to carefully review
and consider the various disclosures made by the Company which attempt to advise
interested parties of the facts which affect the Company's business.

      Factors  that could cause  actual  results to differ  materially  include,
among other  matters,  the permanent  closure and  decommissioning  of the Maine
Yankee nuclear generating plant and resulting regulatory proceedings; the actual
costs of decommissioning the Maine Yankee plant; outages at the other generating
units in which the Company  holds  interests;  electric  utility  restructuring,
including the ongoing state and federal activities; the results of the Company's
planned sale of its  generating  assets;  the  Company's  ability to recover its
costs resulting from the January 1998 ice storms;  future  economic  conditions;
earnings-retention   and   dividend-payout   policies;   developments   in   the
legislative,  regulatory,  and  competitive  environments  in which the  Company
operates,  including  regulatory  treatment  of stranded  costs;  the  Company's
investments 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.

Overview

As in 1996, the Company experienced  higher-than-normal operations costs in 1997
from its interest in nuclear generation, particularly its 38 percent interest in
the now-closed  Maine Yankee Plant,  and incurred  significant  costs  replacing
their energy. Maine Yankee went off-line for repairs in December 1996. On August
6,  1997  the  Maine  Yankee  Atomic  Power  Company  Board of  Directors  voted
unanimously to close the plant  permanently  for economic  reasons.  The Company
incurred  additional  expenses of $46.0  million in 1997 to replace Maine Yankee
energy and pay its share of increased  repair and other operations at the plant.
These costs were the major factor in the deterioration of the per-share earnings
from  $1.57 in 1996 to $0.16 in 1997.  The  Company  expects  its share of Maine
Yankee  costs to decrease by  approximately  $30.0  million in 1998 as the plant
moves toward  decommissioning.  See  "Permanent  Shutdown of Maine Yankee Plant"
below for further  discussion.  In addition,  $5.0 million of increased  expense
over 1996 was  incurred  to  replace  energy for the  Millstone  Unit 3 plant in
Connecticut, which was taken off-line for safety modifications and requires U.S.
Nuclear  Regulatory  Commission  approval to restart and the Connecticut  Yankee
Plant, closed permanently on December 4, 1996, and now being decommissioned.

The  increased  expenses  could have a minor  ratemaking  impact.  The Company's
earnings level will trigger the sharing  provision of the Alternative  Rate Plan
(ARP).  The ARP, which took effect January 1, 1995,  with  regulatory  approval,
provides for annual July 1 adjustments to price caps on the Company  rates.  The
adjustments  are  keyed to  prior-year  inflation  and to  measures  of  utility
performance.

Under the ARP, actual earnings for 1997 outside a bandwidth of 350 basis points,
above or below the 10.55 percent rate of return  allowance,  triggers the profit
sharing  mechanism.  A  return  below  the low  end of the  range  provides  for
additional revenue through rates equal to one-half of the difference between the
actual earned rate of return,  1.04 percent in 1997, and the 7.05 percent (10.55
- 3.50) low end of the bandwidth.  The Company remains committed  nonetheless to
its public pledge to hold price increases at or below the rate of inflation.  In
its  annual  ARP  compliance  filing in March  1998,  the  Company  requested  a
price-cap  increase of 1.8 percent  consistent with that pledge,  which includes
only a small component related to earnings sharing.

The Company also plans to seek  reimbursement for its costs of restoring service
to its  customers  after the severe ice storm of January 7 through 9, 1998 and a
second storm that struck part of the Company's  service territory on January 24,
1998.  The  incremental  costs  of the  repair  efforts  estimate  is $60 to $65
million.  Most of the expense was  labor-related.  The Company used  hundreds of
crews from out-of-state  utilities,  tree companies,  and construction  firms to
repair  unprecedented damage that included more than 2,500 broken utility poles.
The two storms required more than 400,000 service restorations.

A  January  15,  1998  order of the  MPUC  allowed  the  Company  to defer  such
incremental costs on its books pending the Company's filing under the ARP, which
allows the PUC to consider  and  provide  recovery  for costs of  "extraordinary
events" that have a  significant  impact on the utility and are not reflected in
the general indexing formula.  The Company's basic rates include a provision for
"average"  levels  of tree  trimming  and  outage  repair  as a  normal  cost of
supplying  service.  The basic rates do not  include  rainy-day  provisions  for
once-in-a-century-or-worse disasters like the January ice storms. The Company is
pursuing available means of mitigating the cost impact of the storms,  including
any federal assistance that may be available.

CMP announced on January 6 that it had agreed to sell its hydro, oil-fired,  and
biomass  generation  to  Florida-based  FPL  Group  for  $846  million.  If  the
regulatory  agencies approve the sale,  approximately  $500 million of the value
received  could be applied to CMP's  estimated $1.3 billion of stranded costs or
other  obligations,  reducing the amount of revenue  that must be produced  from
each unit of  kilowatt-hour  sales to recover  those  costs.  The asset sale was
required by Maine's  1997  electric-restructuring  law,  which  mandated  retail
competition  in  electricity  in March 2000. The utility is still seeking buyers
for its storage  dams,  non-utility-power  contract  energy,  and its share of a
regional transmission tie to Quebec.

The  Company  continues  to face the  challenges  of  competition  and  industry
restructuring, and must achieve and maintain financial performance and resources
commensurate  with both the  provision of service  demanded by customers and the
obligation to achieve competitive returns on investor capital.

Results of Operations

The Company  generated  net income of $13.4  million in 1997,  compared to $60.2
million in 1996, and $38.0 million in 1995.  Earnings applicable to common stock
were $5.2 million in 1997 or $0.16 per share, compared to $50.8 million or $1.57
per share in 1996 and $27.8  million or $0.86 per share in 1995.  Once again the
replacement power and other costs related to the now-closed Maine Yankee nuclear
plant were the main factors that eroded per-share earnings in 1997.

The Company  incurred  additional  expenses of $46.0  million in 1997 to replace
Maine  Yankee  energy  and to pay  its  share  of  increased  repair  and  other
operations at the Plant. In addition,  shutdowns at the Millstone Unit No. 3 and
Connecticut Yankee Plants increased 1997 replacement-power cost by $5.0 million.

The Company's 1996 after-tax  financial results benefited by approximately $15.3
million,  or $0.47 per share, from non-recurring  items related to settlement of
federal income-tax  issues, an extended outage at a non-utility  generator under
contract to sell energy to CMP, and other items not applicable to 1997.

Dividends  declared per common  share have  remained at $0.90 on an annual basis
for the three years ended December 31, 1997.

Revenues and Sales

Electric operating revenues decreased by $12.9 million or 1.3% to $954.2 million
in 1997, and increased by $51.0 million or 5.6% to $967.0 million in 1996. Lower
non-territorial energy sales - a consequence of Maine Yankees being off-line and
reducing the Company's total energy supply - were the main factor in the revenue
decline in 1997. However,  service-area  revenues did rise 2.2 percent to $890.2
million.  The  components  of the change in electric  operating  revenues are as
follows:

(Dollars in millions)                                      1997        1996
                                                           ----        ----
Revenues from Company service-area kilowatt-hour sales     $17.9      $15.0
Revenues from non-territorial sales                        (27.1)      33.4
Other Company operating revenues                            (1.5)       3.0
Maine Electric Power Company, Inc. fuel cost recovery 
and other revenues                                          (2.2)      (0.4)
Total Change in Electric Operating Revenues               $(12.9)     $51.0
                                                            ====       ====

Refer to  "Alternative  Rate Plan"  section,  for a discussion  of new rates and
their impact on revenues.

The Company's  service-area sales for the years 1997, 1996 and 1995 are shown in
the following table:

         (Kilowatt-hours in millions)
                                  1997             1996            1995
                                  ----             ----            ----
                                        %               %                %
                               KWH    change   KWH    change   KWH     change
Residential ..............    2,817   (0.4)%  2,829    1.0%   2,802     (2.0)%
Commercial ...............    2,529    1.6    2,489     0.5   2,477      1.6
Industrial ...............    3,784    2.6    3,689     4.0   3,547     (4.7)
Wholesale and
   lighting ..............      228    5.3      217    58.9     136     (8.7)
                              -----    ---    -----    ----   -----      ---
Total Service-
  Area Sales .............    9,358    1.5 %  9,224     2.9%  8,962     (2.2)%
                              =====    ===    =====    ====   =====      ===

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 the Company's water-heating programs, increased sales in the
pulp and paper industry,  and the addition of a wholesale customer. The decrease
in 1995 was attributed to low economic  growth,  the loss of a major  industrial
customer  in  September  1994,  energy  management,  and  loss of  sales  due to
conversions from electricity to alternative fuels for such purposes as space and
water heating.

The average number of residential customers increased by 4,822 in 1997, 5,157 in
1996, and 5,076 in 1995, while average usage per residential  customer  declined
1.5% in 1997, 0.15% in 1996 and 3.1% in 1995.

The 1997  increase in commercial  sales  reflects  increases in  transportation,
retail trade and service sectors. Combined, these sectors comprise approximately
79% of commercial sales. Sales to all others in the commercial sector were lower
than 1996. Sales to Maine Yankee increased by 1.7 million kilowatt hours in 1997
and by 4 million  kilowatt hours in 1996 due to the Plant's  extended outages in
both periods and the ultimate permanent shutdown of the plant in August 1997.

Industrial   sales   levels  are   significantly   affected   by  sales  to  the
pulp-and-paper  industry,  which  accounts for  approximately  60% of industrial
sales  and  approximately  24%  of  total  service-area   sales.  Sales  to  the
pulp-and-paper  sector  decreased by 0.8% in 1997 and increased by 3.7% in 1996,
and  decreased by 8.6% in 1995.  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 the Company has made with several paper companies
to back down some of their  self-generation and buy electricity from the Company
at a discounted  rate. The 1995 decrease  reflects lower sales levels  primarily
due to the  late-1994  loss of a major  customer that had  previously  purchased
approximately 280 million  kilowatt-hours  annually.  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 the Company's  actions to
preserve its remaining large-industrial-customer base and other customer groups.
Sales to all other industrial  customers as a group increased 8.2% in 1997, 4.5%
in 1996 and 2.7% in 1995.

Alternative Rate Plan

In December 1994, the MPUC approved a stipulation, signed by most of the parties
to the  Company's  ARP  proceeding,  which took  effect  January  1, 1995.  This
follow-up  proceeding to the Company's  1993  base-rate  case was ordered by the
MPUC  in  an  effort  to  develop  a  five-year   plan   containing   price-cap,
profit-sharing,  and  pricing-flexibility  components.  The price-cap  mechanism
provides for adjusting the Company's retail rates annually on July 1, commencing
in 1995, at 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  the  Company's   retail  rates,  and  includes
fuel-and-purchased-power  costs that previously had been treated separately. The
components  of the July 1, 1995,  price-cap  increase of 2.43% are the inflation
index of 2.92%, reduced by a productivity offset of 0.5%, and increased by 0.01%
for  flow-through  items and mandated costs. The components of the July 1, 1996,
price-cap  increase  of 1.26%  consisted  of an  inflation  index  of 2.55%  and
earnings  sharing and mandated  cost items of 0.64%,  reduced by a  productivity
offset of 1.0%,  and sharing of  contract  restructuring  and buyout  savings of
0.93%.  The components of the July 1, 1997 price cap increase of 1.10% consisted
of an inflation index of 2.12% reduced by a productivity and qualified  facility
("QF") offset of 1.42% and increased by 0.40% for flowthrough items and mandated
costs.  As originally  stated in the MPUC's order  approving the ARP,  operation
under  the  ARP  continues  to meet  the  criteria  of  Statement  of  Financial
Accounting  Standards  No. 71,  "Accounting  for the Effects of Certain Types of
Regulation"  (SFAS No. 71). As a result,  the Company will continue to apply the
provisions of SFAS No. 71 to its  accounting  transactions  and to its financial
statements.

The Company believes the ARP provides the benefits of needed pricing flexibility
to set  prices  between  defined  floor  and  ceiling  levels  in three  service
categories: (1) existing customer classes, (2) new customer classes for optional
targeted services, and (3) special-rate contracts. The Company believes that the
added  flexibility  will position it more favorably to meet the competition from
other energy sources that has eroded  segments of its customer base.  Some price
adjustments  can be  implemented  upon  30-days'  notice by the  Company,  while
certain  others are  subject to  expedited  review by the MPUC.  The Company has
utilized this feature in providing new rates to  approximately  29,000 customers
representing  approximately  45%  of  annual  kilowatt-hour  sales  and  32%  of
service-area revenues. 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.

The ARP also contains  provisions to protect the Company and ratepayers  against
unforeseen adverse results from its operation.  These include review by the MPUC
if the Company's  actual return on equity falls  outside a designated  range,  a
mid-period  review  of  the  ARP  by  the  MPUC  in  1997  (including   possible
modification  or  termination),  and a  "final"  review  by the  MPUC in 1999 to
determine  whether or with what  changes  the ARP should  continue  after  1999.
Significant  results of the 1997 mid-period  review were an increase to 11.5% in
the ROE used for earnings  sharing  (effective  with the July 1999 price change)
and  reaffirmation  by the MPUC to allow the  Company  to meet the  requirements
established by SFAS No. 71. The Company  submitted its 1998 compliance filing in
March 1998.

While the ARP provides the Company with an expanded  opportunity  to be rewarded
for  efficiency,  it also  presents the risk of reduced rates of return if costs
rise  unexpectedly,  like those that have  resulted  from the recent  outages at
Maine  Yankee,  or if revenues  from sales  decline or are not  adequate to fund
costs. The Company believes the ARP continues to be a competitive advantage.

For a detailed discussion of the ARP, refer to Note 3 to Consolidated  Financial
Statements,  "Regulatory  Matters"  "Alternative  Rate Plan," and  "Meeting  the
Requirements of SFAS 71."

Restructuring Legislation

MPUC Proceeding to Set Prices for Transmission and Distribution Business

The  MPUC  initiated  a  proceeding  for the  Company  in which  the MPUC  would
determine the prices to be charged by the transmission and distribution business
beginning  in  March  2000.   See  Note  3  "Regulatory   Matters"  -  "Industry
Restructuring and Strandable  Costs." On December 5, 1997, the Company presented
its revenue  requirement  justification,  including stranded costs, to the MPUC.
The Company's filing reflected an annual  transmission and distribution  revenue
requirement of $295.2  million and also  reflected  recovery of an estimated net
present value $1.3 billion in stranded costs. The Company's  estimated  stranded
costs  amount  did not  include  the  effects of the sale of  generating  assets
discussed below.

Subsequently,  the  Company  supplemented  its filing by  updating  its  revenue
requirement calculations,  including recovery of stranded costs, on February 10,
1998, to reflect an estimate of the effect of the sale of  generating  assets on
stranded costs and other items.  Additionally,  the Company's  February 10, 1998
filing included its proposal for the design of prices for the  transmission  and
distribution  business,  beginning March 2000. The Company's supplemental filing
reflects an annual  transmission and distribution  revenue requirement of $280.5
million and recovery of an estimated  net present value $0.8 billion in stranded
costs.  The total annual revenue amount requested to be included in transmission
and  distribution  prices  beginning March 2000 is $449.5  million.  The sale of
generating  assets  should  allow the  Company  to  reduce  its  stranded  costs
obligations  from the previously  estimated $1.3 billion to the now  anticipated
$0.8  billion.  The  Company  is  requesting  a return on equity of 12.5% and an
increase in the common  equity  ratio from the current 40% to a desired 55%. The
Company's rate design proposal reflects an approach that is expected to minimize
customer  confusion  and bill  impacts as retail  choice  begins in March  2000.
However,  the Company does  recommend a movement to less variable and more fixed
rate  components  over time as stranded cost recovery  decreases and in a manner
that will not  significantly  impact  any  customers.  The  Company is unable to
predict with certainty the outcome of the MPUC  proceeding  establishing  prices
for its transmission and distribution  business. The MPUC is expected to reach a
decision in late 1998 and provide for a limited  update for certain items closer
to March 2000.

Agreement for Sale of Company's Generation Assets

On April 28, 1997,  the Company  announced a plan to seek  proposals to purchase
its generating assets and, as part of an auction process, received final bids on
December 10, 1997. On January 6, 1998, the Company 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 $18 million for assets sold by Union Water Power Company, a subsidiary
of the Company,  to  Florida-based  FPL Group, the winning bidder in the auction
process.

The  hydropower  assets to be included in the sale represent  approximately  373
megawatts of generating capacity.  The fossil-fueled assets included in the sale
consist  of the  Company's  interest  in the  William F.  Wyman  steam  plant in
Yarmouth,  Maine,  the largest of the Company's three  fossil-fueled  generating
assets at 594 megawatts,  Mason Station in Wiscasset,  Maine,  at 145 megawatts,
and Cape Station in South  Portland,  Maine,  at 42 megawatts.  The sole biomass
plant is the 31-megawatt unit in Fort Fairfield,  Maine, owned by a wholly-owned
subsidiary of the Company.

The  Company'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 present sale. The Company
will  continue  to seek buyers for those  assets.  The Company 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.

The electric utility  restructuring  law passed by the Maine  Legislature in the
spring  of 1997  requires  the  Company  to divest  its  generating  plants  and
power-purchase  agreements by March 1, 2000,  when its customers will be free to
choose among competitive energy suppliers, but the Company elected to conduct an
earlier sale. In addition,  as part of its agreement with FPL Group, the Company
entered into energy  buy-back  agreements to assist in fulfilling its obligation
to supply its customers with power until March 1, 2000.

Substantially  all of the generating  assets included in the sale are subject to
the lien of the Company'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  with the trustee under the Indenture at the closing
of the  sale to free the  generating  assets  from  the  lien of the  Indenture.
Proceeds  on deposit  with the  trustee  may be used by the Company to redeem or
repurchase  bonds  under  the terms of the  Indenture,  including  the  possible
discharge  of the  Indenture.  In  addition,  the  proceeds  could  provide  the
flexibility to redeem or repurchase  outstanding equity securities.  The Company
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,
market conditions and terms of outstanding securities.

The bid value in excess of the  remaining  investment  in the power  plants will
reduce the  Company's  stranded  costs and other  costs,  which  could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars.  However,  the Company will incur  incremental costs as a result of the
power  buy-back  arrangements  in excess of the  pre-sale  costs of capacity and
energy from the plants being sold,  which will  effectively  lower the amount of
sale proceeds available to reduce stranded and other costs. The Company believes
that the reduction in stranded and other costs could permit a reduction in rates
for the Company's customers.

The sale is subject to various  closing  conditions,  including  the approval of
state and  federal  regulatory  agencies,  which  approval  process  the Company
expects  could  take  approximately  four to twelve  months,  and is  subject to
consents or covenant waivers from certain of the Company's lenders.  The Company
cannot predict whether or in what form such approvals,  consents or waivers will
be obtained.

The Company  believes that  consummation of the asset sale described above would
constitute significant progress in resolving some of the uncertainties regarding
the  effects  of  electric-utility   industry  restructuring  on  the  Company's
investors;  however,  significant  risks and uncertainties  would remain.  These
include,  in addition to those enumerated  above under "Note Re  Forward-Looking
Statements," but are not limited to: (1) the possibility that a state or federal
regulatory  agency will impose  adverse  conditions on its approval of the asset
sale;  (2) the  possibility  that  new  state  or  federal  legislation  will be
implemented   that  will  increase  the  risks  to  such  investors  from  those
contemplated  by current  legislation;  and (3) the  possibility of legislative,
regulatory or judicial decisions that would reduce the ability of the Company to
recover its stranded costs from that contemplated by existing law.

Proposed Formation of Holding Company

To prepare further for the restructured  electric utility industry  contemplated
by the  legislation,  on December 8, 1997, the Company filed an application with
the MPUC for  authorization  to  create a holding  company  that  would  have as
subsidiaries the Company,  the Company's existing  non-utility  subsidiaries and
other  entities.  The Company  believes that a holding  company  structure  will
facilitate  the  Company's  transition  to a partially  deregulated  electricity
market that is  scheduled  to open  access to  electricity  for Maine  consumers
beginning  on March 1, 2000.  Competing as an electric  energy  provider in that
market as of that date will  require the  creation of an energy  company that is
legally separate from the Company.  The Company also proposed the creation of an
affiliated energy marketing affiliate in the MPUC filing.

The Company's application to the MPUC also requested approval of the creation of
a limited  liability  company in which a proposed new  subsidiary of the holding
company would hold a fifty percent  member-ship  interest to  participate in the
natural gas  distribution  business in Maine,  with the remaining  fifty percent
interest  being held by New York State Electric & Gas  Corporation  ("NYSEG") or
its affiliate. For further discussion of the NYSEG joint venture, see "Expansion
of Lines of Business," below.

The  proposed  holding  company  formation  must  also be  approved  by  federal
regulators,  including the Securities and Exchange  Commission and the FERC, and
by the holders of the Company's common stock and 6% Preferred Stock. The Company
is taking steps to pursue these approvals, but cannot predict the outcome.

Expansion of Lines of Business

The Company is preparing for competition by expanding its business opportunities
through  subsidiaries  that  capitalize on core  competencies.  One  subsidiary,
MaineCom Services, 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 credit and collections subsidiary. Another wholly-owned subsidiary,
CMP  International  Consultants,   provides  utility  consulting  (domestic  and
international)  and research,  and engineering and environmental  services.  The
100-percent  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, and utility
construction  services.  The subsidiaries often utilize skills of former Company
employees and regularly compete for business with other companies.  In addition,
a division  of the  Company is  focusing  on retail  competition  by  developing
effective marketing techniques and energy-efficient services and products.

As noted above,  the Company and NYSEG have signed a joint-venture  agreement to
distribute  natural gas to many Maine  communities that are not currently served
with that fuel.  The Company and NYSEG propose to offer  natural-gas  service in
five areas of Maine, primarily the Augusta, Bangor, Bath-Brunswick,  Rumford and
Waterville  areas.  None  of  the  60  towns  in  those  areas  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, after receipt of additional  regulatory  approvals,  through
Maine and into the regional energy market using substantial portions of electric
transmission-line  corridors  owned by the Company  and MEPCO  under  agreements
entered  into on March 16,  1998.  On March 9, 1998,  the MPUC gave  preliminary
approval  to  the  Company-NYSEG  proposal,  subject  to  final  approval  after
submission of detailed  plans on  financing,  construction,  and other  matters.
Competing  applications to serve some of the areas have been filed.  The Company
cannot predict the outcome of the MPUC proceeding.  The Company will continue to
evaluate the opportunity to be a provider of natural gas to Maine customers, and
the economics thereof,  including  monitoring progress of the planned pipelines,
competitive considerations and relevant regulatory decisions.

FiveCom  LLC  ("FiveCom"),   a   majority-owned   subsidiary  of  the  Company's
wholly-owned   MaineCom  Services,  is  building  a  fiber-optic  cable  network
connecting  cities in New England  and plans to sell  capacity on the network to
telephone   companies,   Internet   providers,   and  other   telecommunications
businesses.  FiveCom has used transmission-line  corridors owned by the Company,
and a substantial part of the expanded network in Connecticut and  Massachusetts
will occupy  utility  corridors  of Northeast  Utilities,  which owns a minority
interest in FiveCom. The Company's equity investment in MaineCom Services at the
end of 1997 was $15.9 million.  In addition,  the Company is providing up to $30
million  to  FiveCom  through  a  loan   arrangement  for  the  development  and
construction  of the  expanded  network,  and for working  capital.  The Company
believes there is a growing need for such a fiber-optic  network in New England,
but cannot predict the results of this venture.

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 the
Company's  Annual  Report on Form 10-K for the year ended  December 31, 1996, it
Quarterly  Reports on Form 10-Q for the quarters ended March 31, 1997,  June 30,
1997 and  September  30, 1997 and its Current  Reports on Form 8-K dated May 15,
1997 and August 1, 1997, and reported in more  condensed  form below,  the Plant
experienced a number of operational  and  regulatory  problems and has been shut
down since  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 Nuclear  Regulatory
Commission ("NRC") was scheduled to expire on October 21, 2008.

Recent Operating  History.  The Plant provided  reliable and low-cost power from
the time it commenced  operations in late 1972 to 1995. Beginning in early 1995,
however,   Maine  Yankee   encountered   various   operational   and  regulatory
difficulties  with the  Plant.  In 1995,  the Plant was shut down for almost the
entire  year to  repair  a large  number  of steam  generator  tubes  that  were
exhibiting defects.  Shortly before the Plant was to go back on-line in December
1995,  a group with a history of  opposing  nuclear  power  released an undated,
unsigned,  anonymous  letter  alleging  that  in 1988  Yankee  Atomic  (then  an
affiliated  consultant of Maine Yankee) and Maine Yankee had used the results of
a faulty  computer  code as a basis to apply to the NRC for an  increase  in the
Plant's power output. In response to the allegation, on January 3, 1996, the NRC
issued a  Confirmatory  Order  that  restricted  the Plant to 90  percent of its
licensed thermal operation level, which restriction was still in effect when the
Plant was permanently shut down.

As a result of the controversy associated with the allegations,  the NRC, at the
request of the  Governor of Maine,  conducted an  intensive  Independent  Safety
Assessment  ("ISA") of the Plant in the  summer and fall of 1996.  On October 7,
1996,  the NRC issued its ISA report,  which found that while the Plant had been
operated safely and could continue to operate, there were weaknesses that needed
to be addressed,  which would require  substantial  additional spending by Maine
Yankee.  On  December  10,  1996,  Maine  Yankee  responded  to the ISA  report,
acknowledged  many of the  weaknesses,  and committed to revising its operations
and procedures to address the NRC's criticisms.

Another  result  of the  controversy  associated  with  the  allegations  was an
investigation  of Maine Yankee  initiated by the NRC's Office of  Investigations
("OI"),  which, in turn, referred certain issues to the United States Department
of Justice ("DOJ") for possible criminal prosecution. Subsequently, on September
27, 1997, the DOJ, through the United States Attorney for Maine,  announced that
its review had  revealed  insufficient  grounds for  criminal  prosecution.  The
Company believes that the OI investigation,  however, could ultimately result in
the imposition of civil penalties, including fines, on Maine Yankee, and expects
resolution of outstanding NRC enforcement action in 1998.

In 1996 the Plant was generally in operation at the  90-percent  level from late
January to early  December,  except for a  two-month  outage  from  mid-July  to
mid-September.  The Plant was shut down again on  December  6, 1996,  to address
several  concerns,  and has not operated  since then.  The  precipitating  event
causing  the  shutdown  was the need to evaluate  and  resolve  cable-separation
compliance  issues,  and on December  18,  1996,  the NRC issued a  Confirmatory
Action Letter  requiring the Plant to remain shut down until Maine Yankee's plan
for resolving the cable-separation issues was accepted by the NRC. Subsequently,
Maine Yankee uncovered additional issues, including among others the possibility
of  having  to   replace   defective   fuel   assemblies,   address   additional
cable-separation  issues,  and  determine  the  condition  of the Plant's  steam
generators, which contributed to further operational uncertainty. On January 29,
1997, the Plant was placed on the NRC's Watch List, and on January 30, 1997, the
NRC issued a supplemental Confirmatory Action Letter requiring the resolution of
additional concerns before the Plant could be restarted.

In December 1996 Maine Yankee  requested  proposals from several  utilities with
large and  successful  nuclear  programs  to  provide  a  management  team,  and
ultimately  contracted with Entergy Nuclear,  Inc., effective February 13, 1997,
for management  services that included  providing a new president and regulatory
compliance  officer.  The  Entergy-provided  management  team made  progress  in
addressing  technical  issues,  but  a  number  of  operational  and  regulatory
uncertainties  remained. On May 27, 1997, the Board of Directors of Maine Yankee
voted to minimize  spending while preserving the options of restarting the Plant
or  conveying   ownership   interests  to  a  third  party.  After  unsuccessful
negotiations  with  one  prospective  purchaser,  Maine  Yankee  found  no other
interest in purchasing the Plant and, based on its economic analysis, closed the
Plant permanently.

As required by the NRC, on August 7, 1997,  Maine  Yankee  certified  to the NRC
that Maine Yankee had permanently ceased operations and that all fuel assemblies
had been  permanently  removed from the Plant's  reactor  vessel.  On August 27,
1997, Maine Yankee filed the required  Post-Shutdown  Activities Report with the
NRC, describing its planned post-shutdown activities and a proposed schedule.

Costs. The Company has been incurring  substantial  costs in connection with its
38-percent  share  of  Maine  Yankee  costs,  as well as  additional  costs  for
replacement power while the Plant has been out of service. For the twelve months
ended December 31, 1997, such costs amounted to approximately $132.3 million for
the Company:  $72.8 million due to basic operations and maintenance costs, $54.0
million  due to  replacement  power  costs  and  $5.5  million  associated  with
incremental  costs of  operations  and  maintenance.  The Maine  Yankee  Board's
decision to close the Plant mitigated the costs the Company would otherwise have
incurred  in 1997  through  a  phasing  down of Maine  Yankee's  operations  and
maintenance  costs,  with Maine  Yankee's  workforce  having been  reduced  from
approximately  475 to  214  employees  as of  December  31,  1997,  and  further
reductions  planned,  but did not reduce the need to buy replacement  energy and
capacity.  The amount of costs for replacement  energy and capacity varies based
on the  Company's  power  requirements  and market  conditions,  but the Company
expects  such costs to be within a range of  approximately  $5.0 million to $5.5
million per month during 1998,  based on current  energy and capacity  needs and
market conditions.  Under the electric utility restructuring legislation enacted
by the Maine Legislature in May 1997 discussed below, the Company's  obligations
to provide  replacement  power will  terminate on March 1, 2000,  along with its
other power-supply  obligations.  The impact of the nuclear-related costs on the
Company  was the major  obstacle  to  achieving  satisfactory  results  in 1997,
despite the  approximately  $75  million in annual  Maine  Yankee-related  costs
embedded in the current  determination  of the Company's  required  revenues for
ratemaking  purposes and despite success in controlling  other operating  costs.
See "Results of Operations" above.

The Company's  38-percent  ownership  interest in Maine  Yankee's  common equity
amounted to $29.8  million as of December  31,  1997,  and under Maine  Yankee's
Power Contracts and Additional Power  Contracts,  the Company is responsible for
38-percent 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).  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, 1997,  Maine  Yankee had  collected  approximately
$199.5 million for its decommissioning obligations.

On November 6, 1997, Maine Yankee submitted the new estimate to the FERC as part
of a rate case reflecting the fact that the Plant is no longer operating and has
entered the  decommissioning  phase.  If the FERC accepts the new estimate,  the
amount of Maine Yankee's  collections  for  decommissioning  would rise from the
$14.9 million  previously  allowed by the FERC to approximately  $36 million per
year.  Several  interested  parties  have  intervened  in the  FERC  proceeding,
including the MPUC.

On September 1, 1997,  Maine Yankee estimated the sum of the future payments for
the closing,  decommissioning and recovery of the remaining  investment in Maine
Yankee to be approximately $930 million, of which the Company's 38-percent share
would  be  approximately  $353  million.  Legislation  enacted  in Maine in 1997
calling for restructuring the electric utility industry provides for recovery of
decommissioning costs, to the extent allowed by federal regulation,  through the
rates  charged by the  transmission  and  distribution  companies.  Based on the
legislation  and  regulatory  precedent  established  by the FERC in its opinion
relating to the  decommissioning of the Yankee Atomic nuclear plant, the Company
believes that it is entitled to recover  substantially  all of its share of such
costs from its  customers  and as of  December  31,  1997,  is  carrying  on its
consolidated  balance sheet a regulatory asset and a corresponding  liability in
the amount of $329 million, which is the $353 million discussed above net of the
Company's post-September 1, 1997 cost-of-service payments to Maine Yankee.

Management  Audit.  On  September  2, 1997,  the MPUC  released  the report of a
consultant it had retained to perform a management audit of Maine Yankee for the
period January 1, 1994, to June 30, 1997. The report contained both positive and
negative  conclusions,  the latter  including:  that Maine Yankee's  decision in
December  1996 to proceed  with the steps  necessary  to  restart  the Plant was
"imprudent",  that  Maine  Yankee's  May 27,  1997  decision  to reduce  restart
expenses while exploring a possible sale of the Plant was "inappropriate", based
on the consultant's finding that a more objective and comprehensive  competitive
analysis at that time "might have indicated a benefit for restarting" the Plant;
and that those  decisions  resulted in Maine Yankee  incurring  $95.9 million in
"unreasonable"  costs.  On  October  24,  1997,  the MPUC  issued  a  Notice  of
Investigation  initiating an investigation  of the shutdown  decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant to extend its review to include those areas. The Company believes the
report's  negative  conclusions  are  unfounded  and may be  contradictory.  The
Company has been charging its share of the Maine Yankee expenses to income,  and
believes it would have substantial  constitutional and jurisdictional grounds to
challenge any effort in an MPUC proceeding to alter wholesale Maine Yankee rates
made effective by the FERC. On November 7, 1997,  Maine Yankee initiated a legal
challenge to the MPUC investigation in the Maine Supreme Judicial Court alleging
that such an investigation falls exclusively within the jurisdiction of the FERC
and that the MPUC  investigation is therefore barred on constitutional  grounds.
The  Company  filed  a  similar  legal  challenge  on the  same  day.  The  MPUC
subsequently stayed its investigation pending the outcome of Maine Yankee's FERC
rate  case,  in  which  the MPUC is  participating,  while  indicating  that its
consultant would continue its extended review. Based on preliminary  indications
from the  consultant,  the Company  expects the report on the extended review to
call for  additional  disallowances,  which Maine  Yankee has said it expects to
contest vigorously.

Maine Yankee Debt  Restructuring and FERC Rate Proceeding:  Maine Yankee entered
into  agreements  in  August  1997 with the  holders  of its  outstanding  First
Mortgage Bonds and its lender banks (the  "Standstill  Agreements")  under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit  agreements.  The
parties also agreed in the Standstill Agreements to maintain Maine Yankee's bank
borrowings at a level below that of the prior aggregate bank commitments,  which
level Maine Yankee considered adequate for its foreseeable needs. The Standstill
Agreements,  as extended in October 1997, were to terminate on January 15, 1998,
by which date Maine Yankee was to have reached  agreement on restructured  debit
arrangements  reflecting its decommissioning  status. Maine Yankee's rate filing
with the FERC  reflected  the Plant's  decommissioning  status and  requested an
effective  date of January 15, 1998,  for the amendments to Maine Yankee's Power
Contracts and Additional Power Contracts,  which revise Maine Yankee's wholesale
rates and  clarify and confirm the  obligations  of Maine  Yankee's  sponsors to
continue to pay their shares of Maine Yankee's costs during the  decommissioning
period.

On  January  14,  1998,  the FERC  issued an "Order  Accepting  for  Filing  and
Suspending Power Sales Contract Amendment,  and Establishing Hearing Procedures"
(the "FERC  Order") in which the FERC  accepted for filing the rates  associated
with the amended  Power  Contracts  and made them  effective  January 15,  1998,
subject to refund. The FERC also granted intervention requests,  including among
others those of the MPUC,  Maine  Yankee's  largest  bondholder,  and two of its
lender  banks,  denied the request of an intervenor  group to summarily  dismiss
part of the filing,  and ordered that a public  hearing be held  concerning  the
prudence of Maine  Yankee's  decision to shut down the Plant and on the justness
and  reasonableness  of Maine  Yankee's  proposed rate  amendments.  The Company
expects the  prudence  issue to be pursued  vigorously  by several  intervenors,
including  among others the MPUC,  which  stayed its own prudence  investigation
pending the outcome of the FERC proceeding after the jurisdictional challenge by
Maine  Yankee and the  Company  discussed  above.  The  hearing in the FERC rate
proceeding is scheduled to begin on December 1, 1998. The Company cannot predict
the outcome of the FERC proceeding.

On January 15, 1998, Maine Yankee,  its bondholders and lender banks revised the
Standstill  Agreements  and extended  their term to April 15,  1998,  subject to
satisfying certain milestone  obligations during the term of the extension.  One
such obligation was that Maine Yankee must have accepted,  by February 12, 1998,
an underwritten commitment to refinance its bonds and bank debt, subject only to
closing conditions  reasonably capable of being satisfied by April 15, 1998, and
reasonably satisfactory to the bondholders and banks. Maine Yankee accepted such
a  commitment  prior  to  the  deadline,  received  regulatory  approval  of the
refinancing on March 9, 1998, and is negotiating final loan  documentation,  and
preparing for a closing before April 15. The proposed refinancing consists of an
extendible three-year bank credit facility and an eight-year term loan facility.

Other Maine Yankee Shareholders: Higher nuclear-related costs are also affecting
other  stockholders of Maine Yankee in varying  degrees.  Bangor  Hydro-Electric
Company,  a Maine-based  7%  stockholder,  cited its  "deteriorating"  financial
condition,  suspended its common stock  dividend,  and eventually  obtained rate
relief.  Maine Public  Service  Company,  a 5%  stockholder,  cited  problems in
satisfying  financial  covenants  in loan  documents,  reduced its common  stock
dividend  substantially in early March 1997 and obtained rate relief.  Northeast
Utilities (20% stockholder through three subsidiaries),  which is also adversely
affected by the substantial additional costs associated with the three shut-down
Millstone nuclear units and the permanently  shut-down  Connecticut Yankee unit,
as well as significant  regulatory issues in Connecticut and New Hampshire,  has
implemented an indefinite  suspension of its quarterly  common stock  dividends.
Largely as a result of  nuclear-related  costs,  Northeast  Utilities reported a
loss of $135  million  for  1997  and  continues  to  experience  difficulty  in
satisfying  loan  covenants.  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,  and would constitute a default under Maine Yankee's bond indenture and
its two major credit  agreements unless cured within applicable grace periods by
the defaulting  stockholder or other  stockholders.  The Company cannot predict,
however,  what effect, if any, the financial  difficulties  being experienced by
some Maine Yankee stockholders will have on Maine Yankee or the Company.

Interests in Other Nuclear Plants

On December 4, 1996, the Board of Directors of  Connecticut  Yankee Atomic Power
Company voted to permanently shut down the Connecticut Yankee plant for economic
reasons,  and to  decommission  the unit,  which had not operated  since July of
1996.  The Company  has a 6% equity  interest in  Connecticut  Yankee,  totaling
approximately   $6.6  million  at  December  31,  1997.  The  Company   incurred
replacement  power costs of approximately  $5.2 million during the twelve months
ended December 31, 1997. Based on cost estimates provided by Connecticut Yankee,
the Company  determined 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 $36.9 and is carrying
a  regulatory  asset  and a  corresponding  liability  in  that  amount  on  its
consolidated  balance  sheet as of December 31,  1997.  The Company is currently
recovering through rates an amount adequate to recover these expenses.

The Company has a 2.5% direct ownership  interest in Millstone Unit No. 3, which
is operated by Northeast Utilities.  This facility has been off-line since April
1996 due to Nuclear  Regulatory  Commission  ("NRC") concerns  regarding license
requirements  and the  Company  cannot  predict  when it will return to service.
Millstone  Unit No.  3,  along  with two other  units at the same site  owned by
Northeast  Utilities,  is on the  NRC's  "watch  list" in  "Category  3",  which
requires formal NRC action before a unit can be restarted.  The Company incurred
replacement  power costs related to Millstone Unit No. 3 of  approximately  $4.9
million during the twelve months ended December 31, 1997. On August 7, 1997, the
Company  and other  minority  owners  of  Millstone  Unit No. 3 filed  suite and
initiated an arbitration claim against Northeast  Utilities,  its trustees,  and
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. The Company cannot
predict the outcome of the litigation and arbitration.

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 the Company's  electric power generating  facilities,
which are to be sold to FPL Group, as discussed  above.  The purchase  agreement
contemplates  that CMP  would  retain  the  liabilities  and  obligations  which
occurred prior to the transfer of those assets and those incurred  subsequent to
the  transfer  will  become  the   obligation  of  FPL.  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 see Note 4
"Commitments and Contingencies" - "Legal and Environmental Matters".

Open-Access Transmission Service Ruling

On April 24, 1996, the Federal Energy Regulatory  Commission (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 take
wholesale  transmission service they provide themselves 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.

On July 9, 1996, the Company and MEPCO submitted  compliance filings to meet the
new   pro   forma   tariff   non-price   minimum   terms   and   conditions   of
non-discriminatory  transmission  service.  Since  then CMP and MEPCO  have made
additional filings revising their tariffs in response to subsequent FERC Orders.
In addition,  CMP filed on February  21, 1997, a revised  tariff to comport with
the NEPOOL Open Access Transmission  Tariff. Since July 9, 1996, the Company and
MEPCO have been transmitting energy pursuant to their filed tariffs,  subject to
refund.  FERC  subsequently  issued  Orders No. 888-A and 888-B which  generally
reaffirm Order No. 888 and clarify certain terms.

Also on April 24,  1996,  FERC  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.  The  Company  participated  in  efforts to develop a
regional  OASIS for New England,  which was  operational  January 3, 1997.  FERC
subsequently approved a New England Power Pool-wide Open Access Tariff,  subject
to refund and  issuance of further  orders.  The Company  also  participated  in
revising the New England Power Pool Agreement, which is pending FERC approval.

Competition and Economic Development

The Company faces competition in several aspects of its traditional business and
anticipates that competition will continue to put pressure on both sales and the
price the  Company  can charge  for its  product.  Alternative  fuels and recent
modifications  to  regulations  that had restricted  competition  from suppliers
outside of the  Company's  service  territory  have expanded  customers'  energy
options.  As a result, the Company continues to pursue retention of its customer
base. This  increasingly  competitive  environment has resulted in the Company's
entering into  contracts 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,  the  Company
redesigned  some rates to encourage  off-peak usage and discourage  switching to
alternative  fuels.  These include  water-heat and space-heat  retention  rates,
Super-Saver  rates,  which  discount  off-peak  usage,  Diesel  Deferral  rates,
Economic  Development rates, and the Maine Made Incentive program,  which target
small   businesses.   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 45%
of annual  service  area  kilowatt-hour  sales and 32% 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.   Refer  to  Note  4  to
Consolidated   Financial   Statements,    "Commitments   and   Contingencies   -
Competition," for additional information.

Non-Utility Generators

In  accordance  with prior MPUC  policy and the ARP,  $92  million of buy-out or
contract-restructuring  costs  incurred  since  January  1992 were  included  in
Deferred  Charges and Other Assets on the  Company's  balance  sheet and will be
amortized over their respective fuel savings periods.  The Company  restructured
42  contracts  representing  349  megawatts  of capacity  that should  result in
approximately $258 million in fuel savings over the next five years.

In 1997 the Company also replaced a purchased  power  contract for energy from a
wood-fired power plant in Ashland,  Maine. The existing purchased power contract
was terminated and a new agreement for 40 megawatts,  at lower rates was signed,
which is estimated to save CMP  customers  the  equivalent of $21 million in net
present value. Refer to Note 6 to Consolidated  Financial Statements,  "Capacity
Arrangements - Non-Utility Generators," for more information.

On October  31,  1997,  a contract  with a major NUG from which the  Company was
obligated to purchase electricity at substantially  above-market prices expired.
As a  result,  the  Company  expects  annual  operating  income to  increase  by
approximately  $25 million.  Two months of this  benefit,  or  approximately  $4
million, are reflected in 1997 results.

Expenses and Taxes

Fuel  expense,  comprised  of fuel used for  company  generation  and the energy
portion of purchased power,  increased by approximately $29 million in 1997. The
increase is due primarily to increased  fuel cost for company  owned  facilities
and  additional  purchased  power to replace the loss of output from the nuclear
facilities.  Fuel expense fluctuates with changes in the price of oil, the level
of energy  generated and purchased,  and changes in the Company's own generation
mix.

The  extended  outage and  ultimate  closing  of Maine  Yankee  (see  "Permanent
Shutdown of Maine  Yankee  Plant")  resulted in  significant  increases  in fuel
expense,  including purchased-power energy and purchased-power capacity expense,
and affected the Company's generation mix in 1997 and 1996. The Company replaced
this power through short-term agreements.

The  Company's  oil-fired  generation  increased to 35.1% of the  Company's  net
generation in 1997, compared to 16.3% in 1996 net generation, and 21.6% in 1995.
The NUG  component  of the energy mix  increased  to 35.2% in 1997 from 31.4% in
1996,  as a result of the ongoing  outage and  ultimate  closing of Maine Yankee
(see  "Permanent  Shutdown of Maine  Yankee  Plant").  The average  price of NUG
energy of 8.4 cents per kilowatt-hour is significantly higher than the Company's
own cost of generation, and much higher than the price of energy on today's open
market.  The  Company  continues  to try to  moderate  the  cost of  non-utility
generation by pursuing  renegotiation  of contracts,  by supporting  legislative
bills that  would  promote  that  objective,  and by other  means such as strict
contract-term enforcement.

Purchased-power  capacity expense is the non-fuel  operation,  maintenance,  and
cost-of-capital  expense  associated  with power  purchases,  primarily from the
Company's  share  of  the  Yankee  nuclear  generating   facilities.   In  1997,
purchased-power  capacity expense increased by $4.1 million. The increase is due
primarily  to the costs  associated  with the Maine Yankee plant and the need to
replace the capacity when the Maine Yankee plant shut-down permanently in August
1997.

In December  1996,  the Board of Directors of  Connecticut  Yankee  Atomic Power
Company  announced a  permanent  shutdown of the  Connecticut  Yankee  plant for
economic  reasons and their intent to decommission  the plant. The Company has a
6% equity interest in Connecticut Yankee, totaling approximately $6.6 million at
December 31,  1997.  Purchased  power  capacity  expense in 1997,  1996 and 1995
includes $7.4, $11.5 million and $11.5 million,  respectively,  of costs related
to this facility.  During 1992,  Yankee Atomic  Electric  Company,  in which the
Company is a 9.5% equity owner,  discontinued  power  generation  and prepared a
plan for  decommissioning.  Purchased-power  capacity  expense in 1997, 1996 and
1995 contained approximately $4.6, $4.8 million and $3.9 million,  respectively,
of costs related to this facility. The level of purchased-power capacity expense
also fluctuates with the timing of the maintenance and refueling  outages at the
Vermont Yankee nuclear generating  facility in which the Company has a 4% equity
interest. The cost of capacity increases during refueling periods. Refer to Note
6  to  Consolidated   Financial  Statements,   "Capacity  Arrangements  -  Power
Agreements,"  and "Interests in Other Nuclear  Plants" above for a more detailed
discussion.

In 1997, other operations  expense  increased by approximately  $23.6 million as
compared to the year ended  December 31,  1996.  The major  contributors  to the
increase were the absence of the effect of a $6.4 million reversal in 1996 for a
reserve  established in 1995, $3.7 million of amortization  and costs associated
with a  large  purchased-power  contract  buyout,  $4.3  million  of  additional
transmission  and  distribution  expenses,  and  $1.9  million  of  expense  for
post-retirement  benefits  being  collected  in rates under the ARP.  Previously
post-retirement benefits were deferred for future recovery. In addition, various
other operations expenses of $7.3 million contributed to the 1997 increase.

The 1996 reduction in other operation and  maintenance  expense is attributed to
the reversal of a reserve of $6.4 million  established in 1995 for the Company's
workers compensation regulatory asset for which recovery was not certain. In the
June 1996 ARP decision,  the MPUC approved  recovery of this  regulatory  asset.
Also in 1996,  the Company  increased the workers  compensation  obligation  and
charged  the  increase  of  $1.6  million  to  expense.   As  a  result,  a  net
year-over-year reduction of $11.2 million for workers compensation was recorded.
The  Company did incur an increase  in  distribution  expenses of $4.1  million,
mainly due to line-clearance activities. The Company has contractual obligations
related to demand-side  energy-management  programs which  increased  expense by
$2.8 million in 1996. Maintenance expense other than distribution increased $3.5
million,  of which $1.4  million  was for  repairs at the  Millstone  Unit No. 3
nuclear facility.

Maintenance  expense decreased by $3.5 primarily due to decreased storm activity
in  1997   versus   1996,   as  well  as  the  lower  costs   involved   with  a
turbine/generator  project at a Company  steam  station when  comparing  1997 to
1996.

Federal and State income taxes fluctuate with the level of pre-tax  earnings and
the regulatory  treatment of taxes by the MPUC. This expense  decreased by $22.7
million as compared to the year ended  December  31,  1996.  The decrease is due
primarily to lower pre-tax earnings for the 12 months ended December 31, 1997.

Other income decreased by $2.5 million in 1997 as compared to 1996 primarily due
to excess expenses over revenue associated with a non-operating  division of the
Company, and resulting lower taxes due to this occurrence.

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

In 1997,  interest expense reflected a net decrease of $100 thousand as compared
to the year ended December 31, 1996.  Other  interest  increased due to a higher
level of short-term borrowings and interest expenses associated with various IRS
issues.  The long-term debt interest  expense  decrease was due primarily to the
lower level of Medium-Term  Notes  outstanding  than in 1996.  Interest  expense
decreased in 1996 by $1.4 million due to lower levels of  Medium-Term  Notes and
the  repurchase  of $11.5  million of Series N General  and  Refunding  Mortgage
Bonds.  Long-term  debt  interest  expense  includes  $1 million of  accelerated
amortization  of  loss  on  reacquired  debt,  as  specified  in the  1996  ARP.
Short-term  interest costs over the period 1995 through 1997 fluctuated with the
levels of rates and outstanding balances of short-term debt.

In July 1997 and 1996,  the  Company  redeemed  $14 million of its 8 7/8% Series
Preferred Stock at par, under the mandatory and optional sinking-fund provisions
of that series.  This reduced dividends by approximately  $1,860,000 in 1977 and
$620,000 in 1996.

State and federal income taxes fluctuate with the level of pre-tax  earnings and
the  regulatory  treatment of taxes by the MPUC. A settlement  with the Internal
Revenue Service on audits for the years 1992-1994 provided an increase to income
tax expense of approximately  $1.4 million in 1997. In 1996, the settlement with
the  Internal  Revenue  Service  on audits  for the years  1988-1991  provided a
decrease  to income tax expense of  approximately  $4.8  million.  See Note 2 to
Consolidated  Financial Statements,  "Income Taxes" and Note 4, "Commitments and
Contingencies," for more information.

Year 2000 Computer Issues

In the next two years,  most large  companies  will face a  potentially  serious
information  systems  (computer)  problem because most software  application and
operational  programs written in the past will not properly  recognize  calendar
dates beginning in the year 2000. This could force computers to either shut down
or lead to incorrect calculations.  The Company began the process of identifying
the changes  required to their  computer  programs and hardware  during the year
1996. The majority of the necessary  modifications to the Company's  centralized
financial,  customer,  and  operational  information  systems are expected to be
completed by the end of 1998. The Company  believes it will incur  approximately
$3.0 million of costs by March 31, 2000,  associated  with making the  necessary
modifications  identified to date to the centralized systems. As of December 31,
1997  approximately  $1.5  million of costs have been  incurred.  Noncentralized
systems are  currently  being  reviewed for Year 2000  problems.  The Company is
unable to predict the costs to be incurred for correction of such noncentralized
systems,  but expects the scope and  schedule  for such work to be less  complex
than for its centralized  information  systems. In addition,  the Company cannot
predict the extent of its vulnerability to third parties noncompliance and their
failure to remediate year 2000 issues.

Liquidity and Capital Resources

The MPUC approved  increases in electric retail rates of 1.10%,  1.26% and 2.43%
in 1997, 1996 and 1995, respectively,  that produced additional cash pursuant to
the price cap mechanism in the ARP.  Increases in rates under the ARP were based
on increases in the related price index,  the sharing  mechanism and  provisions
for certain mandated costs.  Prior rate increases were provided to fund costs of
fuel, energy-management programs, operations, maintenance, systems improvements,
and investments in generation  needed to ensure the Company's  continued ability
to provide reliable electric service.

Approximately  $89.0  million of cash was provided  from net income after adding
back  non-cash  items.   Approximately   $7.8  million  of  cash  was  used  for
fluctuations  in working  capital.  Other  operating  activities,  including the
financing of deferred  energy-management  programs  required  cash  resources of
approximately $4.6 million.

The level of cash  balances and  activity in capital  investment  programs  have
required little investment-related activity during 1997 and 1996. The redemption
of Medium-Term  Notes and the purchase of 8 7/8% Series Preferred Stock used $25
million and $14 million,  respectively,  of cash during 1997.  Dividends paid on
common  stock were $29.2  million,  while  preferred-stock  dividends  were $8.5
million.

Capital-investment  activities,  primarily construction  expenditures,  utilized
$45.8  million  in  cash  during  1997.   Construction   expenditures  comprised
approximately   $3.7  million  for   generating   projects,   $2.6  million  for
transmission,  $24.6  million  for  distribution,  and $9.4  million for general
facilities and other construction expenditures for a total of $40.3 million. The
Company invested $4.8 million in affiliates in 1997. The two major components of
the  investments  were  the $5.8  million  invested  in  MaineCom  Services  and
Aroostook Valley Electric Company's repayment of an advance of $1.2 million.

The Company estimates its capital  expenditures for the period 1998 through 2002
at approximately $275 million.  Actual capital expenditures will depend upon the
availability of capital and other  resources,  load forecasts,  customer growth,
and general business  conditions.  During the five-year period, the Company also
anticipates incurring approximately $434 million for sinking funds, and debt and
equity maturities.

The  Company  estimates  that  for the  period  1998  through  2002,  internally
generated funds from operating  activities should provide a substantial  portion
of the  construction-program  requirements.  However,  the  availability  at any
particular time of internally  generated funds for such requirements will depend
on working-capital needs, market conditions, and other relevant factors.

Replacement power costs and increased  operation and maintenance  expenses had a
significant  negative effect on cash and liquidity in 1997. The Company incurred
additional  expenses  of $46 million in 1997 over 1996 to replace  Maine  Yankee
power and pay its share of increased  repair and other  operations at the plant.
The Company expects its share of Maine Yankee costs to decrease by approximately
$30  million in 1998 as the plant moves  toward  decommissioning.  In  addition,
shutdowns at other nuclear facilities increased 1997 replacement-power  costs by
$5 million; these facilities include Millstone Unit 3 in Connecticut,  which was
taken off-line for safety  modifications  and requires U.S.  Nuclear  Regulatory
Commission  approval to restart,  and the Connecticut Yankee plant, which closed
permanently on December 4, 1996, and is now being decommissioned.

At the annual  meeting of the  stockholders  of the Company on May 15, 1997, the
holders of the Company's  outstanding  preferred stock consented to the issuance
of $350  million  in  principal  amount of the  Company'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 is being  implemented
to increase the Company's financing flexibility in anticipation of restructuring
and increased  competition.  As of December 31, 1997, $43 million of Medium-Term
Notes  were  outstanding  which,  under the terms of the  program,  will  permit
issuance of an additional  $457 million of such notes. On February 24, 1998, the
Company issued a two-year 6.38%  Medium-Term Note in the principal amount of $30
million,  and on March 20, 1998,  issued 18-month 6.35% Medium-Term Notes in the
aggregate principal amount of $30 million, raising the total outstanding to $103
million.

To support its short-term capital requirements, on October 23, 1996, the Company
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 has two credit facilities:  a $75 million,  364-day revolving credit
facility that currently  matures on October 21, 1998, and a $50-million,  3-year
revolving  credit  facility  that  matures  on October  22,  1999.  Both  credit
facilities  require annual fees on the total credit lines. The fees are based on
the Company's credit ratings and allow for various  borrowing  options including
LIBOR-pried,   base-rate-priced  and  competitive-bid-priced  loans.  Access  to
commercial  paper  markets  has been  substantially  precluded,  as a result  of
downgrading  of  the  Company's  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  Company  had $60
million  outstanding as of December 31, 1997 under the 364-day  revolving credit
facility, all of which had been paid as of March 25, 1998.

In 1997,  the  Company  deposited  approximately  $2.2  million in cash,  net of
withdrawals, with the Trustee under the Company's General and Refunding Mortgage
Indenture  in  satisfaction  of the  renewal  and  replacement  fund  and  other
obligations  under the  Indenture.  The total of such cash on  deposit  with the
Trustee as of December 31, 1997,  was  approximately  $61.7  million.  Under the
Indenture such cash may be applied at any time, at the direction of the Company,
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
the Company by substitution of allocated property additions or available bonds.

On February 26, 1998,  the Company  called for redemption on March 30, 1998, all
of the  outstanding  $11 million  principal  amount of its General and Refunding
Mortgage  Bonds,  Series N 8.50% Due 2001, at a redemption  price equal to their
principal amount plus accrued interest to the date fixed for redemption.  On the
same day the Company also called for  redemption  on March 30, 1998,  all of the
outstanding $50 million  principal amount of its General and Refunding  Mortgage
Bonds,  Series R 7-7/8%  Due 2023,  also at a  redemption  price  equal to their
principal  amount plus accrued  interest.  The bond redemptions are being funded
from the  approximately  $61.7  million on deposit  with the  trustee  under the
renewal and replacement fund and release provisions of the Company's General and
Refunding  Mortgage  Indenture.  On February  27, 1998,  the Company  called for
redemption  on April 1,  1998,  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  are being paid on the preferred  stock since the  redemption
date is a regular dividend payment date.

Impact of New Accounting Standards

In  February  1997,  FASB  issued  SFAS No.  128,  "Earnings  per  Share."  This
statement,  which is effective for fiscal years ending after  December 15, 1997,
establishes simplified standards for computing and presenting earnings per share
("EPS").  In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income." This  statement,  which is effective for fiscal years  beginning  after
December  15,   establishes   standards   for  the   reporting  and  display  of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general-purpose  financial statements.  The Company anticipates
that  adoption  of these  standards  will not have a  significant  impact on its
financial statements.



<PAGE>


Item 8. FINANCIAL STATEMENTS AND
           SUPPLEMENTARY DATA.

                                                                      Page

Index to Financial Statements and Financial Statement Schedule

     Management report on responsibility for financial reporting       53

     Report of Independent Accountants                                 54

     Financial Statements:

     Consolidated Statement of Earnings for the three years ended
      December 31, 1997, 1996 and 1995                                 55

     Consolidated Balance Sheet as of December 31, 1997 and 1996       56

     Consolidated Statement of Cash Flows                              58

     Consolidated Statement of Capitalization and Interim Financing    60

     Consolidated Statement of Changes in Common-Stock Investment      61

     Notes to Consolidated Financial Statements                        62

Financial Statement Schedule:

     Schedule II - Valuation and Qualifying Accounts                  111




<PAGE>


                              Report of Management

The  Management of Central Maine Power Company and its subsidiary is 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.

The Company maintains a system of internal  accounting controls that is designed
to provide  reasonable  assurance  that the  Company's  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 its goals in a cost-effective
manner.

The Company has  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 has established an Audit Committee,  composed entirely of
outside directors,  which oversees the Company's  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.

Coopers & Lybrand L.L.P.,  independent public accountants,  has been retained to
audit the Company'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                                     David E. Marsh
President and Chief Executive Officer                 Chief Financial Officer



<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Directors and Stockholders
Central Maine Power Company

We  have  audited  the  consolidated  financial  statements  and  the  financial
statement  schedule of Central Maine Power Company and subsidiary listed in Item
8 and Item 14(a) of this Form 10-K.  These  financial  statements  and financial
statement  schedule are the  responsibility  of the Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  consolidated  financial  position of Central Maine
Power  Company  and  subsidiary  as of  December  31,  1997  and  1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule  referred to above, when considered in relation to the basic
financial  statements  taken  as a  whole,  presents  fairly,  in  all  material
respects, the information required to be included therein.


Coopers & Lybrand L.L.P.
Portland, Maine
January 30, 1998



<PAGE>


CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S>                                                                          <C>               <C>              <C>    

                           Central Maine Power Company
                       CONSOLIDATED STATEMENT OF EARNINGS
                (Dollars in thousands, except per-share amounts)

                                                                                    Year ended December 31,
                                                                             1997             1996             1995
Electric Operating Revenues (Notes 1 and 3)                                 $954,176          $967,046         $916,016
                                                                             -------           -------          -------

Operating Expenses
     Fuel used for company generation (Notes 1 and 6)                         34,946            16,827           18,702
     Purchased power - energy (Notes 1 and 6)                                419,144           407,926          408,072
     Purchased power - capacity (Note 6)                                     112,810           108,720           93,489
     Other operation                                                         206,494           182,910          188,013
     Maintenance                                                              33,904            37,449           32,862
     Depreciation and amortization (Note 1)                                   54,132            53,694           55,023
     Federal and state income taxes (Note 2)                                   7,424            30,125           13,328
     Taxes other than income taxes                                            28,303            27,861           27,885
                                                                            --------          --------         --------
Total Operating Expenses                                                     897,157           865,512          837,374
                                                                             -------           -------          -------
Equity In Earnings Of Associated Companies (Note 6)                            6,260             6,138            7,217
                                                                            --------         ---------        ---------
Operating Income                                                              63,279           107,672           85,859
                                                                             -------           -------         --------
Other Income (Expense)
     Allowance for equity funds used during construction (Note 1)
                                                                                 642               851              663
     Other, net                                                                1,806             5,255            7,170
     Income taxes (Notes 2 and 3)                                               (738)           (1,897)          (2,704)
                                                                           ---------          --------         --------
        Total Other Income                                                     1,710             4,209            5,129
                                                                            --------         ---------         --------
Income Before Interest Charges                                                64,989           111,881           90,988
                                                                             -------           -------          -------
Interest Charges
     Long-term debt (Note 7)                                                  44,346            47,966           50,307
     Other interest (Note 7)                                                   7,660             4,341            3,244
     Allowance for borrowed funds used during construction (Note 1)
                                                                                (439)             (655)            (543)
                                                                           ---------         ---------        ---------
        Total Interest Charges                                                51,567            51,652           53,008
                                                                             -------           -------          -------
Net Income                                                                    13,422            60,229           37,980
Dividends On Preferred Stock                                                   8,209             9,452           10,178
                                                                            --------          --------          -------
Earnings Applicable To Common Stock                                        $   5,213          $ 50,777         $ 27,802
                                                                            ========           =======          =======
Weighted Average Number Of Shares Of
Common Stock Outstanding                                                  32,442,752        32,442,752       32,442,752
Earnings Per Share Of Common Stock (Basic and Diluted)
                                                                               $0.16             $1.57            $0.86
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.

<PAGE>

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

                           Central Maine Power Company
                           CONSOLIDATED BALANCE SHEET
                             (Dollars in thousands)
                                                                                       December 31
                                 ASSETS                                         1997               1996
                                                                                ----               ----

Electric Property, at original cost (Notes 6 and 7)                             $1,674,876         $1,644,434
    Less: Accumulated Depreciation (Notes 1 and 6)                                 634,384            598,415
                                                                                ----------         ----------
          Net electric property in service                                       1,040,492          1,046,019
                                                                                 ---------          ---------
    Construction work in progress (Note 4)                                          15,105             20,007
    Nuclear fuel, less accumulated amortization of $9,035 in 1997 and
    1996                                                                             1,157              1,157
                                                                              ------------       ------------
          Total net electric property                                            1,056,754          1,067,183
Investments In Associated Companies, at equity (Notes 1 and 6)                      76,509             67,809
                                                                               -----------        -----------
    Total Net Electric Property and Investments in Associated Companies          1,133,263          1,134,992
                                                                                 ---------          ---------

Current Assets
    Cash and cash equivalents                                                       20,841              8,307
    Accounts receivable, less allowances for uncollectible accounts of
    $2,400 in 1997 and $4,177 in 1996:
       Service - billed                                                             84,323             84,396
       Service - unbilled (Notes 1 and 3)                                           46,807             45,721
       Other accounts receivable                                                    15,247             17,517
    Prepaid income taxes (Note 2)                                                        -                264
    Fuel oil inventory, at average cost                                              5,390              9,256
    Materials and supplies, at average cost                                         11,779             12,172
    Funds on deposit with trustee (Note 7)                                          61,694             59,512
    Prepayments and other current assets                                             9,110              9,500
                                                                              ------------       ------------
          Total Current Assets                                                     255,191            246,645
                                                                                ----------         ----------

Deferred Charges And Other Assets
    Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1)
                                                                                    84,026             89,551
    Yankee Atomic purchased-power contract (Note 6)                                 13,056             16,463
    Connecticut Yankee purchased-power contract (Note 6)                            36,877             45,769
    Maine Yankee purchased-power contract (Note 6)                                 329,206                  -
    Regulatory assets - deferred taxes (Note 2)                                    236,632            239,291
    Deferred charges and other assets (Notes 1 and 3)                              210,715            238,203
                                                                                ----------         ----------
          Total Deferred Charges and Other Assets                                  910,512            629,277
                                                                                ----------         ----------
          Total Assets                                                          $2,298,966         $2,010,914
                                                                                 =========          =========
</TABLE>

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

<PAGE>


                           Central Maine Power Company
                           CONSOLIDATED BALANCE SHEET
                             (Dollars in thousands)

                                                              December 31
                                                          1997           1996
                                                          ----           ----
                    STOCKHOLDERS' INVESTMENTS AND LIABILITIES

Capitalization (see separate statement) (Note 7)
    Common-stock investment                            $  487,594    $  511,578
    Preferred stock                                        65,571        65,571
    Redeemable preferred stock                             39,528        53,528
    Long-term obligations                                 400,923       587,987
                                                       ----------    ----------
       Total Capitalization                               993,616     1,218,664
                                                       ----------     ---------

Current Liabilities and Interim Financing
    Interim financing (see separate statement)
    (Note 7)                                              238,000        32,500
    Sinking-fund requirements (Note 7)                      9,411         9,375
    Accounts payable                                       97,080        93,197
    Dividends payable                                       9,202         9,512
    Accrued interest                                       11,201        11,610
    Accrued income taxes (Note 2)                           3,001             -
    Miscellaneous current liabilities                      15,762        21,342
                                                      -----------   -----------
       Total Current Liabilities and Interim
        Financing                                         383,657       177,536
                                                       ----------    ----------

Commitments and Contingencies (Notes 4 and 6)

Reserves and Deferred Credits
    Accumulated deferred income taxes (Note 2)            350,912       357,994
    Unamortized investment tax credits (Note 2)            30,533        31,988
    Yankee Atomic purchased-power contract (Note 6)        13,056        16,463
    Connecticut Yankee purchased-power contract
    (Note 6)                                               36,877        45,769
    Maine Yankee purchased-power contract (Note 6)        329,206             -
    Regulatory liabilities - deferred taxes (Note 2)       56,852        52,616
    Other reserves and deferred credits (Note 5)          104,257       109,884
                                                       ----------    ----------
       Total Reserves and Deferred Credits                921,693       614,714
                                                       ----------    ----------

       Total Stockholders' Investment and Liabilities  $2,298,966    $2,010,914
                                                        =========     =========

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


<PAGE>

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


                           Central Maine Power Company
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Dollars in thousands)

                                                                                        Year ended December 31
                                                                                        ----------------------
                                                                                  1997            1996             1995
                                                                                  ----            ----             ----
Operating Activities
    Net income                                                                  $ 13,422        $ 60,229         $ 37,980
    Items not requiring (providing) cash:
       Depreciation                                                               44,170          44,104           43,676
       Amortization                                                               34,291          34,881           37,196
       Deferred income taxes and investment tax credits, net                      (2,204)          3,318           (3,710)
       Allowance for equity funds used during construction                          (642)           (851)            (663)
    Changes in certain assets and liabilities:
       Accounts receivable                                                         1,257          (3,565)         (12,539)
       Inventories                                                                 4,259          (4,884)             595
       Other current assets                                                          390            (308)          (1,954)
       Accounts payable                                                            4,617         (16,862)          12,025
       Accrued taxes and interest                                                  2,856          (4,970)          30,282
       Miscellaneous current liabilities                                          (5,580)          7,472            3,335
    Deferred energy-management costs                                              (1,940)         (5,222)          (4,075)
    Maine Yankee outage accrual                                                  (10,350)          8,280           (4,710)
    Purchased-power contract buyouts                                                   -             (75)         (13,405)
    Other, net                                                                     7,664           3,961           11,495
                                                                                --------        --------          -------
          Net Cash Provided by Operating Activities                               92,210         125,508          135,528
                                                                                 -------         -------          -------

Investing Activities
       Construction expenditures                                                 (40,306)        (46,922)         (44,867)
       Investments in associated companies                                        (4,769)        (12,059)            (600)
       Changes in accounts payable - investing activities                           (734)          1,889           (1,655)
                                                                               ---------        --------         --------
          Net Cash Used by Investing Activities                                  (45,809)        (57,092)         (47,122)
                                                                                 -------         --------         -------

Financing Activities
    Issuances:
       Revolving credit agreement                                                 52,500           7,500                -
       Medium-term notes                                                               -          10,000           30,000
       Other long-term obligations                                                     -             870                -
    Redemptions:
       Mortgage bonds                                                                  -         (11,500)               -
       Preferred stock                                                           (14,000)        (14,000)          (5,472)
       Medium-term notes                                                         (25,000)        (34,000)         (65,000)
       Finance Authority of Maine                                                 (6,800)         (6,300)               -
       Short-term obligations, net                                                     -               -           (8,000)
       Other long-term obligations                                                  (645)         (1,780)            (860)
       Funds on deposit with trustee                                              (2,182)        (29,593)               -
    Dividends:
       Common stock                                                              (29,220)        (29,220)         (29,222)
       Preferred stock                                                            (8,520)         (9,763)         (10,287)
                                                                                --------        --------          -------
          Net Cash Used by Financing Activities                                  (33,867)       (117,786)         (88,841)
                                                                                 -------        --------          -------
          Net Increase (Decrease) in Cash and Cash Equivalents
                                                                                  12,534         (49,370)            (435)
Cash and Cash Equivalents, beginning of year                                       8,307          57,677           58,112
                                                                                --------         -------          -------
CASH AND CASH EQUIVALENTS, End Of Year                                          $ 20,841      $    8,307         $ 57,677
                                                                                 =======       =========          =======
Supplemental Cash-Flow Information:
       Cash paid during the year for:
       Interest (net of amounts capitalized)                                     $47,551         $47,835          $51,127
       Income taxes (net of amounts refunded of $29,045 in 1995)
                                                                                  $7,105         $32,632         $(11,994)

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>

<PAGE>

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


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

                                                                                       December 31
                                                                                       -----------
                                                                          1997                               1996
                                                                          ----                               ----
                                                                 Amount            %             Amount               %
Capitalization (Note 7)
Common-Stock Investment:
Common stock, par value $5 per share:
    Authorized - 80,000,000 shares
    Outstanding - 32,442,752 shares in 1997 and 1996
                                                              $    162,214                     $  162,214
Other paid-in capital                                              277,168                        276,818
Retained earnings                                                   48,212                         72,546
                                                                ----------                    -----------
Total Common-Stock Investment                                      487,594         39.6%          511,578              40.9
                                                                 ---------       ------        ----------            ------
Preferred Stock - not subject to mandatory redemption
                                                                    65,571          5.3            65,571               5.2
                                                                ----------       ------       -----------            ------
Preferred Stock - subject to mandatory redemption
                                                                    46,528                         60,528
Less: current sinking fund requirements                              7,000                          7,000
                                                                ----------                   ------------
Redeemable Preferred Stock - subject to mandatory
redemption                                                          39,528          3.2            53,528               4.3
                                                                ----------       ------       -----------            ------
Long-Term Obligations:
Mortgage bonds                                                     421,000                        421,000
Less: unamortized debt discount                                      1,437                          1,620
                                                               -----------                   ------------
Total Mortgage Bonds                                               419,563                        419,380
                                                                ----------                     ----------
Medium-term notes                                                   43,000                         68,000
Less: unamortized debt discount                                       -                                -
                                                           ---------------                 -------------
Total Medium-Term Notes                                             43,000                         68,000
                                                               -----------                    -----------
Other Long-Term Obligations:
Lease obligations                                                   34,517                         36,283
Pollution-control facility and other notes                          84,254                         91,699
                                                               -----------                    -----------
Total Other Long-Term Obligations                                  118,771                        127,982
                                                                ----------                     ----------
Less: Current Sinking Fund Requirements and Current
Maturities                                                         180,411                         27,375
                                                                ----------                    -----------
Total Long-Term Obligations                                        400,923         32.6           587,987              47.0
                                                                ----------       ------        ----------            ------
Total Capitalization                                               993,616         80.7         1,218,664              97.4
                                                                 ---------       ------         ---------            ------
Interim Financing (Note 7):
Short-term obligations                                              60,000                          7,500
Current maturities of long-term obligations                        178,000                         25,000
                                                                ----------                    -----------
Total Interim Financing                                            238,000         19.3            32,500               2.6
                                                                ----------       ------       -----------            ------
Total Capitalization and Interim Financing                      $1,231,616        100.0%       $1,251,164             100.0%
                                                                 =========        =====         =========             =====
</TABLE>

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

<PAGE>

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


                           Central Maine Power Company
          CONSOLIDATED STATEMENT OF CHANGES IN COMMON-STOCK INVESTMENT
                             (Dollars in thousands)

                   For the three years ended December 31, 1997
                                                                     Amount at par   Other paid-in      Retained
                                                         Shares          value          capital         earnings         Total
Balance - December 31, 1994                            32,442,752       $162,214        $275,627        $ 53,482        $491,323
                                                       ----------        -------         -------         -------         -------
Net income                                                                                                37,980          37,980
Dividends declared:
    Common stock                                                                                         (29,199)        (29,199)
    Preferred stock                                                                                      (10,178)        (10,178)
Cost for reacquired preferred stock                                                          581            (581)
Shareholders Rights Plan redemption                                                         (324)                           (324)
Capital stock expense                                                                        403                             403
                                                     ------------------------------    ---------     ------------      ---------
Balance - December 31, 1995                            32,442,752        162,214         276,287          51,504         490,005
                                                       ----------        -------         -------         -------         -------
Net income                                                                                                60,229          60,229
Dividends declared:
    Common stock                                                                                         (29,199)        (29,199)
    Preferred stock                                                                                       (9,452)         (9,452)
Cost for reacquired preferred stock                                                          536            (536)
Capital stock expense                                                                         (5)                             (5)
                                                     ------------------------------  -----------     -----------     -----------
Balance - December 31, 1996                            32,442,752        162,214         276,818          72,546         511,578
                                                       ----------        -------         -------          ------         -------
Net income                                                                                                13,422          13,422
Dividends declared:
    Common stock                                                                                         (29,199)        (29,199)
    Preferred stock                                                                                       (8,209)         (8,209)
Cost for reacquired preferred stock                                                          348            (348)
Capital stock expense                                                                          2                               2
                                                     -----------------------------    ----------     -----------     -----------
Balance - December 31, 1997                            32,442,752       $162,214        $277,168         $48,212        $487,594
                                                       ==========        =======         =======          ======         =======
</TABLE>

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


<PAGE>


Notes to Consolidated Financial Statements

Note 1:  Summary of Significant Accounting Policies

General Description

Central Maine Power Company (the Company) is an  investor-owned  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 the accounts of the Company and
its 78%-owned  subsidiary,  Maine  Electric  Power Company,  Inc.  (MEPCO).  The
Company  accounts for its  investments  in  associated  companies not subject to
consolidation  using the equity method. 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.

Impact of New Accounting Standards

In  February  1997,  FASB  issued  SFAS No.  128,  "Earnings  per  Share."  This
statement,  which is effective for fiscal years ending after  December 15, 1997,
establishes simplified standards for computing and presenting earnings per share
("EPS").  In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income." This  statement,  which is effective for fiscal years  beginning  after
December  15,  1997  establishes  standards  for the  reporting  and  display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general-purpose  financial statements.  The Company anticipates
that  adoption  of these  standards  will not have a  significant  impact on its
financial statements.

Regulation

The rates,  operations,  accounting,  and certain other practices of the Company
and MEPCO are subject to the regulatory  authority of the Maine Public Utilities
Commission (MPUC) and the Federal Energy Regulatory Commission (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.



<PAGE>


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.

The  Company's  utility  plant in service as of  December  31 was  comprised  as
follows:

                                                                        Average
                                                                       Remaining
                                                       Average          Service
                                                       Service           Life
                             1997          1996         Life*          12/31/97
                             ----          ----        ------          --------

Generation .........     $  514,815     $  506,159     37.6 years     20.9 years
Transmission .......        250,109        247,666     41.6 years     25.2 years
Distribution .......        704,345        685,142     37.7 years     28.8 years
General ............        205,607        205,467     18.6 years     13.3 years
                         ----------     ----------     ----------     ----------
                         $1,674,876     $1,644,434
                         ==========     ==========

*Based on the Company'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 3.0% in each of 1997, 1996 and 1995.

Allowance for Funds Used During Construction (AFC)

The Company  capitalizes 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 9.7 percent,  8.7 percent,
and 8.4 percent in 1997, 1996, and 1995, respectively.



<PAGE>


Deferred Charges and Other Assets

The Company  defers and  amortizes  certain  costs in a manner  consistent  with
authorized or probable ratemaking  treatment.  The Company 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,
1997, and 1996:

(Dollars in thousands)                                   1997            1996
                                                         ----            ----
NUG contract buy-outs and restructuring (Note 6)       $  92,946       $113,796
Energy-management costs                                   31,995         35,986
Postretirement benefits (Note 5)                          20,900         22,962
Financing costs                                           18,560         20,684
Environmental site clean-up costs (Note 4)                 7,891          7,876
Non-operating property, net                                7,624          7,176
Workers Compensation                                       5,350          6,050
Other, including MEPCO                                    25,449         23,673
                                                         -------        -------
  Total                                                 $210,715       $238,203
                                                         =======        =======

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
1998                          $26,934
1999                           24,433
2000                           23,323
2001                           19,818
2002                           19,226



<PAGE>


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. The
Company is allowed a current return on these assets based on its 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, 1997,  substantially  all deferred taxes related to Seabrook I have
been amortized.  The  recoverable  investments as of December 31, 1997, and 1996
are as follows:

                                            December 31              Recovery
(Dollars in thousands)                 1997             1996      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          114,035         108,209
Less: related income taxes                  514             815
                                      ---------       ---------
  Total Net Recoverable Investment     $ 84,026        $ 89,551
                                        =======         =======

Note 2:  Income Taxes

The  components  of federal and state  income-tax  provisions  reflected  in the
Consolidated Statement of Earnings are as follow:

                                                Year ended December 31
(Dollars in thousands)                      1997         1996         1995
                                            ----         ----         ----
Federal:
Current                                    $  8,534      $21,682      $15,965
Deferred                                     (5,922)       5,751        2,278
Investment tax credits, net                  (1,455)        (464)      (1,715)
Regulatory deferred                           5,390         (623)      (2,619)
                                              -----      -------       -------
  Total Federal Taxes                         6,547       26,346       13,909
                                              -----       ------       ------
State:
Current                                    $  1,831     $  7,022     $  3,777
Deferred                                     (1,720)         (10)         343
Regulatory deferred                           1,504       (1,336)      (1,997)
                                              -----      -------      -------
  Total State Taxes                           1,615        5,676        2,123
                                              -----      -------      -------
  Total Federal and State Income Taxes       $8,162      $32,022      $16,032
                                              =====       ======       ======
Federal and state income taxes charged to:
Operating expenses                           $7,424      $30,125      $13,328
Other income                                    738        1,897        2,704
                                             ------      -------      -------
                                             $8,162      $32,022      $16,032
                                              =====       ======       ======



<PAGE>


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
                                                      1997                            1996                          1995
                                                      ----                            ----                          ----
                                             Amount           %            Amount           %            Amount           %
(Dollars in thousands)
Income tax expense at statutory federal
rate                                         $  6,990          35.0%       $30,301          35.0%        $18,161         35.0%
                                                -----          ----         ------          ----          ------         ----
Permanent differences:
Investment tax-credit amortization
                                               (1,469)         (7.3)        (1,482)         (1.7)         (1,613)        (3.1)
Dividend-received deduction                    (1,911)         (9.6)        (1,895)         (2.2)         (2,219)        (4.3)
Other, net                                        (80)          (.4)          (293)         (0.3)           (217)        (0.4)
                                              -------         -----        -------          ----        --------         ----
                                                3,530          17.7         26,631          30.8          14,112         27.2
                                                -----          ----         ------          ----          ------         ----
Effect of timing differences for items
 which receive flow through treatment:
Tax-basis repairs                              (1,020)         (5.1)        (1,229)         (1.4)           (891)        (1.7)
Depreciation differences flowed through
in prior years                                  2,923          14.6          2,327           2.7           2,291          4.4
Accelerated flowback of deferred taxes
on loss on abandoned generating projects
                                                1,700           8.5          1,708           1.9           1,873          3.6
Benefits related to Section 1245 Losses
                                               (1,818)         (9.1)             -           -                 -          -
IRS audit resolution regarding
depreciation methods                              852           4.3         (3,230)         (3.7)              -          -
Loss on Reacquired Debt                           540           2.7            537           0.6             535          1.0
Provision for deferred taxes relating
to normalization of certain short-term
timing differences*
                                                                                 -           -            (2,545)        (4.9)
Flowback of Excess Federal Deferred
Taxes due to TRA86                             (1,005)         (5.0)         (520)          (0.6)           (400)        (0.8)
Other, net                                        845           4.2            122           0.1          (1,066)        (2.0)
                                               ------          ----        -------         -----          ------         ----
  Federal Income Tax Expense and
  Effective Rate                               $6,547          32.8%       $26,346          30.4%        $13,909         26.8%
                                                =====          ====         ======          ====          ======         ====
</TABLE>

*During  1995,  the Company  adjusted  the  deferred  tax  balances  for certain
normalized items.



<PAGE>


The Company and MEPCO record  deferred  income-tax  expense in  accordance  with
regulatory  authority;  they also defer  investment  and energy tax  credits and
amortize them over the estimated lives of the assets that generated the credits.

A valuation  allowance has not been recorded at December 31, 1997,  and 1996, as
the Company  expects that all deferred income tax assets will be realized in the
future.

Accumulated deferred income taxes consisted of the following in 1997 and 1996:
(Dollars in thousands)                                        1997        1996
                                                              ----        ----
Deferred tax assets resulting from:
   Investment tax credits, net                              $ 21,047    $ 22,050
   Regulatory liabilities                                     25,188      17,919
   Alternative minimum tax                                     6,053      10,241
   All other                                                  27,072      26,588
                                                             -------     -------
                                                              79,360      76,798
                                                             -------     -------
Deferred tax liabilities resulting from:
   Property                                                  295,293     288,370
   Abandoned plant                                            57,921      61,729
   Regulatory assets                                          77,572      85,508
                                                            --------    --------
                                                             430,786     435,607
                                                             -------     -------
   Accumulated deferred income taxes, end of year, net      $351,426    $358,809
                                                             =======     =======

Accumulated deferred income taxes, recorded as:
   Accumulated deferred income taxes                        $350,912    $357,994
   Recoverable costs of Seabrook 1 and abandoned projects,
    net                                                          514         815
                                                            --------   ---------
                                                            $351,426    $358,809
                                                             =======     =======

Note 3:  Regulatory Matters

Alternative Rate Plan

Effective  January  1,  1995,  rate  regulation  for  the  Company  underwent  a
fundamental   change  with  the   implementation  of  the  ARP,  which  replaced
traditional  regulation.  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 the  Company's  rates,  with  no  separate
reconciliation  and recovery of fuel and  purchased-power  costs. Under the ARP,
the MPUC is continuing to regulate the Company'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, the Company 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 the Company's  retail
rates to  increase  annually  on July 1,  which  commenced  July 1,  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 the Company's retail rates, and includes fuel-and-purchased power cost
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%, (0.5% for 1995), and a second formula-based
offset that started in 1996 intended to reflect the limited  effect of inflation
on the Company's  purchased-power  costs during the proposed  five-year  initial
term of the ARP.

The sharing mechanism will adjust the subsequent year's July price-cap change in
the event the  Company's  earnings are outside a range of 350 basis points above
or below the Company's allowed return on equity,  starting at the 10.55% allowed
return (1995) and indexed  annually for changes in capital  costs.  Outside that
range,  profits and losses would be shared equally by the Company and ratepayers
in computing the price-cap adjustment. This feature commenced with the price-cap
change of July 1, 1996,  and reflected  1995 results.  The ROE used for earnings
sharing was 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,  penalties for failure to attain  customer-service and
energy-efficiency  targets.  The ARP also generally  defines mandated costs that
would be recoverable by the Company  notwithstanding  the index-based price cap.
To receive such treatment,  a mandated cost's revenue requirement must exceed $3
million and have a disproportionate  effect on the Company or the electric-power
industry.

Pursuant  with the annual  price-change  provision in the ARP, the MPUC approved
the following increases:

                                            1997         1996        1995
                                            ----         ----        ----

  Inflation Index                           2.12%         2.55%       2.92%
  Productivity Offset                      (1.00)        (1.00)       (.50)
  Qualfying Facility Offset                 (.42)             -           -
  Earnings Sharing                              -          .32            -
  Flowthrough and Mandated Items             .40         (0.61)        .01
                                           -----         ------      -----
                                            1.10%         1.26%       2.43%
                                            ====          ====        ====

Industry Restructuring and Strandable Costs

Legislation  that will  restructure  the  electric-utility  industry in Maine by
March 1,  2000,  was  enacted  by the  Maine  Legislature  in May  1997,  and is
discussed in detail  under this  heading  below.  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.

The Company has substantial  exposure to cost stranding relative to its size. In
general,   its  stranded  costs  reflect  the  excess  costs  of  the  Company'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 the Company's
strandable costs is related to above-market costs of purchased-power obligations
arising from the Company's long-term,  noncancelable  contracts for the purchase
of capacity and energy from NUGs,  and 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.

Restructuring  Legislation  and MPUC  Proceeding:  The 1997 Maine  restructuring
legislation  requires  the  MPUC,  when  retail  access  begins,  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
unmitigatable costs made unrecoverable as a result of the restructuring required
by the  legislation  and  would be  determined  by the MPUC as  provided  in the
legislation.   The  MPUC  must  conduct  separate  adjudicatory  proceedings  to
determine  the  stranded  costs for each utility and the  corresponding  revenue
requirements    and    stranded-cost    charges    to   be   charged   by   each
transmission-and-distribution  utility.  Those  proceedings must be completed by
July 1, 1999.  The MPUC has initiated  the  proceeding  that will  determine the
Company's stranded costs,  corresponding  revenue requirements and stranded-cost
charges  to be  charged  by it when it  becomes a  transmission-and-distribution
utility and has scheduled  completion of the  proceeding  for the second half of
1998. On December 5, 1997, the Company filed direct  testimony in the proceeding
estimating its future revenue  requirements  as a  transmission-and-distribution
utility and providing an updated estimate of its strandable costs,  which are to
be  defined by the MPUC  later in the  proceeding.  The  Company  estimated  its
strandable  costs at  approximately  $1.3 billion and explained the  assumptions
underlying the estimate. The estimate was developed without consideration of the
Company's own generating assets,  most of which are under contract to be sold to
FPL Group in 1998. The Company's strandable costs, therefore, could be partially
mitigated by the proceeds,  in excess of book value of nearly $500 million.  The
Company cannot predict the results of the proceeding.

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  electricity providers,  commencing March 1, 2000, with transmission
and distribution companies continuing to be regulated by the MPUC.

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

In addition, 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.
Finally, recovery of nuclear-plant  decommissioning costs as required by federal
law, rule or order, will be funded through transmission-and-distribution utility
rates and charges.

Agreement for Sale of Company's Generation Assets

On January 6, 1998, the Company  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 to Florida-based FPL Group.
The  related  book  value for these  assets is  approximately  $221  million  at
December 31, 1997.  In addition,  as part of its agreement  with FPL Group,  the
Company  entered into energy  buy-back  agreements to assist in  fulfilling  its
obligation to supply its customers with power until March 1, 2000.

The  Company'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 III 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  present  sale.  The Company  will
continue to seek buyers for those assets. The Company 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 the Company'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  with the trustee under the Indenture at the closing
of the  sale to free the  generating  assets  from  the  lien of the  Indenture.
Proceeds  on deposit  with the  trustee  may be used by the Company to redeem or
repurchase  bonds  under  the terms of the  Indenture,  including  the  possible
discharge  of the  Indenture.  In  addition,  the  proceeds  could  provide  the
flexibility to redeem or repurchase  outstanding equity securities.  The Company
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,
market conditions and terms of outstanding securities.

The bid value in excess of the  remaining  investment  in the power  plants will
reduce the  Company's  stranded  costs and other  costs,  which  could lower the
amount that would otherwise be collected from customers by nearly half a billion
dollars.  However,  the Company will incur  incremental costs as a result of the
power  buy-back  arrangements  in excess of the  pre-sale  costs of capacity and
energy from the plants being sold,  which will  effectively  lower the amount of
sale proceeds available to reduce stranded and other costs.

Storm Damage to Company's System

On January 7 through 9, 1998, an ice storm of unprecedented breadth and severity
struck the Company's service territory,  causing power outages for approximately
280,000 of the Company's 528,000  customers,  on January 9 immediately after the
storm,  and  substantial  widespread  damage to the Company's  transmission  and
distribution  system. To restore its electrical system, the Company 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.  The Company  estimates the incremental  costs of
the repair  effort at $60 - $65 million,  of which most of the expense was labor
related.

On January 15, 1998, the Maine Public  Utilities  Commission  ("MPUC") issued an
Order (the "Order")  allowing the Company to defer on its books the  incremental
non-capital  costs  associated with the Company's  efforts to restore service in
response to the damage resulting from the storm. The Order requires the Company,
as part of its annual filing under its  Alternative  Rate Plan ("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.

Meeting the Requirements of SFAS No. 71

The Company  continues  to meet the  requirements  of SFAS No. 71, as  described
above. The standard provides specialized  accounting for regulated  enterprises,
which requires recognition of 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 the Company'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.  The  Company  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 recent legislation  enacted in Maine associated with 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,"  the Company 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.  The Company  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 the  Company  will be required to
discontinue  SFAS No. 71 for any remaining  generation  segment of its business.
The Company 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 FAS 71 to be discontinued,
which could result in a noncash write-off of previously  established  regulatory
assets.

Note 4: Commitments and Contingencies

Construction Program

The  Company'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.  The  Company's  current  forecast of capital  expenditures  for the
five-year period 1997 through 2002, are as follows:


(Dollars in millions)                 1998         1999-2002      Total
                                      ----         ---------      -----
Type of Facilities:
Generating projects                    $ 5           $  -         $   5
Transmission                             3              14           17
Distribution                            31             131          162
General facilities and other            17              74           91
                                        --             ---          ---
Total Estimated Capital Expenditures   $56            $219         $275
                                        ==             ===          ===

Customer Retention

The Company 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 the  Company 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 the Company could compete
for that load.

The Company 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 the Company.  The revenue loss from such a usage shift could have
been substantial.

The  Company  estimates  that  based on the rate  reductions  provided  in these
agreements,  its gross  revenues were  approximately  $27 million lower in 1995,
approximately  $45 million lower in 1996 and  approximately $65 million lower in
1997,  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  $30  million  as a result  of  linkage
between retail tariffs and some contract prices.

Legal and Environmental Matters

The  Company is 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.  The Company 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 the  Company's
financial position.  The Company 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, the Company 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. The Company 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.

On October 1, 1996,  the  American  Institute of  Certified  Public  Accountants
issued  Statement  of Position  96-1,  "Environmental  Remediation  Liabilities"
("SOP").  The  principal  objective of the SOP is to improve the manner in which
existing authoritative  accounting literature is applied by entities to specific
situations of recognizing,  measuring and disclosing  environmental  remediation
liabilities.  The SOP became  effective  January 1, 1997. This SOP has not had a
material impact on the company's financial position or results of operations.

The  Company  has  recorded  a  liability,   based  upon   currently   available
information,  for what it believes are the estimated  environmental  remediation
costs that the Company 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.  The Company  cannot  predict  the  schedule or scope of
remediation due to the regulatory  process and  involvement of  non-governmental
parties.  At December 31, 1997,  the  liability  recorded by the Company for its
estimated  environmental  remediation  costs  amounted  to $2.1  million,  which
management  has  determined to be the most  probable  amount within the range of
$2.1 million to $8.0  million.  Such costs may be higher if the Company 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,  the Company
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 the
Company's  federal  income tax returns for the years 1992 through  1994,  and on
September 12, 1997, the Company 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 the Company'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 ARP effective  January 1, 1995. The
second major  adjustment would disallow the Company's 1994 deduction of the cost
of the buyout of the Fairfield  Energy Venture  purchased-power  contract by the
Company 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,  1997,  amounted  to $13.1  million,  or a  decrease  in net  income of $7.8
million,  and which could increase interest expense  approximately  $441,000 per
month  until  either the tax  deficiency  is paid or the issues are  resolved in
favor of the Company, in which case no interest would be due. If the IRS were to
prevail,  the Company believes the deductions would be amortized over periods of
up to twenty,  post-1994,  tax years.  The Company believes its tax treatment of
the  unresolved  issues  was  proper  and as a result,  the  potential  interest
discussed above has not been accrued.  On December 10, 1997, the Company filed a
petition  in the United  States Tax Court  contesting  the entire  amount of the
deficiencies.  The Company plans to seek review of the asserted  deficiencies by
an IRS Appeals  Officer to  determine  whether all or part of the dispute can be
resolved  in advance of a court  determination.  Absent such a  resolution,  the
Company plans to pursue vigorously the Tax Court litigation,  but cannot predict
the result.

Nuclear Insurance

The Price-Anderson Act (Act) is a federal statute providing, among other things,
a limit on the maximum  liability for damages resulting from a nuclear incident.
The liability is provided for by existing private insurance and by retrospective
assessments  for costs in  excess  of that  covered  by  insurance,  up to $79.3
million for each reactor  owned,  with a maximum  assessment  of $10 million per
reactor  in any  year.  Based  on  the  Company's  indirect  ownership  in  four
nuclear-generation  facilities  (See  Note  6,  "Capacity  Arrangements  - Power
Agreements") and its 2.5% ownership interest in the Millstone Unit No. 3 nuclear
plant, the Company's retrospective premium could be as high as $6 million in any
year,  for a  cumulative  total of $47.6  million,  exclusive  of the  effect of
inflation  indexing and a 5% surcharge in the event that total public  liability
claims from a nuclear  incident  should  exceed the funds  available to pay such
claims.

In  addition  to the  insurance  required  by the Act,  the  nuclear  generating
facilities referenced 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.  Based  on  current
premiums and the Company's  indirect and direct ownership in nuclear  generating
facilities,  this  adjustment  could  range  up to  approximately  $3.6  million
annually.

Joint Venture

The Company and New York State Electric & Gas Corp.  have signed a joint-venture
agreement to distribute  natural gas to many Maine  communities  that aren't now
served with that fuel. If state regulators  approve, a new company owned equally
by CMP and NYSEG  would be in a position  to offer gas in the Augusta and Bangor
areas,  and in  other  communities  including  Bath,  Bethel,  Brunswick,  North
Windham, Rumford, and Waterville.

Note 5:  Pension and Other Benefits

Pension Benefits

The Company has two separate non-contributory,  defined-benefit plans that cover
substantially  all of its union and non-union  employees.  The Company's 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 the Company 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.

During 1995, the Company offered a Special  Retirement Offer (SRO) to qualifying
employees.  Approximately 200 employees  accepted the offer. The $7-million cost
of the SRO was included in pension  expense.  As part of the SRO, the plans were
amended to add five years to age and five years to credited service for all plan
participants for purposes of eligibility and early retirement discounts.

A summary of the  components of net periodic  pension cost for the non-union and
union defined-benefit plans in 1997, 1996 and 1995 follows:
<TABLE>
<S>                          <C>               <C>            <C>             <C>           <C>               <C>     

                                         1997                           1996                           1995
                                         ----                           ----                           ----
(Dollars in                      Non-                           Non-                            Non-
   thousands)                   union           Union          union           Union           union           Union
                                -----           -----          -----           -----           -----           -----
Service cost                 $    2,375        $  1,694       $  2,334        $  1,780      $    2,014        $  1,414
Interest cost                     5,727           3,973          5,225           3,852           5,653           3,889
Return on assets                (10,683)         (7,286)        (8,168)         (5,036)        (16,135)         (9,786)
Net amortization                  5,119           3,626          2,911           1,536          10,030           6,028
Early Retirement                 -               -              -               -                3,859           3,141
                              ---------       ---------      ---------      ----------           -----           -----
Net Periodic
   Pension Cost              $    2,538      $    2,007       $  2,302          $2,132      $    5,421        $  4,686
                                =======         =======          ======          ======        =======           =====
</TABLE>



<PAGE>


Assumptions used in accounting for the non-union and union defined-benefit plans
in 1997, 1996 and 1995 are as follows:

                                                  1997       1996         1995
                                                  ----       ----         ----
Weighted average discount rate                   7.00%       7.50%        7.25%
Rate of increase in future compensation levels   4.5%        4.5%         4.5%
Expected long-term return on assets              8.75%       8.5%         8.5%

The following  table sets forth the actuarial  present value of  pension-benefit
obligations,  the funded status of the plans, and the liabilities  recognized on
the Company's balance sheet at December 31, 1997, and 1996:
<TABLE>
<S>                                                       <C>             <C>             <C>             <C>    

                                                                   1997                            1996
                                                                   ----                            ----
(Dollars in thousands)                                     Non-                           Non-
                                                          union           Union           union          Union
Present value of benefit obligations:
Vested                                                    $68,483         $52,048         $62,461         $47,617
                                                           ------          ------          ------          ------
Accumulated benefit                                       $71,839         $53,781         $64,394         $48,783
                                                           ------          ------          ------          ------
Projected benefit                                         $87,607         $60,806         $75,570         $55,688
Plan assets at estimated market value (primarily
stocks, bonds, and guaranteed annuity contracts)
                                                           85,707          54,803          77,996          48,091
                                                           ------          ------          ------          ------
Funded status - projected benefit obligation in
excess of or (less than) plan assets
                                                            1,900           6,003          (2,426)          7,597
Unrecognized prior service cost                            (1,629)         (1,352)         (1,785)         (1,481)
Unrecognized net gain                                      16,015           4,884          19,819           3,745
Unrecognized (net obligation) net asset                      (134)          1,405            (163)          1,675
                                                          -------         -------         -------          ------
Net Pension Liability Recognized in the
  Balance Sheet                                           $16,152         $10,940         $15,445         $11,536
                                                           ======          ======          ======          ======
</TABLE>

Savings Plan

The Company  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.

The Company's contributions to the savings plan trust were $1.8 million in 1997,
$1.7 million in 1996 and $1.6 million in 1995.

Post-Retirement Benefits

In addition to pension and savings-plan  benefits,  the Company 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.  The Company is utilizing a 20 year amortization period.
Segregation in an external fund is required for amounts  collected in rates. The
Company  funded $3 million in  November  1997 and plans to monitor  and fund the
same amount annually in order to meet its  obligation.  Once amounts are funded,
the return on those assets will be reflected in postretirement benefit cost.

As a result of the MPUC order, the Company 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 1997,  1996  and 1995  were  $9.7,  $9.8 and $7.6
million,  respectively.  With the  reduction  in the  deferred  account  of $1.8
million in 1997,  and the excess over those  amounts of $1.1 million in 1996 and
$6.2 million in 1995, deferred for future recovery. The total amount deferred as
a regulatory  asset as of December  31, 1997 was $21  million.  A summary of the
components  of net  periodic  postretirement  benefit cost for the plan in 1997,
1996 and 1995 follows:

(Dollars in thousands)                                1997      1996     1995
                                                      ----      ----     ----
Service cost                                        $ 1,201   $ 1,347  $    846
Interest on accumulated postretirement benefit
obligation                                            4,702     5,720     7,389
Special retirement offer                                  -         -       200
Amortization of transition obligation                 3,704     4,080     4,606
Amortization of prior service cost                        -        35        42
Amortization of gain                                 (1,029)     (329)     (188)
                                                      -----    ------    ------
Postretirement benefits expense                       8,578    10,853    12,895
Deferred postretirement benefits expense               -       (1,056)   (6,204)
                                                      -----    ------    ------
Postretirement Benefit Expense Recognized in the
  Statement of Earnings                             $ 8,578   $ 9,797  $  6,691
                                                      =====    ======   =======



<PAGE>


The  following   table  sets  forth  the  accumulated   postretirement   benefit
obligation,  the funded status of the plan, and the liability  recognized on the
Company's balance sheet at December 31, 1997 and 1996:

(Dollars in thousands)                                  1997            1996
                                                        ----            ----
Accumulated postretirement benefit obligation:
Retirees                                                $47,323        $51,815
Fully eligible active plan participants                   2,499          2,707
Other active plan participants                           19,927         19,381
                                                         ------         ------
Total accumulated postretirement benefit obligation      69,749         73,903
Plan assets, at fair value                                3,025            849
                                                        -------       --------
Accumulated postretirement benefits obligation in
excess of plan assets                                    66,724         73,054
Unrecognized net gain (loss)                             19,680         15,987
Unrecognized prior service cost                              (5)            (5)
Unrecognized transition obligation                      (55,563)       (59,267)
                                                         ------         ------
Accrued Postretirement Benefit Cost Recognized in
the Balance Sheet                                      $ 30,836       $ 29,769
                                                         ======         ======

The  assumed  health-care  cost-trend  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. Rates range
from 6.4% to 9.3% for 1995, 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
$0.5  million and the  accumulated  postretirement  benefit  obligation  by $8.5
million.  Additional  assumptions  used in  accounting  for  the  postretirement
benefit plan in 1997, 1996 and 1995 are as follows:

                                                   1997        1996       1995
                                                   ----        ----       ----
Weighted-average discount rate                     7.00%       7.50%      7.25%
Rate of increase in future compensation levels     4.50%       4.50%      4.50%

The Company 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.

Effective  September  1,  1996,  the  Company  implemented  a  phase-out  of the
long-term care portion of its retiree  medical plans.  With the exception of one
group  of  approximately  200  retirees,  all  benefits  of  this  type  will be
eliminated by September 1, 2002.

Note 6:  Capacity Arrangements

Power Agreements

The Company, through certain equity interests,  owns 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, 1997, 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              -                -
1997 energy and capacity costs              78,384           6,216          7,608            4,719
Long-term obligations and redeemable
preferred stock                            112,087           7,699          9,117                -

Estimated decommissioning obligation       329,206          13,860         36,877           13,056

Accumulated decommissioning fund            75,794           6,161         15,623           12,690
</TABLE>

Under the terms of its  agreements,  the Company  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 has been shut down since 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 Nuclear Regulatory Commission ("NRC") was
due to expire on October 21, 2008.

Costs: The Company has been incurring  substantial  costs in connection with its
38% share of Maine Yankee  costs,  as well as additional  costs for  replacement
power  while the Plant has been out of  service.  For the  twelve  months  ended
December 31, 1997, such costs amounted to  approximately  $132.3 million for the
Company:  $72.8 million due to basic  operations and  maintenance  costs,  $54.0
million  due to  replacement  power  costs  and  $5.5  million  associated  with
incremental costs of operations and maintenance.

The Company's 38% ownership interest in Maine Yankee's common equity amounted to
$29.8 million as of December 31, 1977, and under Maine Yankee's Power  Contracts
and Additional Power Contracts,  the Company 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).
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, 1997,
Maine Yankee had collected  approximately $199.5 million for its decommissioning
obligations.

On November 6, 1997, Maine Yankee submitted the new estimate to the FERC as part
of a rate case reflecting the fact that the Plant is no longer operating and has
entered the  decommissioning  phase.  If the FERC accepts the new estimate,  the
amount of Maine Yankee's  collections  for  decommissioning  would rise from the
$14.9 million  previously  allowed by the FERC to approximately  $36 million per
year.  Several  interested  parties  have  intervened  in the  FERC  proceeding,
including state regulators.

On September 1, 1997,  Maine Yankee estimated the sum of the future payments for
the closing,  decommissioning and recovery of the remaining  investment in Maine
Yankee to be approximately $930 million,  of which the Company's 38% share would
be approximately $353 million.  Legislation enacted in Maine in 1997 calling for
restructuring   the  electric   utility   industry   provides  for  recovery  of
decommissioning costs, to the extent allowed by federal regulation,  through the
rates  charged by the  transmission  and  distribution  companies.  Based on the
legislation  and  regulatory  precedent  established  by the FERC in its opinion
relating to the  decommissioning of the Yankee Atomic nuclear plant, the Company
believes that it is entitled to recover  substantially  all of its share of such
costs from its  customers  and as of  December  31,  1997,  is  carrying  on its
consolidated  balance sheet a regulatory asset and a corresponding  liability in
the amount of $329 million, which is the $353 million discussed above net of the
Company's post-September 1, 1997 cost-of-service payments to Maine Yankee.

Management  Audit:  The MPUC released the report of a consultant it had retained
to perform a management audit of Maine Yankee for the period January 1, 1994, to
June 30, 1997. One conclusion of the report was that Maine Yankee's  decision in
December  1996 to proceed  with the steps  necessary  to  restart  the Plant was
"imprudent",  that  Maine  Yankee's  May 27,  1997  decision  to reduce  restart
expenses while exploring a possible sale of the Plant was  "inappropriate",  and
that  the  decisions  resulted  in  Maine  Yankee  incurring  $95.9  million  in
"unreasonable"  costs.  On  October  24,  1997,  the MPUC  issued  a  Notice  of
Investigation  initiating an investigation  of the shutdown  decision and of the
operation of the Plant prior to shutdown, and announced that it had directed its
consultant  to extend its review to include  those  areas.  The Company does not
know how the  MPUC  plans  to use the  consultant's  report,  but  believes  the
report's negative conclusions are unfounded and may be contradictory.

Maine Yankee Debt  Restructuring and FERC Rate Proceeding:  Maine Yankee entered
into  agreements  in  August  1997 with the  holders  of its  outstanding  First
Mortgage Bonds and its lender banks (the  "Standstill  Agreements")  under which
the bondholders and banks agreed that they would not assert that the August 1997
voluntary permanent shutdown of the Plant constituted a covenant violation under
Maine Yankee's First Mortgage Indenture or its two bank credit  agreements.  The
Standstill Agreements, as extended in October 1997, were to terminate on January
15,  1998,  by  which  date  Maine  Yankee  was to  have  reached  agreement  on
restructured debt arrangements reflecting its decommissioning status. On January
15, 1998, Maine Yankee,  its bondholders and lender banks revised the Standstill
Agreements and extended their term to April 15, 1998.

On  November  6,  1997,  Maine  Yankee  filed a rate  proceeding  with  the FERC
reflecting the Plant's  decommissioning  status and requesting an effective date
of January 15, 1998, for the  amendments to Maine  Yankee's power  contracts and
additional  power  contracts.  On January  14,  1998,  the FERC  issued an order
accepting for filing the rates  associated  with the amended power contracts and
made them effective January 15, 1998, subject to refund.

Condensed  financial  information  on Maine Yankee  Atomic  Power  Company is as
follows:

(Dollars in thousands)                       1997         1996         1995
                                             ----         ----         ----
Earnings:
Operating revenues                            $238,586    $185,661     $205,977
Operating income                                18,170      17,150       18,527
Net income                                       9,037       8,106        8,571
Earnings applicable to common stock              7,613       6,637        7,057
                                            ----------   ---------    ---------
Company's Equity Share of Net Earnings     $     2,893  $    2,522   $    2,682
                                            ==========   ---------    ---------
Investment:
Net electric property and nuclear fuel     $    17,938    $222,360     $242,399
Current assets                                  71,098      44,979       34,799
Deferred charges and other assets            1,484,612     334,722      303,760
                                             ---------     -------      -------
Total Assets                                 1,573,648     602,061      580,958
                                             ---------     -------      -------
Less:
Redeemable preferred stock                      17,400      18,000       18,600
Long-term obligations                          270,299     223,572      224,185
Current liabilities                             35,518      34,265       30,904
Reserves and deferred credits                1,172,066     255,472      236,653
                                             ---------     -------      -------
Net Assets                                 $    78,365   $  70,752    $  70,616
                                            ==========    --------     --------
Company's Equity in Net Assets             $    29,779   $  26,886    $  26,834
                                            ==========    ========     ========

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 $6.6 million at December 31, 1997. The Company 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  $36.9 million and has recorded a regulatory asset and
a  liability  on the  consolidated  balance  sheet.  The  Company  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.  The
Company  relied  on  Yankee  Atomic  for less  than 1% of the  Company's  system
capacity.  Its 9.5% equity  investment  in Yankee Atomic is  approximately  $2.2
million.  The Company 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
$13.1 million.

The Company 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 Company's Generation Assets." The
Company also has a 2.5%  ownership  interest in the Millstone Unit No. 3 nuclear
plant  operated  by  Northeast  Utilities,  and  is  entitled  to  approximately
29-megawatt  share of that  unit's  capacity.  The  Company's  plant in service,
nuclear fuel,  decommissioning  fund, and related  accumulated  depreciation and
amortization  attributable to these units as of December 31, 1997, and 1996 were
as follows:
<TABLE>
<S>                                                      <C>            <C>             <C>           <C>     

                                                                 Wyman 4                    Millstone 3
                                                                 -------                    -----------
(Dollars in thousands)                                    1997            1996           1997          1996
                                                          ----            ----           ----          ----
Plant in service, nuclear fuel and decommissioning
fund                                                     $116,367       $116,372        $112,227      $112,040
Accumulated depreciation and amortization                  66,239         63,023          42,412        39,181
</TABLE>

Millstone  Unit No.  3,  along  with two other  units at the same site  owned by
Northeast  Utilities,  is on the  NRC's  "watch  list" in  "Category  3",  which
requires formal NRC action before a unit can be restarted.  The Company incurred
replacement  power costs related to Millstone Unit No. 3 of  approximately  $4.9
million during the twelve months ended December 31, 1997.

Power-Pool Agreements

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

The  Company  is  making  facilities-support  payments  on  approximately  $27.1
million,  its remaining share of the  construction  cost for these  transmission
facilities  incurred through December 31, 1997. These  obligations are reflected
on  the  Company's  consolidated  balance  sheet  as  lease  obligations  with a
corresponding charge to electric property.

Non-Utility Generators

The Company 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 1998 to 2023.  They  require the Company to purchase the energy at
specified prices per  kilowatt-hour,  which are often above market prices. As of
December 31, 1997,  facilities having 558 megawatts of capacity covered by these
contracts were  in-service.  The costs of purchases under all of these contracts
amounted to $306.4  million in 1997,  $313.4 million in 1996, and $314.4 million
in 1995.

The Company's  estimated  contractual  obligations  with NUGs as of December 31,
1997, are as follows:

(Dollars in               Amount
  millions)
1998                        $   296
1999                            294
2000                            294
2001                            273
2002                            281
2003 - 2023                   2,161
                              -----
                             $3,599

Note 7:  Capitalization and Interim Financing

Retained Earnings

Under terms of the most restrictive test in the Company's  General and Refunding
Mortgage Indenture and the Company's Articles of Incorporation,  no dividend may
be paid on the  common  stock  of the  Company  if such  dividend  would  reduce
retained  earnings  below $29.6  million.  At December 31, 1997,  the  Company's
retained  earnings  were  $48.2  million,  of which  $18.6  million  were not so
restricted.

Mortgage Bonds

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

The Company'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. In 1997, the Company
deposited  approximately  $2.2  million,  net of  withdrawals,  in cash with the
Trustee  under  the  Company's  General  and  Refunding  Mortgage  Indenture  in
satisfaction of the renewal and replacement fund and other obligations under the
Indenture. The total of such cash on deposit with the Trustee as of December 31,
1997,  was  approximately  $61.7  million.  Under the Indenture such cash may be
applied at any time, at the direction of the Company, 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 the Company by substitution
of allocated property additions or available bonds.



<PAGE>


Mortgage Bonds outstanding as of December 31, 1997, and 1996 were as follows:
<TABLE>
<S>                         <C>       <C>        <C>                  <C>              <C>           <C>     

(Dollars in thousands)
                                                                     Interest
                            Series        Redeemed/maturity            rate           1997           1996
                            ------        -----------------            ----                          ----
Central Maine Power Company
General and Refunding Mortgage Bonds:
                               U      1998-April 15                   7.54%            $25,000       $ 25,000
                               S      1998-August 15                  6.03              60,000         60,000
                               T      1998-November 1                 6.25              75,000         75,000
                               O      1999-January 1                 7 3/8              50,000         50,000
                               P      2000-January 15                 7.66              75,000         75,000
                               N      2001-September 15               8.50              11,000         11,000
                               Q      2008-March 1                    7.05              75,000         75,000
                               R      2023-June 1                    7 7/8              50,000         50,000
                                                                                      --------       --------
Total Mortgage Bonds                                                                  $421,000   $421,000
                                                                                       =======    =======
</TABLE>

Subsequent to year-end, the Company called for redemption all of the outstanding
$11 million principal amount of its General and Refunding Mortgage Bonds, Series
N 8.50% Due 2001,  at a redemption  price equal to their  principal  amount plus
accrued  interest to the date fixed for redemption.  On the same day the Company
also called for redemption on March 30, 1998, all of the outstanding $50 million
principal  amount of its General and Refunding  Mortgage Bonds,  Series R 7-7/8%
Due 2023,  also at a  redemption  price  equal to their  principal  amount  plus
accrued  interest.  The bond redemptions are being funded from the approximately
$61.7 million on deposit with the trustee under the renewal and replacement fund
and  release   provisions  of  the  Company's  General  and  Refunding  Mortgage
Indenture.

Limitations on Unsecured Indebtedness

The Company'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 the Company's  preferred stock; 20% of defined  capitalization
amounted to $211  million as of December 31, 1997.  Unsecured  indebtedness,  as
defined, amounted to $144 million as of December 31, 1997.

Medium-Term Notes

In May 1989, holders of the Company's  preferred stock consented to the issuance
of unsecured  Medium-Term Notes in an aggregate principal amount of $150 million
outstanding  at any one time. At the annual meeting of the  stockholders  of the
Company on May 15,  1997,  the holders of the  Company's  outstanding  preferred
stock  consented  to the  issuance of $350  million in  principal  amount of the
Company's  Medium-Term Notes in addition to the $150 million in principal amount
to which they had previously consented.  As of December 31, 1997, $43 million of
Medium-Term Notes were  outstanding.  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.



<PAGE>


Medium-Term Notes outstanding as of December 31, 1997, and 1996 were as follows:

(Dollars in thousands)
Maturity                   Interest rate         1997           1996
                           -------------         ----           ----
Series A:
2000                                9.65%       $ 5,000        $ 5,000
Series B:
1998                               5.32           8,000         23,000
Series C:
1998-2001                     7.40-7.85          30,000         40,000
                                                 ------         ------
Total Medium-Term Notes                         $43,000        $68,000
                                                 ======         ======

Pollution-Control Facility and Other Notes

Pollution-control  facility and other notes outstanding as of December 31, 1997,
and 1996 were as follows:
<TABLE>
<S>                                                <C> <C>        <C>                    <C>          <C>    

(Dollars in thousands)
Series                                       Interest rate          Maturity             1997          1996
------                                       -------------          --------             ----          ----
Central Maine Power Company:
Yarmouth Installment Notes                         6 3/4%    June 1, 2002                $ 9,805      $10,250
Yarmouth Installment Notes                         6 3/4     December 1, 2003              1,000        1,000
Industrial Development
  Authority of the State of                        7 3/8     May 1, 2014                  11,000       11,000
  New Hampshire Notes                              7 3/8     May 1, 2014                   8,500        8,500
Finance Authority of Maine                          8.16     January 1, 2005              53,329       60,129
Maine Electric Power Company, Inc.:
Promissory Notes                                  Variable*  November 1, 2000                620          820
                                                                                         -------      -------
Total Pollution-Control
  Facility and Other Notes                                                               $84,254      $91,699
                                                                                          ======       ======
</TABLE>

*The average rate was 6.5% in 1997 and 6.3% in 1996.

The bonds  issued by the  Industrial  Development  Authority of the State of New
Hampshire  are  supported  by  loan  agreements  between  the  Company  and  the
Authority.  The bonds are subject to  redemption at the option of the Company 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 the Company
entered  into a loan  agreement  under which the Company  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,  the Company 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

The  Company  leases  a  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 $31.2 million and $33.1 million at December 31, 1997,
and 1996,  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,
2002,  together  with the present value of the minimum  lease  payments,  are as
follows:

(Dollars in thousands)                                           Amount
                                                                 ------
1998                                                             $ 5,440
1999                                                               5,270
2000                                                               5,099
2001                                                               4,928
2002                                                               4,758
Thereafter                                                        51,603
                                                                  ------
Total minimum lease payments                                      77,098
Less: amounts representing interest                               42,581
                                                                  ------
Present Value of Net Minimum Lease Payments                      $34,517
                                                                  ======

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, 2002, are as follows:

                                    (Dollars in thousands)
           Sinking fund   Maturing debt
                                             Total
1998            2,411         178,000        180,411
1999            9,854          60,000         69,854
2000           10,518          80,000         90,518
2001           10,948          21,000         31,948
2002           18,765               -         18,765



<PAGE>


Operating Lease Obligations

The  Company  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, 1997:

(Dollars in thousands)        Amount
1998                               4,924
1999                               4,135
2000                               3,999
2001                               3,415
2002                               3,410
Thereafter                         1,301
                                 $21,184

Rent expense  under all operating  leases was  approximately  $6.1  million,  $5
million,  and $5.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively.

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,  1997 and 1996.  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 Company  based on the weighted
average life of each class of instruments.

The estimated fair values of the Company's financial  instruments as of December
31, 1997, and 1996 are as follows:

                                      1997                       1996
                                      ----                       ----
                             Carrying     Fair value     Carrying    Fair value
(Dollars in thousands)        amount                      amount
                              ------                      ------
Redeemable preferred stock    $ 46,528      $ 48,247      $ 60,528     $ 57,228
Mortgage bonds                 421,000       421,151       421,000      415,578
Medium-term notes               43,000        43,378        68,000       67,667
Pollution-control facility
 and other notes                84,254        83,163        91,699       91,791



<PAGE>


Cumulative Preferred Stock

Preferred-stock balances outstanding as of December 31, 1997, 1996 and 1995 were
as follows:
<TABLE>

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

                                                                Current shares
(Dollars in thousands, except per-share amounts)                 outstanding         1997         1996          1995
                                                                 -----------         ----         ----          ----
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          571
$100 par value callable - authorized
  2,300,000* shares; outstanding:
3.50% series (redeemable at $101)                                     220,000         22,000       22,000       22,000
4.60% series (redeemable at $101)                                      30,000          3,000        3,000        3,000
4.75% series (redeemable at $101)                                      50,000          5,000        5,000        5,000
5.25% series (redeemable at $102)                                      50,000          5,000        5,000        5,000
7 7/8% series (optional redemption after
  9/1/97, at $100)                                                    300,000         30,000       30,000       30,000
                                                                                      ------       ------       ------
Preferred Stock - Not Subject to Mandatory Redemption
                                                                                     $65,571      $65,571      $65,571
                                                                                      ======       ======       ======
Redeemable Preferred Stock - Subject to
  Mandatory Redemption:
Flexible Money Market  Preferred  Stock,  Series A - 7.999%  (395,275  shares in
1997, 1996 and 1995)
                                                                      395,275         39,528       39,528       39,528
8 7/8% series (redeemable at $101.97)                                  70,000          7,000       21,000       35,000
                                                                                     -------       ------       ------
Redeemable Preferred Stock - Subject to
  Mandatory Redemption                                                               $46,528      $60,528      $74,528
                                                                                      ======       ======       ======
</TABLE>

*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.

Sinking-fund provisions for the Flexible Money Market Preferred Stock, Series A,
7.999%,  require the Company 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.  The Company 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 five-year  period  ending  December 31, 2000, is $9 million
annually  beginning in 1999. In 1995, the Company purchased 54,725 shares on the
open market that may be used to reduce the sinking-fund requirement in 1999.

Subsequent to year end, the Company called for redemption 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 are being paid on the preferred stock since
the redemption date is a regular dividend payment date.

Interim Financing and Credit Agreements

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

To support its short-term capital requirements, on October 23, 1996, the Company
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 has two credit facilities:  a $75 million,  364-day revolving credit
facility that currently  matures on October 21, 1998, and a $50-million,  3-year
revolving  credit  facility  that  matures  on October  22,  1999.  Both  credit
facilities  require annual fees on the total credit lines. The fees are based on
the Company'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,  as a result of the
downgrading  of  the  Company's  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  Company  had $60
million  outstanding as of December 31, 1997 under the 364-day  revolving credit
facility at 6.63%.



<PAGE>


Note 8:  Quarterly Financial Data (Unaudited)

Unaudited,  consolidated  quarterly  financial data pertaining to the results of
operations are shown below.

 (Dollars in thousands, except per-
   share amounts)                                  Quarter ended
                                    March 31    June 30 September 30 December 31
                                    --------    ------- ------------ -----------
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
1995
Electric operating revenues .....  $ 263,312  $ 202,584   $ 217,872   $ 232,248
Operating income ................     39,361      4,052      22,169      20,277
Net income (loss) ...............     26,376     (8,619)     10,400       9,823
Earnings (loss) per common share*        .73       (.34)        .24         .23

*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.


<PAGE>


                                                      PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS
             OF THE REGISTRANT.

        See the  information  under the heading  "Election of  Directors" in the
registrant's definitive proxy material for its annual meeting of shareholders to
be held on May 21, 1998,  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  registrant's
definitive  proxy material for its annual meeting of  shareholders to be held on
May 21, 1998, 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
registrant's definitive proxy material for its annual meeting of shareholders to
be held on May 21, 1998, 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  registrant's  definitive  proxy  material  for its annual
meeting of shareholders to be held on May 21, 1998, 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 42.
          (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 1997 and
        
thereafter to date:

Date of Report                                    Items Reported

December 5, 1997                                    Item 5

 a)  The Company filed direct testimony in the proceeding  estimating its future
     revenue  requirements  as  a   transmission-and-distribution   utility  and
     providing an updated estimate of strandable costs,  which are to be defined
     by the MPUC.

 b)  The Company filed an application with the MPUC for  authorization to create
     a  holding  company  that  would  have as  subsidiaries  the  Company,  the
     Company's non-utility subsidiaries and other entities.

Date of Report                                    Items Reported

January 6, 1998                                     Item 5

      On January 6, 1996, the Company announced that it had reached agreement to
      sell all of its hydro,  fossil  and  biomass  power  plans with a combined
      generating  capacity of 1,185 megawatts to a Florida-based  FPL Group, the
      winning builder in the auction process.


       Date of Report                             Items Reported

January 14, 1998                                    Item 5

 a)  On January 6 through 9, 1998,  an ice storm of  unprecedented  breadth  and
     severity struck the Company's service territory,  causing power outages for
     approximately 280,000 of the Company's 520,000 customers.



<PAGE>


 b)  On January 15, 1998, Maine Yankee, its bondholders and lender banks revised
     the  Standstill  Agreements  and  extended  their  term to April 15,  1998,
     subject to satisfying certain milestone  obligations during the term of the
     extension.

     On January 14,  1998,  the FERC issued an "Order  Accepting  for Filing and
     Suspending  Power  Sales  Contract  Amendment,   and  Establishing  Hearing
     Procedures"  (the "FERC  Order") in which the FERC  accepted for filing the
     rates  associated  with the amended Power Contracts and made them effective
     January 15, 1998, subject to refund.

Date of Report                                    Items Reported

January 30, 1998                                    Item 5

      On January 30, 1998, the Company announced its financial results for 1997.



<PAGE>


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its  behalf  by the  undersigned,  thereunto  duly  authorized,  in the  City of
Augusta, and State of Maine on the 27th day of March, 1998.

                                          CENTRAL MAINE POWER COMPANY




                                          By
                                             David E. Marsh
                                             Chief Financial Officer



<PAGE>


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

Signature                      Title                          Date

                               President and Chief
                               Executive Officer; Director    March     , 1998
David T. Flanagan
(Principal Executive Officer)

                               Chief Financial Officer        March     , 1998
David E. Marsh
(Principal Financial Officer)

                               Comptroller                    March     , 1998
Michael W. Caron
(Principal Accounting Officer)

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



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



                               Director                       March     , 1998
Charleen M. Chase

                               Director                       March     , 1998
Duane D. Fitzgerald

                               Director                       March     , 1998
Robert H. Gardiner

                               Director                       March     , 1998
Peter J. Moynihan

                               Director                       March     , 1998
William J. Ryan

                               Director                       March     , 1998
Kathryn M. Weare

                               Director                       March     , 1998
Lyndel J. Wishcamper


<PAGE>






                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



                                    FORM 10-K

                            ANNUAL REPORT PURSUANT TO

                             SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

                               FOR THE FISCAL YEAR

                             ENDED DECEMBER 31, 1997



                           CENTRAL MAINE POWER COMPANY

                                 File No. 1-5139

               (Exact name of Registrant as specified in charter)



                                    EXHIBITS



<PAGE>


                                  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.

<TABLE>
 <S>      <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.
     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
         3-2          Bylaws, as amended.                                  Annual Report on Form 10-K        3.2
                                                                           for year ended December 31,
                                                                           1996
     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.
       10-94.1        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
        10-99         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 the Company and David   Filed herewith
                      T. Flanagan dated December 31, 1997
       10.101         Employment Agreement between the Company and         Filed herewith
                      Arthur W. Adelberg dated January 1, 1998
       10.102         Employment Agreement between the Company and David   Filed herewith
                      E. Marsh dated January 1, 1998
       10.103         Employment Agreement between the Company and         Filed herewith
                      Gerald C. Poulin dated January 1, 1998
       10.104         Employment Agreement between the Company and Sara    Filed herewith
                      J. Burns 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 REGISTRANT
                      Not Applicable
     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 Coopers & Lybrand 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).
     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,  1997,
                      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>




<PAGE>

<TABLE>
<S>                                           <C>              <C>              <C>            <C>               <C>    
                                                                                Central Maine Power Company
                                                                                     Form 10-K - 1997
                                                                                        Schedule II
                                                                                        Page 1 of 3

                           Central Maine Power Company

                        VALUATION AND QUALIFYING ACCOUNTS
                      For the Year Ended December 31, 1997
                             (Dollars in Thousands)


                                                                    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
                                               ======           =====            ===            =====             ======

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







<PAGE>


                                                                                Central Maine Power Company
                                                                                     Form 10-K - 1997
                                                                                        Schedule II
                                                                                        Page 2 of 3

                           Central Maine Power Company

                        VALUATION AND QUALIFYING ACCOUNTS
                      For the Year Ended December 31, 1996
                             (Dollars in Thousands)

                                                                    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
                                               ======           =====            ===            =====             ======

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.



<PAGE>


                                                                                Central Maine Power Company
                                                                                     Form 10-K - 1997
                                                                                        Schedule II
                                                                                        Page 3 of 3

                           Central Maine Power Company

                        VALUATION AND QUALIFYING ACCOUNTS
                      For the Year Ended December 31, 1995
                             (Dollars in Thousands)

                                                                    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                     $  3,301          $4,407       $   -            $  4,395(A)        $  3,313
                                               ======           =====        =======            =====             ======

Reserves not applied against assets:

  Casualty and insurance                     $  1,275          $1,274           $273(B)      $  1,437(C)        $  1,275
  Workers' compensation                         6,400                                                              6,400
  Hazardous material
   clean-up                                    10,000                                           6,460(D)           3,540
  Postemployment benefits                       1,045                                           1,045(E)
  Compensation                                  2,344                                           2,344(E)
  Interest on IRS issues                        1,000                                           1,000(F)
                                              -------        --------         ------          -------
     Total                                    $22,064          $1,274           $273          $12,396            $11,215
                                               ======           =====            ===           ======             ======

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) To adjust  the  estimated
                 minimum liability balance for a change in clean-up method.
             (E) Amounts transferred to deferred credit account.
      
</TABLE>

<PAGE>


                                                                  Exhibit 10.100

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT  AGREEMENT is made this ________day of December,  1997,
by and  between  CENTRAL  MAINE  POWER  COMPANY,  a Maine  corporation  with its
principal place of business in Augusta,  Maine  (hereinafter  referred to as the
"Company"), and DAVID T. FLANAGAN (hereinafter referred to as the "Executive").
         WHEREAS,  the Company recognizes that the Executive is a valued officer
because  of his  knowledge  of the  Company's  affairs  and his  experience  and
leadership capabilities,  and desires to encourage his continued employment with
the Company to assure  itself of the  continuing  advantage  of that  knowledge,
experience  and  leadership  for the  benefit  of  customers  and  shareholders,
particularly  during a period of transition in various  aspects of the Company's
business and in the event of a Change of Control of the Company; and
         WHEREAS, the Executive desires to serve in the employ of the Company on
a  full-time  basis  for  a  period   provided  in  this  Employment   Agreement
(hereinafter  referred  to as the  "Agreement")  on  the  terms  and  conditions
hereinafter set forth; and
         WHEREAS,  to these ends the Company  desires to provide  the  Executive
with  certain  payments  and  benefits  in the event of the  termination  of his
employment in certain circumstances; and
         WHEREAS,  the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
         NOW,  THEREFORE,  in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive,  and
the  mutual  promises  and  covenants  contained  herein,  the  Company  and the
Executive hereby agree as follows:
         1. Term of Agreement.  a. Term. The term of this Agreement  shall begin
on January 1, 1998  (hereinafter  referred to as the "Effective Date") and shall
expire on December 31, 2002; provided, however, that on December 31, 2002 and on
each December 31 thereafter,  the term of this Agreement shall  automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the  Executive  shall have given notice that such party
does not wish to extend the term of this Agreement.
         b.  Automatic  Extension of Term. If a Change of Control  occurs during
the  original  term of this  Agreement or any  extension,  then the term of this
Agreement shall be  automatically  extended for a thirty-six (36) calendar month
period beginning on the first day of the month following the month in which such
Change of Control occurs.
         c. Expiration. Notwithstanding anything to the contrary in this Section
1, this Agreement and all  obligations of the Company  hereunder shall terminate
thirty  (30) days  after the  Company  gives  notice to the  Executive  that the
Company is terminating the Executive's employment for Cause.
         2.  Definitions.  The following terms shall have the meanings set forth
 below:
         "Affiliate"  means a person that directly or indirectly  through one or
more intermediaries  controls, is controlled by, or is under common control with
the Company.
         "Board" means the Board of Directors of the Company.
         "Cause" means any of the following events or occurrences:
         (i)      Any act of material dishonesty taken by, or committed at the
                  request of, the Executive.
         (ii)     Any illegal or unethical conduct which, in the good faith 
                  judgment of the Board, would impair the
                  Executive's ability to perform his duties under this Agreement
                  or would impair the business reputation of the Company.
         (iii)    Conviction of a felony.
         (iv)     The  continued   failure  of  the  Executive  to  perform  his
                  responsibilities and duties under this Agreement, after demand
                  for performance has been delivered in writing to the Executive
                  specifying  the manner in which the Company  believes that the
                  Executive is not performing.
Notwithstanding  any contrary  provision of this Agreement,  the Executive shall
not be deemed to have been  terminated  for Cause  unless and until  there shall
have been  delivered  to the  Executive a certified  copy of a  resolution  duly
adopted by the  affirmative  vote of  two-thirds of the members of the Board who
are not  employees  of the Company at a meeting of the Board called and held for
such purpose (after  reasonable  notice to the Executive and an opportunity  for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or  occurrences  set forth in parts (i)  through
(iv)  of the  definition  of  "Cause"  in  this  Agreement  and  specifying  the
particulars  thereof  in  detail.  For  purposes  of  the  application  of  this
provision,  the  parties  intend  that the term  "good  faith"  herein  shall be
administered using the standard of objective good faith of a reasonable person.
         "Change of Control" means the occurrence of any of the following
          events:
         (i)      Any "person," as such term is used in Sections 13(d) and 14(d)
                  of the Securities Exchange Act of 1934, as amended (the "Ex-
                  change Act")(other than the Company or any Affiliate or any
                  trusteeor other fiduciary holding securities under an employee
                  benefit plan of the Company or any  Affiliate),  is or becomes
                  the  beneficial  owner,  as defined  in Rule  13d-3  under the
                  Exchange Act, directly or indirectly,  of stock of the Company
                  representing   twenty-seven  percent  (27%)  or  more  of  the
                  combined voting power of the Company's then outstanding  stock
                  eligible to vote.
         (ii)     During any period of twenty-five consecutive calendar months
                  after the execution of this Agreement, individuals who at the
                  beginning of such period constitute the Board, and any new  
                  director whose election by the Board or nomination for 
                  election by the Company's stockholders was approved by a vote
                  of at least two-thirds of the directors then in office who 
                  either  were directors at the beginning of the period or whose
                  election or nomination for election was previously so 
                  approved,  cease for any reason to constitute at least a 
                  majority thereof.
         (iii)    The stockholders of the Company approve a merger or consoli-
                  dation of the Company with any other corporation, other than a
                  merger or consolidation which would result in the voting stock
                  of  the  Company   outstanding   immediately   prior   thereto
                  continuing to represent (either by remaining outstanding or by
                  being  converted  into  voting  securities  of  the  surviving
                  entity) more than fifty percent  (50%) of the combined  voting
                  power of the  outstanding  voting stock of the Company or such
                  surviving   entity    immediately   after   such   merger   or
                  consolidation;   provided,   however,   that   a   merger   or
                  consolidation  effected to implement a recapitalization of the
                  Company (or  similar  transaction)  in which no  "person"  (as
                  hereinabove  defined) acquires more than twenty-seven  percent
                  (27%)  of the  combined  voting  power of the  Company's  then
                  outstanding  securities  shall  not  constitute  a  Change  of
                  Control of the Company.
         (iv)     The stockholders of the Company approve a plan of complete
                  liquidation of the  Company or an  agreement  for the sale,
                  lease, exchange  or  other  disposition  by  the  Company  of
                  all or substantially  all of the Company's assets (or any 
                  transaction having a similar effect).
         Notwithstanding  parts  (iii)  and  (iv)  above,  the term  "Change  of
Control" shall not include: (A) a consolidation,  merger or other reorganization
if upon consummation of such transaction all of the outstanding  voting stock of
the Company is owned,  directly or  indirectly,  by a holding  company,  and the
holders of the Company's common stock  immediately prior to the transaction have
substantially the same proportionate ownership and voting control of the holding
company; or (B) an agreement for the sale, lease,  exchange or other disposition
by the Company of "generation  assets" (as defined in Me. Rev. Stat.  Tit. 35-A,
ss.3201), or any transaction having a similar effect, made solely to comply with
the requirements of Maine Revised Statutes, Title 35-A, chapter 32.
         "Constructive  Discharge"  means,  so long as no Change of Control  has
occurred,  any reduction in the  Executive's  annual base salary in effect as of
the Effective Date of this Agreement,  or as the same may be increased from time
to time,  other than any  across-the-board  base salary reduction for a group or
all of the  executive  officers of the  Company,  and also means,  on or after a
Change of Control,
         (i)   any reduction in the Executive's  annual base salary in effect
               as of the Effective Date of this Agreement, or as the same may
               be increased from time to time;
         (ii)  a substantial reduction in the nature or scope of the Executive's
               responsibilities,  duties or authority from those described in
               Section 3.c of this Agreement;  (iii) a material  adverse change
               in the Executive's  title or position;  or (iv)  relocation of 
               the Executive's place of employment from the Company's
               principal  executive  offices to a place more than twenty-five
               (25)  miles  from  Augusta,   Maine  without  the  Executive's
               consent.
         "Severance Benefits" means the benefits set forth in Section 5.a or
 5.c of this Agreement, if applicable.
         "Severance Period" means, in the case of Change of Control, the period
from the date of termination as determined in accordance  with Section 6 of this
Agreement  until the third  anniversary of such date.
         "Total  Disability"  means the complete and permanent  inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6)  consecutive  months,  as  determined  upon the
basis of such evidence,  which may include independent medical reports and data,
as the Board deems appropriate or necessary.
         3. Employment.  a. Position.  The Company hereby agrees to continue its
employment  of the  Executive in the capacity of President  and Chief  Executive
Officer,  and the Executive hereby agrees to remain in the employ of the Company
for the period  beginning on the Effective  Date and ending on the date on which
the Executive's  employment is terminated in accordance with this Agreement (the
"Employment Period").  This Agreement shall not restrict in any way the right of
the Company to terminate  the  Executive's  employment  at whatever time and for
whatever  reason  it deems  appropriate,  nor  shall it limit  the  right of the
Executive  to  terminate  employment  at any time for  whatever  reason he deems
appropriate.
         b. Performance.  The Executive agrees that during the Employment Period
he  shall  devote  substantially  all his  business  attention  and  time to the
business and affairs of the Company and its Affiliates, and use his best efforts
to perform  faithfully and  efficiently the duties and  responsibilities  of the
Executive  under  this  Agreement.  It is  expressly  understood  that  (i)  the
Executive may devote a reasonable  amount of time to such industry  associations
and  charitable and civic  endeavors as shall not materially  interfere with the
services that the Executive is required to render under this Agreement, and (ii)
the  Executive  may serve as a member  of one or more  boards  of  directors  of
companies that are not  affiliated  with the Company and do not compete with the
Company or any of its Affiliates.
         c. Job Duties.  The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has  occurred,  may be decreased as the business
needs of the Company require. The Executive shall be responsible for the overall
active  management  of the Company and his  primary job  responsibilities  shall
include, but not be limited to, authority over the following functions:
         the development, implementation and ongoing management of short and
         long-range corporate planning and strategy with guidance from the Board
         with respect to long-range or major corporate strategies, policies, and
         objectives;

         the development and promotion of an organization capable of competing
         effectively in selected markets; and

         the development and oversight of broad marketing, public issue
         communication  and  advertising  programs to  reposition  the Company's
         products  and  services  as business  needs  require and to enhance the
         corporate image.

     4.   Compensation  and  Benefits.  a.  During the  Employment  Period,  the
          Executive shall be compensated as follows:

          (i)  Salary.  He shall  receive an annual base  salary,  the amount of
               which shall be reviewed  regularly  and  determined  from time to
               time, but which shall not be less than $315,000. His salary shall
               be payable in accordance with Company payroll practices.

          (ii) Participation  in  Executive  Plans.  He  shall  be  entitled  to
               participate  in any and all plans and programs  maintained by the
               Company from time to time to provide benefits for its executives,
               including   without   limitation   any  short-term  or  long-term
               incentive  plan or  program,  in  accordance  with the  terms and
               conditions  of any such  plan or  program  or the  administrative
               guidelines relating thereto, as may be amended from time to time.
               (iii)  Participation  in  Salaried  Employee  Plans.  He shall be
               entitled  to  participate  in any  and  all  plans  and  programs
               maintained  by the Company from time to time to provide  benefits
               for  its  salaried   employees   generally,   including   without
               limitation  any savings and  investment,  stock purchase or group
               medical,  dental,  life, accident or disability insurance plan or
               program,  subject  to all  eligibility  requirements  of  general
               applicability,  to the extent that  executives  are not  excluded
               from  participation  therein under the terms thereof or under the
               terms  of any  executive  plan  or  program  or any  approval  or
               adoption  thereof.  (iv)  Other  Fringe  Benefits.  He  shall  be
               entitled to all fringe benefits generally provided by the Company
               at  any  time  to its  full-time  salaried  employees,  including
               without  limitation  paid  vacation,  holidays and sick leave but
               excluding severance pay, in accordance with generally  applicable
               Company  policies  with  respect  to  such  benefits.  b.  Vested
               Benefits.   Notwithstanding   any  contrary   provision  of  this
               Agreement,  any  compensation or benefits which are vested in the
               Executive or which the Executive is otherwise entitled to receive
               under any plan or program of the Company or any agreement between
               the Company and the  Executive  before,  at or  subsequent to the
               Executive's termination of employment,  including but not limited
               to the compensation and benefits  described in Sections 4, 5, and
               7 of this  Agreement,  shall be furnished  and paid in accordance
               with the terms and provisions of such plan, program or agreement.
               c.  Withholding.  All  compensation  payable under this Section 4
               shall be subject to normal  payroll  deductions  for  withholding
               income  taxes,  social  security  taxes and the like.  d. Special
               Retirement  Benefit.  In the event that the Executive  terminates
               his employment with the Company voluntarily, or his employment is
               terminated  for  reasons  other  than  death  or for  Cause,  the
               Executive  shall be  entitled to receive,  over his  lifetime,  a
               Total Retirement  Benefit, as defined in subsection (i) below, at
               an  annual  rate  equal to  sixty-five  percent  (65%) of (1) the
               Executive's  base  salary  earned  during the twelve  (12) months
               immediately  preceding the effective  date of  termination of the
               Executive's  employment  and (2) the  three (3) year  average  of
               amounts earned under the Company's 1987 Executive  Incentive Plan
               or any  successor  short-term  executive  incentive  plan for the
               three (3) years preceding such termination of employment, payable
               in equal monthly payments commencing on the later of July 1, 2002
               or  the  first  day  of  the  month  immediately  following  such
               termination  (the  "Commencement   Date").   Notwithstanding  the
               foregoing provisions  concerning the period for which base salary
               and  incentive  payments  earned  shall be taken into  account in
               calculating  the  Total  Retirement  Benefit,  in the  case  of a
               Constructive   Discharge  attributable  to  a  reduction  in  the
               Executive's base salary,  the base salary used for the purpose of
               calculating the amount of the Total  Retirement  Benefit shall be
               the Executive's  base salary earned during the twelve (12) months
               immediately  preceding  such base salary  reduction and the three
               (3) year average of said incentive payments shall be based on the
               three  (3)  years  preceding  such  salary  reduction.  The Total
               Retirement Benefit shall be payable to the Executive on the terms
               described in this Section 4.d without regard to the occurrence of
               a Change of Control, but subject to the following provisions: (i)
               The  term  "Total  Retirement   Benefit"  shall  consist  of  the
               actuarial  equivalent of any benefits accrued by the Executive as
               of the Commencement  Date under the Company's  Retirement  Income
               Plan for Non-Union Employees (the "Basic Plan"), the Supplemental
               Executive  Retirement  Plan  effective as of January 1, 1993 (the
               "SERP"),   any  amount   released  to  the  Executive  under  any
               split-dollar insurance agreement with the Company and the Special
               Retirement Benefit provided under this Employment Agreement,  all
               calculated on a single life annuity basis in accordance  with the
               actuarial  assumptions  in effect  under the Basic Plan as of the
               Commencement Date. The term "Special  Retirement Benefit" as used
               herein  shall refer only to the  portion of the Total  Retirement
               Benefit payable under this Agreement,  and shall not refer to any
               benefits   payable  under  the  Basic  Plan,   the  SERP  or  the
               split-dollar  arrangement.  The  calculation of Total  Retirement
               Benefits shall  specifically  not include (a) any amounts payable
               under any defined contribution plan now or previously  maintained
               by the Company, (b) any benefits payable under any stock bonus or
               stock option plan or program now or previously  maintained by the
               Company,  or (c) any benefits  payable to the Executive under the
               U.S.  Social  Security Act, any successor  program,  or any other
               public program.  For purposes of the SERP, the Special Retirement
               Benefit provided under this Section 4.d shall not constitute "any
               other non-qualified  retirement plan of (or Employment Agreement)
               with the Company",  which would result in a reduction of the SERP
               benefit  calculation  underss.3.1(c)  of the  SERP.  (ii)  If the
               Executive's employment is terminated because of Total Disability,
               the monthly Special Retirement Benefit payable hereunder shall be
               reduced  (but  not  below  zero)  for each  month  in  which  the
               Executive receives benefits under any disability plan, program or
               agreement  maintained  by the Company  under which he may receive
               benefits due to such Total  Disability  ("disability  benefits").
               The amount of the reduction of the Special Retirement Benefit for
               each  such  month  shall be the total  amount  of the  disability
               benefits   paid   to  the   Executive   in  such   month.   (iii)
               Notwithstanding  the foregoing,  the Executive's Total Retirement
               Benefit shall not exceed $200,000 per year ($16,667 per month) if
               payments  to the  Executive  commence  as of the first day of the
               month following his fifty-fifth (55th) birthday,  calculated as a
               single  life  annuity.   If  payments  commence  after  his  55th
               birthday,  this  limitation  shall be  actuarially  increased  to
               reflect the anticipated  shorter period of payment, in accordance
               with the actuarial  assumptions specified in the Basic Plan. (iv)
               If the  Executive  has a legal  spouse on the  Commencement  Date
               specified above, the Special Retirement Benefit otherwise payable
               hereunder as a single life annuity shall be reduced to provide an
               actuarially-equivalent  benefit  in the  form of a joint  and 75%
               survivor  annuity,  so  that a  reduced  benefit  is  paid to the
               Executive  for his  lifetime  with the  provision  that after his
               death,   75%  of  such  reduced  benefit  will  continue  to  the
               Executive's  spouse for her lifetime as the joint annuitant after
               the  Executive's   death.  For  purposes  of  this   calculation,
               actuarial  equivalence shall be determined in accordance with the
               actuarial  assumptions  specified in the Basic Plan.  The form in
               which the Special  Retirement  Benefit is paid, and the cessation
               of monthly  payments  in  accordance  with such  form,  shall not
               affect the  continuation  of payments  under the Basic Plan,  the
               SERP,  or any  other  program  for  which  a form of  benefit  is
               separately  elected  or  prescribed.  (v) In the  event  that the
               Executive  dies prior to the  Commencement  Date,  the  Executive
               shall not be entitled to any Special  Retirement Benefit payments
               hereunder;   provided,   however,  that  the  Company  agrees  to
               purchase, no later than the Effective Date of this Agreement, and
               to  maintain  a  life  insurance  contract  on  the  life  of the
               Executive  in the  amount  of $1.0  million  utilizing  a 10-year
               level-premium term life insurance contract with an annual premium
               no greater than $2,500.00. The Company shall use its best efforts
               to obtain the life insurance  contract described in the preceding
               sentence.  If,  notwithstanding  the Company's best efforts,  the
               Company is unable to obtain such life insurance  contract  except
               with an  annual  premium  greater  than  $2,500.00,  then (A) the
               Company  shall so notify the Executive on or before the Effective
               Date of this  Agreement  and (B) the  Executive  shall  have  the
               option to pay the excess annual premium personally or to have the
               Company  reduce the face amount of the insurance  coverage  under
               this Section 4.d(v) on a pro-rata basis to the amount that can be
               purchased for $2,500.00 per year. The beneficiary  under the life
               insurance  contract  provided in this Section 4.d(v) shall be the
               Executive's   surviving  spouse  or  such  other  beneficiary  or
               beneficiaries as the Executive may designate in writing from time
               to time, or, if there is no surviving  spouse or other designated
               beneficiary,  the Executive's  estate. e. Funding of Rabbi Trust.
               The Company  agrees that,  in the event that a Special  Change of
               Control  (as  hereinafter  defined  solely for  purposes  of this
               section  4.e)  has  occurred,   the  Special  Retirement  Benefit
               specified  under  Section 4.d of this  Agreement  shall be funded
               through a  so-called  Rabbi Trust with an  institutional  trustee
               mutually  acceptable to the Executive and the Company.  A Special
               Change of  Control  for  purposes  of this  section  4.e shall be
               deemed to have  occurred  if any of the events  described  in the
               definition  of "Change of Control"  commencing  on page 3 of this
               Agreement  shall  occur;  provided,   however,  that  solely  for
               purposes of this section 4.e, the  ownership  change  percentages
               specified in that definition shall be increased from twenty-seven
               percent (27%) to fifty-one  percent (51%). In the event that such
               a Special  Change of Control has occurred,  the Company agrees to
               establish a Rabbi Trust and to fund the then present value of the
               Special  Retirement  Benefit  under  Section  4.d at the  rate of
               thirty-five  percent (35%) within thirty (30) days  following the
               Special  Change of Control,  thirty  percent  (30%) on the second
               anniversary  of said Special Change of Control,  fifteen  percent
               (15%) on the third anniversary  thereof, ten percent (10%) on the
               fourth  anniversary  thereof,  and ten percent (10%) on the fifth
               anniversary  of the  Special  Change  of  Control.  5.  Severance
               Benefits.  a.  Change  of  Control.  If,  on or after a Change of
               Control,   the   Executive's   employment  with  the  Company  is
               terminated during the Employment Period by the Company and/or any
               successor  for any reason other than death,  Total  Disability or
               Cause, or by the Executive  within twelve (12) calendar months of
               a Constructive Discharge, Severance Benefits shall be provided as
               follows: (i) The Company shall pay the Executive, in one lump sum
               cash pay-  ment,  within  sixty (60) days  following  the date of
               termination  of  employment  as defined  in  Section 6 below,  an
               amount equal to 2.99 times (a) the Executive's base salary earned
               during the twelve (12) months immediately preceding the Change of
               Control  and (b) the three (3) year  average  of  amounts  earned
               under  the  Company's  1987  Executive   Incentive  Plan  or  any
               successor  short-term  executive incentive plan for the three (3)
               years preceding the Change of Control. (ii) Core coverage for the
               Executive under the Company's group medical,  life,  accident and
               disability  plans or programs  shall  continue for the  Severance
               Period on the same terms and  conditions,  as if the  Executive's
               employment had not terminated.  In the event that the Executive's
               participation in any such plan or program is barred,  the Company
               shall  arrange at its expense to provide him during the Severance
               Period with core benefits substantially similar to those which he
               would  otherwise  be  entitled  to  receive  under such plans and
               programs.  (iii)  To the  extent  allowed  by  law,  but  without
               violating   any   non-discrimi-   nation   or  other   applicable
               restrictions, the Severance Period shall count as service for all
               purposes  (including  benefit accrual and eligibility)  under any
               welfare benefit or non-qualified  plan of the Company  applicable
               to the Executive immediately prior to the Executive's termination
               of  employment,  for which service with the Company is taken into
               account,  including without  limitation any supplemental  pension
               plan (regardless of the terms thereof for counting service),  and
               all benefits  under such plans that are subject to vesting  shall
               vest  as of the  date  of  such  termination  of  employment.  In
               addition,  the Executive shall continue to be entitled to receive
               the Special Retirement Benefit, calculated in accordance with the
               provisions  of  Section  4.d of this  Agreement,  which  shall be
               payable to the Executive in equal monthly  payments  beginning on
               the  later  of  July  1,  2002  or the  first  day  of the  month
               immediately following termination of the Executive's  employment.
               (iv) The Company shall pay a fee to an  independent  outplacement
               services in an amount  equal to the actual fee for such  services
               up to a total of $10,000. b. Parachute Provision. Notwithstanding
               the  provisions of Section 5.a hereof,  if, in the opinion of tax
               counsel selected by the Company's independent  auditors,  (i) the
               Severance  Benefits  set forth in said  Section  5.a and any pay-
               ments  or  benefits  otherwise  payable  to the  Executive  would
               constitute  "parachute  payments"  within the  meaning of Section
               280G(b)(2) of the Internal  Revenue Code of 1986, as amended (the
               "Code") (said  Severance  Benefits and other payments or benefits
               being hereinafter  collectively referred to as "Total Payments"),
               and (ii) the aggregate  present value of the Total Payments would
               exceed  2.99 times the  Executive's  base  amount,  as defined in
               Section  280G(b)(3)  of  the  Code,  then,  such  portion  of the
               Severance  Benefits  described  in Section  5.a hereof as, in the
               opinion  of said tax  counsel,  constitute  "parachute  payments"
               shall be reduced as directed by tax counsel so that the aggregate
               present  value of the Total  Payments  is equal to 2.99 times the
               Executive's  base amount.  The tax counsel  selected  pursuant to
               this Section 5.b may consult with tax counsel for the  Executive,
               but shall have complete,  sole and final  discretion to determine
               which Severance  Benefits shall be reduced and the amounts of the
               required  reductions.  For  purposes  of this  Section  5.b,  the
               Executive's base amount and the value of the Total Payments shall
               be determined by the Company's independent auditors in accordance
               with the  principles  of Section  280G of the Code and based upon
               the  advice  of tax  counsel  selected  thereby.  c. No Change of
               Control.   If  no  Change  of  Control  has  occurred,   and  the
               Executive's  employment with the Company is terminated during the
               Employment Period by the Company for any reason other than death,
               Total  Disability or Cause,  or by the  Executive  within six (6)
               calendar months of a Constructive  Discharge,  Severance Benefits
               shall be  provided  as  follows:  (i) The  Company  shall pay the
               Executive, in twelve (12) monthly cash installments beginning not
               later than sixty (60) days  following the date of  termination of
               employment as defined in Section 6 of this  Agreement,  Severance
               Benefits  equal to one (1)  times  the  Executive's  annual  base
               salary in effect on the date  immediately  preceding  the date of
               termination,   or  in  the  case  of  a  Constructive   Discharge
               attributable to a reduction in the Executive's  base salary,  one
               (1)  times  the  Executive's  base  salary  in effect on the date
               immediately  preceding such  reduction.  (ii) The Executive shall
               continue  to  be  entitled  to  receive  the  Special  Retirement
               Benefit,  calculated in accordance with the provisions of Section
               4.d of this Agreement, which shall be payable to the Executive in
               equal monthly payments  beginning on the later of July 1, 2002 or
               the first day of the month immediately  following  termination of
               the Executive's employment. 6. Date of Termination.  For purposes
               of this  Agreement,  the date of termination  of the  Executive's
               employment  shall be the date notice is given to the Executive by
               the  Company   and/or  any   successor  or,  in  the  case  of  a
               Constructive  Discharge,  the date set forth in a written  notice
               given  to  the  Company  by  the  Executive,  provided  that  the
               Executive gives such notice within twelve (12) calendar months of
               the  Constructive  Discharge  in the case of a Change of Control,
               and within six (6) calendar months of the Constructive  Discharge
               in other cases, and specifies therein the event  constituting the
               Constructive  Discharge.  7. Taxes.  a. Gross-Up  Amount.  In the
               event that any  portion of the  Severance  Benefits is subject to
               tax under Code ss.4999 of the Internal  Revenue Code of 1986,  as
               amended,  or any successor  provision thereto (the "Excise Tax"),
               the Company shall pay to the Executive an additional  amount (the
               "Gross-Up  Amount") which, after payment of all federal and State
               income taxes  thereon  (assuming  the Executive is at the highest
               marginal  federal and applicable  State income tax rate in effect
               on the date of payment of the Gross-Up Amount) and payment of any
               Excise  Tax on the  Gross-Up  Amount,  is equal to the Excise Tax
               payable  by the  Executive  on  such  portion  of  the  Severance
               Benefits.  Any Gross-Up Amount payable hereunder shall be paid by
               the Company coincident with the payment of the Severance Benefits
               described   in  Section   5.a(i)  of  this   Agreement.   b.  Tax
               Withholdings.  All amounts  payable to the  Executive  under this
               Agreement  shall be subject to applicable  withholding of income,
               wage and other taxes.  8.  Non-Competition,  Confidentiality  and
               Cooperation.  a.  The  Executive  agrees  that:  (i)  during  the
               Employment Period and for one (1) year after the termi- nation of
               the Executive's  employment with the Company for any reason other
               than a Change  of  Control,  the  Executive  shall not serve as a
               director,  officer,  employee,  partner or  consultant  or in any
               other  capacity  in any  business  that  is a  competitor  of the
               Company,  or solicit  Company  employees for  employment or other
               participation  in any such  business,  or take any  other  action
               intended to advance the interests of such  business;  (ii) during
               and after the  Executive's  employment  with the Company he shall
               not  divulge or  appropriate  to his own use or the use of others
               any secret,  proprietary or confidential information or knowledge
               pertaining  to  the  business  of  the  Company,  or  any  of its
               Affiliates,  obtained during his employment with the Company; and
               (iii) during the Employment Period he shall support the Company's
               interests and efforts in all regulatory, administrative, judicial
               or  other  proceedings  affecting  the  Company  and,  after  the
               termination of his employment with the Company, he shall use best
               efforts to comply  with all  reasonable  requests  of the Company
               that he cooperate with the Company,  whether by giving  testimony
               or otherwise,  in regulatory,  administrative,  judicial or other
               proceedings  affecting the Company except any proceeding in which
               he may be in a position adverse to that of the Company. After the
               termination  of  employment,  the  Company  shall  reimburse  the
               Executive  for  his  reasonable  expenses  and  his  time,  at  a
               reasonable rate to be determined, for the Executive's cooperation
               with the Company in any such proceeding.  (iv) The term "Company"
               as used in this  Section  8 shall  include  Central  Maine  Power
               Company, any Affiliate of Central Maine Power Company (determined
               as of the date of termination),  any successor to the business or
               operations  of  Central  Maine  Power  and  any  business  entity
               spun-off,  divested,  or distributed to shareholders  which shall
               continue  the  operations  of Central  Maine Power  Company.  The
               provisions  of this  Section 8 shall  survive the  expiration  or
               termination  of this  Agreement.  The  Executive  agrees that the
               Company  shall be  entitled to  injunctive  relief to prevent any
               breach or threatened breach of these provisions.  In the event of
               a failure to comply with part (i),  (ii) or (iii) of this Section
               8, the  Executive  agrees that the Company  shall have no further
               obligation  to pay the Executive  any  Severance  Benefits  under
               Section  5.c of this  Agreement.  In the  event of a  failure  to
               comply with part (i) or (ii) hereof, the Executive agrees that he
               shall  repay  to the  Company  any  such  Section  5.c  Severance
               Benefits  paid to him. The Company shall have the right to offset
               any amounts  payable to the  Executive  under this  Agreement  or
               otherwise  against any benefits which he is obligated to repay to
               the  Company.  9.  No  Mitigation.  The  Executive  shall  not be
               required to mitigate  the amount of any payment  provided  for in
               this Agreement by seeking other employment. 10. Assignment.  This
               Agreement and the rights and obligations of the Company hereunder
               shall  inure to the  benefit  of and  shall be  binding  upon the
               successors and assigns of the Company (as defined in Section 8 of
               this Agreement),  including without limitation any corporation or
               other entity acquiring all or  substantially  all of the business
               or  assets  of  the  Company  whether  by  operation  of  law  or
               otherwise.  This  Agreement  and  the  rights  of  the  Executive
               hereunder  shall  not be  assignable  by the  Executive,  and any
               assignment  by  the  Executive   shall  be  null  and  void.  11.
               Arbitration.  Any  dispute  or  controversy  arising  under or in
               connection  with this Agreement  shall be settled  exclusively by
               arbitration in Augusta,  Maine,  in accordance  with the rules of
               the American Arbitration Association then in effect. The pendency
               of any such dispute or controversy shall not affect any rights or
               obligations under this Agreement.  Judgment may be entered on the
               arbitrator's award in any court having jurisdiction.  12. Waiver;
               Amendment.  The failure of either party to enforce,  or any delay
               in enforcing, any rights under this Agreement shall not be deemed
               to be a waiver of such  rights,  unless such waiver is an express
               written waiver which has been signed by the waiving party. Waiver
               of any one breach shall not be deemed to be a waiver of any other
               breach of the same or any other provision hereof.  This Agreement
               can be amended  only by written  instrument  signed by each party
               hereto and no course of dealing or practice or failure to enforce
               or delay in enforcing any rights hereunder may be claimed to have
               effected an amendment of this Agreement.  13. Singular  Contract.
               This Agreement is a singular  agreement between the Executive and
               the Company, and is not part of a general "plan" or "program" for
               employees   as  a  group.   This   Agreement   shall,   under  no
               circumstances, be deemed to be an "employee welfare benefit plan"
               or an "employee  pension benefit plan" as defined in the Employee
               Retirement Income Security Act of 1974  (hereinafter  referred to
               as "ERISA"). Notwithstanding,  the Company may submit a letter to
               the Department of Labor indicating the possible  establishment of
               a so-called  unfunded  "top hat" plan for the benefit of a select
               group of management and highly compensated employees to avoid the
               costs  and  uncertainties  which  may  occur  in the  event  of a
               Department  of Labor audit and  challenge  relative to compliance
               with any allegedly applicable  provisions of ERISA. The Executive
               specifically  acknowledges  and  agrees  that the  filing  of the
               so-called  "top hat" letter  notice by the  Company  shall not be
               construed  or  interpreted  as an  admission  on the  part of the
               Company that this  Agreement  constitutes  an ERISA plan, and the
               Company hereby  categorically  states,  and the Executive  hereby
               agrees, that this Agreement is an ad hoc individual contract with
               the Executive.  14. Notices.  Any notice required or permitted to
               be given under this  Agreement  shall be sufficient if in writing
               and  sent  by  first-class,   registered  or  certified  mail  or
               hand-delivered  to the Executive at the last residence address he
               has  provided to the Company or, in the case of the  Company,  at
               its principal executive offices to the attention of the Corporate
               Secretary.  15.  Titles and  Captions.  The section and paragraph
               titles and captions contained herein are for convenience only and
               shall  not be held to  explain,  modify,  amplify,  or aid in the
               interpretation, construction or meaning of the provisions of this
               Agreement.  16. Miscellaneous.  This Agreement shall be construed
               and enforced in  accordance  with the laws of the State of Maine.
               In the event that any provisions of this Agreement  shall be held
               to be invalid,  the other provisions  hereof shall remain in full
               force  and  effect.  17.  Entire  Agreement.  The  terms  of this
               Agreement are intended by the parties to be the final  expression
               of  their  agreement  with  respect  to  the  employment  of  the
               Executive by the Company and may not be  contradicted by evidence
               of any prior or  contemporaneous  oral or written  agreement.  IN
               WITNESS WHEREOF,  the parties hereto have executed this Agreement
               effective as of the date first written above. WITNESS


-----------------------------               ---------------------------------
                                                              David T. Flanagan


WITNESS:                                    CENTRAL MAINE POWER COMPANY


_____________________________               By:_________________________________
                                                   David M. Jagger
                                              Chairman of the Board of Directors

CMP -Flanagan Employment Agreement
121297


<PAGE>


                                                                  Exhibit 10.101

                              EMPLOYMENT AGREEMENT
                 As Amended and Restated Effective June 1, 1997


         THIS EMPLOYMENT  AGREEMENT is made this ________ day of January,  1998,
by and  between  Central  Maine  Power  Company,  a Maine  corporation  with its
principal place of business in Augusta,  Maine  (hereinafter  referred to as the
"Company"), and ARTHUR W. ADELBERG (hereinafter referred to as the "Executive").
         WHEREAS, the Company recognizes that the Executive is a valued employee
because  of his  knowledge  of the  Company's  affairs  and his  experience  and
leadership capabilities,  and desires to encourage his continued employment with
the Company to assure  itself of the  continuing  advantage  of that  knowledge,
experience  and  leadership  for the  benefit  of  customers  and  shareholders,
particularly  during a period of transition in various  aspects of the Company's
business and in the event of a Change of Control of the Company; and
         WHEREAS, the Executive desires to serve in the employ of the Company on
a  full-time  basis  for  a  period   provided  in  this  Employment   Agreement
(hereinafter  referred  to as the  "Agreement")  on  the  terms  and  conditions
hereinafter set forth; and
         WHEREAS,  to these ends the Company  desires to provide  the  Executive
with  certain  payments  and  benefits  in the event of the  termination  of his
employment in certain circumstances; and
         WHEREAS,  the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
         NOW,  THEREFORE,  in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive,  and
the  mutual  promises  and  covenants  contained  herein,  the  Company  and the
Executive hereby agree as follows:
         1. Term of Agreement.  a. Term. The term of this Agreement  shall begin
on June 1, 1997  (hereinafter  referred  to as the  "Effective  Date") and shall
expire on December 31, 1999; provided, however, that on December 31, 1999 and on
each December 31 thereafter,  the term of this Agreement shall  automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the  Executive  shall have given notice that such party
does not wish to extend the term of this Agreement.  The Executive  commits that
he will continue in the active employ of the Company  through at least  December
31, 1999, absent illness, disability or other non-voluntary circumstances.
         b.  Automatic  Extension of Term. If a Change of Control  occurs during
the  original  term of this  Agreement or any  extension,  then the term of this
Agreement shall be  automatically  extended for a thirty-six (36) calendar month
period beginning on the first day of the month following the month in which such
Change of Control occurs.
         c. Expiration. Notwithstanding anything to the contrary in this Section
1, this Agreement and all  obligations of the Company  hereunder shall terminate
on the date of the  Executive's  death,  or thirty  (30) days after the  Company
gives notice to the Executive  that the Company is terminating  the  Executive's
employment for reason of Total Disability or Cause.
         2.  Definitions.  The following terms shall have the meanings set forth
 below:
         "Affiliate"  means a person that directly or indirectly  through one or
more intermediaries  controls, is controlled by, or is under common control with
the Company.
         "Board" means the Board of Directors of the Company.
         "Cause" means any of the following events or occurrences:
         (i)      Any act of material dishonesty taken by, or committed at the
                  request of, the Executive.
         (ii)     Any illegal or unethical conduct which, in the good faith 
                  judgment of the Board, would impair the
                  Executive's ability to perform his duties under this Agreement
                  or would impair the business reputation of the Company.
         (iii)    Conviction of a felony.
         (iv)     The  continued   failure  of  the  Executive  to  perform  his
                  responsibilities and duties under this Agreement, after demand
                  for performance has been delivered in writing to the Executive
                  specifying  the manner in which the Company  believes that the
                  Executive is not performing.
Notwithstanding  any contrary  provision of this Agreement,  the Executive shall
not be deemed to have been  terminated  for Cause  unless and until  there shall
have been  delivered  to the  Executive a certified  copy of a  resolution  duly
adopted by the  affirmative  vote of  two-thirds of the members of the Board who
are not  employees  of the Company at a meeting of the Board called and held for
such purpose (after  reasonable  notice to the Executive and an opportunity  for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or  occurrences  set forth in parts (i)  through
(iv)  of the  definition  of  "Cause"  in  this  Agreement  and  specifying  the
particulars thereof in detail.
         "Change of Control" means the occurrence of any of the following
          events:
         (i)   Any "person," as such term is used in Sections 13(d) and 14(d)of
               the Securities  Exchange Act of 1934, as amended  (the  "Exchange
               Act") (other than the Company or any  Affiliate or any trustee
               or  other  fiduciary  holding  securities  under  an  employee
               benefit plan of the Company or any  Affiliate),  is or becomes
               the  beneficial  owner,  as defined  in Rule  13d-3  under the
               Exchange Act, directly or indirectly,  of stock of the Company
               representing  thirty  percent  (30%)  or more of the  combined
               voting power of the Company's then outstanding  stock eligible
               to vote.
         (ii)  During any period of two (2) consecutive years after the 
               execution of this Agreement, individuals who at the beginning of
               such period constitute the  Board,  and  any new  director  whose
               election  by the  Board  or  nomination  for  election  by the
               Company's  stockholders  was  approved  by a vote of at  least
               two-thirds  of the  directors  then in office who either  were
               directors at the beginning of the period or whose  election or
               nomination for election was previously so approved,  cease for
               any reason to constitute at least a majority thereof.
         (iii) The stockholders of the Company approve a merger or consoli-
               dation of the Company with any other corporation, other than a
               merger or consolidation which would result in the voting stock
               of  the  Company   outstanding   immediately   prior   thereto
               continuing to represent (either by remaining outstanding or by
               being  converted  into  voting  securities  of  the  surviving
               entity) more than fifty percent  (50%) of the combined  voting
               power of the  outstanding  voting stock of the Company or such
               surviving   entity    immediately   after   such   merger   or
               consolidation;   provided,   however,   that   a   merger   or
               consolidation  effected to implement a recapitalization of the
               Company (or  similar  transaction)  in which no  "person"  (as
               hereinabove  defined)  acquires more than thirty percent (30%)
               of the combined voting power of the Company's then outstanding
               securities  shall not  constitute  a Change of  Control of the
               Company.
         (iv)  The sale or  exchange  of the  Transmission  and  Distribution
               Division  of the  Company,  in the form of a sale of stock,  a
               sale of substantially  all of the assets of that Division,  or
               in any other form.
         "Constructive  Discharge"  means,  so long as no Change of Control  has
occurred,  any reduction in the  Executive's  annual base salary in effect as of
the Effective Date of this Agreement,  or as the same may be increased from time
to time,  other than any  across-the-board  base salary reduction for a group or
all of the  executive  officers of the  Company,  and also means,  on or after a
Change of Control,
         (i)      any reduction in the Executive's  annual base salary in effect
                  as of the Effective Date of this Agreement, or as the same may
                  be increased from time to time;
         (ii)     a failure to increase the Executive's annual base salary
                  commensurate with any across-the-board percentage increases in
                  the compensation of other executive officers of
                  the Company;
         (iii)    a substantial reduction in the nature or scope of the
                  Executive's responsibilities,  duties or authority from those
                  described in Section 3.c of this  Agreement;  (iv) a material
                  adverse change in the Executive's  title or position;  or (v)
                  relocation of the  Executive's place of employment from the 
                  Company's principal  executive  offices to a place more than 
                  twenty-five (25)  miles  from  Augusta,   Maine  without  the
                  Executive's consent.
         "Severance Benefits" means the benefits set forth in Section 5.a or
          5.c of this Agreement.
         "Severance Period" means, in the case of a Change of Control, the
          period from the date of termination as
determined  in  accordance  with  Section  6 of this  Agreement  until the third
anniversary of such date.
         "Total  Disability"  means the complete and permanent  inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6)  consecutive  months,  as  determined  upon the
basis of such evidence,  which may include independent medical reports and data,
as the Board deems appropriate or necessary.
         3. Employment.  a. Position.  The Company hereby agrees to continue its
employment of the Executive in the capacity of Executive  Vice  President of the
Company,  and the Executive hereby agrees to remain in the employ of the Company
for the period  beginning on the Effective  Date and ending on the date on which
the Executive's  employment is terminated in accordance with this Agreement (the
"Employment Period").  This Agreement shall not restrict in any way the right of
the Company to terminate  the  Executive's  employment  at whatever time and for
whatever  reason  it deems  appropriate,  nor  shall it limit  the  right of the
Executive  to  terminate  employment  at any time for  whatever  reason he deems
appropriate.
         b.  Performance.  The  Executive  agrees  that,  during the  Employment
Period, he shall devote substantially all his business attention and time to the
business  and  affairs  of the  Company  and its  Affiliates  , and use his best
efforts to perform faithfully and efficiently the duties and responsibilities of
the Executive under this

<PAGE>


         Agreement. It is expressly understood that (i) the Executive may devote
a reasonable  amount of time to such industry  associations  and  charitable and
civic  endeavors as shall not  materially  interfere  with the services that the
Executive is required to render under this Agreement, and (ii) the Executive may
serve as a member of one or more boards of directors  of companies  that are not
affiliated  with the Company  and do not compete  with the Company or any of its
Affiliates.  c. Job Duties.  The following listing of job duties shall represent
the Executive's primary responsibilities.  Such responsibilities may be expanded
and,  so long as no Change of Control  has  occurred,  may be  decreased  as the
business   needs  of  the  Company   require.   The   Executive's   primary  job
responsibilities  shall  include,  but not be limited to,  participation  in the
development and general oversight of corporate policies, strategies and business
initiatives as a member of the senior most management team of the Company.

4. Compensation and Benefits. a. During the Employment Period,
               the Executive shall be compensated as follows:

         (i)      Salary.  He shall receive an annual base salary, the amount
                  of which shall be reviewed regularly and
                  determined from time to time by the Board, but which shall not
                  be less than  $190,000.00.  His  salary  shall be  payable  in
                  accordance with Company payroll practices.
         (ii)     Participation  in  Executive  Plans.  He shall be  entitled to
                  participate  in any and all plans and programs  maintained  by
                  the  Company  from time to time to  provide  benefits  for its
                  executives,  including  without  limitation  any short-term or
                  long-term incentive,  pension, or supplemental pension plan or
                  program,  in accordance  with the terms and  conditions of any
                  such plan or program or the administrative guidelines relating
                  thereto, as may be amended from time to time.
         (iii)    Participation in Salaried Employee Plans. He shall be entitled
                  to participate in any and all plans and programs maintained by
                  the  Company  from time to time to  provide  benefits  for its
                  salaried employees generally, including without limitation any
                  savings  and  investment,  stock  purchase  or group  medical,
                  dental,   life,  accident  or  disability  insurance  plan  or
                  program,  subject to all  eligibility  requirements of general
                  applicability,  to the extent that executives are not excluded
                  from  participation  therein  under the terms thereof or under
                  the terms of any executive  plan or program or any approval or
                  adoption thereof.
         (iv)     Other  Fringe  Benefits.  He shall be  entitled  to all fringe
                  benefits  generally provided by the Company at any time to its
                  full-time  salaried  employees,  including without  limitation
                  paid vacation, holidays and sick leave but excluding severance
                  pay, in accordance with generally  applicable Company policies
                  with respect to such benefits.
         (v)      Split-Dollar Agreement. He shall be entitled to all rights and
                  benefits  under  the  Split-Dollar  Life  Insurance  Agreement
                  between  the  Company  and the  Executive  in effect as of the
                  Effective Date of this Agreement in accordance  with the terms
                  of such Split-Dollar Life Insurance Agreement.

               (vi) Special Retirement Benefit.  The Executive shall be entitled
               to a special retirement benefit described herein if, and only if,
               the Executive  voluntarily  terminates  employment  within twelve
               (12) months after the occurrence of a  Constructive  Discharge or
               his employment is involuntarily terminated by the Company for any
               reason (except Cause).  The special  retirement  benefit shall be
               calculated as a single life annuity  payable over the lifetime of
               the Executive (except as provided below) in the amount of two and
               six-tenths  percent  (2.6%) for each year of employment  with the
               Company   multiplied  by  the   Executive's   highest  three  (3)
               consecutive  years'  average annual base salary from the Company,
               with payments to commence on the first day of the calendar  month
               following the later of (a) the Employee's 55th birthday,  (b) the
               last day of the  thirty-six  (36)  month  period  for  which  the
               Executive is receiving severance pay under Section 5.a. below, or
               (c) his date of termination of employment with the Company, minus
               any amounts  (denominated  for this  calculation as a single life
               annuity under each plan,  program or agreement on the  assumption
               that the payments  would  commence on the same date),  payable to
               the  Executive  under the  Retirement  Income Plan for  Non-Union
               Employees of Central Maine Power Company (the "Basic Plan"),  and
               any successor defined benefit plan to the Basic Plan, the Central
               Maine Power Company  Supplemental  Executive Retirement Plan (the
               "SERP"),  and the  Split-Dollar  Life Insurance  Agreement,  (the
               "Split-Dollar  Arrangement")  unless the  insurance  contract  or
               contracts under the Split-Dollar Arrangement are assigned back to
               the Company.  The Company hereby acknowledges and agrees that the
               special  retirement  benefit provided in this Section is intended
               to provide a minimum and not a maximum  retirement  benefit,  and
               therefore,  if the offsets from the Basic Plan,  the SERP and the
               Split-Dollar  Arrangement  exceed the special  retirement benefit
               formula  stated  above,  this  provision  shall  not be deemed to
               reduce any  benefit  which the  Executive  shall be  entitled  to
               receive  under those other plans or  programs.  If the  Executive
               becomes  eligible  to  receive  the  special  retirement  benefit
               hereunder  prior to being eligible to receive a benefit under the
               Basic Plan,  the SERP or the  Split-Dollar  Arrangement,  payment
               shall  commence   hereunder  at  the   applicable   unreduced  or
               partially-reduced  amount until such time as the Executive  first
               becomes  eligible to receive a benefit under the Basic Plan,  the
               SERP or the  Split-Dollar  Arrangement  (as the case may be),  at
               which  time or  times,  the  amount  payable  hereunder  shall be
               recalculated  and reduced by the amount then available  under the
               applicable  program (in each case, the reduction shall be made by
               comparing single life annuity values,  and thereafter  converting
               those values to the applicable joint and survivor  benefit).  For
               purposes of the SERP,  the special  retirement  benefit  provided
               herein shall not constitute "any other  non-qualified  retirement
               plan of (or employment agreement with) the Company",  which would
               result  in a  reduction  of the SERP  benefit  calculation  under
               Section  3.1(c)  of the  SERP.  Before  the  Executive's  date of
               termination,  he shall have a one-time  irrevocable  election  to
               elect  to  receive  his  benefits  hereunder  in the  form  of an
               actuarially-equivalent  joint and survivor  annuity  payable over
               his lifetime and the lifetime of his spouse,  which election must
               be made prior to the  calculation  of his first payment and which
               election shall apply to all calculations made under this Section,
               including  recalculations  at the time he  becomes  eligible  for
               benefits  under  the  Basic  Plan,  the SERP or the  Split-Dollar
               Arrangement,  if later. Once payments commence under this Section
               as  hereinbefore  provided,  such payments shall continue for his
               lifetime (and for the lifetime of his spouse after his death,  if
               he has elected a joint and survivor  option as described  above).
               Notwithstanding the foregoing, solely for purposes of determining
               whether the Executive has incurred a Constructive  Discharge,  in
               the definition of the term "Change of Control",  subsections  (i)
               and (iii),  on pages 4 and 5 above,  the  applicable  percentages
               shall be increased  from thirty  percent  (30%) to fifty  percent
               (50%),  wherever applicable,  for purposes of determining whether
               the  Executive  is entitled  to receive  the  special  retirement
               benefit  specified  herein.  The  Executive's  rights  under this
               Section shall survive and continue to be enforceable even if this
               Agreement is  terminated,  unless the Agreement is terminated for
               Cause.

         b. Vested  Benefits.  Notwithstanding  any  contrary  provision of this
Agreement,  any  compensation  or benefits  which are vested in the Executive or
which the  Executive is otherwise  entitled to receive under any plan or program
of the Company or any agreement between the Company and the Executive before, at
or subsequent to the  Executive's  termination of employment  shall be furnished
and paid in accordance  with the terms and  provisions of such plan,  program or
agreement.
         c. Withholding.  All compensation payable under this Section 4 shall be
subject to normal  payroll  deductions  for  withholding  income  taxes,  Social
Security taxes and the like.
         5. Severance Benefits.  a. Change of Control.  If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment  Period by the Company and/or any successor for any reason other than
death,  Total  Disability  or Cause,  or by the  Executive  within  twelve  (12)
calendar  months  of a  Constructive  Discharge,  Severance  Benefits  shall  be
provided as follows:
         (i)      The Company shall pay the Executive, in one lump sum cash pay-
                  ment, within sixty (60) days following the date of termination
                  of employment as determined under Section 6 of this Agreement,
                  an amount equal to 2.99 times (a) the Executive's  base salary
                  earned during the twelve (12) months immediately preceding the
                  Change  of  Control  and (b) the  three  (3) year  average  of
                  amounts earned under the Company's  1987  Executive  Incentive
                  Plan or any successor  short-term executive incentive plan for
                  the three (3) years preceding the Change of Control.
         (ii)     Core coverage for the Executive and his dependents under the
                  Company's group medical,  life,  accident and disability plans
                  or  programs  shall  continue  for a period of three (3) years
                  from the date of  termination  specified  in  Section 6 on the
                  same terms and conditions,  as if the  Executive's  employment
                  had  not  terminated.   In  the  event  that  the  Executive's
                  participation  in any such  plan or  program  is  barred,  the
                  Company  shall arrange at its expense to provide the Executive
                  and his  dependents  during  the  Severance  Period  with core
                  benefits   substantially  similar  to  those  which  he  would
                  otherwise  be  entitled  to  receive   under  such  plans  and
                  programs;  provided,  however,  that  the  obligation  of  the
                  Company  to  provide  continuation  of any  insured  long-term
                  disability  benefits shall be limited to the conversion rights
                  available under such disability  insurance  products,  and the
                  Company  hereby  agrees  to pay  the  conversion  premium  due
                  thereon for the Severance Period.
         (iii)    To the extent allowed by law, but without violating any non-
                  discrimination or other applicable restrictions, the Severance
                  Period  shall  count as service  for all  purposes  (including
                  benefit accrual and eligibility)  under any welfare benefit or
                  non-qualified  plan of the Company applicable to the Executive
                  immediately   prior   to  the   Executive's   termination   of
                  employment,  for which  service with the Company is taken into
                  account, including without limitation any supplemental pension
                  plan,  and all  benefits  under such plans that are subject to
                  vesting  shall  vest as of the  date of  such  termination  of
                  employment.
         (iv)     The  Company  shall pay a fee to an  independent  outplacement
                  firm selected by the Executive for outplacement services in an
                  amount equal to the actual fee for such services up to a total
                  of $10,000.
         b.  Parachute Provision.  Notwithstanding the provisions of Section 5.a
             hereof, if, in the opinion of tax counsel
             selected by the Company's independent auditors,
         (i)      the Severance Benefits set forth in said Section 5.a and any 
                  payments or benefits otherwise payable to the Executive  would
                  constitute  "parachute payments" within the meaning of Section
                  280G(b)(2)  of the Internal  Revenue Code of 1986,  as amended
                  (the "Code") (said  Severance  Benefits and other  payments or
                  benefits being hereinafter  collectively referred to as "Total
                  Payments"), and
         (ii)     the aggregate present value of the Total Payments would exceed
                  2.99 times the Executive's base amount,  as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance  Benefits  described
in  Section  5.a  hereof  as, in the  opinion  of said tax  counsel,  constitute
"parachute  payments"  shall be reduced as  directed  by tax counsel so that the
aggregate  present  value of the  Total  Payments  is equal  to 2.99  times  the
Executive's base amount.  The tax counsel selected  pursuant to this Section 5.b
may consult with tax counsel for the Executive,  but shall have  complete,  sole
and final discretion to determine which Severance  Benefits shall be reduced and
the amounts of the  required  reductions.  For purposes of this Section 5.b, the
Executive's  base amount and the value of the Total Payments shall be determined
by the  Company's  independent  auditors in  accordance  with the  principles of
Section  280G of the Code and  based  upon the  advice of tax  counsel  selected
thereby.
         c. No Change of Control. If no Change of Control has occurred,  and the
Executive's  employment  with the Company is  terminated  during the  Employment
Period  either  (i) by the  Company  for any  reason  other  than  death,  Total
Disability or Cause, or (ii) by the Executive  within six (6) calendar months of
a Constructive  Discharge,  the Company shall pay the Executive,  in twelve (12)
equal  monthly  cash  installments  beginning  not later  than  sixty  (60) days
following the date of termination of employment as determined under Section 6 of
this Agreement, Severance Benefits equal to one (1) times the Executive's annual
base salary in effect on the date immediately preceding the date of termination,
or preceding the date of a Constructive  Discharge attributable to a base salary
reduction  if  applicable;  provided,  however,  that  each of the  last six (6)
monthly cash installments shall be reduced by an amount equal to any base salary
or other base pay or  commissions  earned  through other  employment or any fees
earned as a consultant for the particular  month, such that an installment shall
not be paid or  payable by the  Company  for any month for which such other base
salary,  base  pay,  commission  or fees  equal  or  exceed  the  amount  of the
installment.
         6. Date of  Termination.  For purposes of this  Agreement,  the date of
termination of the Executive's  employment  shall be the date notice is given to
the  Executive  by the  Company  and/or  any  successor  or,  in the  case  of a
Constructive  Discharge,  the date set  forth in a written  notice  given to the
Company by the Executive,  provided that the Executive  gives such notice within
twelve  (12)  calendar  months of the  Constructive  Discharge  in the case of a
Change of  Control,  and  within  six (6)  calendar  months of the  Constructive
Discharge in other  cases,  and  specifies  therein the event  constituting  the
Constructive Discharge.
         7.  Taxes.  a.  Gross-Up  Amount.  In the event that any portion of the
Severance  Benefits is subject to tax under Section 4999 of the Internal Revenue
Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"),
the Company  shall pay to the  Executive  an  additional  amount (the  "Gross-Up
Amount")  which,  after  payment of all federal and State income  taxes  thereon
(assuming the Executive is at the highest  marginal federal and applicable State
income  tax rate in effect on the date of payment of the  Gross-Up  Amount)  and
payment  of any Excise Tax on the  Gross-Up  Amount,  is equal to the Excise Tax
payable by the Executive on such portion of the Severance Benefits. Any Gross-Up
Amount  payable  hereunder  shall  be paid by the  Company  coincident  with the
payment of the Severance Benefits described in Section 5.a(i) of this Agreement.
         b. Tax  Withholding.  All amounts  payable to the Executive  under this
Agreement shall be subject to applicable  withholding of income,  wage and other
taxes.

8.   Non-Competition,  Confidentiality  and  Cooperation.  The Executive  agrees
     that:

         (i)      During the Employment Period and for one (1) year after the
                  termination of the Executive's employment with the Company for
                  any reason other than a Change of Control, the Executive shall
                  not serve as a director, officer, employee, partner or consul-
                  tant or in any other capacity in any business that is a 
                  competitor of the Company, or solicit Company employees for
                  employment or other  participation  in any such business,
                  or take any other action intended to advance the interests of
                  such business;
         (ii)     During and after the Executive's employment with the Company
                  he shall not divulge or appropriate to his own use or the use
                  of others any secret, proprietary or confidential information
                  or knowledge pertaining to the business of the Company, or
                  any of its  Affiliates,  obtained  during  his  employment
                  with  the Company; and
         (iii)    During the Employment Period, he shall support the Company's
                  interests  and  efforts  in  all  regulatory,  administrative,
                  judicial or other proceedings affecting the Company and, after
                  the termination of his employment  with the Company,  he shall
                  use best efforts to comply with all reasonable requests of the
                  Company that he cooperate with the Company,  whether by giving
                  testimony  or  otherwise,   in   regulatory,   administrative,
                  judicial or other proceedings affecting the Company except any
                  proceeding in which he may be in a position adverse to that of
                  the Company. After the termination of employment,  the Company
                  shall reimburse the Executive for his reasonable  expenses and
                  his  time,  at a  reasonable  rate to be  determined,  for the
                  Executive's   cooperation   with  the   Company  in  any  such
                  proceeding.
         (iv)     The term "Company" as used in this Section 8 shall include
                  Central Maine Power Company, any Affiliate of Central Maine 
                  Power Company (determined as of the date of termination), any
                  successor to the business or operations of Central Maine Power
                  and any business entity spun-off,  divested, or distributed to
                  shareholders  which shall  continue the  operations of Central
                  Maine Power Company.
The  provisions of this Section 8 shall survive the expiration or termination of
this  Agreement.  The  Executive  agrees that the  Company  shall be entitled to
injunctive   relief  to  prevent  any  breach  or  threatened  breach  of  these
provisions.  In the event of a failure to comply with part (i), (ii) or (iii) of
this  Section 8, the  Executive  agrees that the  Company  shall have no further
obligation to pay the Executive  any  Severance  Benefits  under Section 5.c. of
this  Agreement.  In the  event of a  failure  to  comply  with part (i) or (ii)
hereof, the Executive agrees that he shall repay to the Company any such Section
5.c  Severance  Benefits paid to him. The Company shall have the right to offset
any amounts payable to the Executive  under this Agreement or otherwise  against
any Severance Benefits which he is obligated to repay to the Company.
         9. No Mitigation.  The Executive  shall not be required to mitigate the
amount  of  any  payment  provided  for  in  this  Agreement  by  seeking  other
employment.
         10.  Assignment.  This Agreement and the rights and  obligations of the
Company  hereunder  shall inure to the benefit of and shall be binding  upon the
successors  and  assigns  of  the  Company,  including  without  limitation  any
corporation or other entity acquiring all or  substantially  all of the business
or  assets  of the  Company  whether  by  operation  of law or  otherwise.  This
Agreement and the rights of the Executive  hereunder  shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
         11.  Arbitration.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
Augusta,  Maine,  in  accordance  with  the  rules of the  American  Arbitration
Association  then in effect.  The  pendency of any such  dispute or  controversy
shall not affect any rights or obligations under this Agreement.
Judgment  may  be  entered  on  the  arbitrator's  award  in  any  court  having
jurisdiction.
         12. Waiver;  Amendment.  The failure of either party to enforce, or any
delay in enforcing,  any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving  party.  Waiver of any one breach shall not be deemed
to be a waiver of any other  breach of the same or any other  provision  hereof.
This  Agreement can be amended only by written  instrument  signed by each party
hereto and no course of dealing  or  practice  or failure to enforce or delay in
enforcing  any rights  hereunder may be claimed to have effected an amendment of
this Agreement.
         13. Singular  Contract.  This Agreement is a singular agreement between
the Executive and the Company,  and is not part of a general "plan" or "program"
for employees as a group.  This  Agreement  shall,  under no  circumstances,  be
deemed to be an "employee  welfare benefit plan" or an "employee pension benefit
plan"  as  defined  in the  Employee  Retirement  Income  Security  Act of  1974
(hereinafter referred to as "ERISA"). Notwithstanding,  the Company may submit a
letter to the  Department of Labor  indicating the possible  establishment  of a
so-called  unfunded  "top  hat"  plan  for the  benefit  of a  select  group  of
management and highly compensated employees to avoid the costs and uncertainties
which may  occur in the  event of a  Department  of Labor  audit  and  challenge
relative to compliance with any allegedly  applicable  provisions of ERISA.  The
Executive specifically  acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or  interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan,  and the Company hereby  categorically  states,  and the Executive  hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
         14.  Notices.  Any notice  required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class,  registered
or certified  mail or  hand-delivered  to the  Executive  at the last  residence
address he has  provided to the Company or, in the case of the  Company,  at its
principal executive offices to the attention of the Corporate Secretary.
         15. Titles and Captions.  The section and paragraph titles and captions
contained  herein  are for  convenience  only and shall not be held to  explain,
modify,  amplify, or aid in the  interpretation,  construction or meaning of the
provisions of this Agreement.
         16.  Miscellaneous.  This Agreement  shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
         17. Entire  Agreement.  The terms of this Agreement are intended by the
parties  to be the final  expression  of their  agreement  with  respect  to the
employment  of the  Executive  by the  Company  and may not be  contradicted  by
evidence of any prior or contemporaneous oral or written agreement.
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement 
effective as of the date first written above.
WITNESS:


-----------------------------               ---------------------------------
                                                        Arthur W. Adelberg


WITNESS:                                    CENTRAL MAINE POWER COMPANY


-----------------------------               ---------------------------------
                                        By:      David M. Jagger
                                                 Chairman of the Board
                                                     of Directors

CMP -Adelberg Employment Agreement
011498


<PAGE>


                                                                  Exhibit 10.102

                              EMPLOYMENT AGREEMENT
                 As Amended and Restated Effective June 1, 1997


         THIS EMPLOYMENT  AGREEMENT is made this ________ day of January,  1998,
by and  between  Central  Maine  Power  Company,  a Maine  corporation  with its
principal place of business in Augusta,  Maine  (hereinafter  referred to as the
"Company"), and DAVID E. MARSH (hereinafter referred to as the "Executive").
         WHEREAS, the Company recognizes that the Executive is a valued employee
because  of his  knowledge  of the  Company's  affairs  and his  experience  and
leadership capabilities,  and desires to encourage his continued employment with
the Company to assure  itself of the  continuing  advantage  of that  knowledge,
experience  and  leadership  for the  benefit  of  customers  and  shareholders,
particularly  during a period of transition in various  aspects of the Company's
business and in the event of a Change of Control of the Company; and
         WHEREAS, the Executive desires to serve in the employ of the Company on
a  full-time  basis  for  a  period   provided  in  this  Employment   Agreement
(hereinafter  referred  to as the  "Agreement")  on  the  terms  and  conditions
hereinafter set forth; and
         WHEREAS,  to these ends the Company  desires to provide  the  Executive
with  certain  payments  and  benefits  in the event of the  termination  of his
employment in certain circumstances; and
         WHEREAS,  the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
         NOW,  THEREFORE,  in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive,  and
the  mutual  promises  and  covenants  contained  herein,  the  Company  and the
Executive hereby agree as follows:
         1. Term of Agreement.  a. Term. The term of this Agreement  shall begin
on June 1, 1997  (hereinafter  referred  to as the  "Effective  Date") and shall
expire on December 31, 1999; provided, however, that on December 31, 1999 and on
each December 31 thereafter,  the term of this Agreement shall  automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the  Executive  shall have given notice that such party
does not wish to extend the term of this Agreement.  The Executive  commits that
he will continue in the active employ of the Company  through at least  December
31, 1999, absent illness, disability or other non-voluntary circumstances.
         b.  Automatic  Extension of Term. If a Change of Control  occurs during
the  original  term of this  Agreement or any  extension,  then the term of this
Agreement shall be  automatically  extended for a thirty-six (36) calendar month
period beginning on the first day of the month following the month in which such
Change of Control occurs.
         c. Expiration. Notwithstanding anything to the contrary in this Section
1, this Agreement and all  obligations of the Company  hereunder shall terminate
on the date of the  Executive's  death,  or thirty  (30) days after the  Company
gives notice to the Executive  that the Company is terminating  the  Executive's
employment for reason of Total Disability or Cause.
         2.  Definitions.  The following terms shall have the meanings set forth
below:
         "Affiliate"  means a person that directly or indirectly  through one or
more intermediaries  controls, is controlled by, or is under common control with
the Company.
         "Board" means the Board of Directors of the Company.
         "Cause" means any of the following events or occurrences:
         (i)      Any act of material dishonesty taken by, or committed at the
                  request of, the Executive.
         (ii)     Any illegal or unethical conduct which, in the good faith
                  judgment of the Board, would impair the
                  Executive's ability to perform his duties under this Agreement
                  or would impair the business reputation of the Company.
         (iii)    Conviction of a felony.
         (iv)     The  continued   failure  of  the  Executive  to  perform  his
                  responsibilities and duties under this Agreement, after demand
                  for performance has been delivered in writing to the Executive
                  specifying  the manner in which the Company  believes that the
                  Executive is not performing.
Notwithstanding  any contrary  provision of this Agreement,  the Executive shall
not be deemed to have been  terminated  for Cause  unless and until  there shall
have been  delivered  to the  Executive a certified  copy of a  resolution  duly
adopted by the  affirmative  vote of  two-thirds of the members of the Board who
are not  employees  of the Company at a meeting of the Board called and held for
such purpose (after  reasonable  notice to the Executive and an opportunity  for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or  occurrences  set forth in parts (i)  through
(iv)  of the  definition  of  "Cause"  in  this  Agreement  and  specifying  the
particulars thereof in detail.
         "Change of Control" means the occurrence of any of the following
          events:
         (i)  Any "person," as such term is used in Sections 13(d) and 14(d) of
              the Securities  Exchange Act of 1934,  as amended  (the  "Exchange
              Act") (other than the Company or any  Affiliate or any trustee
              or  other  fiduciary  holding  securities  under  an  employee
              benefit plan of the Company or any  Affiliate),  is or becomes
              the  beneficial  owner,  as defined  in Rule  13d-3  under the
              Exchange Act, directly or indirectly,  of stock of the Company
              representing  thirty  percent  (30%)  or more of the  combined
              voting power of the Company's then outstanding  stock eligible
              to vote.
         (ii) During any period of two (2) consecutive years after the execution
              of this  Agreement,  individuals  who at the  beginning  of  such
              period  constitute  the  Board,  and  any new  director  whose
              election  by the  Board  or  nomination  for  election  by the
              Company's  stockholders  was  approved  by a vote of at  least
              two-thirds  of the  directors  then in office who either  were
              directors at the beginning of the period or whose  election or
              nomination for election was previously so approved,  cease for
              any reason to constitute at least a majority thereof.
         (iii)The stockholders of the Company approve a merger or consoli-
              dation of the Company with any other corporation, other than a
              merger or consolidation which would result in the voting stock
              of  the  Company   outstanding   immediately   prior   thereto
              continuing to represent (either by remaining outstanding or by
              being  converted  into  voting  securities  of  the  surviving
              entity) more than fifty percent  (50%) of the combined  voting
              power of the  outstanding  voting stock of the Company or such
              surviving   entity    immediately   after   such   merger   or
              consolidation;   provided,   however,   that   a   merger   or
              consolidation  effected to implement a recapitalization of the
              Company (or  similar  transaction)  in which no  "person"  (as
              hereinabove  defined)  acquires more than thirty percent (30%)
              of the combined voting power of the Company's then outstanding
              securities  shall not  constitute  a Change of  Control of the
              Company.
         (iv) The sale or  exchange  of the  Transmission  and  Distribution
              Division  of the  Company,  in the form of a sale of stock,  a
              sale of substantially all of the assets of the Division, or in
                  any other form.
         "Constructive  Discharge"  means,  so long as no Change of Control  has
occurred,  any reduction in the  Executive's  annual base salary in effect as of
the Effective Date of this Agreement,  or as the same may be increased from time
to time,  other than any  across-the-board  base salary reduction for a group or
all of the  executive  officers of the  Company,  and also means,  on or after a
Change of Control,
         (i)      any reduction in the Executive's  annual base salary in effect
                  as of the Effective Date of this Agreement, or as the same may
                  be increased from time to time;
         (ii)     a failure to increase the Executive's annual base salary com
                  mensurate with any across-the-board percentage increases in 
                  the compensation of other executive officers of
                  the Company; 

                    (iii)a  substantial  reduction in the nature or scope of the
                         Executive's responsibilities,  duties or authority from
                         those described in Section 3.c of this Agreement;  (iv)
                         a material  adverse change in the Executive's  title or
                         position; or (v) relocation of the Executive's place of
                         employment  from  the  Company's   principal  executive
                         offices  to a place  more than  twenty-five  (25) miles
                         from Augusta, Maine without the Executive's consent.

                    "Severance Benefits" means the benefits set forth in Section
               5.a or 5.c of this Agreement.

                    "Severance  Period"  means,  in  the  case  of a  Change  of
               Control, the period from the date of termination as determined in
               accordance  with  Section  6 of this  Agreement  until  the third
               anniversary of such date.

         "Total  Disability"  means the complete and permanent  inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6)  consecutive  months,  as  determined  upon the
basis of such evidence,  which may include independent medical reports and data,
as the Board deems appropriate or necessary.
         3. Employment.  a. Position.  The Company hereby agrees to continue its
employment  of the Executive in the capacity of Chief  Financial  Officer of the
Company,  and the Executive hereby agrees to remain in the employ of the Company
for the period  beginning on the Effective  Date and ending on the date on which
the Executive's  employment is terminated in accordance with this Agreement (the
"Employment Period").  This Agreement shall not restrict in any way the right of
the Company to terminate  the  Executive's  employment  at whatever time and for
whatever  reason  it deems  appropriate,  nor  shall it limit  the  right of the
Executive  to  terminate  employment  at any time for  whatever  reason he deems
appropriate.
         b.  Performance.  The  Executive  agrees  that,  during the  Employment
Period, he shall devote substantially all his business attention and time to the
business  and  affairs  of the  Company  and its  Affiliates  , and use his best
efforts to perform faithfully and efficiently the duties and responsibilities of
the Executive  under this  Agreement.  It is expressly  understood  that (i) the
Executive may devote a reasonable  amount of time to such industry  associations
and  charitable and civic  endeavors as shall not materially  interfere with the
services that the Executive is required to render under this Agreement, and (ii)
the  Executive  may serve as a member  of one or more  boards  of  directors  of
companies that are not  affiliated  with the Company and do not compete with the
Company or any of its Affiliates.  c. Job Duties.  The following  listing of job
duties  shall  represent  the   Executive's   primary   responsibilities.   Such
responsibilities  may be  expanded  and,  so long as no  Change of  Control  has
occurred,  may be decreased as the business  needs of the Company  require.  The
Executive's primary job  responsibilities  shall include, but not be limited to,
service  as  a  member  of  Executive  Management  Team,  participating  in  the
development and general oversight of corporate policies, strategies and business
initiatives,  providing  oversight  and  guidance  for the  corporate  strategic
business units, and guidance of the development, implementation,  management and
oversight of financial policies,  strategies,  plans,  activities and investment
decisions  and  the  coordination  and  business  development  strategy  for the
Company's Related Business Group.

                    4.  Compensation  and  Benefits.  a.  During the  Employment
               Period, the Executive shall be compensated as follows:

     (i)  Salary.  He shall  receive an annual base salary,  the amount of which
          shall be reviewed  regularly and  determined  from time to time by the
          Board, but which shall not be less than $190,000.00.  His salary shall
          be payable in accordance with Company payroll practices.

         (ii)     Participation  in  Executive  Plans.  He shall be  entitled to
                  participate  in any and all plans and programs  maintained  by
                  the  Company  from time to time to  provide  benefits  for its
                  executives,  including  without  limitation  any short-term or
                  long-term incentive,  pension, or supplemental pension plan or
                  program,  in accordance  with the terms and  conditions of any
                  such plan or program or the administrative guidelines relating
                  thereto, as may be amended from time to time.
         (iii)    Participation in Salaried Employee Plans. He shall be entitled
                  to participate in any and all plans and programs maintained by
                  the  Company  from time to time to  provide  benefits  for its
                  salaried employees generally, including without limitation any
                  savings  and  investment,  stock  purchase  or group  medical,
                  dental,   life,  accident  or  disability  insurance  plan  or
                  program,  subject to all  eligibility  requirements of general
                  applicability,  to the extent that executives are not excluded
                  from  participation  therein  under the terms thereof or under
                  the terms of any executive  plan or program or any approval or
                  adoption thereof.
         (iv)     Other  Fringe  Benefits.  He shall be  entitled  to all fringe
                  benefits  generally provided by the Company at any time to its
                  full-time  salaried  employees,  including without  limitation
                  paid vacation, holidays and sick leave but excluding severance
                  pay, in accordance with generally  applicable Company policies
                  with respect to such benefits.
         (v)      Split-Dollar Agreement. He shall be entitled to all rights and
                  benefits  under  the  Split-Dollar  Life  Insurance  Agreement
                  between  the  Company  and the  Executive  in effect as of the
                  Effective Date of this Agreement in accordance  with the terms
                  of such Split-Dollar Life Insurance Agreement.

     (vi) Special  Retirement  Benefit.  The  Executive  shall be  entitled to a
          special  retirement  benefit  described  herein  if,  and only if, the
          Executive voluntarily  terminates employment within twelve (12) months
          after the occurrence of a Constructive  Discharge or his employment is
          involuntarily terminated by the Company for any reason (except Cause).
          The special  retirement  benefit  shall be calculated as a single life
          annuity payable over the lifetime of the Executive (except as provided
          below) in the amount of fifty percent (50%) of the Executive's highest
          three (3)  consecutive  years'  average  annual  base  salary from the
          Company,  with  payments to commence on the first day of the  calendar
          month  after the later of (a) the last  month of the  thirty-six  (36)
          month period for which he is  receiving  severance  pay under  Section
          5.a.  below,  or (b) his date of  termination  of employment  with the
          Company,  minus any amounts  (denominated  for this  calculation  as a
          single  life  annuity  under each plan,  program or  agreement  on the
          assumption that the payments would commence on the same date), payable
          to the  Executive  under  the  Retirement  Income  Plan for  Non-Union
          Employees of Central Maine Power Company (the "Basic  Plan"),  and any
          successor  defined  benefit plan to the Basic Plan,  the Central Maine
          Power Company Supplemental Executive Retirement Plan (the "SERP"), and
          the  Split-Dollar  Life  Insurance   Agreement,   (the   "Split-Dollar
          Arrangement"),  unless the insurance  contract or contracts  under the
          Split-Dollar Arrangement are assigned back to the Company. The Company
          hereby  acknowledges  and agrees that the special  retirement  benefit
          provided  in this  Section is  intended to provide a minimum and not a
          maximum  retirement  benefit,  and therefore,  if the offsets from the
          Basic  Plan,  the SERP and the  Split-Dollar  Arrangement  exceed  the
          special  retirement benefit formula stated above, this provision shall
          not be deemed to  reduce  any  benefit  which the  Executive  shall be
          entitled  to receive  under  those  other  plans or  programs.  If the
          Executive becomes eligible to receive the special  retirement  benefit
          hereunder prior to being eligible to receive a benefit under the Basic
          Plan, the SERP or the Split-Dollar Arrangement, payment shall commence
          hereunder  at the  applicable  unreduced or  partially-reduced  amount
          until such time as the Executive  first becomes  eligible to receive a
          benefit under the Basic Plan, the SERP or the Split-Dollar Arrangement
          (as the case may be),  at which  time or  times,  the  amount  payable
          hereunder  shall  be  recalculated  and  reduced  by the  amount  then
          available  under the  applicable  program (in each case, the reduction
          shall be made by comparing single life annuity values,  and thereafter
          converting those values to the applicable joint and survivor benefit).
          For  purposes of the SERP,  the special  retirement  benefit  provided
          herein shall not constitute "any other  non-qualified  retirement plan
          of (or employment agreement with) the Company",  which would result in
          a reduction of the SERP benefit  calculation  under Section  3.1(c) of
          the SERP.  In  addition,  for  purposes of the SERP,  the  Executive's
          period of "Credited  Service"  shall be deemed to commence on his date
          of employment  (May 10, 1973), as compared to the date of commencement
          of Credited Service under the Basic Plan.  Before the Executive's date
          of termination, he shall have a one-time irrevocable election to elect
          to   receive   his   benefits    hereunder   in   the   form   of   an
          actuarially-equivalent  joint and  survivor  annuity  payable over his
          lifetime and the lifetime of his spouse,  which  election must be made
          prior to the calculation of his first payment and which election shall
          apply  to  all  calculations   made  under  this  Section,   including
          recalculations  at the time he becomes eligible for benefits under the
          Basic Plan, the SERP or the Split-Dollar  Arrangement,  if later. Once
          payments  commence under this Section as hereinbefore  provided,  such
          payments  shall continue for his lifetime (and for the lifetime of his
          spouse after his death,  if he has elected a joint and survivor option
          as  described  above).   Notwithstanding  the  foregoing,  solely  for
          purposes  of   determining   whether  the  Executive  has  incurred  a
          Constructive  Discharge,  in the  definition  of the term  "Change  of
          Control",  subsections  (i) and  (iii),  on pages 4 and 5  above,  the
          applicable percentages shall be increased from thirty percent (30%) to
          fifty percent (50%), wherever applicable,  for purposes of determining
          whether the  Executive  is entitled to receive the special  retirement
          benefit  herein.  In  addition  to  the  pension  enhancement,  if the
          Executive  is not  eligible  to  participate  in  the  Post-Retirement
          Medical Plan for Non-Union Employees (the "Retiree Medical Plan") upon
          his retirement,  the Company will provide the Executive with a monthly
          or quarterly payment  sufficient for him to purchase medical insurance
          coverage  for himself and his  dependents  at the same  benefit  level
          provided under the Retiree Medical Plan.  Payments  hereunder shall be
          made directly to the medical  insurance  company or as a reimbursement
          to the Executive,  as appropriate.  The Executive's  rights under this
          Section  shall  survive and  continue to be  enforceable  even if this
          Agreement is terminated, unless the Agreement is terminated for Cause.

         b. Vested  Benefits.  Notwithstanding  any  contrary  provision of this
Agreement,  any  compensation  or benefits  which are vested in the Executive or
which the  Executive is otherwise  entitled to receive under any plan or program
of the Company or any agreement between the Company and the Executive before, at
or subsequent to the  Executive's  termination of employment  shall be furnished
and paid in accordance  with the terms and  provisions of such plan,  program or
agreement.
         c. Withholding.  All compensation payable under this Section 4 shall be
subject to normal  payroll  deductions  for  withholding  income  taxes,  Social
Security taxes and the like.
         5. Severance Benefits.  a. Change of Control.  If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment  Period by the Company and/or any successor for any reason other than
death,  Total  Disability  or Cause,  or by the  Executive  within  twelve  (12)
calendar  months  of a  Constructive  Discharge,  Severance  Benefits  shall  be
provided as follows:
         (i)      The Company shall pay the Executive, in one lump sum cash pay-
                  ment, within sixty (60) days following the date of termination
                  of employment as determined under Section 6 of this Agreement,
                  an amount equal to 2.99 times (a) the Executive's  base salary
                  earned during the twelve (12) months immediately preceding the
                  Change  of  Control  and (b) the  three  (3) year  average  of
                  amounts earned under the Company's  1987  Executive  Incentive
                  Plan or any successor  short-term executive incentive plan for
                  the three (3) years preceding the Change of Control.
         (ii)     Core coverage for the Executive and his dependents under the
                  Company's group medical,  life,  accident and disability plans
                  or programs  shall  continue for the  Severance  Period on the
                  same terms and conditions,  as if the  Executive's  employment
                  had  not  terminated.   In  the  event  that  the  Executive's
                  participation  in any such  plan or  program  is  barred,  the
                  Company  shall arrange at its expense to provide the Executive
                  and his  dependents  during  the  Severance  Period  with core
                  benefits   substantially  similar  to  those  which  he  would
                  otherwise  be  entitled  to  receive   under  such  plans  and
                  programs;  provided,  however,  that  the  obligation  of  the
                  Company  to  provide  continuation  of any  insured  long-term
                  disability  benefits shall be limited to the conversion rights
                  available under such disability  insurance  products,  and the
                  Company  hereby  agrees  to pay  the  conversion  premium  due
                  thereon for the Severance Period.
         (iii)    To the extent allowed by law, but without violating any non-
                  discrimination or other applicable restrictions, the Severance
                  Period  shall  count as service  for all  purposes  (including
                  benefit accrual and eligibility)  under any welfare benefit or
                  non-qualified  plan of the Company applicable to the Executive
                  immediately   prior   to  the   Executive's   termination   of
                  employment,  for which  service with the Company is taken into
                  account, including without limitation any supplemental pension
                  plan,  and all  benefits  under such plans that are subject to
                  vesting  shall  vest as of the  date of  such  termination  of
                  employment.
         (iv)     The  Company  shall pay a fee to an  independent  outplacement
                  firm selected by the Executive for outplacement services in an
                  amount equal to the actual fee for such services up to a total
                  of $10,000.
         b.  Parachute Provision.  Notwithstanding the provisions of Section
 5.a hereof, if, in the opinion of tax counsel
selected by the Company's independent auditors,
         (i)      the Severance Benefits set forth in said Section 5.a and any
                  payments or benefits otherwise payable to the Executive  would
                  constitute  "parachute payments" within the meaning of Section
                  280G(b)(2)  of the Internal  Revenue Code of 1986,  as amended
                  (the "Code") (said  Severance  Benefits and other  payments or
                  benefits being hereinafter  collectively referred to as "Total
                  Payments"), and
         (ii)     the aggregate present value of the Total Payments would exceed
                  2.99 times the Executive's base amount,  as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance  Benefits  described
in  Section  5.a  hereof  as, in the  opinion  of said tax  counsel,  constitute
"parachute  payments"  shall be reduced as  directed  by tax counsel so that the
aggregate  present  value of the  Total  Payments  is equal  to 2.99  times  the
Executive's base amount.  The tax counsel selected  pursuant to this Section 5.b
may consult with tax counsel for the Executive,  but shall have  complete,  sole
and final discretion to determine which Severance  Benefits shall be reduced and
the amounts of the  required  reductions.  For purposes of this Section 5.b, the
Executive's  base amount and the value of the Total Payments shall be determined
by the  Company's  independent  auditors in  accordance  with the  principles of
Section  280G of the Code and  based  upon the  advice of tax  counsel  selected
thereby.
         c. No Change of Control. If no Change of Control has occurred,  and the
Executive's  employment  with the Company is  terminated  during the  Employment
Period  either  (i) by the  Company  for any  reason  other  than  death,  Total
Disability or Cause, or (ii) by the Executive  within six (6) calendar months of
a Constructive  Discharge,  the Company shall pay the Executive,  in twelve (12)
equal  monthly  cash  installments  beginning  not later  than  sixty  (60) days
following the date of termination of employment as determined under Section 6 of
this Agreement, Severance Benefits equal to one (1) times the Executive's annual
base salary in effect on the date immediately preceding the date of termination,
or preceding the date of a Constructive  Discharge attributable to a base salary
reduction  if  applicable;  provided,  however,  that  each of the  last six (6)
monthly cash installments shall be reduced by an amount equal to any base salary
or other base pay or  commissions  earned  through other  employment or any fees
earned as a consultant for the particular  month, such that an installment shall
not be paid or  payable by the  Company  for any month for which such other base
salary,  base  pay,  commission  or fees  equal  or  exceed  the  amount  of the
installment.
         6. Date of  Termination.  For purposes of this  Agreement,  the date of
termination of the Executive's  employment  shall be the date notice is given to
the  Executive  by the  Company  and/or  any  successor  or,  in the  case  of a
Constructive  Discharge,  the date set  forth in a written  notice  given to the
Company by the Executive,  provided that the Executive  gives such notice within
twelve  (12)  calendar  months of the  Constructive  Discharge  in the case of a
Change of  Control,  and  within  six (6)  calendar  months of the  Constructive
Discharge in other  cases,  and  specifies  therein the event  constituting  the
Constructive Discharge.
         7.  Taxes.  a.  Gross-Up  Amount.  In the event that any portion of the
Severance  Benefits is subject to tax under Section 4999 of the Internal Revenue
Code of 1986, as amended, or any successor provision thereto (the "Excise Tax"),
the Company  shall pay to the  Executive  an  additional  amount (the  "Gross-Up
Amount")  which,  after  payment of all federal and State income  taxes  thereon
(assuming the Executive is at the highest  marginal federal and applicable State
income  tax rate in effect on the date of payment of the  Gross-Up  Amount)  and
payment  of any Excise Tax on the  Gross-Up  Amount,  is equal to the Excise Tax
payable by the Executive on such portion of the Severance Benefits. Any Gross-Up
Amount  payable  hereunder  shall  be paid by the  Company  coincident  with the
payment of the Severance Benefits described in Section 5.a(i) of this Agreement.
         b. Tax  Withholding.  All amounts  payable to the Executive  under this
Agreement shall be subject to applicable  withholding of income,  wage and other
taxes.

     8.   Non-Competition, Confidentiality and Cooperation. The Executive agrees
          that:

     (i)  During  the  Employment  Period  and for one (1) year after the termi-
          nation of the  Executive's  employment with the Company for any reason
          other than a Change of  Control,  the  Executive  shall not serve as a
          director,  officer,  employee,  partner or  consultant or in any other
          capacity in any  business  that is a  competitor  of the  Company,  or
          solicit Company employees for employment or other participation in any
          such  business,  or take any other  action  intended  to  advance  the
          interests of such business;

     (ii) During and after the Executive's  employment with the Company he shall
          not  divulge  or  appropriate  to his own use or the use of others any
          secret,   proprietary   or   confidential   information  or  knowledge
          pertaining to the business of the Company,  or any of its  Affiliates,
          obtained during his employment with the Company; and

     (iii)During  the  Employment   Period,   he  shall  support  the  Company's
          interests and efforts in all regulatory,  administrative,  judicial or
          other proceedings  affecting the Company and, after the termination of
          his employment  with the Company,  he shall use best efforts to comply
          with all reasonable requests of the Company that he cooperate with the
          Company,  whether by giving  testimony or  otherwise,  in  regulatory,
          administrative,  judicial or other  proceedings  affecting the Company
          except any proceeding in which he may be in a position adverse to that
          of the Company. After the termination of employment, the Company shall
          reimburse the Executive for his reasonable expenses and his time, at a
          reasonable rate to be determined, for the Executive's cooperation with
          the Company in any such proceeding.

     (iv) The term  "Company"  as used in this Section 8 shall  include  Central
          Maine Power  Company,  any  Affiliate of Central  Maine Power  Company
          (determined  as of the  date of  termination),  any  successor  to the
          business or operations of Central Maine Power and any business  entity
          spun-off,   divested,  or  distributed  to  shareholders  which  shall
          continue the operations of Central Maine Power Company.

The  provisions of this Section 8 shall survive the expiration or termination of
this  Agreement.  The  Executive  agrees that the  Company  shall be entitled to
injunctive   relief  to  prevent  any  breach  or  threatened  breach  of  these
provisions.  In the event of a failure to comply with part (i), (ii) or (iii) of
this  Section 8, the  Executive  agrees that the  Company  shall have no further
obligation to pay the Executive  any  Severance  Benefits  under Section 5.c. of
this  Agreement.  In the  event of a  failure  to  comply  with part (i) or (ii)
hereof, the Executive agrees that he shall repay to the Company any such Section
5.c  Severance  Benefits paid to him. The Company shall have the right to offset
any amounts payable to the Executive  under this Agreement or otherwise  against
any Severance Benefits which he is obligated to repay to the Company.
         9. No Mitigation.  The Executive  shall not be required to mitigate the
amount  of  any  payment  provided  for  in  this  Agreement  by  seeking  other
employment.
         10.  Assignment.  This Agreement and the rights and  obligations of the
Company  hereunder  shall inure to the benefit of and shall be binding  upon the
successors  and  assigns  of  the  Company,  including  without  limitation  any
corporation or other entity acquiring all or  substantially  all of the business
or  assets  of the  Company  whether  by  operation  of law or  otherwise.  This
Agreement and the rights of the Executive  hereunder  shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
         11.  Arbitration.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
Augusta,  Maine,  in  accordance  with  the  rules of the  American  Arbitration
Association  then in effect.  The  pendency of any such  dispute or  controversy
shall not affect any rights or obligations under this Agreement.
Judgment  may  be  entered  on  the  arbitrator's  award  in  any  court  having
jurisdiction.
         12. Waiver;  Amendment.  The failure of either party to enforce, or any
delay in enforcing,  any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving  party.  Waiver of any one breach shall not be deemed
to be a waiver of any other  breach of the same or any other  provision  hereof.
This  Agreement can be amended only by written  instrument  signed by each party
hereto and no course of dealing  or  practice  or failure to enforce or delay in
enforcing  any rights  hereunder may be claimed to have effected an amendment of
this Agreement.
         13. Singular  Contract.  This Agreement is a singular agreement between
the Executive and the Company,  and is not part of a general "plan" or "program"
for employees as a group.  This  Agreement  shall,  under no  circumstances,  be
deemed to be an "employee  welfare benefit plan" or an "employee pension benefit
plan"  as  defined  in the  Employee  Retirement  Income  Security  Act of  1974
(hereinafter referred to as "ERISA"). Notwithstanding,  the Company may submit a
letter to the  Department of Labor  indicating the possible  establishment  of a
so-called  unfunded  "top  hat"  plan  for the  benefit  of a  select  group  of
management and highly compensated employees to avoid the costs and uncertainties
which may  occur in the  event of a  Department  of Labor  audit  and  challenge
relative to compliance with any allegedly  applicable  provisions of ERISA.  The
Executive specifically  acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or  interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan,  and the Company hereby  categorically  states,  and the Executive  hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
         14.  Notices.  Any notice  required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class,  registered
or certified  mail or  hand-delivered  to the  Executive  at the last  residence
address he has  provided to the Company or, in the case of the  Company,  at its
principal executive offices to the attention of the Corporate Secretary.
         15. Titles and Captions.  The section and paragraph titles and captions
contained  herein  are for  convenience  only and shall not be held to  explain,
modify,  amplify, or aid in the  interpretation,  construction or meaning of the
provisions of this Agreement.
         16.  Miscellaneous.  This Agreement  shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
         17. Entire  Agreement.  The terms of this Agreement are intended by the
parties  to be the final  expression  of their  agreement  with  respect  to the
employment  of the  Executive  by the  Company  and may not be  contradicted  by
evidence of any prior or contemporaneous oral or written agreement.
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
 effective as of the date first written above.
WITNESS:

-----------------------------               ---------------------------------
                                                              David E. Marsh

WITNESS:                                    CENTRAL MAINE POWER COMPANY

-----------------------------               ---------------------------------
                                              By:      David M. Jagger
                                                       Chairman of the Board
                                                           of Directors

CMP - Marsh Employment Agreement
011498


<PAGE>


                                                                  Exhibit 10.103

                              EMPLOYMENT AGREEMENT
                 As Amended and Restated Effective June 1, 1997


         THIS EMPLOYMENT  AGREEMENT is made this ________ day of January,  1998,
by and  between  Central  Maine  Power  Company,  a Maine  corporation  with its
principal place of business in Augusta,  Maine  (hereinafter  referred to as the
"Company"), and GERALD C. POULIN (hereinafter referred to as the "Executive").
         WHEREAS, the Company recognizes that the Executive is a valued employee
because  of his  knowledge  of the  Company's  affairs  and his  experience  and
leadership capabilities,  and desires to encourage his continued employment with
the Company to assure  itself of the  continuing  advantage  of that  knowledge,
experience  and  leadership  for the  benefit  of  customers  and  shareholders,
particularly  during a period of transition in various  aspects of the Company's
business and in the event of a Change of Control of the Company; and
         WHEREAS, the Executive desires to serve in the employ of the Company on
a  full-time  basis  for  a  period   provided  in  this  Employment   Agreement
(hereinafter  referred  to as the  "Agreement")  on  the  terms  and  conditions
hereinafter set forth; and
         WHEREAS,  to these ends the Company  desires to provide  the  Executive
with  certain  payments  and  benefits  in the event of the  termination  of his
employment in certain circumstances; and
         WHEREAS,  the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
         NOW,  THEREFORE,  in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive,  and
the  mutual  promises  and  covenants  contained  herein,  the  Company  and the
Executive hereby agree as follows:
         1. Term of Agreement.  a. Term. The term of this Agreement  shall begin
on June 1, 1997  (hereinafter  referred  to as the  "Effective  Date") and shall
expire on December 31, 1999; provided, however, that on December 31, 1999 and on
each December 31 thereafter,  the term of this Agreement shall  automatically be
extended for one (1) additional year unless not later than the preceding October
31 either the Company or the  Executive  shall have given notice that such party
does not wish to extend the term of this Agreement.  The Executive  commits that
he will continue in the active employ of the Company  through at least  December
31, 1999, absent illness, disability or other non-voluntary circumstances.
         b.  Automatic  Extension of Term. If a Change of Control  occurs during
the  original  term of this  Agreement or any  extension,  then the term of this
Agreement shall be  automatically  extended for a thirty-six (36) calendar month
period beginning on the first day of the month following the month in which such
Change of Control occurs.
         c. Expiration. Notwithstanding anything to the contrary in this Section
1, this Agreement and all  obligations of the Company  hereunder shall terminate
on the date of the  Executive's  death,  or thirty  (30) days after the  Company
gives notice to the Executive  that the Company is terminating  the  Executive's
employment for reason of Total Disability or Cause.
         2.  Definitions.  The following terms shall have the meanings set forth
below:
         "Affiliate"  means a person that directly or indirectly  through one or
more intermediaries  controls, is controlled by, or is under common control with
the Company.
         "Board" means the Board of Directors of the Company.
         "Cause" means any of the following events or occurrences:

     (i)  Any act of material  dishonesty  taken by, or committed at the request
          of, the Executive.

     (ii) Any illegal or unethical  conduct which, in the good faith judgment of
          the Board, would impair the Executive's  ability to perform his duties
          under this  Agreement or would impair the business  reputation  of the
          Company.

         (iii)    Conviction of a felony.
         (iv)     The  continued   failure  of  the  Executive  to  perform  his
                  responsibilities and duties under this Agreement, after demand
                  for performance has been delivered in writing to the Executive
                  specifying  the manner in which the Company  believes that the
                  Executive is not performing.
Notwithstanding  any contrary  provision of this Agreement,  the Executive shall
not be deemed to have been  terminated  for Cause  unless and until  there shall
have been  delivered  to the  Executive a certified  copy of a  resolution  duly
adopted by the  affirmative  vote of  two-thirds of the members of the Board who
are not  employees  of the Company at a meeting of the Board called and held for
such purpose (after  reasonable  notice to the Executive and an opportunity  for
the Executive, together with his counsel, to be heard before the Board), finding
in good faith one of the events or  occurrences  set forth in parts (i)  through
(iv)  of the  definition  of  "Cause"  in  this  Agreement  and  specifying  the
particulars thereof in detail.
         "Change of Control" means the occurrence of any of the following
          events:

     (i)  Any "person," as such term is used in Sections  13(d) and 14(d) of the
          Securities  Exchange  Act of 1934,  as amended  (the  "Exchange  Act")
          (other  than the  Company  or any  Affiliate  or any  trustee or other
          fiduciary  holding  securities  under an employee  benefit plan of the
          Company or any  Affiliate),  is or becomes the  beneficial  owner,  as
          defined in Rule 13d-3 under the Exchange Act,  directly or indirectly,
          of stock of the Company  representing  thirty percent (30%) or more of
          the combined  voting power of the  Company's  then  outstanding  stock
          eligible to vote.

               (ii) During any  period of two (2)  consecutive  years  after the
                    execution  of  this   Agreement,   individuals  who  at  the
                    beginning of such period  constitute the Board,  and any new
                    director  whose  election  by the  Board or  nomination  for
                    election by the  Company's  stockholders  was  approved by a
                    vote of at least  two-thirds of the directors then in office
                    who either were  directors at the beginning of the period or
                    whose  election or nomination for election was previously so
                    approved,  cease  for any  reason to  constitute  at least a
                    majority thereof.

         (iii)    The stockholders of the Company approve a merger or consoli-
                  dation of the Company with any other corporation, other than a
                  merger or consolidation which would result in the voting stock
                  of  the  Company   outstanding   immediately   prior   thereto
                  continuing to represent (either by remaining outstanding or by
                  being  converted  into  voting  securities  of  the  surviving
                  entity) more than fifty percent  (50%) of the combined  voting
                  power of the  outstanding  voting stock of the Company or such
                  surviving   entity    immediately   after   such   merger   or
                  consolidation;   provided,   however,   that   a   merger   or
                  consolidation  effected to implement a recapitalization of the
                  Company (or  similar  transaction)  in which no  "person"  (as
                  hereinabove  defined)  acquires more than thirty percent (30%)
                  of the combined voting power of the Company's then outstanding
                  securities  shall not  constitute  a Change of  Control of the
                  Company.
         (iv)     The sale or  exchange  of the  Transmission  and  Distribution
                  Division  of the  Company,  in the form of a sale of stock,  a
                  sale of substantially  all of the assets of that Division,  or
                  in any other form.
         "Constructive  Discharge"  means,  so long as no Change of Control  has
occurred,  any reduction in the  Executive's  annual base salary in effect as of
the Effective Date of this Agreement,  or as the same may be increased from time
to time,  other than any  across-the-board  base salary reduction for a group or
all of the  executive  officers of the  Company,  and also means,  on or after a
Change of Control,
         (i)      any reduction in the Executive's  annual base salary in effect
                  as of the Effective Date of this Agreement, or as the same may
                  be increased from time to time;
         (ii)     a failure to increase the Executive's annual base salary
                  commensurate with any across-the-board percentage increases
                  in the compensation of other executive officers of
                  the Company;

                    (iii)a  substantial  reduction in the nature or scope of the
                         Executive's responsibilities,  duties or authority from
                         those described in Section 3.c of this Agreement;  (iv)
                         a material  adverse change in the Executive's  title or
                         position; or (v) relocation of the Executive's place of
                         employment  from  the  Company's   principal  executive
                         offices  to a place  more than  twenty-five  (25) miles
                         from Augusta, Maine without the Executive's consent.

         "Severance Benefits" means the benefits set forth in Section 5.a or
5.c of this Agreement.
         "Severance Period" means, in the case of a Change of Control, the
period from the date of termination as determined  in  accordance  with  Section
6 of this  Agreement  until the third anniversary of such date.
         "Total  Disability"  means the complete and permanent  inability of the
Executive to perform all of his duties under this Agreement on a full-time basis
for a period of at least six (6)  consecutive  months,  as  determined  upon the
basis of such evidence,  which may include independent medical reports and data,
as the Board deems appropriate or necessary.
         3. Employment.  a. Position.  The Company hereby agrees to continue its
employment  of the  Executive  in the  capacity  of  Vice  President  and  Chief
Operating  Officer of the Company,  and the Executive hereby agrees to remain in
the employ of the Company for the period  beginning  on the  Effective  Date and
ending  on the  date on  which  the  Executive's  employment  is  terminated  in
accordance with this Agreement (the "Employment  Period").  This Agreement shall
not  restrict in any way the right of the Company to terminate  the  Executive's
employment at whatever time and for whatever  reason it deems  appropriate,  nor
shall it limit the right of the  Executive to terminate  employment  at any time
for whatever reason he deems appropriate.
         b.  Performance.  The  Executive  agrees  that,  during the  Employment
Period, he shall devote substantially all his business attention and time to the
business  and  affairs  of the  Company  and its  Affiliates  , and use his best
efforts to perform faithfully and efficiently the duties and responsibilities of
the Executive  under this  Agreement.  It is expressly  understood  that (i) the
Executive may devote a reasonable  amount of time to such industry  associations
and  charitable and civic  endeavors as shall not materially  interfere with the
services that the Executive is required to render under this Agreement, and (ii)
the  Executive  may serve as a member  of one or more  boards  of  directors  of
companies that are not  affiliated  with the Company and do not compete with the
Company or any of its Affiliates.
         c. Job Duties.  The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has  occurred,  may be decreased as the business
needs of the Company require. The Executive's primary job responsibilities shall
include,  but not be limited to,  oversight of the Company's  bulk power supply,
including wholesale marketing, purchased power and supply planning; oversight of
the operation and maintenance of the Company's generation department,  including
the hydro,  fossil, and biomass stations and the Company's interest in operating
nuclear  stations;  and oversight of retail  marketing and sales,  including the
design,  promotion  and sale of energy  product  and service  options,  sales of
electricity and related products and services, retention of customers within the
service  territory,  and maintenance of the Company image within and outside the
service territory.

4.  Compensation and Benefits.  a. During the Employment  Period,  the Executive
shall be compensated as follows:

               (i)  Salary.  He shall receive an annual base salary,  the amount
                    of which shall be reviewed  regularly  and  determined  from
                    time to time by the Board,  but which shall not be less than
                    $158,000.00.  His salary shall be payable in accordance with
                    Company payroll practices.

         (ii)     Participation  in  Executive  Plans.  He shall be  entitled to
                  participate  in any and all plans and programs  maintained  by
                  the  Company  from time to time to  provide  benefits  for its
                  executives,  including  without  limitation  any short-term or
                  long-term incentive,  pension, or supplemental pension plan or
                  program,  in accordance  with the terms and  conditions of any
                  such plan or program or the administrative guidelines relating
                  thereto, as may be amended from time to time.
         (iii)    Participation in Salaried Employee Plans. He shall be entitled
                  to participate in any and all plans and programs maintained by
                  the  Company  from time to time to  provide  benefits  for its
                  salaried employees generally, including without limitation any
                  savings  and  investment,  stock  purchase  or group  medical,
                  dental,   life,  accident  or  disability  insurance  plan  or
                  program,  subject to all  eligibility  requirements of general
                  applicability,  to the extent that executives are not excluded
                  from  participation  therein  under the terms thereof or under
                  the terms of any executive  plan or program or any approval or
                  adoption thereof.
         (iv)     Other  Fringe  Benefits.  He shall be  entitled  to all fringe
                  benefits  generally provided by the Company at any time to its
                  full-time  salaried  employees,  including without  limitation
                  paid vacation, holidays and sick leave but excluding severance
                  pay, in accordance with generally  applicable Company policies
                  with respect to such benefits.
         (v)      Split-Dollar Agreement. He shall be entitled to all rights and
                  benefits  under  the  Split-Dollar  Life  Insurance  Agreement
                  between  the  Company  and the  Executive  in effect as of the
                  Effective Date of this Agreement in accordance  with the terms
                  of such Split-Dollar Life Insurance Agreement.

                    (vi) Special  Retirement  Benefit.  The  Executive  shall be
                         entitled  to a  special  retirement  benefit  described
                         herein  if,  and only  if,  the  Executive  voluntarily
                         terminates  employment or his  employment is terminated
                         by the  Company  for any  reason  (except  Cause) on or
                         after December 31, 1999; provided, however, that if the
                         Executive's  employment is terminated prior to December
                         31,  1999 by mutual  agreement  of the  Company and the
                         Executive,  the Executive  shall be entitled to receive
                         the special  retirement  benefit specified herein.  The
                         special retirement benefit is intended to replicate the
                         pension and medical  benefit  enhancements  included as
                         part of the Special  Retirement  Offer  provided by the
                         Company to eligible  employees as of June 30, 1995, and
                         shall be considered  "vested" (except for a termination
                         for  Cause)  as  of  the  date  of  execution  of  this
                         Agreement.   The  Company  hereby  agrees  to  pay  the
                         Executive  monthly the  difference  between the monthly
                         benefit calculated as it would have been provided under
                         the   Special   Retirement   offer   described   above,
                         (determined on the basis that the  additional  five (5)
                         years of  service  and age  credit  had  applied to the
                         pension   as  well  as  any   non-qualified   programs,
                         including the SERP),  minus the monthly annuity benefit
                         he is then  entitled to receive under the Central Maine
                         Power Company  Supplemental  Executive  Retirement Plan
                         (the "SERP"), the Split-Dollar Life Insurance Agreement
                         (the "Split-Dollar Arrangement"), and Retirement Income
                         Plan for  Non-Union  Employees  of Central  Maine Power
                         Company (the "Basic  Plan"),  utilizing  the same joint
                         and  survivor  option  election  made by the  Executive
                         under the Basic Plan for purposes of this  calculation.
                         The  Split-Dollar  Arrangement  shall not be taken into
                         consideration   if  the   Executive  has  assigned  the
                         contract or contracts under the arrangement back to the
                         Company.  Such  payments  shall  commence when payments
                         commence to the  Executive  under the Basic  Plan,  and
                         shall continue for his lifetime and for the lifetime of
                         his  spouse  after his death if he has  elected a joint
                         and survivor  option under the Basic Plan, and with the
                         same percentage reduction elected under the Basic Plan.
                         For example,  if the Executive  selects a joint and 50%
                         survivor option under the Basic Plan, he will be deemed
                         to  have  made  a  joint  and  50%  survivor   election
                         hereunder,  and upon his death,  payments in the amount
                         of 50% of his  lifetime  benefit  provided  under  this
                         Section  will  be  continued  to  his  spouse  for  her
                         lifetime.  The Company agrees to use reasonable efforts
                         in the  development  of  any  future  early  retirement
                         window  programs  to have as  much as  possible  of the
                         special  retirement benefit specified herein be payable
                         under the Basic Plan,  consistent with the necessity of
                         continued  compliance with the  non-discrimination  and
                         qualification  requirements of the Employee  Retirement
                         Income  Security Act of 1974, as amended  ("ERISA") and
                         the  Internal  Revenue  Code of 1986,  as amended  (the
                         "Code")  and  without  increasing  the cost of any such
                         programs  for  other  employees  of  the  Company.  The
                         Company hereby acknowledges and agrees that the special
                         retirement benefit provided in this Section is intended
                         to  provide  a  minimum  and not a  maximum  retirement
                         benefit,  and therefore,  if the offsets from the Basic
                         Plan, the SERP and the Split-Dollar  Arrangement exceed
                         the special  retirement  benefit  formula stated above,
                         this  provision  shall  not be  deemed  to  reduce  any
                         benefit  which  the  Executive  shall  be  entitled  to
                         receive  under  those  other  plans  or  programs.   In
                         addition to the pension  enhancement,  if the Executive
                         is not eligible to participate  in the  Post-Retirement
                         Medical  Plan for  Non-Union  Employees  (the  "Retiree
                         Medical  Plan") upon his  retirement,  the Company will
                         provide  the  Executive  with a  monthly  or  quarterly
                         payment   sufficient   for  him  to  purchase   medical
                         insurance  coverage for himself and his  dependents  at
                         the same  benefit  level  provided  under  the  Retiree
                         Medical  Plan,  with a  contribution  by the  Executive
                         equivalent  to any  contribution  required from time to
                         time under the Retiree Medical Plan. Payments hereunder
                         shall be made directly to the medical insurance company
                         or as a reimbursement to the Executive, as appropriate.
                         The Executive's rights under this Section shall survive
                         and continue to be  enforceable  even if this Agreement
                         is terminated,  unless this Agreement is terminated for
                         Cause.  In addition,  for purposes of the  calculations
                         under the SERP, the special retirement benefit provided
                         herein  shall  not be deemed  to  constitute  an "other
                         non-qualified   retirement   plan  of  (or   employment
                         agreement with) the Company" as described in subsection
                         3.1(c) of the SERP,  which  would  reduce  his  benefit
                         under the SERP.

         b. Vested  Benefits.  Notwithstanding  any  contrary  provision of this
Agreement,  any  compensation  or benefits  which are vested in the Executive or
which the  Executive is otherwise  entitled to receive under any plan or program
of the Company or any agreement between the Company and the Executive before, at
or subsequent to the  Executive's  termination of employment  shall be furnished
and paid in accordance  with the terms and  provisions of such plan,  program or
agreement.
         c. Withholding.  All compensation payable under this Section 4 shall be
subject to normal  payroll  deductions  for  withholding  income  taxes,  Social
Security taxes and the like.
         5. Severance Benefits.  a. Change of Control.  If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment  Period by the Company and/or any successor for any reason other than
death,  Total  Disability  or Cause,  or by the  Executive  within  twelve  (12)
calendar  months  of a  Constructive  Discharge,  Severance  Benefits  shall  be
provided as follows:
         (i)      The Company shall pay the Executive, in one lump sum cash pay-
                  ment, within sixty (60) days following the date of termination
                  of employment as determined under Section 6 of this Agreement,
                  an amount equal to 2.99 times (a) the Executive's  base salary
                  earned during the twelve (12) months immediately preceding the
                  Change  of  Control  and (b) the  three  (3) year  average  of
                  amounts earned under the Company's  1987  Executive  Incentive
                  Plan or any successor  short-term executive incentive plan for
                  the three (3) years preceding the Change of Control.
         (ii)     Core coverage for the Executive and his dependents under the
                  Company's group medical,  life,  accident and disability plans
                  or  programs  shall  continue  for a period of three (3) years
                  from the date of  termination  specified  in  Section 6 on the
                  same terms and conditions,  as if the  Executive's  employment
                  had  not  terminated.   In  the  event  that  the  Executive's
                  participation  in any such  plan or  program  is  barred,  the
                  Company  shall arrange at its expense to provide the Executive
                  and his  dependents  during  the  Severance  Period  with core
                  benefits   substantially  similar  to  those  which  he  would
                  otherwise  be  entitled  to  receive   under  such  plans  and
                  programs;  provided,  however,  that  the  obligation  of  the
                  Company  to  provide  continuation  of any  insured  long-term
                  disability  benefits shall be limited to the conversion rights
                  available under such disability  insurance  products,  and the
                  Company  hereby  agrees  to pay  the  conversion  premium  due
                  thereon for the Severance Period.
         (iii)    To the extent allowed by law, but without violating any non-
                  discrimination or other applicable restrictions, the Severance
                  Period  shall  count as service  for all  purposes  (including
                  benefit accrual and eligibility)  under any welfare benefit or
                  non-qualified  plan of the Company applicable to the Executive
                  immediately   prior   to  the   Executive's   termination   of
                  employment,  for which  service with the Company is taken into
                  account, including without limitation any supplemental pension
                  plan,  and all  benefits  under such plans that are subject to
                  vesting  shall  vest as of the  date of  such  termination  of
                  employment.
         (iv)     The  Company  shall pay a fee to an  independent  outplacement
                  firm selected by the Executive for outplacement services in an
                  amount equal to the actual fee for such services up to a total
                  of $10,000.

                    b.   Parachute Provision.  Notwithstanding the provisions of
                         Section 5.a  hereof,  if, in the opinion of tax counsel
                         selected by the Company's independent auditors,

                    (i)  the  Severance  Benefits  set forth in said Section 5.a
                         and any pay- ments or benefits otherwise payable to the
                         Executive would constitute  "parachute payments" within
                         the  meaning  of Section  280G(b)(2)  of the Code (said
                         Severance Benefits and other payments or benefits being
                         hereinafter   collectively   referred   to  as   "Total
                         Payments"), and

         (ii)     the aggregate present value of the Total Payments would exceed
                  2.99 times the Executive's base amount,  as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance  Benefits  described
in  Section  5.a  hereof  as, in the  opinion  of said tax  counsel,  constitute
"parachute  payments"  shall be reduced as  directed  by tax counsel so that the
aggregate  present  value of the  Total  Payments  is equal  to 2.99  times  the
Executive's base amount.  The tax counsel selected  pursuant to this Section 5.b
may consult with tax counsel for the Executive,  but shall have  complete,  sole
and final discretion to determine which Severance  Benefits shall be reduced and
the amounts of the  required  reductions.  For purposes of this Section 5.b, the
Executive's  base amount and the value of the Total Payments shall be determined
by the  Company's  independent  auditors in  accordance  with the  principles of
Section  280G of the Code and  based  upon the  advice of tax  counsel  selected
thereby.
         c. No Change of Control. If no Change of Control has occurred,  and the
Executive's  employment  with the Company is  terminated  during the  Employment
Period  either  (i) by the  Company  for any  reason  other  than  death,  Total
Disability or Cause, or (ii) by the Executive  within six (6) calendar months of
a Constructive  Discharge,  the Company shall pay the Executive,  in twelve (12)
equal  monthly  cash  installments  beginning  not later  than  sixty  (60) days
following the date of termination of employment as determined under Section 6 of
this Agreement, Severance Benefits equal to one (1) times the Executive's annual
base salary in effect on the date immediately preceding the date of termination,
or preceding the date of a Constructive  Discharge attributable to a base salary
reduction  if  applicable;  provided,  however,  that  each of the  last six (6)
monthly cash installments shall be reduced by an amount equal to any base salary
or other base pay or  commissions  earned  through other  employment or any fees
earned as a consultant for the particular  month, such that an installment shall
not be paid or  payable by the  Company  for any month for which such other base
salary,  base  pay,  commission  or fees  equal  or  exceed  the  amount  of the
installment.
         6. Date of  Termination.  For purposes of this  Agreement,  the date of
termination of the Executive's  employment  shall be the date notice is given to
the  Executive  by the  Company  and/or  any  successor  or,  in the  case  of a
Constructive  Discharge,  the date set  forth in a written  notice  given to the
Company by the Executive,  provided that the Executive  gives such notice within
twelve  (12)  calendar  months of the  Constructive  Discharge  in the case of a
Change of  Control,  and  within  six (6)  calendar  months of the  Constructive
Discharge in other  cases,  and  specifies  therein the event  constituting  the
Constructive Discharge.
         7.  Taxes.  a.  Gross-Up  Amount.  In the event that any portion of the
Severance  Benefits  is subject to tax under  Section  4999 of the Code,  or any
successor  provision  thereto (the "Excise  Tax"),  the Company shall pay to the
Executive an additional amount (the "Gross-Up  Amount") which,  after payment of
all federal and State income taxes  thereon  (assuming  the  Executive is at the
highest  marginal  federal and applicable State income tax rate in effect on the
date of payment of the  Gross-Up  Amount)  and  payment of any Excise Tax on the
Gross-Up  Amount,  is equal to the Excise Tax payable by the  Executive  on such
portion of the Severance  Benefits.  Any Gross-Up Amount payable hereunder shall
be paid by the Company  coincident  with the payment of the  Severance  Benefits
described in Section 5.a(i) of this Agreement.
         b. Tax  Withholding.  All amounts  payable to the Executive  under this
Agreement shall be subject to applicable  withholding of income,  wage and other
taxes.
         8.  Non-Competition, Confidentiality and Cooperation.  The Executive
 agrees that:

                    (i)  During the Employment Period and for one (1) year after
                         the termi- nation of the  Executive's  employment  with
                         the  Company  for any  reason  other  than a Change  of
                         Control,  the Executive  shall not serve as a director,
                         officer,  employee,  partner  or  consultant  or in any
                         other  capacity in any business that is a competitor of
                         the  Company,   or  solicit   Company   employees   for
                         employment or other participation in any such business,
                         or take  any  other  action  intended  to  advance  the
                         interests of such business;

                    (ii) During and after the  Executive's  employment  with the
                         Company he shall not divulge or  appropriate to his own
                         use or the use of others  any  secret,  proprietary  or
                         confidential information or knowledge pertaining to the
                         business  of the  Company,  or  any of its  Affiliates,
                         obtained during his employment with the Company; and

                    (iii)During the  Employment  Period,  he shall  support  the
                         Company's  interests  and  efforts  in all  regulatory,
                         administrative, judicial or other proceedings affecting
                         the  Company  and,   after  the   termination   of  his
                         employment with the Company,  he shall use best efforts
                         to comply with all  reasonable  requests of the Company
                         that he cooperate  with the Company,  whether by giving
                         testimony or otherwise, in regulatory,  administrative,
                         judicial  or other  proceedings  affecting  the Company
                         except any  proceeding in which he may be in a position
                         adverse to that of the Company.  After the  termination
                         of   employment,   the  Company  shall   reimburse  the
                         Executive for his reasonable  expenses and his time, at
                         a reasonable rate to be determined, for the Executive's
                         cooperation with the Company in any such proceeding.

                    (iv) The  term  "Company"  as used in this  Section  8 shall
                         include  Central Maine Power Company,  any Affiliate of
                         Central Maine Power Company  (determined as of the date
                         of  termination),  any  successor  to the  business  or
                         operations  of  Central  Maine  Power and any  business
                         entity   spun-off,    divested,   or   distributed   to
                         shareholders  which shall  continue the  operations  of
                         Central Maine Power Company.

The  provisions of this Section 8 shall survive the expiration or termination of
this  Agreement.  The  Executive  agrees that the  Company  shall be entitled to
injunctive   relief  to  prevent  any  breach  or  threatened  breach  of  these
provisions.  In the event of a failure to comply with part (i), (ii) or (iii) of
this  Section 8, the  Executive  agrees that the  Company  shall have no further
obligation to pay the Executive  any  Severance  Benefits  under Section 5.c. of
this  Agreement.  In the  event of a  failure  to  comply  with part (i) or (ii)
hereof, the Executive agrees that he shall repay to the Company any such Section
5.c  Severance  Benefits paid to him. The Company shall have the right to offset
any amounts payable to the Executive  under this Agreement or otherwise  against
any Severance Benefits which he is obligated to repay to the Company.
         9. No Mitigation.  The Executive  shall not be required to mitigate the
amount  of  any  payment  provided  for  in  this  Agreement  by  seeking  other
employment.
         10.  Assignment.  This Agreement and the rights and  obligations of the
Company  hereunder  shall inure to the benefit of and shall be binding  upon the
successors  and  assigns  of  the  Company,  including  without  limitation  any
corporation or other entity acquiring all or  substantially  all of the business
or  assets  of the  Company  whether  by  operation  of law or  otherwise.  This
Agreement and the rights of the Executive  hereunder  shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
         11.  Arbitration.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
Augusta,  Maine,  in  accordance  with  the  rules of the  American  Arbitration
Association  then in effect.  The  pendency of any such  dispute or  controversy
shall not affect any rights or obligations under this Agreement.
Judgment  may  be  entered  on  the  arbitrator's  award  in  any  court  having
jurisdiction.
         12. Waiver;  Amendment.  The failure of either party to enforce, or any
delay in enforcing,  any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving  party.  Waiver of any one breach shall not be deemed
to be a waiver of any other  breach of the same or any other  provision  hereof.
This  Agreement can be amended only by written  instrument  signed by each party
hereto and no course of dealing  or  practice  or failure to enforce or delay in
enforcing  any rights  hereunder may be claimed to have effected an amendment of
this Agreement.
         13. Singular  Contract.  This Agreement is a singular agreement between
the Executive and the Company,  and is not part of a general "plan" or "program"
for employees as a group.  This  Agreement  shall,  under no  circumstances,  be
deemed to be an "employee  welfare benefit plan" or an "employee pension benefit
plan" as defined in ERISA.  Notwithstanding,  the Company may submit a letter to
the  Department of Labor  indicating the possible  establishment  of a so-called
unfunded  "top hat" plan for the  benefit of a select  group of  management  and
highly  compensated  employees  to avoid the costs and  uncertainties  which may
occur in the event of a  Department  of Labor  audit and  challenge  relative to
compliance  with any allegedly  applicable  provisions  of ERISA.  The Executive
specifically  acknowledges and agrees that the filing of the so-called "top hat"
letter  notice  by the  Company  shall not be  construed  or  interpreted  as an
admission on the part of the Company that this  Agreement  constitutes  an ERISA
plan,  and the Company hereby  categorically  states,  and the Executive  hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
         14.  Notices.  Any notice  required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class,  registered
or certified  mail or  hand-delivered  to the  Executive  at the last  residence
address he has  provided to the Company or, in the case of the  Company,  at its
principal executive offices to the attention of the Corporate Secretary.
         15. Titles and Captions.  The section and paragraph titles and captions
contained  herein  are for  convenience  only and shall not be held to  explain,
modify,  amplify, or aid in the  interpretation,  construction or meaning of the
provisions of this Agreement.
         16.  Miscellaneous.  This Agreement  shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
         17. Entire  Agreement.  The terms of this Agreement are intended by the
parties  to be the final  expression  of their  agreement  with  respect  to the
employment  of the  Executive  by the  Company  and may not be  contradicted  by
evidence of any prior or contemporaneous oral or written agreement.
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement

<PAGE>


effective as of the date first written above.
WITNESS:


-----------------------------               ---------------------------------
                                                              Gerald C. Poulin


WITNESS:                                    CENTRAL MAINE POWER COMPANY


-----------------------------               ---------------------------------
                                           By:      David M. Jagger
                                                    Chairman of the Board
                                                        of Directors

CMP -Poulin Employment Agreement
011498



<PAGE>


                                                                  Exhibit 10.104

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT  AGREEMENT is made this  ________day of June,  1997, by
and between Central Maine Power Company,  a Maine corporation with its principal
place of business in Augusta,  Maine (hereinafter referred to as the "Company"),
and  SARA  J.  BURNS  of  Gardiner,   Maine  (hereinafter  referred  to  as  the
"Executive").
         WHEREAS, the Company recognizes that the Executive is a valued employee
because  of her  knowledge  of the  Company's  affairs  and her  experience  and
leadership capabilities,  and desires to encourage her continued employment with
the Company to assure  itself of the  continuing  advantage  of that  knowledge,
experience  and  leadership  for the  benefit  of  customers  and  shareholders,
particularly  during a period of transition in various  aspects of the Company's
business and in the event of a Change of Control of the Company; and
         WHEREAS, the Executive desires to serve in the employ of the Company on
a  full-time  basis  for  a  period   provided  in  this  Employment   Agreement
(hereinafter  referred  to as the  "Agreement")  on  the  terms  and  conditions
hereinafter set forth; and
         WHEREAS,  to these ends the Company  desires to provide  the  Executive
with  certain  payments  and  benefits  in the event of the  termination  of her
employment in certain circumstances; and
         WHEREAS,  the Company and the Executive wish to set forth the terms and
conditions under which such employment and payments and benefits will occur.
         NOW,  THEREFORE,  in consideration of the continued offer of employment
by the Company and the continued acceptance of employment by the Executive,  and
the  mutual  promises  and  covenants  contained  herein,  the  Company  and the
Executive hereby agree as follows:
         1. Term of Agreement.  a. Term. The term of this Agreement  shall begin
on June 1, 1997  (hereinafter  referred  to as the  "Effective  Date") and shall
expire on May 31, 2000;  provided,  however,  that if a Change of Control occurs
during  the  period  commencing  June 1,  1999 and  ending  May 31,  2000,  this
Agreement shall be extended and shall thereafter  expire 365 days after the date
of said Change of Control (the "Extended Expiration Date").
         b. Expiration. Notwithstanding anything to the contrary in this Section
1, except as to vested  benefits,  this  Agreement  and all  obligations  of the
Company  hereunder  shall  terminate on the earliest to occur of (i) the date of
the Executive's  death,  (ii) thirty (30) days after the Company gives notice to
the Executive that the Company is  terminating  the  Executive's  employment for
reason of Total  Disability  or Cause;  or (iii) May 31,  2000 (or the  Extended
Expiration  Date specified in Section 1.a above,  if applicable,  if a Change of
Control occurs during the year prior to May 31, 2000.)
         2.  Definitions.  The following terms shall have the meanings set
 forth below:
         "Affiliate"  means a person that directly or indirectly  through one or
more intermediaries  controls, is controlled by, or is under common control with
the Company.
         "Board" means the Board of Directors of the Company.
         "Cause" means any of the following events or occurrences:

                    (i)  Any act of material  dishonesty  taken by, or committed
                         at the request of, the Executive.

                    (ii) Any illegal or unethical conduct which would impair the
                         Executive's  ability to perform  his duties  under this
                         Agreement or would impair the  business  reputation  of
                         the Company.

         (iii)    Conviction of a felony.
         (iv)     The  continued   failure  of  the  Executive  to  perform  her
                  responsibilities   and  duties  under  this   Agreement  in  a
                  satisfactory  manner,  after demand for  performance  has been
                  delivered in writing to the Executive specifying the manner in
                  which  the  Company   believes   that  the  Executive  is  not
                  performing.

        "Change of Control" means the occurrence of any of the following events:

                    (i)  Any  "person,"  as such term is used in Sections  13(d)
                         and 14(d) of the  Securities  Exchange Act of 1934,  as
                         amended (the "Exchange Act") (other than the Company or
                         any Affiliate or any trustee or other fiduciary holding
                         securities  under  an  employee  benefit  plan  of  the
                         Company or any Affiliate), is or becomes the beneficial
                         owner, as defined in Rule 13d-3 under the Exchange Act,
                         directly  or  indirectly,   of  stock  of  the  Company
                         representing  thirty  percent  (30%)  or  more  of  the
                         combined voting power of the Company's then outstanding
                         stock eligible to vote.

         (ii)     The stockholders of the Company approve a merger or consoli-
                  dation of the Company with any other corporation, other than a
                  merger or consolidation which would result in the voting stock
                  of  the  Company   outstanding   immediately   prior   thereto
                  continuing to represent (either by remaining outstanding or by
                  being  converted  into  voting  securities  of  the  surviving
                  entity) more than fifty percent  (50%) of the combined  voting
                  power of the  outstanding  voting stock of the Company or such
                  surviving   entity    immediately   after   such   merger   or
                  consolidation;   provided,   however,   that   a   merger   or
                  consolidation  effected to implement a recapitalization of the
                  Company (or  similar  transaction)  in which no  "person"  (as
                  hereinabove  defined)  acquires more than thirty percent (30%)
                  of the combined voting power of the Company's then outstanding
                  securities  shall not  constitute  a Change of  Control of the
                  Company.

                    (iii)The  stockholders  of the  Company  approve  a plan  of
                         complete  liqui-  dation of the Company or an agreement
                         for the sale,  lease,  exchange or other disposition by
                         the  Company  of  all  or  substantially   all  of  the
                         Company's  assets (or any transaction  having a similar
                         effect).

         "Constructive  Discharge"  means,  so long as no Change of Control  has
occurred,  any reduction in the  Executive's  annual base salary in effect as of
the Effective Date of this Agreement,  or as the same may be increased from time
to time,  other than any  across-the-board  base salary reduction for a group or
all of the  executive  officers of the  Company,  and also means,  on or after a
Change of Control,
         (i)      any reduction in the Executive's  annual base salary in effect
                  as of the Effective Date of this Agreement, or as the same may
                  be increased from time to time;

                    (ii) a  substantial  reduction in the nature or scope of the
                         Executive's responsibilities,  duties or authority from
                         those described in Section 3.c of this Agreement; (iii)
                         a material  adverse change in the Executive's  title or
                         position;  or (iv) relocation of the Executive's  place
                         of employment  from the Company's  principal  executive
                         offices  to a place  more than  twenty-five  (25) miles
                         from Augusta, Maine without the Executive's consent.

         "Severance Benefits" means the benefits set forth in Section 5.a or 5.c
of this Agreement.
          "Total  Disability" means the complete and permanent  inability of the
Executive to perform all of her duties under this Agreement on a full-time basis
for a period of at least six (6)  consecutive  months,  as  determined  upon the
basis of such evidence, which may include independent medical reports and data.
         3. Employment.  a. Position.  The Company hereby agrees to continue its
employment  of the  Executive  in  the  capacity  of  Chief  Operating  Officer,
Distribution  Services,  and the Executive hereby agrees to remain in the employ
of the Company for the period  beginning on the Effective Date and ending on the
date on which the  Executive's  employment is terminated in accordance with this
Agreement (the  "Employment  Period").  This Agreement shall not restrict in any
way the right of the Company to terminate the Executive's employment at whatever
time and for whatever reason it deems appropriate,  nor shall it limit the right
of the  Executive to terminate  employment  at any time for whatever  reason she
deems appropriate.
         b. Performance.  The Executive agrees that during the Employment Period
she  shall  devote  substantially  all her  business  attention  and time to the
business  and  affairs  of the  Company,  and use her best  efforts  to  perform
faithfully  and  efficiently  the duties and  responsibilities  of the Executive
under this  Agreement.  It is expressly  understood  that (i) the  Executive may
devote a reasonable amount of time to such industry  associations and charitable
and civic endeavors as shall not materially interfere with the services that the
Executive is required to render under this Agreement, and (ii) the Executive may
serve as a member of one or more boards of directors  of companies  that are not
affiliated  with the Company  and do not compete  with the Company or any of its
Affiliates.
         c. Job Duties.  The following listing of job duties shall represent the
Executive's primary responsibilities. Such responsibilities may be expanded and,
so long as no Change of Control has  occurred,  may be decreased as the business
needs of the Company require. The Executive's primary job responsibilities shall
include,  but not be limited to,  participation  in the development of corporate
policies,  strategies  and  business  initiatives  as a member of the  Company's
Executive  Committee and the development,  implementation and overall management
of all aspects of the Company's  distribution  operations policies,  strategies,
plans, initiatives and activities, including those concerning customer contacts,
billing  and  service,  transmission  and  distribution,  and the  joint  use of
distribution facilities.

                    4.   Compensation  and  Benefits.  a. During the  Employment
                         Period, the Executive shall be compensated as follows:

                    (i)  Salary.  The  Executive  shall  receive an annual  base
                         salary, the amount of which shall be reviewed regularly
                         and  determined  from time to time, but which shall not
                         be less than  $150,000.00.  Her salary shall be payable
                         in accordance with Company payroll practices.

         (ii)     Participation  in  Executive  Plans.  She shall be entitled to
                  participate  in any and all plans and programs  maintained  by
                  the  Company  from time to time to  provide  benefits  for its
                  executives,  including  without  limitation  any short-term or
                  long-term  incentive plan or program,  in accordance  with the
                  terms  and  conditions  of any  such  plan or  program  or the
                  administrative  guidelines relating thereto, as may be amended
                  from time to time.
         (iii)    Participation in Salaried  Employee Plans. The Executive shall
                  be entitled to  participate  in any and all plans and programs
                  maintained  by the  Company  from  time  to  time  to  provide
                  benefits  for  its  salaried  employees  generally,  including
                  without limitation any savings and investment,  stock purchase
                  or  group  medical,   dental,  life,  accident  or  disability
                  insurance  plan  or  program,   subject  to  all   eligibility
                  requirements  of general  applicability,  to the  extent  that
                  executives are not excluded from  participation  therein under
                  the terms thereof or under the terms of any executive  plan or
                  program or any approval or adoption thereof.
         (iv)     Other Fringe Benefits.  The Executive shall be entitled to all
                  fringe benefits  generally provided by the Company at any time
                  to  its  full-time  salaried   employees,   including  without
                  limitation   paid  vacation,   holidays  and  sick  leave  but
                  excluding   severance   pay,  in  accordance   with  generally
                  applicable Company policies with respect to such benefits.
         b.  Retention  Bonus.  If the  Executive  is  actively  employed by the
Company on the earlier to occur of (i) the date of the sale of the  Transmission
and  Distribution  Business Unit, or (ii) May 31, 2000,  the Executive  shall be
entitled to receive a lump sum cash payment of one-half (1/2) of the Executive's
annual  base salary then in effect,  which  shall be paid  within  fifteen  (15)
working  days after the  applicable  date  specified in  subsection  (i) or (ii)
above.  If the  Executive's  employment is terminated for any reason  whatsoever
prior to the  earlier of such  dates,  she shall not be  entitled to receive the
retention  bonus  described  herein,  although  she may be  entitled  to receive
Severance Benefits as provided in Section 5 below.
         c. Withholding.  All compensation payable under this Section 4 shall be
subject to normal  payroll  deductions  for  withholding  income  taxes,  social
security taxes and the like.
         5. Severance Benefits.  a. Change of Control.  If, on or after a Change
of Control, the Executive's employment with the Company is terminated during the
Employment  Period by the Company and/or any successor for any reason other than
death,  Total  Disability  or Cause,  or by the  Executive  within  twelve  (12)
calendar  months  of a  Constructive  Discharge,  Severance  Benefits  shall  be
provided as follows:
         (i)      The Company shall pay the Executive, in one lump sum cash pay-
                  ment, within sixty (60) days following the date of termination
                  of employment  as defined in Section 6 below,  an amount equal
                  to 2.99 times the Executive's then-current base salary.

                    (ii) The Company shall provide the Executive  with so-called
                         COBRA  medi-  cal  continuation  coverage  paid  by the
                         Company for a period up to  eighteen  (18)  months,  or
                         until the  Executive  obtains  coverage  under  another
                         group  medical  plan with another  employer,  whichever
                         occurs first.

         (iii)    The  Company  shall pay a fee to an  independent  outplacement
                  firm selected by the Executive for outplacement services in an
                  amount equal to the actual fee for such services up to a total
                  of $10,000.

                    b.   Parachute Provision.  Notwithstanding the provisions of
                         Section 5.a  hereof,  if, in the opinion of tax counsel
                         selected by the Company's independent auditors,

                    (i)  the  Severance  Benefits  set forth in said Section 5.a
                         and any pay- ments or benefits otherwise payable to the
                         Executive would constitute  "parachute payments" within
                         the  meaning  of  Section  280G(b)(2)  of the  Internal
                         Revenue Code of 1986,  as amended  (the  "Code")  (said
                         Severance Benefits and other payments or benefits being
                         hereinafter   collectively   referred   to  as   "Total
                         Payments"), and

         (ii)     the aggregate present value of the Total Payments would exceed
                  2.99 times the Executive's base amount,  as defined in Section
280G(b)(3) of the Code, then, such portion of the Severance  Benefits  described
in  Section  5.a  hereof  as, in the  opinion  of said tax  counsel,  constitute
"parachute  payments"  shall be reduced as  directed  by tax counsel so that the
aggregate  present  value of the  Total  Payments  is equal  to 2.99  times  the
Executive's base amount.  The tax counsel selected  pursuant to this Section 5.b
may consult with tax counsel for the Executive,  but shall have  complete,  sole
and final discretion to determine which Severance  Benefits shall be reduced and
the amounts of the  required  reductions.  For purposes of this Section 5.b, the
Executive's  base amount and the value of the Total Payments shall be determined
by the  Company's  independent  auditors in  accordance  with the  principles of
Section  280G of the Code and  based  upon the  advice of tax  counsel  selected
thereby.
         c. No Change of Control. If no Change of Control has occurred,  and the
Executive's  employment  with the Company is  terminated  during the  Employment
Period  either  (i) by the  Company  for any  reason  other  than  death,  Total
Disability or Cause, or (ii) by the Executive  within six (6) calendar months of
a Constructive  Discharge,  the Company shall pay the Executive, in one lump sum
payment  within sixty (60) days  following the date of termination of employment
as defined in Section 6 below,  an amount equal to one (1) times the Executive's
annual  base  salary  in effect on the date  immediately  preceding  the date of
termination, or preceding the date of a Constructive Discharge attributable to a
base salary reduction if applicable.
         6. Date of  Termination.  For purposes of this  Agreement,  the date of
termination of the Executive's  employment  shall be the date notice is given to
the  Executive  by the  Company  and/or  any  successor  or,  in the  case  of a
Constructive  Discharge,  the date set  forth in a written  notice  given to the
Company by the Executive,  provided that the Executive  gives such notice within
twelve  (12)  calendar  months of the  Constructive  Discharge  in the case of a
Change of  Control,  and  within  six (6)  calendar  months of the  Constructive
Discharge in other  cases,  and  specifies  therein the event  constituting  the
Constructive Discharge.
         7.  Taxes.  a.  Gross-Up  Amount.  In the event that any portion of the
Severance  Benefits  provided in Section 5 is subject to tax under Code ss.4999,
or any successor  provision thereto (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up  Amount") which, after payment
of all federal and State income taxes thereon  (assuming the Executive is at the
highest  marginal  federal and applicable State income tax rate in effect on the
date of payment of the  Gross-Up  Amount)  and  payment of any Excise Tax on the
Gross-Up  Amount,  is equal to the Excise Tax payable by the  Executive  on such
portion of the Severance  Benefits.  Any Gross-Up Amount payable hereunder shall
be paid by the Company  coincident  with the payment of the  Severance  Benefits
described in Section 5.a of this Agreement.
         b. Tax  Withholding.  All amounts  payable to the Executive  under this
Agreement shall be subject to applicable  withholding of income,  wage and other
taxes.

                    8.   Non-Competition,  Confidentiality  and Cooperation.  a.
                         The Executive agrees that:

                    (i)  During the Employment Period and for one (1) year after
                         the termi- nation of the  Executive's  employment  with
                         the  Company  for any  reason  other  than a Change  of
                         Control,  the Executive  shall not serve as a director,
                         officer,  employee,  partner  or  consultant  or in any
                         other  capacity in any business that is a competitor of
                         the  Company,   or  solicit   Company   employees   for
                         employment or other participation in any such business,
                         or take  any  other  action  intended  to  advance  the
                         interests of such  business;  provided,  however,  that
                         this  Section   8.a.(i)   shall  not  apply  after  the
                         termination  of  the  Executive's   employment  if  the
                         Executive voluntarily  terminates employment and is not
                         eligible to receive a Severance  Benefit  under Section
                         5.c. above.

                    (ii) During and after the  Executive's  employment  with the
                         Company,  she shall not divulge or  appropriate  to her
                         own use or the use of others any secret, proprietary or
                         confidential information or knowledge pertaining to the
                         business  of the  Company,  or  any of its  Affiliates,
                         obtained during her employment with the Company.

         (iii)    During the Employment Period, she shall support the Company's
                  interests  and  efforts  in  all  regulatory,  administrative,
                  judicial or other proceedings affecting the Company and, after
                  the termination of her employment with the Company,  she shall
                  use best efforts to comply with all reasonable requests of the
                  Company that she cooperate with the Company, whether by giving
                  testimony  or  otherwise,   in   regulatory,   administrative,
                  judicial or other proceedings affecting the Company except any
                  proceeding  in which she may be in a position  adverse to that
                  of the  Company.  After the  termination  of  employment,  the
                  Company  shall  reimburse  the  Executive  for her  reasonable
                  expenses and her time, at a reasonable  rate to be determined,
                  for the Executive's  cooperation  with the Company in any such
                  proceeding.

                    (iv) The  term  "Company"  as used in this  Section  8 shall
                         include  Central Maine Power Company,  any Affiliate of
                         Central Maine Power Company  (determined as of the date
                         of  termination),  any  successor  to the  business  or
                         operations  of  Central  Maine  Power and any  business
                         entity   spun-off,    divested,   or   distributed   to
                         shareholders  which shall  continue the  operations  of
                         Central Maine Power Company.

The  provisions of this Section 8 shall survive the expiration or termination of
this  Agreement.  The  Executive  agrees that the  Company  shall be entitled to
injunctive   relief  to  prevent  any  breach  or  threatened  breach  of  these
provisions.  In the event of a failure to comply with part (i), (ii) or (iii) of
this  Section 8, the  Executive  agrees that the  Company  shall have no further
obligation to pay the Executive  any  Severance  Benefits  under Section 5.c. of
this Agreement.
         9. No Mitigation.  The Executive  shall not be required to mitigate the
amount  of  any  payment  provided  for  in  this  Agreement  by  seeking  other
employment.
         10.  Assignment.  This Agreement and the rights and  obligations of the
Company  hereunder  shall inure to the benefit of and shall be binding  upon the
successors  and  assigns  of  the  Company,  including  without  limitation  any
corporation or other entity acquiring all or  substantially  all of the business
or  assets  of the  Company  whether  by  operation  of law or  otherwise.  This
Agreement and the rights of the Executive  hereunder  shall not be assignable by
the Executive, and any assignment by the Executive shall be null and void.
         11.  Arbitration.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
Augusta,  Maine,  in  accordance  with  the  rules of the  American  Arbitration
Association  then in effect.  The  pendency of any such  dispute or  controversy
shall not affect any rights or obligations under this Agreement.
Judgment  may  be  entered  on  the  arbitrator's  award  in  any  court  having
jurisdiction.
         12. Waiver;  Amendment.  The failure of either party to enforce, or any
delay in enforcing,  any rights under this Agreement shall not be deemed to be a
waiver of such rights, unless such waiver is an express written waiver which has
been signed by the waiving  party.  Waiver of any one breach shall not be deemed
to be a waiver of any other  breach of the same or any other  provision  hereof.
This  Agreement can be amended only by written  instrument  signed by each party
hereto and no course of dealing  or  practice  or failure to enforce or delay in
enforcing  any rights  hereunder may be claimed to have effected an amendment of
this Agreement.
         13. Singular  Contract.  This Agreement is a singular agreement between
the Executive and the Company,  and is not part of a general "plan" or "program"
for employees as a group.  This  Agreement  shall,  under no  circumstances,  be
deemed to be an "employee  welfare benefit plan" or an "employee pension benefit
plan"  as  defined  in the  Employee  Retirement  Income  Security  Act of  1974
(hereinafter referred to as "ERISA"). Notwithstanding,  the Company may submit a
letter to the  Department of Labor  indicating the possible  establishment  of a
so-called  unfunded  "top  hat"  plan  for the  benefit  of a  select  group  of
management and highly compensated employees to avoid the costs and uncertainties
which may  occur in the  event of a  Department  of Labor  audit  and  challenge
relative to compliance with any allegedly  applicable  provisions of ERISA.  The
Executive specifically  acknowledges and agrees that the filing of the so-called
"top hat" letter notice by the Company shall not be construed or  interpreted as
an admission on the part of the Company that this Agreement constitutes an ERISA
plan,  and the Company hereby  categorically  states,  and the Executive  hereby
agrees, that this Agreement is an ad hoc individual contract with the Executive.
         14.  Notices.  Any notice  required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by first-class,  registered
or certified  mail or  hand-delivered  to the  Executive  at the last  residence
address she has provided to the Company or, in the case of the  Company,  at its
principal executive offices to the attention of the Corporate Secretary.
         15. Titles and Captions.  The section and paragraph titles and captions
contained  herein  are for  convenience  only and shall not be held to  explain,
modify,  amplify, or aid in the  interpretation,  construction or meaning of the
provisions of this Agreement.
         16.  Miscellaneous.  This Agreement  shall be construed and enforced in
accordance with the laws of the State of Maine. In the event that any provisions
of this Agreement shall be held to be invalid, the other provisions hereof shall
remain in full force and effect.
         17. Entire  Agreement.  The terms of this Agreement are intended by the
parties  to be the final  expression  of their  agreement  with  respect  to the
employment  of the  Executive  by the  Company  and may not be  contradicted  by
evidence of any prior or contemporaneous oral or written agreement.
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement 
effective as of the date first written above.
WITNESS:


-----------------------------               ---------------------------------
                                                     Sara J. Burns


WITNESS:                                    CENTRAL MAINE POWER COMPANY


-----------------------------               ---------------------------------
                                        By:      David M. Jagger
                                                 Chairman of the Board
                                                     of Directors

CMP - Burns Employment Agreement
061997