UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q
(Mark One)
 X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
---

                    For the quarterly period ended       September 30, 1998

                                       OR

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from                     to

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

(Number applied for)             CMP GROUP, INC.                01-0519429
                     83 Edison Drive, Augusta, Maine  04336
                                 (207) 623-3521

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

Indicate  by check mark  whether  the  registrants  (1) have  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
registrants  were required to file such  reports),  and (2) have been subject to
the filing requirements for at least the past 90 days.

         CMP Group, Inc.:                   Yes as to (1); No as to (2)
         Central Maine Power Company:       Yes   X    No

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

As of November 9, 1998,  the number of shares of Common  Stock  outstanding  for
each registrant were as follows:

                            Registrant                             Shares

CMP Group, Inc., Common Stock, $5 Par Value                        32,442,552
Central Maine Power Company, Common Stock, $5 Par Value (All
   held by CMP Group, Inc.)                                        31,211,461


<PAGE>


                                Table of Contents

                                                                         Page
                                                                        Number

Glossary                                                                    1

Part I.  Financial Information

Item 1 - Consolidated Financial Statements

CMP Group, Inc.
   Consolidated Statement of Earnings for the Three Months
   Ended September 30, 1998 and 1997                                        4

   Consolidated Statement of Earnings for the Nine Months
   Ended September 30, 1998 and 1997                                        5

   Consolidated Balance Sheet - September 30, 1998 and December 31, 1997:
     Assets                                                                 6
     Stockholders' Investment and Liabilities                               7

   Consolidated Statement of Cash Flows for the Nine Months
   Ended September 30, 1998 and 1997                                        8

Central Maine Power Company
   Consolidated Statement of Earnings for the Three Months
   Ended September 30, 1998 and 1997                                        9

   Consolidated Statement of Earnings for the Nine Months
   Ended September 30, 1998 and 1997                                       10

   Consolidated Balance Sheet - September 30, 1998 and December 31, 1997:
     Assets                                                                11
     Stockholders' Investment and Liabilities                              12

   Consolidated Statement of Cash Flows for the Nine Months
   Ended September 30, 1998 and 1997                                       13

Notes to Consolidated Financial Statements                                 14

Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations                                        28

Item 3 - Quantitative and Qualitative Disclosures About Market Risk        43

Part II.  Other Information                                                44

Signatures                                                                 46


<PAGE>



                                    GLOSSARY

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

            Term                                                   Definition

Form 10-K                      Annual Report on Form 10-K

ARP                            Alternative Rate Plan

APB                            Accounting Principles Board

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

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

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

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

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

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

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

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

Connecticut Yankee             Connecticut Yankee Atomic Power Company

D&P                            Duff & Phelps Credit Rating Co.

DOJ                            United States Department of Justice


<PAGE>



Glossary (continued)

Term                                Definition

EITF            Emerging Issues Task Force

Energy East     Energy East Corporation, the parent company of NYSEG effective
                May 1, 1998

EPS             Earnings per share

ERAM            Electric Revenue Adjustment Mechanism

FASB            Financial Accounting Standards Board

FERC            Federal Energy Regulatory Commission

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

IPO             Initial Public Offering

IRS             United States Internal Revenue Service

ISA             Independent Safety Assessment conducted by the NRC

ISO             Independent System Operator

Kwh             Kilowatt-hour

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

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

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

Moody's         Moody's Investors Service

MPUC            Maine Public Utilities Commission

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


<PAGE>



Glossary (continued)

Term                                                   Definition

NEON              Northeast  Optic  Network,  Inc., a  38.5-percent
                  owned  subsidiary  of MaineCom that is building a
                  fiber optic network in New England and New York.

NEPOOL            New England Power Pool

NERC              North American Electric Reliability Council

NPCC              Northeast Power Coordinating Council

NRC               United States Nuclear Regulatory Commission

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

NUG               Non-utility generator

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

OI                Nuclear Regulatory Commission's Office of Investigations

OPA               Maine Office of the Public Advocate

Plant             Maine Yankee nuclear generating plant at Wiscasset, Maine

S&P               Standard & Poor's Corp.

SEC               Securities and Exchange Commission

SFAS              Statement of Financial Accounting Standards

Standstill        Agreements  Agreements  initially entered into in
                  August  1997 by Maine  Yankee with the holders of
                  its  outstanding  First  Mortgage  Bonds  and its
                  lender banks.

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

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

Yankee Atomic     Yankee Atomic Electric Company


<PAGE>



                         PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

In the opinion of CMP Group, the unaudited financial  statements included herein
reflect all  adjustments  necessary to present fairly the  Consolidated  Balance
Sheet as of September  30, 1998,  and the  Consolidated  Statement of Income and
Consolidated  Cash Flows for the periods ended  September 30, 1998 and 1997. CMP
Group is the parent holding company of Central Maine,  Union Water,  MainePower,
MaineCom and CNEX.  Central Maine  constitutes  substantially all of CMP Group's
assets,  revenues  and  expenses.  All  nonutility  operating  transactions  are
included in other  revenues and operating  expenses in CMP Group's  Consolidated
Statement of Income.
<TABLE>
<S>                                                             <C>             <C> 
                                 CMP Group, Inc.
                       CONSOLIDATED STATEMENT OF EARNINGS
                                   (Unaudited)
                 (Dollars in Thousands Except Per Share Amounts)
                                                                     For the Three Months
                                                                     Ended September 30,
                                                                      1998           1997
        
Electric Operating Revenues .................................   $    234,056    $    226,134
Other Non-Utility Revenues ..................................          2,875             202

        Total Revenues ......................................        236,931         226,336


Operating Expenses
     Fuel used for company generation .......................         10,393          10,105
     Purchased power - energy ...............................         89,238         100,656
     Purchased power - capacity .............................         22,617          29,300
     Other operation ........................................         55,037          52,268
     Maintenance ............................................         11,441           8,729
     Depreciation and amortization ..........................         14,057          13,536
     Federal and state income taxes .........................          6,295          (1,562)
     Taxes other than income taxes ..........................          7,680           7,210

Total Operating Expenses ....................................        216,758         220,242

Equity In Earnings Of Associated Companies ..................           (741)          1,040

Operating Income ............................................         19,432           7,134

Other Income (Expense)
     Allowance for equity funds used during construction ....            179             309
     Other, net .............................................         18,774             692
     Income taxes ...........................................         (7,299)           (363)

        Total Other Income ..................................         11,654             638

Income Before Interest Charges ..............................         31,086           7,772

Interest Charges
     Long-term debt .........................................         10,247          10,930
     Other interest .........................................          2,612           2,892
     Allowance for borrowed funds used during construction ..           (132)           (205)

        Total Interest Charges ..............................         12,727          13,617

Dividends On Preferred Stock of Subsidiary ..................            919           1,897

Net Income (Loss) ...........................................   $     17,440    $     (7,742)


Weighted Average Number Of Shares Of Common Stock Outstanding     32,442,687      32,442,752
Earnings (Loss) Per Share Of Common Stock (Basic and Diluted)   $       0.54    $      (0.24)
Dividends Declared Per Share Of Common Stock ................   $      0.225    $      0.225

The accompanying notes are an integral part of these financial statements.
</TABLE>

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


                                 CMP Group, Inc.

                       CONSOLIDATED STATEMENT OF EARNINGS
                                   (Unaudited)
                 (Dollars in Thousands Except Per Share Amounts)
                                                                    For the Nine Months
                                                                     Ended September 30,
                                                                     1998           1997
         
Electric Operating Revenues .................................   $    691,017    $    704,575
Other Non-Utility Revenues ..................................          4,586           1,363

        Total Revenues ......................................        695,603         705,938


Operating Expenses
     Fuel used for company generation .......................         22,374          22,631
     Purchased power - energy ...............................        279,002         319,430
     Purchased power - capacity .............................         68,079          89,244
     Other operation ........................................        152,990         147,010
     Maintenance ............................................         30,120          23,373
     Depreciation and amortization ..........................         41,687          40,530
     Federal and state income taxes .........................         18,593           4,179
     Taxes other than income taxes ..........................         20,721          21,296

Total Operating Expenses ....................................        633,566         667,693

Equity In Earnings Of Associated Companies ..................          1,007           5,084

Operating Income ............................................         63,044          43,329

Other Income (Expense)
     Allowance for equity funds used during construction ....            468             811
     Other, net .............................................         20,380           2,471
     Income taxes ...........................................         (7,538)         (1,070)

        Total Other Income ..................................         13,310           2,212

Income Before Interest Charges ..............................         76,354          45,541

Interest Charges
     Long-term debt .........................................         31,746          33,272
     Other interest .........................................          6,639           5,193
     Allowance for borrowed funds used during construction ..           (331)           (567)

        Total Interest Charges ..............................         38,054          37,898

Dividends On Preferred Stock of Subsidiary ..................          3,890           6,312

Net Income ..................................................   $     34,410    $      1,331


Weighted Average Number Of Shares Of Common Stock Outstanding     32,442,730      32,442,752
Earnings Per Share Of Common Stock (Basic and Diluted) ......   $       1.06    $       0.04
Dividends Declared Per Share Of Common Stock ................   $      0.675    $      0.675


The accompanying notes are an integral part of these financial statements.
</TABLE>

<PAGE>


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


                                                    CMP Group, Inc.

                                               CONSOLIDATED BALANCE SHEET
                                                 (Dollars in Thousands)
                                                                                September 30,    December 31,
                                                                                    1998            1997
                                                                                      (Unaudited)

                                                       ASSETS
      
Electric Property, at original cost ............................................   $1,729,061   $1,674,876
    Less: Accumulated Depreciation .............................................      672,310      634,384

          Net electric property in service .....................................    1,056,751    1,040,492
    Construction work in progress ..............................................       17,385       15,105
    Net nuclear fuel ...........................................................        1,009        1,157

          Net electric property and nuclear fuel ...............................    1,075,145    1,056,754


Investments In and Loans to Associated Companies, at equity ....................       76,864       76,509

    Total Net Electric Property and Investments in Associated Companies
                                                                                    1,152,009    1,133,263


Current Assets
    Cash and cash equivalents ..................................................       19,298       20,841
    Accounts receivable, less allowances for uncollectible accounts of $3,067 in
    1998 and $2,450 in 1997:
       Service - billed ........................................................       69,172       84,323
       Service - unbilled ......................................................       43,636       46,807
       Other accounts receivable ...............................................       20,455       15,247
    Prepaid income taxes .......................................................          444         --
    Fuel oil inventory, at average cost ........................................        7,111        5,390
    Materials and supplies, at average cost ....................................       13,078       11,779
    Funds on deposit with trustee ..............................................         --         61,694
    Prepayments and other current assets .......................................       16,827        9,110

          Total Current Assets .................................................      190,021      255,191


Deferred Charges And Other Assets
    Recoverable costs of Seabrook 1 and abandoned projects, net ................       79,911       84,026
    Yankee Atomic purchased-power contract .....................................        9,970       13,056
    Connecticut Yankee purchased-power contract ................................       33,115       36,877
    Maine Yankee purchased-power contract ......................................      297,406      329,206
    Regulatory assets - deferred taxes .........................................      235,826      236,632
    Deferred charges and other assets ..........................................      273,663      210,715

          Total Deferred Charges and Other Assets ..............................      929,891      910,512


               TOTAL ASSETS ....................................................   $2,271,921   $2,298,966
                                                                                      
</TABLE>


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

<PAGE>


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



                                 CMP Group, Inc.

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)
                                                               September 30,  December 31,
                                                                     1998        1997
                                                                         (Unaudited)            


                    STOCKHOLDERS' INVESTMENTS AND LIABILITIES

Capitalization  
    Common-stock investment .................................   $  507,705   $  487,594
    Preferred stock of subsidiary ...........................       35,571       65,571
    Redeemable preferred stock of subsidiary ................       27,910       39,528
    Long-term obligations ...................................      297,198      400,923

       Total Capitalization .................................      868,384      993,616


Current Liabilities and Interim Financing
    Interim financing .......................................      363,374      238,000
    Sinking-fund requirements ...............................        9,852        9,411
    Accounts payable ........................................       72,718       97,080
    Dividends payable .......................................        8,224        9,202
    Accrued interest ........................................        7,344       11,201
    Accrued income taxes ....................................        6,035        3,001
    Miscellaneous current liabilities .......................       25,792       15,762

       Total Current Liabilities and Interim Financing ......      493,339      383,657


Commitments and Contingencies

Reserves and Deferred Credits
    Accumulated deferred income taxes .......................      379,940      350,912
    Unamortized investment tax credits ......................       29,431       30,533
    Yankee Atomic purchased-power contract ..................        9,970       13,056
    Connecticut Yankee purchased-power contract .............       33,115       36,877
    Maine Yankee purchased-power contract ...................      297,406      329,206
    Regulatory liabilities - deferred taxes .................       56,951       56,852
    Other reserves and deferred credits .....................      103,385      104,257

       Total Reserves and Deferred Credits ..................      910,198      921,693


       Total Stockholders' Investment and Liabilities .......   $2,271,921   $2,298,966
                                                                                             

</TABLE>

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


<PAGE>


                                                  CMP Group, Inc.
                                       CONSOLIDATED STATEMENT OF CASH FLOWS
                                                    (Unaudited)
                                              (Dollars in Thousands)
                                                             For the Nine Months
                                                             Ended September 30,
                                                             1998          1997
Operating Activities
Net income                                                 $34,410    $  1.331
Items not requiring (providing) cash:
    Depreciation                                            34,957      33,078
    Amortization                                            28,907      25,631
    Deferred income taxes and investment tax credits, net   20,107         871
    Allowance for equity funds used during construction       (468)       (811)
Preferred stock dividends of subsidiary                      3,890       6,312
Gain on sale of investments and properties                 (19,108)          -
Changes in certain assets and liabilities:
    Accounts receivable                                     13,114      28,182
    Inventories                                             (3,020)      6,495
    Other current assets                                    (7,717)     (4,951)
    Accounts payable                                       (22,240)     (7,991)
    Accrued/prepaid taxes and interest                      (1,267)     (5,177)
    Miscellaneous current liabilities                       10,030     (10,283)
    Deferred energy-management costs                        (1,583)       (497)
    Maine Yankee outage accrual                                  -     (10,350)
    Deferred ice storm costs                               (51,923)          -
    Restructuring of purchased power contracts             (22,500)          -
    Other, net                                               7,169       9,621
                                                        
Net Cash Provided by Operating Activities                   22,758      71,461
                                                       

Investing Activities
Construction expenditures                                  (27,700)    (29,690)
Investments in and loans to affiliates                     (17,800)     (4,915)
Repayment of loan by affiliate                              17,800           -
Changes in accounts payable - investing activities          (2,122)     (4,655)
Proceeds from sale of investments and properties            21,347        -
                                                           
Net Cash Used by Investing Activities                       (8,475)    (39,260)
                                                          

Financing Activities
Issuances:
    Revolving credit agreement                              10,100      42,500
    Medium-term notes                                      187,000           -
Redemptions:
    Preferred stock                                        (48,619)    (14,000)
    Medium-term notes                                      (18,000)    (25,000)
    Mortgage bonds                                        (177,283)          -
    Short-term obligations                                    (154)          -
Other long-term obligations                                 (2,970)       (595)
Funds on deposit with trustee                               61,694      (2,182)
Treasury Stock                                                (811)          -
Dividends:
    Common stock                                           (21,915)    (21,915)
    Preferred stock of subsidiary                           (4,868)       -
                                                       
Net Cash Used by Financing Activities                      (15,826)    (21,192)
                                                            
Net Increase (Decrease) in Cash                             (1,543)     (6,623)
Cash and cash equivalents, beginning of period              20,841     (27,815)
                                                         
Cash and cash equivalents, end of period                   $19,298     $12,693
                                                           

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




<PAGE>


                         PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

In the opinion of Central Maine,  the unaudited  financial  statements  included
herein  reflect all  adjustments  necessary to present  fairly the  Consolidated
Balance Sheet as of September 30, 1998, and the Consolidated Statement of Income
and  Consolidated  Cash Flows for the periods ended September 30, 1998 and 1997.
Central  Maine's  consolidated  financial  statements  include  the  accounts of
Central Maine and its wholly owned and controlled  subsidiaries.  All nonutility
operating  transactions are included in other revenues and operating expenses in
Central Maine's Consolidated Statement of Income.
<TABLE>
<S>                                                             <C>             <C>  

                           Central Maine Power Company
                       CONSOLIDATED STATEMENT OF EARNINGS
                                   (Unaudited)
                 (Dollars in Thousands Except Per Share Amounts)
                                                                   For the Three Months
                                                                   Ended September 30,
                                                                    1998           1997
       
Electric Operating Revenues .................................   $    234,027    $    226,134
Other Non-Utility Revenues ..................................            711             202

        Total Revenues ......................................        234,738         226,336


Operating Expenses
     Fuel used for company generation .......................         10,393          10,105
     Purchased power - energy ...............................         89,238         100,656
     Purchased power - capacity .............................         22,617          29,300
     Other operation ........................................         53,565          52,268
     Maintenance ............................................         11,421           8,729
     Depreciation and amortization ..........................         13,985          13,536
     Federal and state income taxes .........................          6,073          (1,562)
     Taxes other than income taxes ..........................          7,668           7,210

Total Operating Expenses ....................................        214,960         220,242

Equity In Earnings Of Associated Companies ..................             67           1,040

Operating Income ............................................         19,845           7,134

Other Income (Expense)
     Allowance for equity funds used during construction ....            179             309
     Other, net .............................................          9,244             692
     Income taxes ...........................................         (3,417)           (363)

        Total Other Income ..................................          6,006             638

Income Before Interest Charges ..............................         25,851           7,772

Interest Charges
     Long-term debt .........................................         10,237          10,930
     Other interest .........................................          2,611           2,892
     Allowance for borrowed funds used during construction ..           (132)           (205)

        Total Interest Charges ..............................         12,716          13,617

Net Income (Loss) ...........................................         13,135          (5,845)
Dividends On Preferred Stock ................................            919           1,897

Earnings (Loss) Applicable To Common Stock ..................   $     12,216    $     (7,742)


Weighted Average Number Of Shares Of Common Stock Outstanding     32,367,201      32,442,752
Earnings (Loss) Per Share Of Common Stock (Basic and Diluted)   $       0.38    $      (0.24)
Dividends Declared Per Share Of Common Stock ................   $      0.000    $      0.225

The accompanying notes are an integral part of these financial statements.
</TABLE>

<PAGE>

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

                           Central Maine Power Company

                       CONSOLIDATED STATEMENT OF EARNINGS
                                   (Unaudited)
                 (Dollars in Thousands Except Per Share Amounts)
                                                                     For the Nine Months
                                                                     Ended September 30,
                                                                      1998           1997
         
Electric Operating Revenues .................................   $    690,988    $    704,575
Other Non-Utility Revenues ..................................          2,422           1,363

        Total Revenues ......................................        693,410         705,938


Operating Expenses
     Fuel used for company generation .......................         22,374          22,631
     Purchased power - energy ...............................        279,002         319,430
     Purchased power - capacity .............................         68,079          89,244
     Other operation ........................................        151,518         147,010
     Maintenance ............................................         30,100          23,373
     Depreciation and amortization ..........................         41,615          40,530
     Federal and state income taxes .........................         18,371           4,179
     Taxes other than income taxes ..........................         20,709          21,296

Total Operating Expenses ....................................        631,768         667,693

Equity In Earnings Of Associated Companies ..................          1,815           5,084

Operating Income ............................................         63,457          43,329

Other Income (Expense)
     Allowance for equity funds used during construction ....            468             811
     Other, net .............................................         10,850           2,471
     Income taxes ...........................................         (3,656)         (1,070)

        Total Other Income ..................................          7,662           2,212

Income Before Interest Charges ..............................         71,119          45,541

Interest Charges
     Long-term debt .........................................         31,736          33,272
     Other interest .........................................          6,638           5,193
     Allowance for borrowed funds used during construction ..           (331)           (567)

        Total Interest Charges ..............................         38,043          37,898

Net Income ..................................................         33,076           7,643
Dividends On Preferred Stock ................................          3,890           6,312

Earnings Applicable To Common Stock .........................   $     29,186    $      1,331


Weighted Average Number Of Shares Of Common Stock Outstanding     32,417,292      32,442,752
Earnings Per Share Of Common Stock (Basic and Diluted) ......   $       0.90    $       0.04
Dividends Declared Per Share Of Common Stock ................   $      0.450    $      0.675


The accompanying notes are an integral part of these financial statements.
</TABLE>

<PAGE>


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


                                              Central Maine Power Company

                                               CONSOLIDATED BALANCE SHEET
                                                 (Dollars in Thousands)
                                                                                 September 30,   December 31,
                                                                                     1998           1997
                                                                                      (Unaudited)

                                                       ASSETS
    
Electric Property, at original cost ............................................   $1,729,032   $1,674,876
    Less: Accumulated Depreciation .............................................      672,304      634,384

          Net electric property in service .....................................    1,056,728    1,040,492
    Construction work in progress ..............................................       16,397       15,105
    Net nuclear fuel ...........................................................        1,009        1,157

          Net electric property and nuclear fuel ...............................    1,074,134    1,056,754


Investments In and Loans to Associated Companies, at equity ....................       52,291       76,509

    Total Net Electric Property and Investments in Associated Companies
                                                                                    1,126,425    1,133,263


Current Assets
    Cash and cash equivalents ..................................................        6,232       20,841
    Accounts receivable, less allowances for uncollectible accounts of $3,067 in
    1998 and $2,450 in 1997:
       Service - billed ........................................................       69,123       84,323
       Service - unbilled ......................................................       43,451       46,807
       Other accounts receivable ...............................................       15,853       15,247
    Prepaid income taxes .......................................................          411         --
    Fuel oil inventory, at average cost ........................................        7,111        5,390
    Materials and supplies, at average cost ....................................       12,761       11,779
    Funds on deposit with trustee ..............................................         --         61,694
    Prepayments and other current assets .......................................       16,890        9,110

          Total Current Assets .................................................      171,832      255,191


Deferred Charges And Other Assets
    Recoverable costs of Seabrook 1 and abandoned projects, net ................       79,911       84,026
    Yankee Atomic purchased-power contract .....................................        9,970       13,056
    Connecticut Yankee purchased-power contract ................................       33,115       36,877
    Maine Yankee purchased-power contract ......................................      297,406      329,206
    Regulatory assets - deferred taxes .........................................      235,826      236,632
    Deferred charges and other assets ..........................................      269,745      210,715

          Total Deferred Charges and Other Assets ..............................      925,973      910,512


               TOTAL ASSETS ....................................................   $2,224,230   $2,298,966
                                                                                       
</TABLE>


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

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




                           Central Maine Power Company

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)
                                                                September 30,  December 31,
                                                                     1998         1997
                                                                                                       
                                                                           (Unaudited)

                    STOCKHOLDERS' INVESTMENTS AND LIABILITIES

Capitalization  
    Common-stock investment .................................   $  482,178   $  487,594
    Preferred stock .........................................       35,571       65,571
    Redeemable preferred stock ..............................       27,910       39,528
    Long-term obligations ...................................      294,645      400,923

       Total Capitalization .................................      840,304      993,616


Current Liabilities and Interim Financing
    Interim financing .......................................      363,183      238,000
    Sinking-fund requirements ...............................        9,852        9,411
    Accounts payable ........................................       73,276       97,080
    Dividends payable .......................................          924        9,202
    Accrued interest ........................................        7,344       11,201
    Accrued income taxes ....................................        3,054        3,001
    Miscellaneous current liabilities .......................       25,354       15,762

       Total Current Liabilities and Interim Financing ......      482,987      383,657


Commitments and Contingencies

Reserves and Deferred Credits
    Accumulated deferred income taxes .......................      375,670      350,912
    Unamortized investment tax credits ......................       29,431       30,533
    Yankee Atomic purchased-power contract ..................        9,970       13,056
    Connecticut Yankee purchased-power contract .............       33,115       36,877
    Maine Yankee purchased-power contract ...................      297,406      329,206
    Regulatory liabilities - deferred taxes .................       56,951       56,852
    Other reserves and deferred credits .....................       98,396      104,257

       Total Reserves and Deferred Credits ..................      900,939      921,693


       Total Stockholders' Investment and Liabilities .......   $2,224,230   $2,298,966
                                                                                              
</TABLE>


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


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

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

                                                                For the Nine Months
                                                                Ended September 30,
                                                                1998          1997
Operating Activities   
Net income ..............................................   $  33,076    $   7,643
Items not requiring (providing) cash:
    Depreciation ........................................      34,957       33,078
    Amortization ........................................      28,903       25,631
    Deferred income taxes and investment tax credits, net      21,883          871
    Allowance for equity funds used during construction .        (468)        (811)
Gain on Sale of Investments and Properties ..............      (9,545)        --
Changes in certain assets and liabilities:
    Accounts receivable .................................      17,950       28,182
    Inventories .........................................      (2,703)       6,495
    Other current assets ................................      (7,780)      (4,951)
    Accounts payable ....................................     (21,682)      (7,991)
    Accrued/prepaid taxes and interest ..................      (4,215)      (5,177)
    Miscellaneous current liabilities ...................       9,592      (10,283)
    Deferred energy-management costs ....................      (1,583)        (497)
    Maine Yankee outage accrual .........................        --        (10,350)
    Deferred ice storm costs ............................     (51,923)        --
    Restructuring of purchased power contracts ..........     (22,500)        --
    Other, net ..........................................      (5,367)       9,621

Net Cash Provided by Operating Activities                      18,595       71,461

Investing Activities
Construction expenditures ...............................     (26,857)     (29,690)
Investments in and loans to affiliates ..................     (18,661)      (4,915)
Repayment of loan by affiliate ..........................      17,800         --
Sale of subsidiaries to CMP Group, Inc. .................      20,093         --
Changes in accounts payable - investing activities ......      (2,122)      (4,655)
Proceeds from Sale of Investments and Properties ........      10,347         --

Net Cash Used by Investing Activities ...................         600      (39,260)


Financing Activities
Issuances:
    Revolving credit agreement ..........................      10,000       42,500
    Medium-term notes ...................................     187,000         --
Redemptions:
    Preferred stock .....................................     (48,619)     (14,000)
    Medium-term notes ...................................     (18,000)     (25,000)
    Mortgage bonds ......................................    (177,283)        --
Other long-term obligations .............................      (2,813)        (595)
Funds on deposit with trustee ...........................      61,694       (2,182)
Treasury Stock ..........................................     (19,000)        --
Dividends:
    Common stock ........................................     (21,915)     (21,915)
    Preferred stock .....................................      (4,868)      (6,623)

Net Cash Used by Financing Activities ...................     (33,804)     (27,815)

Net Increase (Decrease) in Cash .........................     (14,609)       4,386
Cash and cash equivalents, beginning of period ..........      20,841        8,307

Cash and cash equivalents, end of period ................   $   6,232    $  12,693
                                                                                          

The accompanying notes are an integral part of these financial statements.
</TABLE>


<PAGE>


                                  CMP Group and
                           Central Maine Power Company

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1.   Summary of Significant Accounting Policies

     Formation of Holding  Company - On May 1, 1998, on  application  of Central
     Maine,  the MPUC  approved  the  creation  of a holding  company  (now "CMP
     Group"),  the  conversion  and  exchange of all the  outstanding  shares of
     Central  Maine's common stock into an equal number of shares of CMP Group's
     common stock, the transfer of the stock of certain wholly-owned non-utility
     subsidiaries of Central Maine to CMP Group,  and other related  requests of
     Central Maine necessary to carry out the  reorganization.  The MPUC granted
     the  approvals  subject to several  conditions  that Central  Maine and CMP
     Group believe are  reasonable.  Central Maine's  shareholders  approved the
     reorganization  on May 21,  1998.  On June 30, 1998 the MPUC  approved  the
     creation of the energy  marketing  affiliate of Central Maine  (MainePower)
     and  resolved  related  issues  that  had  been  deferred  earlier  in  the
     proceeding.  The FERC  approved the  reorganization  on July 16, 1998,  the
     Connecticut Department of Public Utility Control on August 5, 1998, and the
     SEC on August 12, 1998,  and the  reorganization  into the CMP Group System
     was implemented effective September 1, 1998.

     Basis of  Presentation - This  Quarterly  Report on Form 10-Q is a combined
     report  of CMP  Group  and  Central  Maine,  a  regulated  electric-utility
     subsidiary of CMP Group.  The Notes to  Consolidated  Financial  Statements
     apply to both  CMP  Group  and  Central  Maine.  CMP  Group's  consolidated
     financial statements include the accounts of CMP Group and its wholly owned
     and  controlled  subsidiaries,  including  Central Maine.  Central  Maine's
     consolidated  financial statements include its accounts as well as those of
     its wholly owned and controlled  subsidiaries.  Certain immaterial majority
     owned  subsidiaries,  which  were  previously  accounted  for on the equity
     method, were consolidated in September 1998.

     Central Maine's  financial  position and results of operations  account for
     substantially  all of  CMP  Group's  consolidated  financial  position  and
     results of operations.  This quarterly report should be read in conjunction
     with Central Maine's Annual Report on Form 10-K for the year ended December
     31, 1997.

     CMP  Group and  Central  Maine  believe  that the  accompanying  statements
     reflect  all  adjustments  necessary  to  present a fair  statement  of the
     consolidated  financial  position and results of operations for the interim
     periods.  All material  adjustments are of a normal recurring nature unless
     otherwise  disclosed  in  this  Form  10-Q.  All  significant  intercompany
     transactions   have  been  eliminated  from  the   consolidated   financial
     statements.

     Results shown for the respective  interim periods being reported herein are
     not  necessarily  indicative of results to be expected for the fiscal years
     due to seasonal  factors  which are  inherent in electric  utilities in New
     England. A greater  proportionate amount of revenues is earned in the first
     and fourth quarters  (winter season) of most years because more electricity
     is sold due to weather  conditions,  fewer  day-light  hours,  and  related
     factors.

     For  purposes of the  statement  of cash  flows,  the CMP Group and Central
     Maine consider all highly liquid instruments purchased having maturities of
     three months or less to be cash equivalents.

     Recognition of Increase in Subsidiary Equity

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

     In August 1998 NEON  issued 4 million new shares of common  stock at $12.00
     per share on the open market in an initial public offering ("IPO").  NEON's
     IPO had  the  effect  of  decreasing  MaineCom's  ownership  interest  from
     53.5-percent  to  approximately  40-percent.  The shares  were issued at an
     amount  greater  than  MaineCom's  per share  investment,  resulting  in an
     increase in MaineCom's  investment in NEON of $15.9 million.  In accordance
     with the  SEC's  Staff  Accounting  Bulletins  ("SAB")  51 and 84  MaineCom
     increased  additional  paid in capital by $9.4  million  and  deferred  tax
     reserve liability by $6.5 million. The Company's accounting policy for such
     transactions  is to  recognize  gain unless  otherwise  required by the SEC
     staff's Accounting Bulletins. No gain has been recognized at this point.

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

     Supplemental  Cash Flow  Disclosure  - Cash paid for the nine months  ended
     September 30, 1998 and 1997:

                                                                (In Millions)
                                                         1998           1997

       CMP Group
                Interest, net of amounts capitalized     $40.8           $37.6
                Income taxes                               2.5*            7.4

       Central Maine
                Interest, net of amounts capitalized      40.7            37.6
                Income Taxes                               2.5             7.4

     Non-cash  investing  activities  include the  increase  investment  in NEON
     detailed above.

     *Central Maine is currently processing all tax payments for the CMP Group
      System.

     Stock-Based  Compensation  - CMP Group  accounts for  employee  stock-based
     compensation in accordance  with SFAS No. 123,  "Accounting for Stock-Based
     Compensation".   This  statement   establishes   financial  accounting  and
     reporting  standards for stock-based  employee  compensation plans, such as
     stock  purchase  plans,   stock  options,   restricted   stock,  and  stock
     appreciation  rights.  The statement defines the methods of determining the
     fair value of stock-based  compensation  and recommends the  recognition of
     compensation  expense for book  purposes.  However,  the  statement  allows
     entities to continue to measure compensation expense in accordance with the
     prior authoritative literature, APB No. 25, "Accounting for Stock Issued to
     Employees",  but requires  that pro forma net income and earnings per share
     be disclosed for each year for which an income statement is presented as if
     SFAS No.  123 had been  applied.  CMP  Group has not  elected  to adopt the
     expense recognition provisions of SFAS No. 123. Under CMP Group's Long-Term
     Incentive  Plan,  stock options were granted in the second  quarter of 1998
     with an exercise  price  equal to the fair market  value on the date of the
     grant; therefore, no expense recognition is required. Contingently issuable
     performance  shares were  granted in 1997 and 1998.  Both have a three-year
     cycle and are being accrued accordingly.

                                              1997         1998

     Options granted                         -           253,925
     Performance Shares*                      64,762      70,204

     *Accrue over a 3-year cycle.

     Earnings per Share - Stock options and  performance  shares granted to date
     under  CMP  Group's   long-term   incentive   plan  resulted  in  potential
     incremental  shares of common stock  outstanding  for purposes of computing
     both basic and  diluted  earnings  per share for the three and nine  months
     ended  September  30,  1998 and 1997.  These  incremental  shares  were not
     material in the periods  presented and did not cause  diluted  earnings per
     share to differ from basic earnings per share.

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

 2.   Commitments and Contingencies

     Maine  Yankee  Atomic  Power  Company  - 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, including being included on the Nuclear Regulatory
     Commission's  ("NRC") Watch List,  and had 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.  For a detailed  discussion  of the  background  of the
     permanent shutdown,  see Central Maine's Annual Report on Form 10-K for the
     year ended December 31, 1997.

     Central  Maine's  38-percent  ownership  interest in Maine Yankee's  common
     equity  amounted to $32.2 million as of September  30, 1998,  and under its
     Power  Contract and Additional  Power  Contract with Maine Yankee,  Central
     Maine is  responsible  for 38 percent of the costs of  decommissioning  the
     Plant.  Maine  Yankee's most recent  comprehensive  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 a total  estimated 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  September 30, 1998,
     Maine  Yankee  had   collected   approximately   $214.9   million  for  its
     decommissioning obligations.

     On November 6, 1997, Maine Yankee submitted its new estimate to the FERC as
     part of a rate  proceeding  reflecting the fact that the Plant is no longer
     operating  and  has  entered  the  decommissioning  phase.  Under  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.  Overall  operations  and  maintenance
     expenses have been reduced,  however, due to workforce reductions and other
     results of the permanent shutdown.  On January 14, 1998, the FERC issued an
     order  accepting  for filing the rates  associated  with the amended  Power
     Contracts,  made them effective  January 15, 1998,  subject to refund,  and
     ordered  that a  public  hearing  be  held  on the  prudence  of the  Plant
     shut-down decision and on the proposed rate amendments.  The prudence issue
     is being contested  vigorously by several  intervenors,  including the MPUC
     and the Maine Office of the Public  Advocate.  The hearing in the FERC rate
     proceeding  is currently  scheduled to begin in May of 1999.  Central Maine
     cannot predict the outcome of the proceeding.

     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 Central Maine'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 Electric  Company  ("Yankee  Atomic")
     nuclear  plant,  Central  Maine  believes  that it is  entitled  to recover
     substantially  all of its share of such costs from its  customers and as of
     September  30,  1998,  is  carrying  on its  consolidated  balance  sheet a
     regulatory  asset  and  corresponding  liability  in the  amount  of $297.4
     million,  which is the $353 million  discussed above net of Central Maine's
     post-September 1, 1997 cost-of-service payments to Maine Yankee.

     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. Among the report's  conclusions were that Maine Yankee's decision
     in December  1996 to proceed with the steps  necessary to restart the Plant
     was  "imprudent"  and 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. Based on preliminary  indications,  Central Maine expects the second
     phase of the report would recommend additional disallowances. Central Maine
     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.

     On April 7, 1998,  Maine Yankee refunded all of its mortgage bonds and bank
     debt by means of a three-year revolving credit facility and a term loan due
     in 2006.  The new debt  obligations  are secured by a security  interest in
     Maine Yankee's rights in its Power  Contracts,  Additional  Power Contracts
     and Capital Funds Agreements with its Sponsors (the "Assigned  Agreements")
     and its rights to certain third-party payments, and contain restrictions on
     the payment of common-stock dividends based on Maine Yankee's cash position
     and a  debt-service  coverage  test. In addition,  in  connection  with the
     refinancing  each of the Sponsors,  including  Central Maine,  affirmed its
     obligations  under  the  Assigned  Agreements  and  agreed  not to take the
     position that the permanent shutdown of the Plant gave rise to any right to
     terminate or reduce payments under the Assigned Agreements.

     Connecticut  Yankee - 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
     plant. Central Maine has a 6-percent equity interest in Connecticut Yankee,
     totaling  approximately  $6.1 million at September 30, 1998.  Based on cost
     estimates  provided by  Connecticut  Yankee,  Central Maine  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  $33.1 million and has recorded a
     regulatory  asset  and  corresponding  liability  in  that  amount  on  its
     consolidated  balance sheet.  Central Maine is currently recovering through
     rates an amount adequate to recover these expenses.

     In a FERC rate  proceeding  involving the  Connecticut  Yankee plant a FERC
     administrative law judge issued an initial decision on August 31, 1998. The
     law judges found that  Connecticut  Yankee had failed to meet its burden of
     proof in supporting additional decommissioning cost collections and ordered
     that  Connecticut  Yankee recover  decommissioning  costs at the lower rate
     approved  in its  previous  rate case.  In  addition,  the law judge  found
     imprudent  management to be a factor contributing to the Connecticut Yankee
     shutdown  decision  and  reached  other  conclusions  that  were  partially
     unfavorable  to  Connecticut  Yankee  with  respect to some issues that are
     similar to those being litigated in the Maine Yankee  proceeding.  Although
     the Maine Yankee and  Connecticut  Yankee plants were operated by different
     entities   and  the  factual   operating   histories  as  well  as  present
     decommissioning  operations,  of the  two  plants  are  different  in  many
     respects, a final decision by the FERC in the Connecticut Yankee proceeding
     on issues  also being  litigated  in the Maine  Yankee case could have some
     precedential  effect in the Maine  Yankee FERC  proceeding.  Central  Maine
     cannot predict what the FERC's final  determination of those issues will be
     in the  Connecticut  Yankee  proceeding  or any effect it might have on the
     Maine Yankee proceeding.

     Yankee Atomic. In 1993 the FERC approved a settlement  agreement  regarding
     recovery of decommissioning costs and plant investment, and all issues with
     respect to the  prudence of the  decision to  discontinue  operation of the
     Yankee Atomic plant.  Central  Maine  estimates its remaining  share of the
     cost of Yankee Atomic's continued compliance with regulatory  requirements,
     recovery of its plant investment, decommissioning and closing the plant, to
     be approximately $10.0 million.  This estimate has been recorded by Central
     Maine as a  regulatory  asset and a liability  on Central  Maine's  balance
     sheet.  As part of the MPUC's  decision in Central  Maine's 1993  base-rate
     case, Central Maine's current share of costs related to the deactivation of
     Yankee Atomic is being recovered through rates.

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

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

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

     Central  Maine has recorded a  liability,  based upon  currently  available
     information,   for  what  it  believes  are  the  estimated   environmental
     remediation  costs that it expects to incur for  identified  waste disposal
     sites. In most cases, additional future environmental cleanup costs are not
     reasonably  estimatable  due to a number of factors,  including the unknown
     magnitude of possible  contamination,  the appropriate remediation methods,
     the possible  effects of future  legislation or regulation and the possible
     effects of technological changes. Central Maine cannot predict the schedule
     or scope of remediation  due to the regulatory  process and  involvement of
     non-governmental  parties. At September 30, 1998, the liability recorded by
     Central Maine for its estimated environmental remediation costs amounted to
     $2.6  million,  which  management  has  determined  to be the most probable
     amount within the range of $2.6 million to $8.5 million.  Such costs may be
     higher if Central  Maine is found to be  responsible  for cleanup  costs at
     additional sites or identifiable possible outcomes change.

     Millstone  Unit No. 3  Litigation  - On August 7, 1997,  Central  Maine and
     other minority  owners of Millstone Unit No. 3 filed suit in  Massachusetts
     Superior Court against Northeast Utilities and its trustees,  and initiated
     an   arbitration   claim   against  two  of  its   subsidiaries,   alleging
     mismanagement  of the  unit by the  defendants.  The  minority  owners  are
     seeking  to   recover   their   additional   costs   resulting   from  such
     mismanagement,  including  their  replacement  power costs.  Central  Maine
     cannot predict the outcome of the litigation and arbitration.

     Proposed  Federal  Income Tax  Adjustments - On September 3, 1997,  Central
     Maine received from the Internal  Revenue Service ("IRS") a Revenue Agent's
     Report  summarizing all adjustments  proposed by the IRS as a result of its
     audit of Central  Maine's  federal  income tax  returns  for the years 1992
     through 1994, and on September 12, 1997, Central Maine received a notice of
     deficiency   relating  to  the  proposed   disallowances.   There  are  two
     significant  disallowances  among those proposed by the IRS. The first is a
     disallowance of Central Maine's write-off of the under-collected balance of
     fuel and purchased-power  costs and the unrecovered balance of its unbilled
     Electric  Revenue  Adjustment  Mechanism  ("ERAM")  revenues,  both  as  of
     December 31, 1994,  which were charged to income in 1994 in connection with
     the  adoption of the  Alternative  Rate Plan ("ARP")  effective  January 1,
     1995.  The second major  adjustment  would  disallow  Central  Maine's 1994
     deduction  of the  cost  of the  buyout  of the  Fairfield  Energy  Venture
     purchased-power  contract  by  Central  Maine in 1994.  The  aggregate  tax
     impact,  including both federal and state taxes,  of the unresolved  issues
     amounts  to  approximately  $39.0  million,  over 90  percent  of  which is
     associated with the two major  disallowances.  The two major  disallowances
     relate  largely to the timing of the deductions and would not affect income
     except for the  cumulative  interest  impact which,  through  September 30,
     1998,  amounted  to $17.3  million,  or a  decrease  in net income of $10.2
     million,  and  which  could  increase  interest  expense  by  approximately
     $500,000  per month until either the tax  deficiency  is paid or the issues
     are resolved in favor of Central Maine,  in which case no interest would be
     due. If the IRS were to prevail,  Central  Maine  believes  the  deductions
     would be  amortized  over  periods of up to twenty,  post-1994,  tax years.
     Central  Maine  believes  its tax  treatment of the  unresolved  issues was
     proper and as a result the  potential  interest  has not been  accrued.  On
     December 10, 1997,  Central Maine filed a petition in the United States Tax
     Court  contesting the entire amount of the  deficiencies.  Central Maine is
     seeking 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,  Central Maine plans to
     pursue vigorously the Tax Court litigation, but cannot predict the result.

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

 3.   Regulatory and Legislative Matters

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

     The ARP contains a mechanism  that provides  price-caps on Central  Maine's
     retail rates to increase  annually on July 1, commencing 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 Central  Maine'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 Central Maine's purchased-power costs during
     the proposed five-year initial term of the ARP.

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

     On May 13, 1998,  Central  Maine  submitted  its final 1998 ARP  compliance
     filing to the MPUC. In keeping with its pledge of limiting increases to the
     inflation index,  Central Maine  voluntarily  limited its request to 1.78%,
     which was the  inflation  rate for 1997 under the ARP.  Central  Maine also
     proposed a rate reduction of  approximately  ten percent  contingent on the
     consummation of, and ratemaking  associated  with,  Central Maine's planned
     sale of generating  assets.  The filing also  contained  information on the
     costs of restoring  service to Central Maine's  customers after the January
     ice storm,  as required by an earlier MPUC order allowing  Central Maine to
     defer  those  costs.  Subsequent  to  the  May  13  filing,  Central  Maine
     stipulated, and the MPUC subsequently approved,  effective July 11, 1998, a
     1.33%  increase.  The amount of the  increase  could  change,  based on the
     outcome of the pending FERC proceeding related to the permanent shutdown of
     the Maine Yankee plant.  Depending on FERC's  decision,  the price increase
     could  increase or decrease,  ranging from a ceiling of 1.78% to a floor of
     0.22%.

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

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

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

     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. A departure from traditional
     regulation,  however,  could  have a  substantial  impact  on the  value of
     utility  assets and on the ability of electric  utilities to recover  their
     costs through rates. In the absence of full recovery,  utilities would find
     their  above-market  costs to be "stranded",  or unrecoverable,  in the new
     competitive setting.

     Central Maine has  substantial  exposure to cost stranding  relative to its
     size. The major portion of Central Maine's  strandable  costs is related to
     above-market  costs of  purchased-power  obligations  arising  from Central
     Maine's long-term, noncancelable contracts for the purchase of capacity and
     energy  from  non-utility  generators  ("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   utility  (Central  Maine),
     comparable to the utility's  opportunity  to recover  stranded costs before
     the  implementation  of retail access under the legislation.  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. The MPUC is conducting the proceeding that will ultimately  determine
     Central Maine's stranded costs and corresponding  revenue  requirements and
     has scheduled  completion of the current  phase of the  proceeding  for the
     first  quarter of 1999.  On December 5, 1997,  Central  Maine filed  direct
     testimony in the proceeding estimating its future revenue requirements as a
     transmission-and-distribution  utility  and  providing  an  estimate of its
     strandable   costs.   Central  Maine  estimated  its  strandable  costs  at
     approximately  $1.3  billion,  net present  value.  On February  10,  1998,
     Central Maine  reduced its estimate of strandable  costs to $0.8 billion to
     reflect the anticipated sale of its generating assets. Central Maine cannot
     predict the results of the MPUC proceeding,  which is scheduled to conclude
     in January 1999, subject to later updating prior to March 1, 2000.

     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. 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 any substantial inaccuracies at least every three years.

     Upon the commencement of retail access on March 1, 2000,  Central Maine, as
     a  transmission-and-distribution  utility,  will be prohibited from selling
     electric energy to retail customers.  Any competitive  electricity provider
     that is affiliated with Central Maine would be allowed to sell  electricity
     outside Central Maine's service territory, without limitation as to amount,
     but within  Central  Maine's  service  territory,  the  affiliate  would be
     limited to providing  not more than 33 percent of the total  kilowatt-hours
     sold within Central Maine's service  territory,  as determined by the MPUC.
     On June 30, 1998,  the MPUC  approved  the  creation of such an  affiliated
     energy  provider  (MainePower,  a  wholly-owned  subsidiary  of CMP Group),
     subject to certain  conditions  designed to eliminate any market  advantage
     MainePower might gain through its affiliation with Central Maine.

     Agreement for Sale of Generation Assets - On January 6, 1998, Central Maine
     announced  that it had reached  agreement to sell all of its hydro,  fossil
     and  biomass  power  plants  with a combined  generating  capacity of 1,185
     megawatts for $846 million in cash, including approximately $18 million for
     assets of Union Water Power, to  Florida-based  FPL Group. The related book
     value for these assets are approximately $221 million at December 31, 1997.
     In addition, as part of its agreement with FPL Group, Central Maine entered
     into energy  buy-back  agreements to assist in fulfilling its obligation to
     supply its  customers  with power  until  March 1, 2000.  Subsequently,  an
     agreement was reached to sell related  storage  facilities to FPL Group for
     an additional $4.4 million,  including $1.7 million for Union Water assets.
     The related book value of these assets are approximately $11.9 million.

     Central Maine's interests in the power  entitlements from  approximately 50
     power-purchase   agreements  with   non-utility   generators   representing
     approximately  488 megawatts,  its 2.5-percent  interest in the Millstone 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.  Central Maine will continue to seek buyers for those assets.
     Central  Maine  did not offer for sale its  interests  in the Maine  Yankee
     (Wiscasset,  Maine),  Connecticut Yankee, (Haddam,  Connecticut) and Yankee
     Atomic (Rowe, Massachusetts) nuclear generating plants, all of which are in
     the process of being decommissioned.

     Substantially all of the generating assets included in the sale are subject
     to the lien of Central  Maine's  General and Refunding  Mortgage  Indenture
     dated as of April 15, 1976 (the "Indenture").  Therefore, substantially all
     of the  proceeds  from sale must be  deposited  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
     Central  Maine  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.  Central Maine must also provide for payment
     of applicable  taxes  resulting from the sale. The manner and timing of the
     ultimate  application  of the sale proceeds  after closing are in any event
     subject  to  various  factors,   including  Indenture  provisions,   market
     conditions and terms of outstanding securities.

     The bid value in excess of the  remaining  investment  in the power  plants
     will reduce Central  Maine'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, Central Maine 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 sale is subject to various closing  conditions,  including the approval
     of state and federal regulatory agencies,  which Central Maine expects will
     extend  into the first  quarter  of 1999,  and is subject  to  consents  or
     covenant waivers from certain of Central Maine's lenders.  Central Maine is
     pursuing the  necessary  regulatory  approvals,  consents and waivers,  but
     cannot predict whether or in what form they will be obtained.

     Storm  Damage to  Company's  System - On January 7 through 9, 1998,  an ice
     storm of unprecedented  breadth and severity struck Central Maine's service
     territory,  causing  power  outages  for  approximately  280,000 of Central
     Maine's 528,000  customers,  and substantial  widespread  damage to Central
     Maine's  transmission  and distribution  system.  To restore its electrical
     system,   Central  Maine  supplemented  its  own  crews  with  utility  and
     tree-service  crews from throughout the northeastern  United States and the
     Canadian maritime provinces, with assistance from the Maine national guard.
     The   incremental   non-capital   costs  of  the  repair   effort   totaled
     approximately $51 million, most of which is labor-related.

     On January 15, 1998,  the MPUC issued an order  allowing  Central  Maine to
     defer on its  books  the  incremental  non-capital  costs  associated  with
     Central  Maine's  efforts to  restore  service  in  response  to the damage
     resulting from the storm.  The order requires Central Maine, as part of its
     annual filing under its ARP, to file  information  on the amounts  deferred
     under the order and to  submit a  proposal  as to how the costs  associated
     with the order should be recovered under the ARP. In the ARP filing Central
     Maine stated that once the final cost of the storm was  determined  and the
     status of federal  assistance  was finalized  Central Maine would propose a
     plan for recovery of its costs. Based on the MPUC order,  potential federal
     assistance  and/or   collection  in  rates,   Central  Maine  has  deferred
     approximately $51 million in storm-related costs as of September 30, 1998.

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

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

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

 4.   Financing

     At the annual meeting of the stockholders of Central Maine on May 15, 1997,
     the holders of Central Maine's outstanding preferred stock consented to the
     issuance of $350 million in principal amount of Central Maine's medium-term
     notes in addition to the $150 million in principal amount to which they had
     previously  consented.  This expansion of the  medium-term  note program is
     being  implemented to increase  Central  Maine's  financing  flexibility in
     anticipation of restructuring and increased  competition.  During the third
     quarter, Central Maine issued variable-rate  medium-term notes totaling $70
     million in  principal  amount.  Notes in the  amount of $8 million  matured
     during the quarter.  As of September 30, 1998,  $212 million of medium-term
     notes were outstanding.  On July 1, 1998,  Central Maine redeemed the final
     $7 million of its 8-7/8% Preferred Stock through the mandatory sinking fund
     provision.  On  August  15,  1998,  Central  Maine  paid  at  maturity  the
     outstanding  $60  million  of its  Series  S 6.03%  General  and  Refunding
     Mortgage Bonds, and on September 15 paid $8 million of maturing medium-term
     notes.  In addition,  Central Maine  reacquired 1.2 million shares of stock
     from CMP Group for $19 million following the holding company formation.

 5.   Other Transactions

     Three  non-recurring  events had a  significant  impact on earnings:  1) In
     September 1998,  MaineCom,  a subsidiary of CMP Group,  sold its 40-percent
     interest in New England  Fibre  Communications.  The sale resulted in a net
     after-tax gain of approximately  $5.7 million.  2) In August 1998,  Central
     Maine sold shares then owned  directly  in NEON,  now a  38.5-percent-owned
     equity  investment of MaineCom,  as part of the initial public  offering of
     NEON common stock. The net after-tax gain was  approximately  $1.9 million.
     3) In September 1998 Central Maine finalized the sale of  transmission-line
     easements  to  a  gas-pipeline  contractor.   The  net  after-tax  gain  of
     approximately $3.8 million resulted in increased earnings.

 6.   Transactions with Affiliated Companies

     Central Maine provides  services to CMP Group and its  subsidiaries as well
     as  non-affiliated  parties.  As of  September  30, 1998,  Central  Maine's
     accounts receivables included the following:

                         CMP Group                  $  84,751
                         MainePower                    97,715
                         CMPI                          99,553
                         MaineCom                     625,402
                         Telesmart                     42,754
                         Union Water                  910,812

     Central  Maine  receives  services from CMP Group and its  subsidiaries  in
     addition to  non-affiliated  parties.  Central Maine's accounts payables on
     September 30, 1998 included the following:

                         CMP Group                   $492,735
                         MainePower                   180,449
                         CMPI                         134,724
                         MaineCom                      -
                         Telesmart                     47,177
                         Union Water                  985,750

 7.   Fiber Optic Network

     CMP Group,  largely through its wholly-owned  subsidiary MaineCom Services,
     owns 38.5  percent of the common  stock of Northeast  Optic  Network,  Inc.
     ("NEON"), which is a facilities-based provider of technologically advanced,
     high-bandwidth,   fiber  optic  transmission  capacity  for  communications
     carriers on local  loop,  inter-city  and  interstate  facilities.  NEON is
     currently  expanding  its fiber optic  network to encompass  over 900 route
     miles,  or more than  60,000  fiber  miles,  in New  England  and New York,
     utilizing  primarily  electric-utility  rights-of-way,  including  some  of
     Central  Maine's  in Maine  and some  owned  by  other  electric  utilities
     including Northeast Utilities, another substantial minority stockholder, in
     Connecticut,  Massachusetts  and New  Hampshire.  As of September 30, 1998,
     NEON had completed construction of approximately 450 route miles, or 31,000
     fiber  miles,   of  its  planned  system  and  is  currently   engineering,
     constructing,  or  acquiring  additional  routes  with a goal of creating a
     continuous fiber optic link between New York City and Portland, Maine, with
     access into and around Boston and numerous other major service areas in the
     Northeast.

     On August 5, 1998, NEON completed initial public offerings of $48.0 million
     of common stock and $180.0 million of senior notes,  and Central Maine,  as
     part of the common-stock  offering,  sold some of its then-owned  shares in
     NEON for proceeds of approximately $3.4 million. In addition,  with some of
     the proceeds of the offering NEON repaid  approximately $18 million Central
     Maine had advanced under an earlier construction loan agreement.  CMP Group
     believes  there is a growing  need for such a fiber  optic  network  in the
     Northeast  and that  NEON's  outside  financing  will  provide  substantial
     assistance in completing  construction  of the network,  but cannot predict
     the  results of this  venture.  The  common  stock of NEON is listed on The
     Nasdaq Stock Market's National Market under the symbol "NOPT".


<PAGE>



Item 2: Management's  Discussion and Analysis of Financial Condition and Results
of Operations of CMP Group and Central Maine Power Company

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

Note re Forward-Looking Statements

This  Report  on  Form  10-Q  contains  forecast   information  items  that  are
"forward-looking  statements"  as defined in the Private  Securities  Litigation
Reform  Act  of  1995.   Such  statements  are  subject  to  certain  risks  and
uncertainties  which could cause actual results to differ  materially from those
projected.   Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking  statements,  which speak only as of the date hereof.  CMP Group
and Central Maine undertake no obligation to republish  revised  forward-looking
statements  to  reflect  events or  circumstances  after  the date  hereof or to
reflect  the  occurrence  of  unanticipated  events.  Readers  are also urged to
carefully  review and  consider  the  various  disclosures  made by CMP Group or
Central  Maine  which  attempt to advise  interested  parties of the facts which
affect CMP Group or Central Maine'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  Central  Maine holds  interests;  failure to resolve  any  significant
aspect of the "Year 2000  problem";  electric  utility  industry  restructuring,
including  the  ongoing  state and  federal  activities;  the results of Central
Maine's  planned  sale of its  generating  assets;  Central  Maine's  ability to
recover its costs  resulting from the January 1998 ice storms;  future  economic
conditions; earnings-retention and dividend-payout policies; developments in the
legislative,  regulatory,  and  competitive  environments in which Central Maine
operates,   including  regulatory  treatment  of  stranded  costs;  CMP  Group's
investment in unregulated businesses;  and other circumstances that could affect
anticipated  revenues  and  costs,  such as  unscheduled  maintenance  or repair
requirements  at nuclear plants and other  facilities,  and compliance with laws
and regulations.



<PAGE>



Operating Results
<TABLE>
<S>                                                         <C>          <C>  
                                               CMP
                                              Group                              Central Maine
                                                         (dollars in millions)
Net income (loss) Three months ended:
     September 30, 1998                        $17.4          $0.54/share             $13.1
     September 30, 1997                         (7.7)        $(0.24)/share             (5.8)
                                               -----                                  -----
     Increase                                  $25.1                                  $18.9

   Nine months ended:
     September 30, 1998                        $34.4          $1.06/share             $33.1
     September 30, 1997                          1.3          $0.04/share               7.6
                                               -----                                  -----
     Increase                                  $33.1                                  $25.5

Earnings (loss) applicable to common
stock
   Three months ended:
     September 30, 1998                          N/A                                  $12.2          $0.38/share
     September 30, 1997                          N/A                                   (7.7)        $(0.24)/share

   Nine months ended:
     September 30, 1998                          N/A                                  $29.2          $0.90/share
     September 30, 1997                          N/A                                    1.3          $0.04/share
</TABLE>

The 1998 results have  benefited  significantly  from reduced  operating cost of
$6.7 million in the third  quarter and $21.2  million  nine months to date,  for
Central Maine's  38-percent share of Maine Yankee, and lower fuel costs of $11.4
million and $40.4 million for the third quarter and nine months to date,  due to
the  expiration of a high-cost  contract for  non-utility  energy.  In addition,
three non-recurring events had a significant impact on earnings: 1) In September
1998,  MaineCom,  a subsidiary of CMP Group, sold its 40-percent interest in New
England  Fibre  Communications.  The sale  resulted in a net  after-tax  gain of
approximately  $5.7 million or $0.18 per share. 2) In August 1998, Central Maine
sold  shares  then  owned  directly  in NEON,  now a  38.5-percent-owned  equity
investment of MaineCom,  as part of the initial  public  offering of NEON common
stock.  The net after-tax  gain was  approximately  $1.9  million,  or $0.06 per
share.   3)  In   September   1998   Central   Maine   finalized   the  sale  of
transmission-line easements to a gas-pipeline contractor. The net after-tax gain
of approximately  $3.8 million  resulted in increased  earnings of approximately
$0.12 per share.




<PAGE>


Service  Area Kwh Sales - Central  Maine's  service  area  sales of  electricity
totaled approximately 2.32 billion  kilowatt-hours in the third quarter of 1998,
down  slightly  from the 2.35  billion  kilowatt-hour  level of a year  ago,  as
follows:
<TABLE>
<S>                         <C>            <C>             <C>          <C>              <C>            <C>  

                               Service Area Kilowatt-hour Sales (Millions of KWHs)
                                            Period Ended September 30,

                                                   Three                                            Nine
                                         Months                                        Months
                            1998           1997        % Change          1998            1997         % Change
                            ----           ----        --------          ----            ----         --------

 
Residential                 676.5          651.5           3.8%         2,067.8          2,116.5        (2.3)%
Commercial                  689.1          660.3           4.4          1,925.6          1,897.2         1.5
Industrial                  892.7          983.9          (9.3)         2,606.9          2,841.2        (8.2)
Other                        60.7           52.7          15.3            178.5            164.4         8.5
                        ---------      ---------                       --------         --------
                          2,319.0        2,348.4          (1.3)%        6,778.8          7,019.3        (3.4)%
                          =======        =======                        =======          =======
</TABLE>

The changes in service area kilowatt-hour sales reflect the following:

     Kilowatt-hour  sales to residential  customers  increased by 3.8 percent in
     the third  quarter of 1998  primarily  due to warmer  weather than in 1997,
     which increased air conditioning  usage, and also to the fact that the 1998
     period  contained  one  additional  meter-reading  day than the  comparable
     period in 1997. The decrease of 2.3 percent for the 1998 nine-month  period
     compared to 1997 was due primarily to milder temperatures in the first part
     of 1998,  and the loss of sales  resulting  from the January 1998 ice storm
     customer outages.

     Commercial  kilowatt-hour  sales  increased  by 4.4  percent  in the  third
     quarter,  and 1.5 percent for the nine months ended  September 30, 1998, as
     compared to 1997.  The  increased  sales in the retail and service  sectors
     were due to the relatively  healthy  economy and a strong tourist season in
     Central Maine's service territory.

     Industrial  kilowatt-hour  sales  decreased  by 9.3  percent  in the  third
     quarter and by 8.2 percent for the nine months  ended  September  30, 1998,
     compared to 1997. The decrease was due primarily to the closing of two pulp
     and paper  mills and the  expiration  of a buy/sell  contract  with a third
     paper mill which, as noted below,  similarly reduced purchased power energy
     expenses for the same period. The  pulp-and-paper  sector of the industrial
     class  accounts  for  approximately  56  percent  of the  industrial  sales
     category.   In  addition,   the  weakness  in  Asian   economies  has  been
     progressively  impacting Maine's manufacturing sector in 1998, resulting in
     lower than expected kwh sales in the industrial sector.

Operating Expenses

Central Maine's  purchased  power-energy  expense decreased by $11.4 million and
$40.4 million in the third quarter and year to date,  respectively,  compared to
1997. The decrease is due primarily to the expiration of a contract with a major
non-utility generator in October of 1997.

Central  Maine's  purchased  power-capacity  expense  decreased $6.7 million and
$21.2  million  in the third  quarter  and nine  months,  respectively,  of 1998
compared to 1997,  due primarily to the  permanent  shutdown of the Maine Yankee
plant in August 1997.

Maintenance  expense  increased  $2.7  million  and $6.7  million  for the third
quarter and nine months ended September 30, 1998 compared to 1997. This increase
was  due  primarily  to  Central  Maine's  operations  personnel  working  in  a
maintenance  capacity as a result of the ice storm in the first quarter,  and to
subsequent cleanup efforts.

Federal and state income taxes fluctuate with the level of pre-tax  earnings and
the regulatory  treatment of taxes by the MPUC.  This expense  increased by $7.9
million and $14.4  million for the third  quarter and  nine-month  period  ended
September 30, 1998 compared to 1997, as a result of higher pre-tax  earnings for
the nine months ended September 30, 1998.

Other Income and Expense

Equity in Earnings of Associated  Companies for the CMP Group  decreased by $1.8
million in the third  quarter of 1998 and $4.1 million for the nine months ended
September  30, 1998  compared to 1997.  The decrease is due  primarily to losses
recognized  due to start-up  costs of NEON. See "Expansion of Lines of Business"
below for further discussion.

Other Income  increased by $18.1 million and $17.9 million for the third quarter
and nine months ended  September 30, 1998 as compared to 1997. The third quarter
increase is due  primarily  to gains  associated  with the sale of stock of NEON
then  owned  by  Central  Maine,  the  sale  of  easements  to two  gas-pipeline
developers  and the sale of certain  telecommunication  holdings of CMP Group's,
MaineCom subsidiary.  As a result there was an increase in income tax expense on
other  income of $6.9  million and $6.5  million for the third  quarter and nine
months ended September 30, 1998.

Other Interest Expense increased by $1.4 million during the first nine months of
1998 as compared to 1997.  The  increase was due  primarily to higher  levels of
borrowing on Central Maine's  revolving  credit facility to meet working capital
needs.

In July 1997,  Central Maine redeemed $14 million of its 8 7/8% Series Preferred
Stock at par, under the mandatory and optional  sinking-fund  provisions of that
series.  This reduced dividends by approximately  $777 thousand in 1998 compared
to 1997.  On April 1, 1998 Central  Maine  redeemed all of its 7 7/8%  Preferred
Stock ($30 million),  reducing dividends by approximately $591 thousand and $1.2
million in the third  quarter and nine months ended  September 30, 1998 compared
to 1997. On June 8, 1998, $11.6 million of the outstanding 7.99% Preferred Stock
was repurchased,  further reducing  dividends by approximately $232 thousand and
$465  thousand in the third  quarter and nine months  ended  September  30, 1998
compared to 1997. On July 1, 1998,  Central Maine  redeemed the final $7 million
of its 8 7/8%  Preferred  Stock  under  the  mandatory  sinking-fund  provision,
reducing  dividends by approximately  $155 thousand in the third quarter of 1998
compared to 1997.

"Year 2000" Computer Issues

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

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

One primary  goal of CMP Group has been to achieve  Year 2000  readiness  for IT
infrastructure  and centralized  business  systems by the end of 1998. CMP Group
expects  to meet  that goal with a few minor  exceptions  related  primarily  to
delayed availability of certain vendor products.  Those vendors,  however,  have
indicated a scheduled  product  availability that should permit Central Maine to
be Year-2000 ready in those areas by June 1999.

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

Overall,  CMP Group estimates the current completion status of its comprehensive
plan by phase as follows: inventory, 92-percent complete; assessment, 92-percent
complete; remediation, 62-percent complete.

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

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

CMP Group estimates it will incur approximately $4.0 million of costs associated
with  making  the  necessary  modifications  identified  to  date  to  both  the
centralized and non-centralized systems. As of September 30, 1998, approximately
$2.5 million of such costs have been incurred.

CMP Group recognizes that failure to correct problems  associated with year 2000
issues could result in material  operational and financial risks if the affected
systems either cease to function or produce erroneous results.  Such risks could
include  inability  to  operate  fossil-fueled  and  hydro-electric   generating
facilities,  disruptions  in the  operation  of  transmission  and  distribution
systems,  an  inability to access  interconnections  with other  utilities,  and
disruptions  to  major  business  systems  (customer  information  and  service,
administrative,  and  financial).  CMP Group  cannot at this time  quantify  the
effect of these potential  events on CMP Group's or Central Maine's  operations,
liquidity, or financial condition.

In order to minimize the risk, and the potential  recovery time,  from Year 2000
problems,  CMP Group is actively involved in contingency planning.  Although CMP
Group has knowledge and experience in disaster/recovery  planning and execution,
it recognizes the  importance of year  2000-specific  contingency  planning and,
accordingly,  is  participating  in the integrated  contingency  planning effort
headed  by NERC  and the  Northeast  Power  Coordinating  Council  ("NPCC").  In
addition,  CMP  Group  is  in  the  process  of  developing  comprehensive  Year
2000-specific contingency plans for its own independent operations.

CMP Group  believes  its plans are adequate to attain Year 2000  readiness,  but
cannot  predict  what  effect,  if any,  the Year 2000  problem will have on its
business operations or financial results.

Liquidity and Capital Resources

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

Approximately  $117.9 million of cash was provided  during the nine months ended
September  30,  1998,  from  net  income  before   non-cash   items,   primarily
depreciation,  amortization  and  deferred  income  taxes.  During  that  period
approximately  $79.9 million of cash was used for fluctuations in certain assets
and liabilities and from other operating activities.

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

Investing  activities,  primarily  construction  expenditures,   utilized  $29.8
million  in  cash  during  the  first  nine  months  of  1998  for   generation,
transmission,  distribution,  and general construction expenditures. In order to
accommodate  existing and future loads on its electric  system  Central Maine is
engaged  in  a  continuing  construction  program.  Central  Maine's  plans  for
improvements and expansions,  its load forecast and its power-supply sources are
under a process of continuing review.  Actual  construction  expenditures depend
upon the availability of capital and other resources, load forecasts, the timing
of its  divestiture  of its  generating  assets,  customer  growth  and  general
business  conditions.  The ultimate  nature,  timing and amount of financing for
Central Maine's total construction  programs,  refinancing and energy-management
capital requirements will be determined in light of market conditions,  earnings
and other relevant factors.

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

During the nine months ended  September  30, 1998,  CMP Group paid  dividends on
common stock of $21.9 million, while preferred-stock  dividends, paid by Central
Maine, utilized $4.9 million of cash. In addition,  Central Maine reacquired 1.2
million shares of stock from CMP Group for $19 million following holding company
formation.

During  the  third  quarter  Central  Maine  issued  a total of $70  million  of
callable,  one-year,  floating-rate,  medium-term notes. In addition, on October
22, 1998,  Central Maine issued $50 million,  and on October 31 $25 million,  of
such  medium-term  notes,  making a total of $287  million  of  Central  Maine's
medium-term notes outstanding at November 3, 1998.

On July 1,  1998,  Central  Maine  redeemed  the final $7  million of its 8-7/8%
Preferred  Stock through the  mandatory  sinking fund  provision.  On August 15,
1998, Central Maine paid at maturity the outstanding $60 million of its Series S
6.03% General and Refunding  Mortgage Bonds, and on September 15 paid $8 million
of maturing medium-term notes. In addition, on November 2, Central Maine paid at
maturity its  outstanding  $75 million of 6.25% General and  Refunding  Mortgage
Bonds.

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

To support its short-term capital  requirements,  in October 1996, Central Maine
entered  into  a  $125  million  Credit  Agreement  with  several  banks,   with
BankBoston, N.A., and The Bank of New York acting as agents for the lenders. The
arrangement had two credit facilities:  a $75 million,  364-day revolving credit
facility  and a  $50-million,  3-year  revolving  credit  facility.  Both credit
facilities  require annual fees on the total credit lines. The fees are based on
Central Maine's credit ratings and allow for various borrowing options including
LIBOR-priced,  base-rate-priced  and  competitive-bid-priced  loans.  Access  to
commercial paper markets has been substantially  precluded based upon of Central
Maine's past credit ratings. The amount of outstanding short-term borrowing will
fluctuate with day-to-day  operational needs, the timing of long-term financing,
and market conditions.  Central Maine had $70 million in outstanding notes as of
September 30, 1998 under the credit facilities. The facilities are being amended
to reduce the banks'  aggregate  commitments  to $75 million,  revise the banks'
fees,  and amend  certain  other  provisions  to reflect the  reorganization  of
Central Maine into a holding company structure and other changed circumstances.

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

Purchased  Power  Contract - Effective  July 28, 1998,  Central Maine replaced a
purchased-power contract for energy from a wood-fired plant in Stratton,  Maine.
The old contract was  terminated  and a new  agreement for 45 megawatts at lower
rates was  entered  into,  which is  estimated  to save  Central  Maine over $28
million in net present value over the contract's term through August 2009.

Storm Damage to Company's System - On January 7 through 9, 1998, an ice storm of
unprecedented  breadth and severity struck Central  Maine's  service  territory,
causing  power  outages for  approximately  280,000 of Central  Maine's  528,000
customers, and substantial widespread damage to Central Maine's transmission and
distribution   system.   To  restore  its  electrical   system,   Central  Maine
supplemented its own crews with utility and  tree-service  crews from throughout
the  northeastern  United  States  and the  Canadian  maritime  provinces,  with
assistance   from  the  Maine  national  guard.   Central  Maine's   incremental
non-capital costs of the repair effort totaled  approximately $51 million,  most
of which is labor-related.

On January 15, 1998, the MPUC issued an order allowing Central Maine to defer on
its books the  incremental  non-capital  costs  associated  with Central Maine's
efforts to restore  service in response to the damage  resulting from the storm.
The order requires Central Maine, as part of its annual filing under the ARP, to
file  information  on the  amounts  deferred  under  the  order  and to submit a
proposal as to how the costs associated with the order should be recovered under
the ARP. In the ARP filing  Central Maine stated that once the final cost of the
storm was determined and the status of federal  assistance was finalized Central
Maine would  propose a plan for recovery of its costs.  Based on the MPUC order,
potential  federal  assistance  and/or  collection  in rates,  Central Maine has
deferred  approximately  $51 million in storm  related costs as of September 30,
1998.  In  October,  the MPUC  staff  issued  its draft  report  of its  summary
investigation of Maine utilities  response to the January ice storm. This report
finds  no  basis  for  further  formal  adjudicatory  investigation  into  Maine
utilities  response to the January ice storm and supports the utilities actions.
On May 1, 1998, President Clinton signed a Congressional appropriation bill that
included $130 million for Presidentially  declared disasters in 1998,  including
storm-damage cost reimbursement for electric utilities.  On November 5, 1998 the
United States  Department  of Housing and Urban  Development  announced  that of
those funds,  $2.2 million had been awarded to Maine,  with none  designated for
utility  infrastructure,   which  Central  Maine  and  the  Maine  Congressional
delegation  protested as inadequate and inconsistent with congressional  intent.
Central Maine cannot predict what portion of its ice storm-related costs it will
ultimately  recover from the Congressional  appropriation or from its customers,
or when any such recovery will take place.

Permanent Shutdown of Maine Yankee Plant

On August 6, 1997,  the Board of Directors of Maine Yankee voted to  permanently
cease power operations at its nuclear generating plant at Wiscasset,  Maine (the
"Plant")  and to begin  decommissioning  the  Plant.  As  reported  in detail in
Central Maine's Annual Report on Form 10-K for the year ended December 31, 1997,
the Plant had  experienced a number of operational  and regulatory  problems and
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
24, 1997, the DOJ, through the United States Attorney for Maine,  announced that
its review had  revealed  insufficient  grounds  for  criminal  prosecution.  On
October  8,  1998,  the NRC issued a notice of  violation  for the  pre-shutdown
violations,  but  announced  that it was imposing no civil  penalties  for those
violations.

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.  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.

Costs - Central  Maine has incurred  substantial  costs in  connection  with its
38-percent  share  of  Maine  Yankee  costs.  In 1997  such  costs  amounted  to
approximately  $132.3  million for  Central  Maine:  $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 Central  Maine would  otherwise  have  incurred  through a phasing down of
Maine Yankee's operations and maintenance costs, with substantial  reductions in
Maine Yankee's workforce having been implemented, but did not reduce the need to
buy  replacement  energy and capacity.  Central Maine expects its share of Maine
Yankee operations and maintenance costs to be approximately $45 million in 1998,
based on  information  provided  by  Maine  Yankee.  The  amount  of  costs  for
replacement   energy  and  capacity   varies  based  on  Central  Maine's  power
requirements and market conditions.  The impact of the nuclear-related  costs on
Central Maine was the major obstacle to achieving  satisfactory results in 1997,
despite the  approximately  $75  million in annual  Maine  Yankee-related  costs
embedded  in  the   determination  of  Central  Maine's  required  revenues  for
ratemaking purposes and despite success in controlling other operating costs.

Central Maine's  38-percent  ownership  interest in Maine Yankee's common equity
amounted to $32.2  million as of September  30, 1998,  and under Maine  Yankee's
Power Contracts and Additional Power Contracts, Central Maine is responsible for
38 percent of the costs of decommissioning the Plant. Maine Yankee's most recent
comprehensive  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. On September 30, 1998, the balance
in the Maine  Yankee  decommissioning  fund was $214.9  million.  On November 6,
1997,  Maine Yankee  submitted the new estimate  (adjusted to $507.2 million) to
the FERC as part of its rate  case  reflecting  the fact  that the  Plant was no
longer operating and had entered the decommissioning  phase. If the FERC accepts
the filed estimate, the amount of Maine Yankee's collections for decommissioning
would  rise  from  the  $14.9  million   previously   allowed  by  the  FERC  to
approximately  $36.4 million per year.  Maine Yankee has indicated that it plans
to  further  update  its  decommissioning  cost  estimate  through  supplemental
testimony before final consideration by the FERC.

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 Central Maine's  38-percent
share would be approximately $353 million.  The 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,
Central Maine believes that it is entitled to recover  substantially  all of its
share of such costs from its customers and as of September 30, 1998, is carrying
on its  consolidated  balance  sheet  a  regulatory  asset  and a  corresponding
liability in the amount of $297.4 million,  which is the $353 million  discussed
above net of Central Maine'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.  Central Maine  believes
the  report's  negative  conclusions  are  unfounded  and may be  contradictory.
Central  Maine  has been  charging  its share of the Maine  Yankee  expenses  to
income, and under the ARP has requested only price increases that were below the
applicable rate of inflation.  Central Maine 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. The
MPUC subsequently stayed its investigation pending the outcome of Maine Yankee's
FERC rate case,  in which the MPUC and the Maine  Office of the Public  Advocate
("OPA") are actively participating,  while indicating that the MPUC's consultant
would continue its extended review.  Based on preliminary  indications,  Central
Maine  expects the  consultant's  recommendations  resulting  from its  extended
review would call for additional  disallowances,  which Maine Yankee has said it
would expect 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. Maine
Yankee's  rate filing with the FERC  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 accepted for filing the rates  associated with the
amended Power  Contracts and made them  effective  January 15, 1998,  subject to
refund.  The FERC also  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.  Those issues are
being pursued vigorously by several intervenors, including the MPUC and the OPA,
and the parties have been  discussing  proposals to resolve  those  issues.  The
hearing in the FERC rate  proceeding  is currently  scheduled to begin in May of
1999. Central Maine cannot predict the outcome of the FERC proceeding.

In a  FERC  rate  proceeding  involving  the  Connecticut  Yankee  plant  a FERC
administrative  law judge issued an initial decision on August 31, 1998. The law
judges found that  Connecticut  Yankee had failed to meet its burden of proof in
supporting   additional   decommissioning  cost  collections  and  ordered  that
Connecticut Yankee recover  decommissioning  costs at the lower rate approved in
its previous rate case. In addition, the law judge found imprudent management to
be a factor contributing to the Connecticut Yankee shutdown decision and reached
other  conclusions  that were partially  unfavorable to Connecticut  Yankee with
respect to some issues that are  similar to those being  litigated  in the Maine
Yankee proceeding.  Although the Maine Yankee and Connecticut Yankee plants were
operated by different  entities and the factual  operating  histories as well as
present  decommissioning  operations,  of the two plants are  different  in many
respects,  a final decision by the FERC in the Connecticut  Yankee proceeding on
issues  also  being   litigated  in  the  Maine  Yankee  case  could  have  some
precedential  effect in the Maine Yankee FERC  proceeding.  Central Maine cannot
predict  what the FERC's  final  determination  of those  issues  will be in the
Connecticut  Yankee  proceeding  or any effect it might have on the Maine Yankee
proceeding.

On January 15,  1998,  Maine  Yankee,  its former  bondholders  and lender banks
revised the Standstill  Agreements and extended their term to April 15, 1998. On
April 7, 1998,  Maine Yankee refunded all of its mortgage bonds and bank debt by
means of a three-year  revolving credit facility with two major banks, which may
be extended by agreement of the parties, and a $48 million term loan due in 2006
from  a  major  institutional   investor,  and  discharged  its  First  Mortgage
Indenture.  The banks' revolving credit  commitments are scheduled to be reduced
through planned  prepayments,  structured to conform to Maine Yankee's projected
cash  flows,  in two  decrements  from their  initial  level of $80 million to a
working-capital  level of $20 million on March 31, 2000, and were reduced to $50
million  in June  1998.  The new debt  obligations  are  secured  by a  security
interest  in Maine  Yankee's  rights in its Power  Contracts,  Additional  Power
Contracts  and  Capital  Funds  Agreements  with  its  Sponsors  (the  "Assigned
Agreements")  and its  rights  to  certain  third-party  payments,  and  contain
restrictions on the payment of common-stock  dividends,  based on Maine Yankee's
cash position and a debt-service  coverage test. In addition, in connection with
the  refinancing  each of the Sponsors,  including  Central Maine,  affirmed its
obligations  under the Assigned  Agreements  and agreed not to take the position
that the permanent  shutdown of the Plant gave rise to any right to terminate or
reduce payments under the Assigned Agreements.

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

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   utility  (Central  Maine),
comparable to the utility's  opportunity  to recover  stranded  costs before the
implementation   of  retail   access  under  the   legislation.   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.  The MPUC is
conducting  the  proceeding  that  will  ultimately  determine  Central  Maine's
stranded  costs  and  corresponding  revenue  requirements,  and  has  scheduled
completion of the current phase of the proceeding for the first quarter of 1999.
On December 5, 1997,  Central  Maine filed direct  testimony  in the  proceeding
estimating its future revenue  requirements  as a  transmission-and-distribution
utility  and  providing  an estimate of its  strandable  costs,  which are to be
defined  by the MPUC  later  in the  proceeding.  Central  Maine  estimated  its
strandable costs at approximately $1.3 billion, net present value, and explained
the  assumptions  underlying the estimate.  On February 10, 1998,  Central Maine
reduced  its  estimate  of  strandable  costs to $0.8  billion  to  reflect  the
anticipated  sale of its  generating  assets.  Central Maine cannot  predict the
results of the MPUC proceeding,  which is scheduled to conclude in January 1999,
subject to later updating prior to March 1, 2000.

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. 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 any substantial  inaccuracies in
the year 2003 and at least every three years thereafter.

Upon the  commencement  of retail access on March 1, 2000,  Central Maine,  as a
transmission-and-distribution  utility, will be prohibited from selling electric
energy  to  retail  customers.  Any  competitive  electricity  provider  that is
affiliated  with  Central  Maine  would be allowed to sell  electricity  outside
Central Maine's service  territory without  limitation as to amount,  but within
Central  Maine's  service  territory the affiliate would be limited to providing
not more than 33 percent of the total kilowatt-hours sold within Central Maine's
service  territory,  as  determined  by the  MPUC.  On June 30,  1998,  the MPUC
approved the creation of such an affiliated energy provider,  subject to certain
conditions designed to eliminate any market advantage the new company might gain
through its affiliation with Central Maine,  and the new company,  "MainePower",
has been organized as a wholly-owned subsidiary of CMP Group.

Agreement for Sale of Generation Assets

On January 6, 1998,  Central Maine  announced  that it had reached  agreement to
sell  all  of its  hydro,  fossil  and  biomass  power  plants  with a  combined
generating  capacity  of 1,185  megawatts  for $846  million in cash,  including
approximately $18 million for assets for Union Water Power, to Florida-based FPL
Group. The related book value for these assets was approximately $221 million at
December 31, 1997. In addition, as part of its agreement with FPL Group, Central
Maine  entered  into energy  buy-back  agreements  to assist in  fulfilling  its
obligation to supply its customers with power until March 1, 2000. Subsequently,
an agreement was reached to sell related storage  facilities to FPL Group for an
additional  $4.4 million,  including  $1.7 million for Union Water  assets.  The
related book value of these assets are approximately $11.9 million.

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

Substantially  all of the generating  assets included in the sale are subject to
the lien of Central Maine's General and Refunding Mortgage Indenture dated as of
April 15, 1976 (the "Indenture").  Therefore,  substantially all of the proceeds
from sale must be deposited  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 Central  Maine 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. Central Maine
must also provide for payment of applicable  taxes  resulting from the sale. The
manner and timing of the ultimate application of the sale proceeds after closing
are in any event subject to various  factors,  including  Indenture  provisions,
market conditions and terms of outstanding securities.

The bid value in excess of the  remaining  investment  in the power  plants will
reduce Central  Maine'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, Central Maine 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.  Central  Maine
believes that the reduction in stranded and other costs could permit a reduction
in rates for Central Maine's customers.

The sale is subject to various closing conditions, including the approval of the
MPUC and the FERC,  which  Central  Maine  expects  will  extend  into the first
quarter of 1999, and is subject to consents or covenant  waivers from certain of
Central Maine's  lenders.  On November 9, 1998, the MPUC Hearing Examiner issued
his   report,   in  the  form  of  a   recommended   decision,   approving   the
generation-asset sale as being in the public interest. The Hearing Examiner also
found that the  benefits of the sale  outweighed  the  "detriments"  of a letter
agreement   between   Central   Maine  and  FPL  Group  which   raised   certain
transmission-access  issues  that  will  ultimately  be  resolved  by the  FERC.
Finally,  in a separate  appendix to the report that was not  publicly  released
with the report, the Hearing Examiner  recommended a ratemaking  adjustment that
would require Central Maine to bear the risk of energy market price changes with
respect  to its  energy-buyback  agreements  between  the date of closing of the
asset sale and March 1, 2000.  Central  Maine is  planning to oppose the Hearing
Examiner's  ratemaking  adjustment  in  comments to be filed  before  final MPUC
action on the asset sale,  which is scheduled  for November  23.  Central  Maine
cannot  predict the final MPUC decision or whether or in what form the necessary
regulatory approvals, consents and waivers will be obtained.

Central Maine 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 Central Maine's or CMP
Group'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
Central Maine to recover its stranded costs from that  contemplated  by existing
law.

Expansion of Lines of Business

General - CMP Group is also preparing for  competition by expanding its business
opportunities through investments that capitalize on core competencies. MaineCom
Services  is a  subsidiary  that  arranges  fiber-optic  data  service  for bulk
carriers,  offering  support for cable television or  "super-cellular"  personal
communication  vendors,  and  providing  other   telecommunications   consulting
services. TeleSmart is a wholly-owned accounts receivable management subsidiary.
Another wholly-owned subsidiary,  CNEX, formerly CMP International  Consultants,
provides  utility  consulting  (domestic and  international)  and research.  The
wholly-owned  Union  Water  Power  Company  provides  management  of rivers  and
recreational facilities, locating of underground utility facilities and infrared
photography, real estate brokerage and management,  modular housing, engineering
and  environmental   services,   and  utility   construction   services.   These
subsidiaries  often  utilize  skills  of  former  Central  Maine  employees  and
regularly  compete for business with other  companies.  Two additional  areas of
business  opportunity  being pursued by CMP Group through its  subsidiaries  are
discussed in the following two paragraphs.

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

Fiber Optic Network - CMP Group,  largely  through its  wholly-owned  subsidiary
MaineCom  Services,  owns 38.5 percent of the common  stock of  Northeast  Optic
Network, Inc. ("NEON"), which is a facilities-based  provider of technologically
advanced,  high-bandwidth,  fiber optic transmission capacity for communications
carriers on local loop, inter-city and interstate facilities.  NEON is currently
expanding  its fiber optic  network to encompass  over 900 route miles,  or more
than  60,000  fiber  miles,  in New England  and New York,  utilizing  primarily
electric-utility  rights-of-way,  including some of Central Maine's in Maine and
some owned by other electric utilities  including Northeast  Utilities,  another
substantial  minority  stockholder,   in  Connecticut,   Massachusetts  and  New
Hampshire.  As of  September  30,  1998,  NEON  had  completed  construction  of
approximately  450 route miles, or 31,000 fiber miles, of its planned system and
is currently  engineering,  constructing,  or acquiring additional routes with a
goal of  creating  a  continuous  fiber  optic  link  between  New York City and
Portland,  Maine,  with access into and around  Boston and numerous  other major
service areas in the Northeast.

On August 5, 1998, NEON completed  initial public  offerings of $54.0 million of
common stock and $180.0 million of senior notes,  and Central Maine,  as part of
the  common-stock  offering,  sold some of the  shares in NEON it then owned for
proceeds of approximately $3.4 million.  In addition,  with some of the proceeds
of the offering NEON repaid approximately $18 million Central Maine had advanced
under an earlier  construction  loan  agreement.  CMP Group  believes there is a
growing  need for such a fiber optic  network in the  Northeast  and that NEON's
outside financing will provide substantial assistance in completing construction
of the network, but cannot predict the results of this venture. The common stock
of NEON is listed on the Nasdaq Stock Market's  National Market under the symbol
"NOPT".

Environmental Matters

CMP Group  and its  subsidiaries  assess  compliance  with laws and  regulations
related to hazardous substance remediation on an ongoing basis. At September 30,
1998,  Central  Maine had an accrued  liability of $2.6 million for  remediation
costs at  various  sites.  The costs at  identified  sites may be  significantly
higher if, among other things,  other  potentially  responsible  parties are not
financially  able to contribute to these costs or identified  possible  outcomes
change. See Note 2, "Commitments and  Contingencies." - "Legal and Environmental
Matters" for further discussion of this matter.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Central Maine is exposed to interest rate risk through the use of fixed-rate and
variable-rate  debt and preferred  stock as sources of capital.  Its exposure to
changes in  applicable  interest  rates has  increased  during 1998,  due to its
issuance of $262 million of medium-term  notes during the year,  $202 million of
which bear floating,  LIBOR-based,  rates. Most of the floating-rate medium-term
notes issued during 1998 replaced  fixed-rate mortgage bonds or other fixed-rate
securities.


<PAGE>


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings
Shareholder  Suit - On  September  25,  1997,  a lawsuit was filed in the United
States  District  Court for the  Southern  District  of New York by a New Jersey
resident  claiming  to be a  shareholder  of Central  Maine  against the current
members of Central Maine's board of directors,  including the then President and
Chief Executive  Officer,  and three former directors.  The complaint contains 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  does not seek  damages  against
Central Maine, but requests that the defendants  disgorge the compensation  they
received during the period of alleged mismanagement,  pay to Central Maine costs
incurred  allegedly as a result of the claimed actions,  and cause Central Maine
to take steps to prevent such actions.

The defendants  moved to dismiss the suit for failure of the plaintiff to make a
pre-suit demand on Central Maine's board of directors, as required by Maine law,
and on February  18, 1998,  the suit was  dismissed.  On April 2, 1998,  Central
Maine received such a demand from the plaintiff, which is under consideration by
the board.
Central Maine believes the plaintiff's claim is without merit.

Regulatory Matters - For a discussion of certain significant  regulatory matters
affecting  Central Maine,  including those related to the permanent  shutdown of
the Maine  Yankee  Plant,  as well as  electric-utility  restructuring,  an MPUC
proceeding  that will  determine  Central  Maine's  stranded  costs and  related
matters,  and  the  sale  of  its  generation  assets,  see  Item 2 of  Part  I,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operation"  -  "Permanent  Shutdown  of  Maine  Yankee  Plant",   "Restructuring
Legislation and MPUC Proceeding," and "Agreement for Sale of Generation Assets,"
which are incorporated herein by reference.

Tax Appeal - For a  discussion  of  Central  Maine's  appeal of two  significant
federal income tax adjustments proposed by the Internal Revenue Service see Note
2, "Commitments and Contingencies" - "Proposed Federal Income Tax Adjustments."

Environmental  Matters  -  For  a  discussion  of  administrative  and  judicial
proceedings concerning cleanup of hazardous waste sites see Note 2, "Commitments
and  Contingencies,"  "Legal and  Environmental  Matters," which is incorporated
herein by reference.

Item 2. Through Item 4. Not applicable

Item 5. Other Information

Shareholder  Proposals,  Nomination of Directors by Shareholders - The CMP Group
charter  provides that in order for a shareholder  to properly  bring a proposal
before the CMP Group annual meeting, such proposal must be received by CMP Group
not less than 60 days nor more than 90 days  prior to the first  anniversary  of
the  preceding  year's  annual  meeting.  If the date of such annual  meeting is
advanced by more than 30 days or delayed by more than 60 days, or in the case of
CMP  Group's  first  annual  meeting  after  September  1,  1998,  notice by the
shareholder  to be timely must be received  not earlier than the  ninetieth  day
prior to such  annual  meeting  and not later than the close of  business on the
later of (I) the sixtieth day prior to such annual meeting or (ii) the tenth day
following the date on which notice of the date of the annual  meeting was given.
This  requirement  is in  addition  to,  and  does  not  otherwise  affect,  the
provisions  of the  Securities  Exchange Act that will govern the  submission of
proposals by  shareholders  for  inclusion in CMP Group's proxy  statement.  The
Central  Maine  charter  and  Central  Maine  by-laws  do  not  contain  similar
provisions.  The CMP Group charter also requires that shareholder nominations of
candidates for election to the Board of Directors of CMP Group be in writing and
be  received  not less  than 60 days nor more  than 90 days  prior to the  first
anniversary of the preceding  year's annual meeting.  If the date of such annual
meeting is advanced by more than 30 days or delayed by more than 60 days,  or in
the case of CMP Group's  first  annual  meeting  after  September  1, 1998,  the
nomination  must be received  not earlier than the  ninetieth  day prior to such
annual  meeting and not later than the close of business on the later of (I) the
sixtieth day prior to such annual  meeting or (ii) the tenth day  following  the
date on which  notice of the date of the annual  meeting was given.  The Central
Maine charter and Central Maine by-laws do not contain similar provisions.

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits. None.
      (b)Reports on Form 8-K.  CMP Group filed a report on Form 8-K on September
         1, 1998, reporting the implementation of the re-organization of Central
         Maine and its affiliates into the CMP Group holding company structure.



<PAGE>


                                   Signatures
Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrants  have duly  caused  this  report  to be  signed on their  respective
behalfs by the undersigned thereunto duly authorized.

                                           CMP GROUP, INC.



Date:  November 16, 1998     By     /s/ David E. Marsh_____________________
      --------------------
                                    David E. Marsh, Chief Financial Officer 
                                    (Principal Financial Officer and duly 
                                    authorized officer)



                                           CENTRAL MAINE POWER COMPANY



Date:  November 16, 1998     By    /s/ Curtis I. Call______________________
      --------------------
                                    Curtis I. Call, Treasurer (duly authorized
                                    officer)



                             By     /s/ Michael W. Caron___________________
                                    Michael W. Caron, Comptroller (Chief 
                                    Accounting Officer)