Maine & Maritimes 10-Q 2009 Q2 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

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FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

- OR - -

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

SECURITIES EXCHANGE ACT OF 1934

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Commission File No.  333-103749

MAINE & MARITIMES CORPORATION

A Maine Corporation

I.R.S. Employer Identification No. 30-0155348

209 STATE STREET, PRESQUE ISLE, MAINE 04769

(207) 760-2499

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x.    No ¨.

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 13, 2009.

Common Stock, $7.00 par value – 1,681,249 shares

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES

Statements of Consolidated Operations (Unaudited)

(In thousands of dollars, except share and per share information)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Operating Revenues
Regulated Revenues	$	7,330		$	7,789		$	17,432		$	18,680
Unregulated Utility Services Revenues		354			2,078			548			3,374
Total Operating Revenues		7,684			9,867			17,980			22,054
Operating Expenses
Regulated Operation and Maintenance		3,766			3,305			7,554			6,642
Unregulated Utility Services Direct Project Expenses		220			2,092			354			3,210
Other Unregulated Operation and Maintenance (1)		229			326			388			483
Depreciation		804			756			1,400			1,511
Amortization of Stranded Costs		2,701			2,728			5,401			5,456
Amortization		42			54			72			107
Taxes Other Than Income		472			452			923			906
(Benefit of) Provision for Income Taxes—Regulated		(228	)		193			745			1,557
Benefit of Income Taxes—Unregulated		(55	)		(175	)		(107	)		(177	)
Total Operating Expenses		7,951			9,731			16,730			19,695
Operating (Loss) Income		(267	)		136			1,250			2,359
Other Income (Deductions)
Equity in Income of Associated Companies		33			41			61			66
Interest and Dividend Income		7			1			8			5
Benefit of (Provision for) Income Taxes		1			19			3			(10	)
Other—Net		(35	)		(97	)		(57	)		(92	)
Total Other Income (Deductions)		6			(36	)		15			(31	)
(Loss) Income Before Interest Charges		(261	)		100			1,265			2,328
Interest Charges
Long-Term Debt and Notes Payable		455			559			906			1,214
Less:  Stranded Costs Carrying Charge		(305	)		(403	)		(636	)		(805	)
Total Interest Charges		150			156			270			409
Net (Loss) Income from Continuing Operations		(411	)		(56	)		995			1,919
Discontinued Operations
Loss on Sale of Discontinued Operations		-			(1	)		-			(1	)
Loss from Operations		-			(20	)		-			(35	)
Income Tax Benefit		-			9			-			15
Loss from Discontinued Operations		-			(12	)		-			(21	)
Net (Loss) Income Available for Common Stockholders	$	(411	)	$	(68	)	$	995		$	1,898
Average Shares of Common Stock Outstanding - Basic		1,680,574	��		1,678,096			1,680,137			1,677,979
Average Shares of Common Stock Outstanding - Diluted		1,680,574			1,678,096			1,680,810			1,678,729
Basic (Loss) Earnings Per Share of Common Stock From Continuing Operations	$	(0.25	)	$	(0.03	)	$	0.59		$	1.14
Basic Loss Per Share of Common Stock From Discontinued Operations		-			(0.01	)		-			(0.01	)
Basic (Loss) Earnings Per Share of Common Stock From Net (Loss) Income	$	(0.25	)	$	(0.04	)	$	0.59		$	1.13
Diluted (Loss) Earnings Per Share of Common Stock From Continuing Operations	$	(0.25	)	$	(0.03	)	$	0.59		$	1.14
Diluted Loss Per Share of Common Stock From Discontinued Operations		-			(0.01	)		-			(0.01	)
Diluted (Loss) Earnings Per Share of Common Stock From Net (Loss) Income	$	(0.25	)	$	(0.04	)	$	0.59		$	1.13
(1) Unregulated operation and maintenance expense and income tax benefits included in continuing operations is the activity of the holding company, including operating expenses of MAM USG, other corporate costs directly associated with unregulated operations, and other costs that cannot be charged to the regulated utility.

See Notes to Consolidated Financial Statements

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES

Statements of Consolidated Cash Flows (Unaudited)

(In thousands of dollars)

	Six Months Ended June 30,
	2009			2008
Cash Flow From Operating Activities
Net Income	$	995		$	1,898
Adjustments to Reconcile Net Income to Net Cash Provided by Operations:
Depreciation		1,400			1,511
Amortization of Intangibles		72			107
Amortization of Seabrook		555			555
Amortization of Cancelled Transmission Plant		-			127
Deferred Income Taxes—Net		(1,379	)		408
Deferred Investment Tax Credits		(9	)		(10	)
Change in Deferred Regulatory and Debt Issuance Costs		4,005			2,811
Change in Benefit Obligations		(276	)		153
Change in Deferred Directors' Compensation		(80	)		386
Change in Current Assets and Liabilities:
Accounts Receivable and Unbilled Revenue from Utility		3,660			(551	)
Other Current Assets		(277	)		(9	)
Accounts Payable		(738	)		1,018
Other Current Liabilities		267			314
Other—Net		(99	)		(318	)
Operating Cash Flows from Continuing Operations		8,096			8,400
Operating Cash Flows from Discontinued Operations		-			98
Net Cash Flow Provided By Operating Activities		8,096			8,498
Cash Flow From Financing Activities
Repayments of Long-Term Debt		(700	)		(4,067	)
Payments of Capital Lease Obligations		(97	)		(92	)
Short-Term Debt Repayments, Net		(3,200	)		(2,400	)
Net Cash Flow Used For Financing Activities		(3,997	)		(6,559	)
Cash Flow From Investing Activities
Change in Restricted Investments		(916	)		2,393
Dividends Paid		(168	)		-
Cash Received from Sale of Discontinued Operations		-			573
Investment in Fixed Assets		(3,530	)		(4,191	)
Net Cash Flow Used For Investing Activities		(4,614	)		(1,225	)
(Decrease) Increase in Cash and Cash Equivalents		(515	)		714
Cash and Cash Equivalents at Beginning of Period		1,846			910
Cash and Cash Equivalents at End of Period	$	1,331		$	1,624
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for:
Interest	$	936		$	1,336
Income Taxes	$	2,391		$	1,305
Non-Cash Activities:
Dividends Payable	$	84		$	-
Fair Market Value of Stock Issued to Directors and Officers	$	58		$	13

See Notes to Consolidated Financial Statements

3

MAINE & MARITIMES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(In thousands of dollars)

	June 30,			December 31,
	2009			2008
ASSETS
Plant:
Electric Plant in Service	$	112,167		$	109,330
Non-Utility Plant		63			66
Less:  Accumulated Depreciation		(46,787	)		(46,011	)
Net Plant in Service		65,443			63,385
Construction Work-in-Progress		3,071			3,104
Total Plant Assets		68,514			66,489
Investments in Associated Companies		1,046			989
Net Plant and Investments in Associated Companies		69,560			67,478
Current Assets:
Cash and Cash Equivalents		1,331			1,846
Accounts Receivable (less allowance for uncollectible accounts of $196 in 2009 and $186 in 2008)		5,971			9,223
Unbilled Revenue from Utility		832			1,240
Inventory		1,195			943
Unbilled Contract Revenue		254			14
Prepayments		254			469
Total Current Assets		9,837			13,735
Regulatory Assets:
Uncollected Maine Yankee Decommissioning Costs		2,754			3,248
Recoverable Seabrook Costs		7,784			8,339
Regulatory Assets—Deferred Income Taxes		5,397			5,611
Regulatory Assets—Post-Retirement Medical Benefits		5,972			5,985
Deferred Fuel and Purchased Energy Costs		22,520			26,112
Unamortized Premium on Early Retirement of Debt		582			685
Deferred Regulatory Costs		1,453			1,570
Total Regulatory Assets		46,462			51,550
Other Assets:
Unamortized Debt Issuance Costs		143			169
Restricted Investments (at cost, which approximates market)		925			9
Other Assets		1,812			1,577
Total Other Assets		2,880			1,755
Total Assets	$	128,739		$	134,518

See Notes to Consolidated Financial Statements

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES

Capitalization and Liabilities (Unaudited)

(In thousands of dollars)

	June 30,		December 31,
	2009		2008
Capitalization (see accompanying statement):
Shareholders’ Equity	$	47,083	$	45,048
Long-Term Debt		24,629		25,425
Total Capitalization		71,712		70,473
Current Liabilities:
Long-Term Debt Due Within One Year		1,508		1,412
Notes Payable to Banks		2,800		6,000
Accounts Payable		4,260		4,866
Accounts Payable—Associated Companies		29		30
Accrued Employee Benefits		1,477		1,608
Customer Deposits		207		102
Taxes Accrued		578		309
Interest Accrued		81		111
Dividends Payable		84		84
Unearned Revenue		9		86
Total Current Liabilities		11,033		14,608
Deferred Credits and Other Liabilities:
Accrued Removal Obligations		5,837		5,787
Carrying Value of Interest Rate Hedge		2,896		4,800
Uncollected Maine Yankee Decommissioning Costs		2,754		3,248
Other Regulatory Liabilities		830		663
Deferred Income Taxes		17,334		18,161
Accrued Postretirement Benefits and Pension Costs		13,846		14,135
Investment Tax Credits		30		39
Miscellaneous		2,467		2,604
Total Deferred Credits and Other Liabilities		45,994		49,437
Commitments, Contingencies, and Regulatory Matters (Note 8)
Total Capitalization and Liabilities	$	128,739	$	134,518

See Notes to Consolidated Financial Statements

5

MAINE & MARITIMES CORPORATION AND SUBSIDIARIES

Statement of Consolidated Shareholders’ Equity (Unaudited)

(In thousands of dollars, except share data)

			Common Shares
	Common Shares Issued and Outstanding		Par Value Issued ($7/Share)		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2008		1,678,924	$	11,752	$	1,740	$	34,426		$	(2,870	)	$	45,048
Common Stock  Issued		1,650		11		49								60
Net Income								995						995
Other Comprehensive Income:
Unrealized Loss on Investments Available for Sale, Net of Tax Benefit of $4											6			6
Change in Fair Value of Interest Rate Hedge, Net of Tax Provision of $762											1,142			1,142
Total Other Comprehensive Income														1,148
Total Comprehensive Income														2,143
Dividend ($0.10 per share)								(168	)					(168	)
Balance, June 30, 2009		1,680,574	$	11,763	$	1,789	$	35,253		$	(1,722	)	$	47,083

MAM had five million shares of $7 per share common stock authorized, with 1,680,574 and 1,678,924 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively. At June 30, 2009 and December 31, 2008, MAM had 500,000 shares of $0.01 per share preferred stock authorized, with none issued or outstanding.

See Notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Unaudited)

1.    ACCOUNTING POLICIES

Consolidation and Basis of Presentation

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

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

2.   MAM Utility Services Group (“MAM USG”), a wholly-owned United States subsidiary.

Discontinued operations reported for 2008 consists of the activity of The Maricor Group (“TMG”) and its wholly-owned United States subsidiary The Maricor Group New England, Inc. (“TMGNE”) and TMG’s wholly-owned Canadian subsidiary The Maricor Group, Canada Ltd (“TMGC”) and TMGC’s wholly-owned Canadian subsidiary Mecel Properties Ltd. (“Mecel”).  Each of these discontinued entities has been dissolved.

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

MAM is listed on the NYSE Amex under the symbol “MAM.”

All inter-company transactions between MAM and its subsidiaries have been eliminated in consolidation.  In the opinion of management, the interim financial statements contain all adjustments necessary (consisting of normal recurring accruals) to present fairly the financial information contained herein. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year, in part due to the seasonal nature of the business.

Management evaluated subsequent events through August 13, 2009, the date the financial statements were issued.

Accounting Policies

The Company’s accounting policies are those disclosed in its 2008 Annual Report on Form 10-K and updated in the 2009 first quarter Form 10-Q, both of which are hereby incorporated by this reference.

New Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

In June 2009 the FASB issued Statement No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.”  The FASB Accounting Standards Codification (“Codification”) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.  This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

The Codification will supersede all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.  Following Statement 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.  Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification.  This statement is not expected to have any impact on the Company’s financial statements.

Amendment of FASB Interpretation No. 46(R) - Consolidation of Variable Interest Entities and Accounting for Transfers of Financial Assets an Amendment of FASB Statement No. 140

The FASB has issued the following two standards which change the way entities account for securitizations and special-purpose entities:

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·   FASB Statement No. 166, Accounting for Transfers of Financial Assets;and

·   FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R).

Statement 166 is a revision to FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets.  It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.

Statement 167 is a revision to FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,”and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.

The new standards will require a number of new disclosures.  Statement 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.  A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements.  Statement 166 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets.  Statements 166 and 167 will be effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity.  Early application is not permitted.  This statement is not expected to have a significant effect on the Company’s financial statements.

Subsequent Events

The FASB has issued FASB Statement No. 165, “Subsequent Events.”Statement 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Statement 165 provides:

·   The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements;

·   The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and

·   The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

Statement 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively.  This statement did not have a significant effect on the Company’s financial statements.

Fair Value Reporting

The FASB has issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”).  SFAS 161 amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) to amend and expand the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows.  To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.  SFAS 161 became effective for the Company on January 1, 2009 and the required disclosures are reported in Note 10, “Fair Value Disclosures.”

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On April 9, 2009, the FASB issued three FASB Staff Positions (“FSPs”) related to fair value reporting:

·   FSP 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.”  This FSP provides additional guidance for measuring fair value under FASB Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements.”  The FSP emphasizes that the objective of fair value measurement remains to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.  The FSP further clarifies that lack of an active market or orderly transactions may require the entity to change the valuation technique or use multiple techniques to determine fair value.  Finally, this FSP expanded the requirement to disclose the inputs and valuation techniques used to measure fair value in annual reporting to also require these disclosures in interim period reporting.

·   FSP 115-2, “Recognition and Presentation of Other-Than-Temporary Impairments (“OTTI”).”  FSP 115-2 amends the guidance in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” and SFAS 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations.”  This guidance addresses investments in debt securities only, not equity securities.  Under this new model, an OTTI is triggered if (1) an entity has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery, or (3) it does not expect to recover the entire amortized cost basis of the security.  If the OTTI is triggered by (1) or (2), the entire loss (cost basis less fair value) is recognized in earnings.  If the OTTI is triggered by (3), and the entity does not intend to sell the security, only the credit loss (cost basis less amount expected to be recovered) is recognized in earnings.  The remaining difference between the amount expected to be recovered and fair value is recorded in other comprehensive income (“OCI”).

·   FSP 107-1, “Interim Disclosures about Fair Value of Financial Instruments.”  FSP 107-1 amends SFAS 107, “Disclosures about Fair Value of Financial Instruments” and Accounting Principles Board Opinion (“APB”) No. 28, “Interim Financial Reporting,” to require disclosures for interim reporting periods of publicly traded companies, in addition to annual reporting periods.

These FSPs are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted if all three are adopted concurrently.  On January 1, 2008, the Company adopted FASB Statement No. 157, “Fair Value Measurements” and has includeddisclosure of the level of inputs for determination of the fair market value of interest rate hedges as described in Note 10 of the “Notes to Consolidated Financial Statements.”  These FSPs did not require additional disclosures at this time.

2.    INCOME TAXES

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

(In thousands of dollars)	For the Quarters Ending June 30,						For the Six Months Ending June 30,
	2009			2008			2009			2008
Current income taxes
Federal	$	375		$	1,045		$	1,687		$	1,045
State		144			357			550			357
Foreign		(1	)		14			(1	)		14
Total current income taxes		518			1,416			2,236			1,416
Deferred income taxes
Federal		(678	)		(1,086	)		(1,354	)		(43	)
State		(120	)		(335	)		(239	)		12
Total deferred income taxes		(798	)		(1,421	)		(1,593	)		(31	)
Investment credits, net		(4	)		(5	)		(8	)		(10	)
Total income taxes	$	(284	)	$	(10	)	$	635		$	1,375
Allocated to:
Operating income
-  Regulated	$	(228	)	$	193		$	745		$	1,557
-  Unregulated		(55	)		(175	)		(107	)		(177	)
Subtotal		(283	)		18			638			1,380
Discontinued Operations		-			(9	)		-			(15	)
Total Operating		(283	)		9			638			1,365
Other income		(1	)		(19	)		(3	)		10
Total	$	(284	)	$	(10	)	$	635		$	1,375

For the six months ended June 30, 2009 and 2008, the effective income tax rates were 39.0% and 42.0%, respectively.  The principal reasons for the effective tax rate differing from the US federal income tax rate are the earnings from investments and investment tax credit amortization.

The Company has not accrued U.S. income taxes on the undistributed earnings of Me&NB, as the withholding taxes due on the distribution of any remaining amount would be principally offset by foreign tax credits.  No dividends were received from Me&NB in the first two quarters of 2009 or 2008.

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In June 2006, the FASB issued FASB Interpretation Number (“FIN”) 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109.” This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements.  FIN 48 requires a tax position must be more-likely-than-not in order for the position to be recognized in the financial statements.  The Company does not expect that the amounts of unrecognized tax benefits will change significantly in the next twelve months, and no adjustments to reported tax benefits were required under FIN 48.  It is the Company’s policy to accrue interest and penalties, if applicable, related to uncertain tax positions.  As of June 30, 2009 and 2008, the Company has accrued no interest or penalties related to uncertain tax positions.

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

As required by SFAS 109 and FIN 48, Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of the Company’s deferred tax assets, which consist principally of pension and post-retirement benefits, net operating loss carryforwards, earnings on investments, and accumulated OCI on MPS’s interest rate hedges. For the six months ended June 30, 2009, and the year ended December 31, 2008, Management evaluated the deferred tax assets and determined a valuation allowance was needed on the earnings on investments.  Certain distributions from MPS’s investments have been treated for tax purposes as dividend income, resulting in a deferred tax asset of $393,000 at June 30, 2009, and $384,000 at December 31, 2008.  As this will become a capital loss for tax purposes, the Company cannot be assured capital gains will exist to allow for the use of this loss, and a valuation allowance has been provided.

The following summarizes accumulated deferred income tax (assets) and liabilities established on temporary differences under SFAS 109 as of June 30, 2009 and December 31, 2008:

(In thousands of dollars)
	June 30, 2009			December 31, 2008
Seabrook	$	4,204		$	4,511
Property		10,704			10,385
Flexible pricing revenue		(10	)		164
Deferred fuel		8,984			10,417
Pension and post-retirement benefits		(5,485	)		(5,458	)
Other Comprehensive Income		(1,123	)		(1,888	)
Deferred Directors' Compensation		(525	)		(557	)
Other		585			587
Net Accumulated Deferred Income Tax Liability	$	17,334		$	18,161

3.    SEGMENT INFORMATION

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

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

·   Unregulated utility services:  MAM USG;

·   Unregulated engineering services:  TMG and its subsidiaries and product and service lines have been dissolved, but were classified as discontinued operations in prior years;

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

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

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

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	(In thousands of dollars)
	Quarter Ended June 30, 2009
	Regulated Electric Utility			Unregulated Utility Services			Other			Total
Revenues from External Customers
Regulated Operating Revenues	$	7,361		$	-		$	(31	)	$	7,330
Unregulated Utility Operating Revenues		-			354			-			354
Total Operating Revenues		7,361			354			(31	)		7,684
Operating Expenses
Regulated Operation & Maintenance		3,766			-			-			3,766
Unregulated Operation & Maintenance		-			436			13			449
Depreciation		801			3			-			804
Amortization of Stranded Costs		2,701			-			-			2,701
Amortization		42			-			-			42
Taxes Other than Income		472			-			-			472
Income Taxes		(228	)		(35	)		(20	)		(283	)
Total Operating Expenses		7,554			404			(7	)		7,951
Operating Loss		(193	)		(50	)		(24	)		(267	)
Other Income (Deductions)
Equity in Income of Associated Companies		33			-			-			33
Interest and Dividend Income		7			-			-			7
Other Deductions		(34	)		-			-			(34	)
Total Other Income		6			-			-			6
Loss Before Interest Charges		(187	)		(50	)		(24	)		(261	)
Interest Charges		139			1			10			150
Net Loss	$	(326	)	$	(51	)	$	(34	)	$	(411	)

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	(In thousands of dollars)
	Quarter Ended June 30, 2008
	Regulated			Unregulated
	Electric Utility			Utility Services			Engineering Services			Other			Total
Revenues from External Customers
Regulated Operating Revenues	$	7,805		$	-		$	-		$	(16	)	$	7,789
Unregulated Utility Operating Revenues		-			2,078			-			-			2,078
Total Operating Revenues		7,805			2,078			-			(16	)		9,867
Operating Expenses
Regulated Operation & Maintenance		3,305			-			-			-			3,305
Unregulated Operation & Maintenance		-			2,344			-			74			2,418
Depreciation		753			3			-			-			756
Amortization of Stranded Costs		2,728			-			-			-			2,728
Amortization		54			-			-			-			54
Taxes Other than Income		451			-			-			1			452
Income Taxes		193			(125	)		-			(50	)		18
Total Operating Expenses		7,484			2,222			-			25			9,731
Operating Income (Loss)		321			(144	)		-			(41	)		136
Other Income (Deductions)
Equity in Income (Loss) of Associated Companies		42			-			-			(1	)		41
Interest and Dividend Income (Expense)		9			-			-			(8	)		1
Other (Deductions) Income		(33	)		(46	)		-			1			(78	)
Total Other Income (Deductions)		18			(46	)		-			(8	)		(36	)
Income (Loss) Before Interest Charges		339			(190	)		-			(49	)		100
Interest Charges		126			-			-			30			156
Income (Loss) from Continuing Operations		213			(190	)		-			(79	)		(56	)
Loss from Discontinued Operations:
Loss on Sale of Discontinued Operations		-			-			(1	)		-			(1	)
Loss From Operations		-			-			(20	)		-			(20	)
Benefit of Income Taxes		-			-			9			-			9
Loss from Discontinued Operations		-			-			(12	)		-			(12	)
Net Income (Loss)	$	213		$	(190	)	$	(12	)	$	(79	)	$	(68	)

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	(In thousands of dollars)
	Six Months Ended June 30, 2009
	Regulated Electric Utility			Unregulated Utility Services			Other			Total
Revenues from External Customers
Regulated Operating Revenues	$	17,480		$	-		$	(48	)	$	17,432
Unregulated Utility Operating Revenues		-			548			-			548
Total Operating Revenues		17,480			548			(48	)		17,980
Operating Expenses
Regulated Operation & Maintenance		7,554			-			-			7,554
Unregulated Operation & Maintenance		-			646			96			742
Depreciation		1,394			6			-			1,400
Amortization of Stranded Costs		5,401			-			-			5,401
Amortization		72			-			-			72
Taxes Other than Income		923			-			-			923
Income Taxes		745			(43	)		(64	)		638
Total Operating Expenses		16,089			609			32			16,730
Operating Income (Loss)		1,391			(61	)		(80	)		1,250
Other Income (Deductions)
Equity in Income of Associated Companies		61			-			-			61
Interest and Dividend Income		8			-			-			8
Other Deductions		(54	)		-			-			(54	)
Total Other Income		15			-			-			15
Income (Loss) Before Interest Charges		1,406			(61	)		(80	)		1,265
Interest Charges		246			3			21			270
Net Income (Loss)	$	1,160		$	(64	)	$	(101	)	$	995
Total Assets	$	127,743		$	1,300		$	(304	)	$	128,739

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	(In thousands of dollars)
	Six Months Ended June 30, 2008
	Regulated			Unregulated
	Electric Utility			Utility Services			Engineering Services			Other			Total
Revenues from External Customers
Regulated Operating Revenues	$	18,706		$	-		$	-		$	(26	)	$	18,680
Unregulated Utility Operating Revenues		-			3,374			-			-			3,374
Total Operating Revenues		18,706			3,374			-			(26	)		22,054
Operating Expenses
Regulated Operation & Maintenance		6,642			-			-			-			6,642
Unregulated Operation & Maintenance		-			3,524			-			169			3,693
Depreciation		1,507			4			-			-			1,511
Amortization of Stranded Costs		5,456			-			-			-			5,456
Amortization		107			-			-			-			107
Taxes Other than Income		904			2			-			-			906
Income Taxes		1,557			(61	)		-			(116	)		1,380
Total Operating Expenses		16,173			3,469			-			53			19,695
Operating Income (Loss)		2,533			(95	)		-			(79	)		2,359
Other Income (Deductions)
Equity in Income (Loss) of Associated Companies		75			-			-			(9	)		66
Interest and Dividend Income		22			-			-			(17	)		5
Other (Deductions) Income		(105	)		-			-			3			(102	)
Total Other Deductions		(8	)		-			-			(23	)		(31	)
Income (Loss) Before Interest Charges		2,525			(95	)		-			(102	)		2,328
Interest Charges		325			-			-			84			409
Income (Loss) from Continuing Operations		2,200			(95	)		-			(186	)		1,919
Loss from Discontinued Operations:
Loss on Sale of Discontinued Operations		-			-			(1	)		-			(1	)
Loss From Operations		-			-			(35	)		-			(35	)
Benefit of Income Taxes		-			-			15			-			15
Loss from Discontinued Operations		-			-			(21	)		-			(21	)
Net Income (Loss)	$	2,200		$	(95	)	$	(21	)	$	(186	)	$	1,898
Total Assets	$	128,779		$	2,594		$	-		$	46		$	131,419

4.    INVESTMENTS IN ASSOCIATED COMPANIES

Maine Yankee and MEPCO

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

No dividends were paid by Maine Yankee in the first half of 2009 or 2008.  MPS received dividends of $2,000 from MEPCO in both the first and second quarters of 2009 and 2008.

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

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5.    DILUTED EARNINGS PER SHARE

The dilutive earnings per share impact of outstanding stock options was:

	Quarters Ended June 30,						Six Months Ended June 30,
	2009			2008			2009		2008
Net (Loss) Income (in thousands)	$	(411	)	$	(68	)	$	995	$	1,898
Shares Used in Computation of Earnings
Weighted-Average Common Shares Outstanding in Computation of Basic Earnings per Share		1,680,574			1,678,096			1,680,137		1,677,979
Dilutive Effect of Common Stock Options		-			-			673		750
Shares Used in Computation of Earnings per Common Share Assuming Dilution		1,680,574			1,678,096			1,680,810		1,678,729
Net (Loss) Income per Share (Basic)	$	(0.25	)	$	(0.04	)	$	0.59	$	1.13
Net (Loss) Income per Share (Diluted)	$	(0.25	)	$	(0.04	)	$	0.59	$	1.13

Due to the losses incurred in the second quarters of 2009 and 2008, the stock options were anti-dilutive for those periods.  There were 536 and 574 potentially dilutive shares in the second quarters of 2009 and 2008, respectively.

6.  DEFERRED DIRECTORS’ COMPENSATION

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

During the second quarter of 2009, the equivalent of 658 shares was deferred, bringing the total deferred through June 30, 2009, to the equivalent of 36,535 shares.  The share price on that date was $34.75, resulting in a $1.27 million liability recorded on the Consolidated Balance Sheet under “Miscellaneous Liabilities.”  A $1 increase in MAM’s stock price will increase the liability and expense by approximately $37,000.  A $1 decrease in MAM’s stock price will decrease the liability by approximately $37,000.  This unfunded liability is payable upon termination of services of the director.  The plan allows for a lump-sum distribution or a monthly payment over ten years.  All directors currently participating in this deferral plan have elected the ten-year payment option.

The second deferral option allows directors to postpone payment of their fees in cash, and earn interest on the deferred amounts at a rate adjusted quarterly to the five-year Treasury Note rate, which was 2.625% at June 30, 2009.  The unfunded obligation under this deferral program is $26,000, and is also recorded under “Miscellaneous Liabilities” on the Consolidated Balance Sheets.

7.    BENEFIT PROGRAMS

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

U. S. Defined Benefit Pension Plan

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

On December 31, 2006, future salary and service accruals for current participants in the plan ceased, and any new employees hired on or after January 1, 2006, are not eligible for the pension plan.  The Company agreed to additional employer contributions to the Retirement Savings Plan to compensate employees in part or in full, depending on their number of years of service, for this lost benefit.  This additional contribution ranges from 5% to 25% of each eligible employee’s gross base pay, and is immediately fully vested.  This contribution was $381,000 and $370,000 in the first half of 2009 and 2008, respectively.

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During recent years, the Company’s policy has been to fund pension costs accrued.  In the current year, the Company is funding an amount greater than the current year accrual due to prior underfunding.  The Company contributed $341,000 for the 2008 plan year in the first quarter of 2009, and does not anticipate any additional contributions for the 2008 plan year.  The Company also expects to contribute approximately $200,000 per quarter during 2009 for 2009 plan year estimated payments.

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

(In thousands of dollars)	Pension Benefits
	Quarters Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Interest cost	$	271		$	268		$	542		$	537
Expected return on plan assets		(292	)		(305	)		(584	)		(609	)
Recognized net actuarial loss		36			19			72			37
Net periodic benefit cost	$	15		$	(18	)	$	30		$	(35	)

Health Care Benefits

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

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

(In thousands of dollars)	Health Care Benefits
	Quarters Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Service cost	$	49		$	51		$	98		$	102
Interest cost		139			137			278			273
Expected return on plan assets		(38	)		(56	)		(76	)		(112	)
Amortization of transition obligation		18			18			36			36
Amortization of prior service cost		(15	)		(15	)		(30	)		(30	)
Recognized net actuarial loss		50			49			100			99
Net periodic benefit cost	$	203		$	184		$	406		$	368

8.    COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS

Federal Energy Regulatory Commission 2009 Open Access Transmission Tariff Formula Rate Filing

On June 15, 2009, MPS filed its updated rates under the 2009 Open Access Transmission Tariff formula pursuant to Docket ER00-1053 for both wholesale and retail customers.  The revenue decreases were approximately $81,000 or 14% for wholesale customers, effective June 1, 2009, and $623,000 or 20% for retail customers, effective July 1, 2009.  The decrease is primarily associated with wheeling revenue collected from generators exporting electricity off the MPS system during 2008.  The Company and the interveners are currently in the discovery process, and the final change in rates could differ from the initial filing.  MPS cannot determine the final outcome at this time.

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

On June 16, 2008, MPS filed its updated rates under the 2008 Open Access Transmission Tariff formula pursuant to Docket ER00-1053 for both wholesale and retail customers.  The revenue decreases were approximately $220,000 or 27% for wholesale customers, effective June 1, 2008, and $631,000 or 17% for retail customers, effective July 1, 2008.  The decrease was primarily associated with wheeling revenue collected from generators exporting electricity off the MPS system during 2007.  The interested parties in this Docket reached and filed a settlement with FERC on May 6, 2009.  The Company expects the settlement to be approved by FERC in the near future.

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Request for Confirmation of Interpretation of Cost Allocation Manual

Under MPUC Docket 2009-60, MPS requested confirmation of its interpretation of its Cost Allocation Manual.  The Manual provides the process for identifying common costs of the holding company, costs that are not directly associated with the operations of its subsidiaries and for which a cost-causative indirect basis of allocation exists.  MPS proposed to exclude MAM USG subcontractor and materials expenses from the determination of the common cost allocation.  The Commission approved a Stipulation signed by all interested parties on June 6, 2009.  Under the approved Stipulation, the Company will exclude stranded costs, income taxes, depreciation, amortization, materials and one-third of subcontractor expenses from the common cost calculation.  This change does not impact the current year net income of the corporation, but does impact segment reporting.

MPUC Investigation of Maine Utilities Continued Participation in ISO-NE

On April 8, 2008, the MPUC initiated an investigation in Docket No. 2008-156 of CMP and Bangor Hydroelectric Company’s continued participation in ISO-NE and the New England Regional Transmission Organization.  MPS is not currently a member of ISO-NE, but was made a party to the case by the Commission in light of the potential integration of the ISO-NE and northern Maine markets by means of the MPC Project.  In February 2008, MPS made a request to become a member of ISO-NE, subject to certain conditions, including the inclusion of the costs of the MPC Project in the ISO-NE regional transmission tariff.  MPS participated in this Docket.

On January 16, 2009, the MPUC determined that the status quo relationship with ISO-NE was inadequate.  The Commission ordered CMP and Bangor Hydro to move forward and negotiate meaningful reform to benefit Maine consumers with the assistance of the Commission.  The Commission participated actively within the ISO-NE stakeholder process to achieve reforms.  On June 30, 2009, the Commission issued an order in Docket No. 2008-156 in which it concluded that alternatives to the Maine transmission owners’ membership in ISO-NE, such as a Maine only ISO, would not provide cost savings to Maine’s ratepayers and that achieving reforms within ISO-NE are currently the Maine utilities’ best option to fulfill their energy objectives.  The Commission thus allowed CMP and BHE to go forward with an automatic two-year renewal of the underlying Transmission Owners Agreement (“TOA”) between the Maine Transmission Owners and ISO-NE.  The Commission also outlined further reforms it wished the Maine Transmission Owners to pursue with ISO-NE in the context of the TOA.

Wheelabrator-Sherman

MPS was ordered into a Power Purchase Agreement with Wheelabrator-Sherman in 1986, which required the purchase of the entire output (up to 126,582 MWH per year) of a 17.6 MW biomass plant through December 31, 2006.  Total stranded costs included as regulatory assets under the caption “Deferred Fuel and Purchased Energy Costs” in the Consolidated Balance Sheet related to this contract are $22.5 million and $26.1 million at June 30, 2009, and December 31, 2008, respectively.

Poly Chlorinated Bi-Phenol Transformers

In response to a Maine environmental regulation to phase out Poly Chlorinated Bi-phenol (“PCB”) transformers, MPS has a program to eliminate transformers on its system that do not meet the State environmental guidelines.  The Company is in the process of inspecting almost 13,000 distribution transformers over a ten-year period.  MPS is currently in its ninth year of this ten-year program.  Approximately 35% of the transformers inspected require “in service” PCB oil sampling.  In addition, transformers that pass the inspection criteria will be refitted with new lightning arrestors and animal guards, where necessary.  The current total estimated cost of the project is $3.2 million; as of June 30, 2009, $2.7 million of this total has been spent.  The remaining cost of the project has been accrued on the Consolidated Balance Sheets as “Accrued Removal Obligations.”

Financial Information System Hosting Agreement

In 2007, the Company renegotiated its Financial Information System Hosting Agreement with OneNeck IT Services to host and provide technical and functional support for the integrated Oracle Financial Information System.  The base hosting fees were reduced to $537,500 per year for 2007 through 2013.

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Off-Balance Sheet Arrangements

The Company has several operating leases for office and field equipment, vehicles and office space, accounted for in accordance with SFAS 13, “Accounting for Leases.”  The following summarizes payments for leases for a period in excess of one year:

	Six Months Ended June 30,
(In thousands of dollars)	2009		2008
Equipment	$	24	$	10
Building		-		97
Rights of Way		28		-
Total	$	52	$	107

The future minimum lease payments have not changed materially from the amounts reported as of December 31, 2008.  Please refer to MAM’s 2008 Form 10-K for these future lease payments.

9.    CAPITAL LEASES

MPS financed certain of its 2006 and 2007 vehicle and computer equipment purchases through capital leases, totaling $820,000.  The remaining liability as of June 30, 2009, for these capital lease arrangements is approximately $362,000, and is recorded within “Miscellaneous Liabilities” on the Consolidated Balance Sheet.  Future minimum lease payments have not changed from the amounts reported as of December 31, 2008.  Please refer to MAM’s 2008 Form 10-K for these future lease payments.

From the inception of the leases through December 31, 2008, the Company recorded depreciation expense and accumulated depreciation on leased assets in accordance with generally accepted accounting principles.  FERC General Instruction No. 20 requires this reduction in the value of computers, office equipment and vehicles under capital lease be reported as rent expense within Operation and Maintenance expense.  The 2009 Consolidated Income Statement reflects this reclassification of $245,000, which was recorded in the first quarter.

10.    FAIR VALUE DISCLOSURES

Currently, the Company uses interest rate swaps to manage its interest rate risk.  The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.  This valuation relies on Level 2 inputs as described in FASB Statement No. 157, “FairValue Measurements.”  Level 2 inputs are inputs other than quoted prices that are observable for the asset of liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets, as well as other observable inputs for the asset or liability, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

At June 30, 2009, MPS had two long-term debt issues outstanding with variable interest rates. Pursuant to its rate order in MPUC Docket 2003-85, MPS agreed to fix its interest rates and the MPUC allowed recovery of the fixed interest costs in rates.  On September 9, 2003, MPS executed swap agreements for the variable-rate issues then outstanding, locking in the rates over the remaining terms of the issues.  For the two series of tax-exempt bonds issued by the MPUFB, the effective fixed interest rates for the 1996 Series due 2021 and the 2000 Series due 2025 are 4.42% and 4.53%, respectively.  Gains or losses in the fair market value of the interest rate swaps do not impact the Company’s net income or revenues, unless MPS’s shareholder’s common equity falls below the minimum allowable 48% of common equity rate, the floor established by the MPUC Order in Docket No. 2002-676 authorizing the formation of the holding company, MAM.

As of June 30, 2009, the fair value of the interest rate hedges was a liability of $2.9 million, compared to a liability of $4.8 million at December 31, 2008, a gain in fair value of $1.9 million.  This gain, less the deferred income tax provision of $762,000 from December 31, 2008 to June 30, 2009, has been reported as “Other Comprehensive Income” on the Consolidated Statement of Shareholders’ Equity.  The difference between the fixed rates and the underlying variable rates on the issues was charged to interest expense, along with the interest expense incurred on the corresponding debt issues.

The following table presents the notional amounts and estimated fair values of the Company’s interest rate derivative contracts outstanding at June 30, 2009 and December 31, 2008.  The Company utilizes dealer quotations to value its interest rate derivative contracts designated as hedges.

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(in thousands)		June 30, 2009				December 31, 2008
	Consolidated Balance Sheet Location	Notional  Amount		Estimated  Fair Value		Notional  Amount		Estimated  Fair Value
Interest rate derivatives designated as cash flow hedges:
Interest rate swaps on 1996 Series Notes	Other Liabilities	$	13,600	$	1,652	$	13,600	$	2,678
Interest rate swaps on 2000 Series Notes	Other Liabilities	$	9,000	$	1,245		9,000		2,121

The weighted-average rates paid and received for interest rate swaps outstanding at June 30, 2009 were as follows:

	Weighted-Average
	Interest Rate Paid			Interest  Rate  Received
Interest rate swaps:
Fair value hedge interest rate swaps on 1996 Series Notes		2.31	%		4.42	%
Fair value hedge interest rate swaps on 2000 Series Notes		2.43	%		4.53	%

11.    DISCONTINUED OPERATIONS

MAM divested substantially all of its unregulated engineering operations during 2007.  TMG is presented as discontinued operations in these financial statements through its dissolution in the fourth quarter of 2008.  The net loss for TMG is a result of the operations of Mecel Properties, and is composed of the following:

(in thousands of dollars)	Quarter Ended			Six Months Ended
	June 30, 2008
Loss From Operations:
Loss on Sale of Discontinued Operations	$	(1	)	$	(1	)
Operating Revenue		6			26
Expenses		(26	)		(61	)
Loss from Operations		(21	)		(36	)
Benefit of Income Taxes		9			15
Net Loss — Unregulated Engineering Services	$	(12	)	$	(21	)

TMG had no assets or liabilities remaining at June 30, 2009 or December 31, 2008.

12.    SUBSEQUENT EVENTS

MAM USG’s $500,000 Bank of America one-year line of credit agreement expired June 30, 2009.  On July 7, 2009, MAM and MAM USG jointly entered into a $4.0 million two-year credit facility with Bank of America to replace this line.  The $4.0 million facility is structured to allow MAM and/or MAM USG to use the credit capacity as either a line of credit or letters of credit.  MAM USG may use the letter of credit option as a way to secure performance bonding required for some projects.

Interest on the line of credit or any letters of credit that are drawn on is at LIBOR plus 2.25%.  There is also a 0.375% commitment fee on the unused balance.  The interest rate at June 30, 2009 was at the Bank of America prime rate, or the optional rate of LIBOR plus 200 basis points.

This credit facility has certain covenants, including maintaining a MAM consolidated interest coverage ratio of 2.5:1 on a 12-month rolling average.  Failure to comply with this covenant or a default on MPS debt is an event of default under the terms of this agreement.

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PART 1. FINANCIAL INFORMATION

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

Forward-Looking Statements

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

Factors that could cause actual results to differ materially from our projections include, among other matters, legislation and regulation, construction of new transmission facilities, financing risk for new transmission facilities, risk from joint development agreement, contract risks at MAM USG, attraction and retention of qualified employees, economy of the region and general economic conditions, competitive conditions, holding company structure, interest rate and debt covenant risk, pension plan investments, information technology, environmental risks, aging infrastructure and reliability, weather, vandalism, terrorism and other illegal acts, alternative generation options, and professional liability.  Therefore, no assurances can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Accounting Policies

Critical accounting policies are disclosed in the Company’s 2008 Annual Report on Form 10-K.

Results of Operations and Executive Overview

Net Income and Earnings Per Share

	Quarters Ended June 30,						Six Months Ended June 30,
(in thousands except per share amounts)	2009			2008			2009			2008
Income (Loss) from Continuing Operations
Regulated Electric Utility	$	(326	)	$	213		$	1,160		$	2,200
Unregulated Utility Services		(51	)		(190	)		(64	)		(95	)
Other*		(34	)		(79	)		(101	)		(186	)
(Loss) Income from Continuing Operations		(411	)		(56	)		995			1,919
Loss from Discontinued Operations
Unregulated Engineering Services		-			(12	)		-			(21	)
Net (Loss) Income	$	(411	)	$	(68	)	$	995		$	1,898
Basic and Diluted (Loss) Income Per Share	$	(0.25	)	$	(0.04	)	$	0.59		$	1.13

*The “Other” line includes activities of the holding company (including corporate costs directly associated with the unregulated subsidiaries and costs not allocated to the regulated utility or unregulated utility services) and inter-company eliminations.

Net income above is allocated based upon the segments as presented in Note 3, “Segment Information,” of the Consolidated Financial Statements.  The results by segment are explained more fully in the following sections.

The consolidated net income of the Company was down $343,000 when compared to the second quarter of 2008 and down $903,000 or 48% for the six months ended June 30, 2009 over the previous year.  Following a similar trend as in late 2008 and for the first quarter of 2009, there are two primary reasons for this downturn:

1.   Revenues for MPS were down substantially, falling by $444,000 or 5.7% over the same quarter last year.  Year to date MPS revenues were off by $1.2 million or 6.6%.  While revenues for all customer classes are down year to date, the most significant decrease was from the commercial customer class where the wood and lumber industry continues to struggle within our service territory.  Revenue from our large commercial class of customers was down by approximately 34% for the first half of the year or $786,000.  Revenues were stable for residential customers, remaining flat year to date.  These trends started in the middle of 2008 and Management cannot say for certain if, or when, these trends may reverse.

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2.   MAM USG, the unregulated contracting subsidiary, had no material projects during the first half of 2009, greatly reducing its revenue.  Revenue decreased $1.7 million for the second quarter of 2009 and by $2.8 million for the first half of the year, compared to the first half of 2008 when there were two large projects in process.  The resulting impact to net income was to decrease the loss of $190,000 in the second quarter of 2008 to a loss of $51,000 for the second quarter of 2009.  However, with MAM USG not providing revenues to cover otherwise fixed costs for the consolidated entity, the overall corporation’s net income was adversely affected by approximately $87,000 on a year-to-date basis.

There are certain factors which could help offset these issues:

·   We anticipate that some portion of the downturn in MPS revenue will be collected as additional stranded costs during the next stranded cost rate effective period pursuant to a “true-up” mechanism instituted in MPUC Docket 2006-506 under which MPS will recognize previously uncollected revenue for the stranded cost rate component during the year.  Management estimates that this revenue adjustment for year-to-date revenue shortfalls will be approximately $500,000.  These stranded cost revenue shortfall amounts will be capitalized as a regulatory asset and collected over time from ratepayers.

·   MAM USG has several outstanding bids on projects with developer time horizons within the next one to three years.  MAM USG is also pursuing other commercial and industrial projects, as well as looking at additional products and services it may be able to provide.

·   We continue to analyze and pursue components of the MPC project as an additional transmission investment which would support the development of renewable generation within our service territory as well as provide additional capacity, stabilization, and security for existing customers.  As part of this effort, we are continuing discussions with our partner, Central Maine Power, as well as generation developers, state and federal regulators, and state and federal political representatives.  The Company’s recent efforts have been focused on a 25-mile phase between the Houlton vicinity and the existing 345 KV MEPCO line.

Regulated Operations

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

	Quarters Ended					Six Months Ended
	June 30,					June 30,
	2009			2008		2009		2008
Net (Loss) Income — Regulated Electric Utility (In thousands)	$	(326	)	$	213	$	1,160	$	2,200
(Loss) Earnings Per Share from Regulated Electric Utilities	$	(0.19	)	$	0.13	$	0.69	$	1.31

Regulated Operating Revenues

Consolidated revenues (in thousands of dollars) and Megawatt Hours (“MWH”) for the quarters and six months ended June 30, 2009, and 2008, are as follows:

	Quarters Ended June 30,								Six Months Ended June 30,
	2009				2008				2009				2008
	Dollars		MWH		Dollars		MWH		Dollars		MWH		Dollars		MWH
Residential	$	3,424		40,317	$	3,561		41,212	$	7,898		94,172	$	7,906		92,634
Large Commercial		694		31,979		949		37,399		1,510		62,159		2,296		75,403
Medium Commercial		963		23,088		1,061		24,346		2,706		48,169		2,916		50,691
Small Commercial		1,315		20,107		1,394		21,409		3,807		46,466		3,882		47,338
Other Retail		229		854		231		848		455		1,706		463		1,699
Total Regulated Retail		6,625		116,345		7,196		125,214		16,376		252,672		17,463		267,765
Other Regulated Operating Revenue		736				609				1,104				1,243
Total Regulated Revenue	$	7,361			$	7,805			$	17,480			$	18,706

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MPS residential customer revenue volume decreased 895 MWH or 2.2% from the second quarter of 2008 to the second quarter of 2009.�� This volume decrease resulted in $77,000 less revenue, while a decrease in average rates also reduced residential revenue approximately $60,000, for a total decrease of $137,000.

In the second quarter of 2009, large commercial customer volume is down 5,420 MWH or 14.5% compared to the same period of 2008.  This volume decrease caused a $138,000 decrease in revenue, while a decrease in average rates also decreased revenue by $117,000.  The lower usage is due to various companies in our service territory, primarily in wood- and lumber-related industries, scaling back operations or closing.  We continue our efforts with Aroostook Partnership for Progress and Leaders Encouraging Aroostook Development, two of northern Maine’s economic development organizations, to encourage growth in our service territory.  As well, under its stranded cost filing in MPUC Docket No. 2006-506, MPS reconciles actual sales volume to expected sales volume to ensure we do not over- or under-earn on stranded cost rate base due to fluctuations in volume.  This annual adjustment, recorded in December, will partly mitigate the large commercial customer revenue shortfall.

Medium and small commercial customers also reduced their volume in the second quarter of 2009 compared to the same period of 2008.  The 1,258 MWH or 5.2% decrease in medium commercial usage is attributable to a combination of fewer customers and lower use by the remaining customers, and resulted in $98,000 less revenue year-over-year.  The 1,302 MWH or 6.1% decrease in small commercial usage resulted in a $79,000 decrease in this revenue class year-over-year.  These decreases in sales volume have continued from the first quarter, and are due primarily to customers ceasing or cutting back operations, or implementing conservation efforts.

Other retail revenue was essentially flat, at $229,000 in second quarter of 2009, compared to $231,000 for the second quarter of 2008.

Other regulated operating revenue is up $127,000 in the second quarter of 2009 compared to the same period of 2008, mainly due to increases in transmission wheeling revenue and unbilled revenue of $35,000 and $95,000, respectively.  The remaining $3,000 decrease is due to other smaller changes in other operating revenues.

Consistent with the first quarter, residential customer revenue volume has increased for the year to date by 1,538 MWH or 1.7% from the first half of last year.  The lower average residential customer rates this year reduced revenue by $139,000.  However, with the volume increase contributing $131,000 more revenue than last year, overall residential revenue is down only $8,000 year to date.   Medium and small commercial customer sales decreased $285,000 from the first half of 2008 to the first half of 2009, with volume down 3,394 MWH or 3.5%.

Large commercial customers have contributed $786,000 less revenue in the first half of 2009 than in the first half of 2008, on 13,244 or 17.6% fewer MWH.  The reduced sales volume to the customers identified in the quarterly explanation above was also the largest impact year-to-date.

Other retail revenue is down for the year to date, approximately $8,000 and 7 MWH.  Other regulated operating revenue is also down $139,000 year-over-year.  Wheeling revenue was down significantly compared to the same period of 2008 due to lower transmission rates, contributing $121,000 less revenue in the first six months.  Miscellaneous service revenue was also lower by $40,000 from 2008.  These decreases were partly offset by the increase in unbilled revenue of approximately $53,000, and other smaller differences.

For more information on the status of the most recent rate filings, see Part II, Item 1, “Legal Proceedings.”

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Regulated Utility Expenses

For the quarters and six months ended June 30, 2009, and 2008, regulated operation and maintenance expenses are as follows:

	Quarters Ended June 30,				Six Months Ended June 30,
(In thousands of dollars)	2009		2008		2009		2008
Regulated Operation and Maintenance
Labor	$	1,317	$	1,093	$	2,524	$	2,253
Benefits		446		203		844		597
Outside Services		392		246		694		507
Holding Company Management Costs		392		696		688		971
Insurance		146		127		273		258
Regulatory Expenses		274		303		585		613
Transportation		187		209		376		450
Maintenance		165		160		309		309
Rent		60		28		489		40
Other		387		240		772		644
Total Regulated Operation and Maintenance	$	3,766	$	3,305	$	7,554	$	6,642

Regulated operation and maintenance expense increased approximately $461,000 or 14% from the second quarter of 2008 to the second quarter of 2009.  The $467,000 increase in labor and benefits expenses represented the majority of the increase.  The increase in labor and benefits is due to several factors:  normal pay increases, an increase in the number of employees from 138 at December 31, 2008 to 140 at June 30, 2009, a $108,000 increase in contingent health insurance expense, and a $150,000 decrease in capitalized labor and benefits.  Employees in several departments spent more time on capital, deferred and billable work in 2008 than in 2009.  

Outside services are up approximately $146,000, primarily due to an expansion of MPS’s tree trimming program in response to a vegetation management study performed in 2008.  Also, bad debt expense (classified within “Other” above) was up $52,000 year-over-year.  These increases were partly offset by a $304,000 decrease in holding company management costs, partly due to a decrease in the value of deferred directors’ compensation and to a smaller pool of other common costs to be allocated to the utility.  The remainder of the increase in expense is due to other smaller changes in various expense categories.

Year-to-date, regulatory operation and maintenance expenses are up $912,000 or 13.7%.  The increases include:

▪ Labor and benefits expenses are up $518,000 year-over-year for the same reasons mentioned above.

▪ Rent expense increased $449,000 due to the reclassification of depreciation and amortization of leased assets, described more fully in Note 9.

▪ Outside services have increased $187,000, from $507,000 for the first six months of 2008 to $694,000 for the first six months of 2009.  As noted in the first quarter, the vegetation management program has been expanded.

A decrease in holding company management costs for the first two quarters of 2009 partly offsets these increases.  Holding company management costs have decreased $283,000 year-to-date, due, in part, to the smaller cost pool to be allocated to the regulated utility, and to the decrease in the value of deferred directors’ compensation.

The remainder of the increase in expense is due to other smaller changes in various expense categories.

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Stranded cost expenses of the regulated utility are as follows:

	Quarters Ended June 30,				Six Months Ended June 30,
(In thousands of dollars)	2009		2008		2009		2008
Stranded Costs
Maine Yankee	$	70	$	588	$	139	$	1,176
Seabrook		385		384		769		768
Deferred Fuel		2,115		1,559		4,230		3,119
Cost Incentive Refund		63		63		125		125
Cancelled Transmission Plant		-		64		-		128
Special Discounts		68		70		138		140
Total Stranded Costs	$	2,701	$	2,728	$	5,401	$	5,456

The stranded cost expenses presented above for both 2009 and 2008 reflect the impact of MPS’s most recent stranded cost rate case, MPUC Docket No. 2006-506.  The amortization amounts for the remainder of 2009 are expected to remain consistent with the first and second quarters.  The changes from prior year are a result of the timing of the stranded cost recovery under the Docket, primarily related to Maine Yankee and deferred fuel.  The recovery of Maine Yankee in the Docket correlates to Maine Yankee’s cost budget, which is decreasing over time, while the recovery of deferred fuel is the levelizing mechanism.

Unregulated Utility Services

Unregulated Utility Services are comprised of the operations of MAM USG.

	Quarters Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Revenue	$	354		$	2,078		$	548		$	3,374
Direct Expenses		220			2,092			354			3,210
Gross Profit (Loss)		134			(14	)		194			164
Other Expenses		(179	)		(114	)		(237	)		(111	)
Common Corporate Costs and Facilities Charges		(41	)		(187	)		(64	)		(209	)
Income Tax Benefit		35			125			43			61
Net Loss — Unregulated Utility Services	$	(51	)	$	(190	)	$	(64	)	$	(95	)
Loss Per Share from Unregulated Utility Services	$	(0.03	)	$	(0.11	)	$	(0.04	)	$	(0.06	)

MAM USG incurred a loss of $51,000 for the second quarter of 2009, compared to a loss of $190,000 for the second quarter of 2008.  In 2008, MAM USG was performing work on two significant wind farm projects outside of MPS’s service territory, as well as other smaller projects.  In 2009, such development activity has slowed.  As noted in MAM’s 2008 Form 10-K, MAM USG has hired a new General Manager, and continues to seek opportunities to provide its electrical contracting, engineering, planning, procurement and project management services to developers, generators and others in both the private and public sectors.

Other Continuing Operations

	Quarters Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Net Loss — Other Continuing Operations (in thousands)	$	(34	)	$	(79	)	$	(101	)	$	(186	)
Loss Per Share from Other Continuing Operations	$	(0.02	)	$	(0.05	)	$	(0.06	)	$	(0.11	)

Other continuing operations are the common costs of MAM that cannot be allocated to MPS or MAM USG, the corporate costs of MAM directly associated with the former unregulated businesses, and intercompany eliminations.  The net loss from this segment is $45,000 lower in the second quarter of 2009 than the second quarter of 2008, and $85,000 less for 2009 than 2008 year-to-date.  The improvement is due to a reduction in operation and maintenance expenses of $61,000 for the quarter and $73,000 for the year-to-date and a reduction in interest expense of $20,000 for the quarter and $63,000 for the year-to-date.  This reduction is a combination of the repayment of debt during 2008 and into 2009, and lower interest rates on MAM’s variable rate debt.

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Interest Expense

Interest charges decreased by $6,000 from the second quarter of 2008 to the second quarter of 2009, and by $139,000 for 2009 year-to-date, compared to the same period in 2008.  The decrease is primarily due to lower debt balances, with $4.0 million of short- and long-term debt and capital lease obligations repaid in the first half of 2009, in addition to the $6.9 million repaid during 2008.  Also, interest rates have decreased on MAM and MPS’s variable rate debt.

Income Tax Expense / Benefit

The regulated provision for income taxes decreased $421,000 from the second quarter of 2008 to the second quarter of 2009, and $812,000 from the first half of 2008 to the first half of 2009, due to the decrease in net income at MPS.  The decreases in revenue of $459,000 and $1.2 million for the quarter and year-to-date resulted in $184,000 and $499,000 reductions in income tax expense, respectively, with the remainder of the reduction due to higher expenses.

The benefit of income taxes for unregulated continuing operations decreased from $175,000 in the second quarter of 2008 to $55,000 in the second quarter of 2009.  This income tax benefit also decreased from $177,000 in the first half of 2008 to $107,000 in the first half of 2009.  The decreases are due to reductions in the losses of MAM and MAM USG.

Taxes Other Than Income

Taxes other than income are primarily payroll and property taxes.  These taxes increased $20,000 from the second quarter of 2008 to the second quarter of 2009, and $17,000 for the year to date from 2008 to 2009.

Off-Balance Sheet Arrangements and Financial Information System Hosting Agreement

Please refer to Note 8 of the financial statements.

Liquidity and Capital Resources

MAM has continued the trend of improving its liquidity position as we did in the first quarter of 2009.  In the six months ended June 30, 2009, we have reduced our consolidated short-term debt by $3.2 million, and long-term debt by $700,000.  MAM has reduced its outstanding short-term debt by $2.8 million compared with June 30, 2008.

The Company’s cash and cash equivalents as of June 30, 2009, were $1.3 million, down $515,000 from December 31, 2008.  The “Statements of Consolidated Cash Flows” of the Company’s Consolidated Financial Statements, as presented in Part I, Item 1 of this Form 10-Q, reflect the Company’s sources and uses of capital.

Cash flow provided by operating activities for the first six months of 2009 amounted to $8.1 million, compared to $8.4 million in the first six months of 2008.  While net income was down by $903,000, the increase in collection of stranded cost cash flows from our customers for the first two quarters of 2009, compared to the first two quarters of 2008, of $1.2 million and the decrease in accounts receivable of $3.0 million as a result of fewer MAM USG projects at June 30, 2008, were the most significant positive factors making up for the net income shortfall.  These positive cash flow factors were offset by decreases in accounts payable and in deferred taxes.

Cash flow used for financing included the repayment of short- and long-term debt totaling $3.9 million in the first six months of 2009, as well as $97,000 payment of capital lease obligations.  Cash flow used for financing activities for the first six months of 2008 totaled $6.5 million from reductions in debt and an additional $92,000 reduction for payment of capital leases.

Cash flow used for investing activities for the first half of 2009 was $4.6 million consisting of $3.5 million for investments in fixed assets, $168,000 for payments of dividends, and $915,000, which was transferred to our first mortgage bond trustee and recorded as restricted cash on our balance sheet.  This restricted cash is for a partial liquidation of our inactive subsidiary, Me & NB, as we look to employ our capital in our continuing businesses.  We will receive this restricted cash back from our trustee as soon as we apply subsequent property additions, which are expected during the third quarter.  For the first six months of 2008, cash flow used for investing activity totaled $1.2 million.  The $4.1 million investment in fixed assets was offset by $2.4 million of incoming cash from the transfer of restricted cash from our FAME note trustees set aside for repayment of debt which was retired in 2008.  An additional offset in 2008 was $573,000 proceeds from the sale of some discontinued real-estate assets.

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On July 7, 2009, MAM and MAM USG reached terms on an amendment to MAM USG’s debt agreement with Bank of America, which expired on June 30, 2009.  This amendment is disclosed in our financial statements under Note 12.  MAM and MAM USG jointly entered into the $4.0 million two-year credit facility with Bank of America to replace the previous $500,000 line.  The facility is structured to allow MAM and/or MAM USG to use the credit capacity as either a line of credit or letters of credit.  MAM USG may use the letter of credit option as a way to secure performance bonding required for some projects.  Interest on the line of credit or any letters of credit that are drawn on is at LIBOR plus 2.25%.  There is also a 0.375% commitment fee on the unused balance.  This credit facility has certain covenants, including maintaining a MAM consolidated interest coverage ratio of 2.5:1 on a 12-month rolling average.  Failure to comply with this covenant or a default on MPS debt is an event of default under the terms of this amendment.

Regulatory Proceedings

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

Item 4T. Controls and Procedures

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

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Federal Energy Regulatory Commission 2009 Open Access Transmission Tariff Formula Rate Filing

On June 15, 2009, MPS filed its updated rates under the 2009 Open Access Transmission Tariff formula pursuant to Docket ER00-1053 for both wholesale and retail customers.  The revenue decreases were approximately $81,000 or 14% for wholesale customers, effective June 1, 2009, and $623,000 or 20% for retail customers, effective July 1, 2009.  The decrease is primarily associated with wheeling revenue collected from generators exporting electricity off the MPS system during 2008.  The Company and the interveners are currently in the discovery process, and the final change in rates could differ from the initial filing.  MPS cannot determine the final outcome at this time.

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

On June 16, 2008, MPS filed its updated rates under the 2008 Open Access Transmission Tariff formula pursuant to Docket ER00-1053 for both wholesale and retail customers.  The revenue decreases were approximately $220,000 or 27% for wholesale customers, effective June 1, 2008, and $631,000 or 17% for retail customers, effective July 1, 2008.  The decrease was primarily associated with wheeling revenue collected from generators exporting electricity off the MPS system during 2007.  The interested parties in this Docket reached and filed a settlement with FERC on May 6, 2009.  The Company expects the settlement to be approved by FERC in the near future.

Request for Confirmation of Interpretation of Cost Allocation Manual

Under MPUC Docket 2009-60, MPS requested confirmation of its interpretation of its Cost Allocation Manual.  The Manual provides the process for identifying common costs of the holding company, costs that are not directly associated with the operations of its subsidiaries and for which a cost-causative indirect basis of allocation exists.  MPS proposed to exclude MAM USG subcontractor and materials expenses from the determination of the common cost allocation.  The Commission approved a Stipulation signed by all interested parties on June 6, 2009.  Under the approved Stipulation, the Company will exclude stranded costs, income taxes, depreciation, amortization, materials and one-third of subcontractor expenses from the common cost calculation.  This change does not impact the current year net income of the corporation, but does impact segment reporting.

MPUC Investigation of Maine Utilities Continued Participation in ISO-NE

On April 8, 2008, the MPUC initiated an investigation in Docket No. 2008-156 of CMP and Bangor Hydroelectric Company’s continued participation in ISO-NE and the New England Regional Transmission Organization.  MPS is not currently a member of ISO-NE, but was made a party to the case by the Commission in light of the potential integration of the ISO-NE and northern Maine markets by means of the MPC Project.  In February 2008, MPS made a request to become a member of ISO-NE, subject to certain conditions, including the inclusion of the costs of the MPC Project in the ISO-NE regional transmission tariff.  MPS participated in this Docket.

On January 16, 2009, the MPUC determined that the status quo relationship with ISO-NE was inadequate.  The Commission ordered CMP and Bangor Hydro to move forward and negotiate meaningful reform to benefit Maine consumers with the assistance of the Commission.  The Commission participated actively within the ISO-NE stakeholder process to achieve reforms.  On June 30, 2009, the Commission issued an order in Docket No. 2008-156 in which it concluded that alternatives to the Maine transmission owners’ membership in ISO-NE, such as a Maine only ISO, would not provide cost savings to Maine’s ratepayers and that achieving reforms within ISO-NE are currently the Maine utilities’ best option to fulfill their energy objectives.  The Commission thus allowed CMP and BHE to go forward with an automatic two-year renewal of the underlying Transmission Owners Agreement (“TOA”) between the Maine Transmission Owners and ISO-NE.  The Commission also outlined further reforms it wished the Maine Transmission Owners to pursue with ISO-NE in the context of the TOA.

Item 1A.  Risk Factors

The Risk Factors identified in Item 1A. of MAM’s 2008 Form 10-K and MAM’s 2009 Form 10-Q are incorporated herein by reference.  The following risk factors include new risk factors identified during the quarter, as well as risk factors that have changed materially since year-end.

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Financing Risks

MAM and its subsidiaries have financial and other covenants on their financing arrangements.  In the event of a default, the lenders could require immediate repayment of the debt.  A default could also trigger increases in interest rates, difficulty obtaining other sources of financing and cross-default provisions with the debt agreements.  The Company was in compliance with all debt covenants as of June 30, 2009.

MAM, MAM USG and MPS have interest rate risk due to variable interest rates on financing arrangements.  The Company has mitigated a portion of this risk by fixing interest rates on three MPS variable rate debt issues with an interest rate swap transaction on September 9, 2003.

The one-year term of MAM USG’s $500,000 working capital line of credit expired on June 30, 2009.  MAM and MAM USG jointly entered into a $4.0 million two-year credit facility with Bank of America to replace this line.  The $4.0 million facility is structured to allow MAM and/or MAM USG to use the credit capacity as either a line of credit or letters of credit.  MAM USG may use the letter of credit option as a way to secure performance bonding required for some projects.  Both the line of credit and letters of credit will be considered by lenders in assessing the total credit available to MAM USG.  Particularly in today’s economy, MAM USG may be unable to contract for certain projects due to its limited credit capacity.

Interest on the line of credit or any letters of credit that are drawn on is at LIBOR plus 2.25%.  There is also a 0.375% commitment fee on the unused balance.

This credit facility has certain covenants, including maintaining a MAM consolidated interest coverage ratio of 2.5:1 on a 12-month rolling average.  Failure to comply with this covenant or a default on MPS debt is an event of default under the terms of this facility.

Legislation and Regulation

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

MPS adjusts its transmission rates annually; the most recent change was on July 1, 2009.  Distribution and stranded cost rates did not change during 2008.  In 2009, MPS anticipates a rate filing for stranded cost rates to be effective January 1, 2010. The change in any rates could have a positive or negative impact on earnings and cash flow, but the ultimate impact is unknown at this time.  MPS does not anticipate any adjustments to distribution rates will occur in 2009.

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

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

Interest Rate and Debt Covenant Risk

MAM, MAM USG and MPS have financial and other covenants on their financing arrangements. In the event of a default, the lenders could require immediate repayment of the debt.  A default could also trigger increases in interest rates, difficulty obtaining other sources of financing and cross-default provisions with the debt agreements.  The Company was in compliance with all debt covenants as of June 30, 2009.

MAM and MPS have interest rate risk due to variable interest rates on financing arrangements.  The Company has mitigated a portion of this risk by fixing interest rates on three MPS variable rate debt issues with a derivative interest rate swap transaction on September 9, 2003.

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

None.

Item 3. Defaults upon Senior Securities

None

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

At the 2009 Annual Meeting of the Shareholders of Maine & Maritimes Corporation held on May 12, 2009, two matters were voted upon.

First was the election of the following directors for terms ending in 2012, with the following results:

	For		Withheld		Total Shares Voted
Robert E. Anderson		1,066,507		515,344		1,581,851
Michael W. Caron		1,570,292		11,560		1,581,852
Nathan L. Grass		1,559,089		22,762		1,581,851

Second, the ratification of the appointment of Caturano and Company, P.C., formerly Vitale, Caturano & Company as the Company’s independent auditors for the fiscal year ended December 31, 2009, was submitted to the shareholders for approval.  The vote results were as follows:

	Number of Votes
For the Proposal		1,566,341
Against the Proposal		13,009
Abstentions		2,502

Item 5. Other Information

None

Item 6. Exhibits

The following exhibits are attached:

·   Exhibit 10 Change of Control Agreement

·   Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification

·   Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification

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

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MAINE & MARITIMES CORPORATION

(Registrant)

Date:  August 13, 2009

/s/ Randi J. Arthurs

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

Randi J. Arthurs

Vice President Accounting, Controller

  and Assistant Treasurer

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