ML051430339

Co. Annual Financial Report for 2004

ML051430339
Person / Time
Site:	Maine Yankee
Issue date:	12/31/2004
From:	Matt Thomas Maine Yankee Atomic Power Co
To:	NRC/FSME
References
Download: ML051430339 (38)

Text

MAINE YANKEE ATOMIC POWER COMPANY ANNUAL FINANCIAL REPORT FOR 2004 Company Address 321 Old Ferry Road Wiscasset, Maine 04578 Telephone Number (207) 882-1303

Maine Yankee Atomic Power Company 2004 Annual Financial Report TABLE OF CONTENTS Page The Company ........................................................ 1 Report of Independent Public Accountants ........................... 2 Statements of Income for the years ended December 31, 2004 and 2003 ................................. 3 Balance Sheets at December 31, 2004 and 2003 ....................... 4 Statements of Capitalization at December 31, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Statements of Changes in Common Stock Investment for the years ended December 31, 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Statements of Cash Flows for the years ended December 31, 2004 and 2003 .................................. 8 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Directors and Executive Officers ...................................34

THE COMPANY Maine Yankee Atomic Power Company (the vlCompanyll or "Maine Yankee") ,

incorporated under the laws of Maine on January 3, 1966, owns and from 1972 to 1997 operated a pressurized-water nuclear-powered electric generating plant at Wiscasset, Maine, with a net capacity of approximately 860 megawatts electric (the "Plantvv). The Company sold the Plant's capacity and output to its sponsoring stockholder utilities. The Company's principal office address is 321 Old Ferry Road, Wiscasset, Maine 04578, and its telephone number is (207) 882-1303.

In 1997, Maine Yankee permanently ceased power operations at the Plant.

The Company is well along in the process of decommissioning the Plant and providing for storage of its spent fuel and greater-than-Class-C ("GTCC1')

waste on the Plant site. Maine Yankee completed the transfer of spent fuel and GTCC waste to its new on-site independent spent fuel storage installation (llISFSI1v) in February of 2004. Completion of decommissioning of the Plant site is scheduled for mid-2005, at which time only the ISFSI and security personnel and other necessary staff will remain on the site and the license is expected to be terminated for non-ISFSI land. More detailed discussion is contained in the Notes to Financial Statements commencing on page 9 of this report.

PrlcewaterboweCoopen U P 125 High Street Boston MA 02110 Telephone (617)530 5000 Facstmile (617)530 5001 Report of Independent Auditors To the Board of Directors of Maine Yankee Atomic Power Company In our opinion, the accompanying balance sheets and the related statements of income, of capitalization, of changes in common s t o ~ kinvestment, and of cash flows present fairly, in all material respects, the financial position of Maine Yankee Atomic Power Company (the "Company") at December 31,2004 and 2003 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation, We believe that our audits provide a reasonable basis for our opinion.

Marsh 10,2005

Maine Yankee Atomic Power Company STATEMENTS OF INCOME (Dollars in Thousands Except Per Share Amounts)

Year Ended December 31, 2004 2003 ELECTRIC OPERATING REVENUES OPERATING EXPENSES Fuel Disposal Cost Operation and Maintenance Amortization Decommissioning Collections Income Taxes (Note 3)

Total Operating Expenses OPERATING INCOME OTHER INCOME, NET INCOME BEFORE INTEREST CHARGES INTEREST CHARGES Long-Term Debt (Note 7)

Revolving Loans (Note 7)

Fuel Disposal Liability Other Interest Total Interest Charges NET INCOME WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING EARNINGS PER SHARE OF COMMON STOCK DIVIDENDS DECLARED PER SHARE OF COMMON STOCK The accompanying notes are an integral part of these financial statements.

Maine Yankee Atomic Power Company BALANCE SHEETS (Dollars in Thousands)

ASSETS December 31.

UTILITY PLANT AT ORIGINAL COST $ 330 $ 652 CURRENT ASSETS Cash and Cash Equivalents Accounts Receivable - Decommissioning Trust Fund Accounts Receivable - Other Prepayments Total Current Assets 38,217 30,293 DEFERRED CHARGES AND OTHER ASSETS Trust Funds Plant Decommissioning (Note 4)

Fuel Disposal (Note 5)

Other Regulatory Assets Closure (Note 1)

Net Unrecovered Assets (Note 1)

DOE Decontamination and Decommissioning Fee (Note 6)

ISFSI-Related Costs Other Other Deferred Charges and Other Assets Total Deferred Charges and Other Assets 439,752 530,578 The accompanying notes are an integral part of these financial statements.

Maine Yankee Atomic Power Company BALANCE SHEETS (Dollars in Thousands)

CAPITALIZATION AND LIABILITIES December 31, 2004 2003 CAPITALIZATION (See Separate Statements)

Common Stock Investment Long-Term Debt (Note 7)

Total Capitalization LONG-TERM FUEL DISPOSAL LIABILITY CURRENT LIABILITIES Current Sinking Fund Requirements (Note 7)

Accounts Payable Accounts Payable to Associated Companies Dividends Payable Accrued Interest and Taxes Other Current Liabilities Total Current Liabilities COMMITMENTS AND CONTINGENCIES (Note 11)

RESERVES AND DEFERRED CREDITS Plant Decommissioning Reserve Deferred Credits Regulatory Liabilities Closure DOE Decontamination and Decommissioning Fee Other Accumulated Deferred Income Tax Liabilities Unamortized Investment Tax Credits Asset Retirement Obligation (Note 8)

Other Deferred Credits Total Reserves and Deferred Credits The accompanying notes are an integral part of these financial statements.

Maine Yankee Atomic Power Company STATEMENTS OF CAPITALIZATION (Dollars in Thousands)

December 31, 2003 COMMON STOCK INVESTMENT Common Stock, $100 Par Value, Authorized 500,000 Shares Outstanding 259,200 in 2004 and 289,300 in 2003 (Note 9)

Other Paid-in Capital Gain on Redemption of Preferred Stock Retained Earnings (Note 9)

LONG-TERM DEBT Term Note (Note 7)

Less: Current Sinking Fund Requirements Total Capitalization The accompanying notes are an integral part of these financial statements.

Maine Yankee Atomic Power Company STATEMENTS OF CHANGES IN COMMON STOCK INVESTMENT for the Years Ended December 31, 2004 and 2003 (Dollars in Thousands)

Amount at Retained Shares Par Value Other, Net Earnings Total Balance - December 31, 2002 Add (Deduct):

Net Income Cash Dividends Declared on Common Stock Redemption of Common Stock Balance - December 31, 2003 Add (Deduct):

Net Income Cash Dividends Declared on Common Stock Redemption of Common Stock Balance - December 31, 2004 The accompanying notes are an integral part of these financial statements.

Maine Yankee Atomic Power Company STATEMENTS OF CASH FLOWS (Dollars in Thousands)

Year Ended December 31, Operating Activities Net Income Items Not Requiring (Providing) Cash Decommissioning and Amortization Deferred Income Taxes and Investment Tax Credits, Net Gain on Sale of Land Long-Term Fuel Disposal Interest Other, Net Changes in Certain Assets and Liabilities Accounts Receivable Accounts Receivable - Other Prepayments Accounts Payable and Other Accrued Interest and Taxes Net Cash Provided by Operating Activities Investing Activities Sale of Land 322 Changes in Net Unrecovered Assets -

Investment Income in Decommissioning Trust 3,337 Trust Fund Investments Fuel Disposal (789)

Plant Decommissioning (37,207)

Net Cash Used by Investing Activities (34,337)

Financing Activities Redemptions Common Stock (3,999)

Long-Term Debt (9,765)

Dividend Payments Common Stock (7,102)

Net Cash Used by Financing Activities (20,866)

Net Increase (Decrease)in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year 11,000 Cash and Cash Equivalents at End of Year $14,415 Cash paid (refunded) during the year for:

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

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

1. PLANT SHUTDOWN AND 1999 RATE-CASE SETTLEMENT The following New England electric utilities (the "Sponsors" or the "Stockholders") own all of the common stock of Maine Yankee Atomic Power Company (the "Company" or "Maine Yankee"):

Sponsor Ownership Interest Central Maine Power Company New England Power Company The Connecticut Light and Power Company Bangor Hydro-Electric Company Maine Public Service Company Public Service Company of New Hampshire Cambridge Electric Light Company Western Massachusetts Electric Company Central Vermont Public Service Corporation On August 6, 1997, the Board of Directors of Maine Yankee voted to permanently cease power operations at its plant in Wiscasset, Maine

("the Plant") and to begin decommissioning the Plant. The decision to close the Plant permanently was based on an economic analysis of the costs, risks, and uncertainties associated with operating the Plant compared to those associated with closing and decommissioning it.

The Plant's operating license from the Nuclear Regulatory Commission

("NRC") was scheduled to expire in 2008.

Maine Yankee recovered and since the shutdown decision continued to recover, its costs of providing service through a formula rate contained in Power Contracts which, as amended, are filed with the Federal Energy Regulatory Commission ("FERC") .

The Company is nearing completion of the decommissioning of the Plant and Plant site. On February 27, 2004, the transfer of spent fuel and greater-than-class C waste ("GTCC") to the Company's new on-site Independent Spent-Fuel Storage Installation ("ISFSIff)was completed.

In August 2004 the Company sold 431 acres of its land to the Town of Wiscasset for $1.75 million, the gain on which was credited to its ratepayers pursuant to its 1999 FERC rate case settlement. In the fall of 2004 the Company demolished the reactor containment building and the other remaining major structures on the site. In late fall the remaining focus of the project became removal of waste and site restoration, in accordance with the Company's NRC-approved license termination plan and other regulatory requirements. Based on the current schedule, which is subject to change, the Company anticipates completion of the project in mid-2005, with only the ISFSI and appropriate security, technical and corporate personnel remaining thereafter and the license expected to be terminated for non-ISFSI land.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004 PLANT SHUTDOWN AND 1999 RATE-CASE SETTLEMENT (continued)

Maine Yankee's first post-shutdown rate-case settlement, approved by the FERC on June 1, 1999, provided for Maine Yankee to recover amounts intended to cover the costs of decommissioning and those associated with the construction and maintenance of the on-site ISFSI, subject to certain conditions. The settlement also provided for recovery of unamortized investment in the Plant (including fuel), together with a return on equity of 6.50 percent on limited equity balances. The settling parties also agreed not to contest the effectiveness of the power contract amendments submitted to FERC, subject to certain limitations including the right to challenge any accelerated recovery of unamortized investment under the terms of the amendments after a required informational filing with the FERC by Maine Yankee. As a separate part of the settlement, the three Maine Sponsors of Maine Yankee and Maine regulators entered into a further agreement resolving retail rate issues and other issues specific to the Maine parties, including those that had been raised concerning the prudence of the operation and shutdown of the Plant.

In addition, the approved settlement contains certain incentives for Maine Yankee to achieve further savings in its decommissioning and ISFSI-related costs, based on the amount of savings or overruns below or above a target total budget amount. Maine Yankee would retain 10 percent of any net savings that are more than $10 million below the target amount and would be required to fund 10 percent of any overages more than $10 million over the target, with Maine Yankeers share limited, in each case, to $10 million. Under the settlement, savings or overages, as the case may be, will not be subject to windfalls or force majeure events. Maine Yankee is required to calculate a reconciliation of any amounts to be received or paid under the incentive provision within 60 days of the NRC license termination or site release date and initiate a FERC proceeding promptly thereafter. The settlement also resolved some of the issues concerning restoration and future use of the Plant site and environmental matters of concern to certain intervenors in the proceeding.

Finally, Maine Yankee agreed to file a FERC rate proceeding with an effective date for new rates of no later than January 1, 2004, when major decommissioning activities were expected to be nearing completion. Maine Yankee submitted its new rate filing on October 20, 2003. For further discussion of the rate filing, see Note 11 "Commitments and Contingencies" - "2003 FERC Rate Case".

The estimated future costs of closure to be incurred by Maine Yankee had been recorded previously as a regulatory liability. Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") 143, "Accounting for Asset Retirement Obligationsrr and recorded a liability for future decommissioning

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

1. PLANT SHUTDOWN AND 1999 RATE-CASE SETTLEMENT (continued) expenses. See Note 8, "Asset Retirement Obligationtt.Maine Yankee believes that the decision to close the Plant was prudent and that the Company is entitled to recover substantially all of the resulting costs of closure and any unrecovered assets through E'ERC-approved rates. Therefore, Maine Yankee has recognized the sum of its estimated future costs as a regulatory asset.

The components of the sum of the estimated future costs of closure at December 31, 2004 and 2003, are:

2004 2003 (Dollars in Thousands)

Decommissioning Contributions Remaining ISFSI Expenditures Operation and Maintenance Return and Interest, Net Income Taxes The components of total unbilled closure and decommissioning costs recorded at December 31, 2004 and 2003, are:

2004 2003 (Dollars in Thousands)

Closure Net Unrecovered Assets ISFSI-Related Costs DOE DCD Fee Debt Expense and Loss Postretirement Benefits Income Taxes

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Use of E s t i m a t e s : The p r e p a r a t i o n of f i n a n c i a l s t a t e m e n t s i n conformity w i t h accounting- p - rinciples generally accepted i n t h e United states r e q u i r e s management t o make e s t i m a t e s a n d assumptions t h a t a f f e c t t h e r e p o r t e d amounts of a s s e t s and l i a b i l i t i e s and d i s c l o s u r e of c o n t i n g e n t l i a b i l i t i e s a t t h e d a t e of t h e f i n a n c i a l s t a t e m e n t s and t h e r e p o r t e d amounts of revenues and expenses d u r i n g the reporting period. Actual r e s u l t s c o u l d d i f f e r from t h o s e estimates.

Sponsors: The Company e n t e r e d i n t o power c o n t r a c t s w i t h i t s Sponsors i n 1968 f o r t h e s a l e of t h e e n t i r e o u t p u t of t h e P l a n t t o them f o r t h e l i f e of t h e P l a n t . Under t h e terms of t h e c o n t r a c t s , each Sponsor i s r e q u i r e d t o pay t h e Company an amount e q u a l t o i t s e n t i t l e m e n t p e r c e n t a g e of t h e Company's t o t a l o p e r a t i n g expenses, i n c l u d i n g a r e t u r n on n e t u n i t investment.

R e g u l a t i o n : The Company i s s u b j e c t t o t h e r e g u l a t o r y a u t h o r i t y of t h e FERC, t h e NRC, and o t h e r f e d e r a l and s t a t e agencies a s t o r a t e s ,

a c c o u n t i n g , o p e r a t i o n s , and o t h e r m a t t e r s .

Amortization of N e t Unrecovered A s s e t s : A s of January 15, 1998, n e t p l a n t , n u c l e a r f u e l , m a t e r i a l s and s u p p l i e s , and o t h e r r e g u l a t o r y a s s e t s a r e b e i n g amortized over t h e p e r i o d ending October 2008.

Accounting f o r E f f e c t s of C e r t a i n Types of Regulation: Statement of F i n a n c i a l Accounting Standards ( "SFASW ) 7 1, "Accounting f o r t h e E f f e c t s of C e r t a i n Types of RegulationI1I r e q u i r e s r e g u l a t e d e n t i t i e s ,

i n a p p r o p r i a t e c i r c u m s t a n c e s , t o e s t a b l i s h r e g u l a t o r y a s s e t s and l i a b i l i t i e s , and thereby d e f e r t h e income statement impact of c e r t a i n c o s t s t h a t a r e expected t o b e r e c o v e r e d i n f u t u r e r a t e s . The Company's remaining unrecovered investments i n p l a n t , n u c l e a r f u e l and o t h e r a s s e t s , i n c l u d i n g d e f e r r e d expenses, continue t o be t r e a t e d collectively a s a regulatory asset. The Company b e l i e v e s t h a t i t c u r r e n t l y m e e t s and e x p e c t s i t w i l l c o n t i n u e t o m e e t t h e c r i t e r i a e s t a b l i s h e d i n SFAS 71.

Unamortized Gain o r Loss on Reacquired Debt: Gains and l o s s e s on bonds r e a c q u i r e d t o s a t i s f y s i n k i n g fund requirements of F i r s t Mort-gage Bonds w e r e d e f e r r e d and a r e b e i n g amortized t o income over t h e remaining o r i g i n a l terms of t h e a p p l i c a b l e s e r i e s a s p r e s c r i b e d by t h e Uniform System of Accounts of t h e FERC.

Statement of Cash Flows: For purposes of t h e s t a t e m e n t of cash flows, t h e Company c o n s i d e r s a l l h i g h l y l i q u i d i n s t r u m e n t s purchased having a m a t u r i t y of t h r e e months o r less t o be c a s h equivalents.

F a i r Value of F i n a n c i a l Instruments: Investments i n t h e p l a n t decommissioning t r u s t and t h e f u e l d i s p o s a l t r u s t a r e p r e s e n t e d a t f a i r value. The c a r r y i n g amounts o f - cash and cash e q u i v a l e n t s ,

a c c o u n t s payable, and accrued l i a b i l i t i e s approximate f a i r v a l u e because of t h e s h o r t m a t u r i t y of t h e s e i n s t r u m e n t s .

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES (continued)

R e c l a s s i f i c a t i o n : S e l e c t e d p r i o r - y e a r f i n a n c i a l s t a t e m e n t amounts have been r e c l a s s i f i e d t o conform t o c u r r e n t - y e a r p r e s e n t a t i o n .

3. INCOME TAX EXPENSE The components of f e d e r a l and s t a t e income taxes ( b e n e f i t s ) r e f l e c t e d i n t h e Statements of Income a r e a s follows:

Year Ended December 31.

2004 2003

( D o l l a r s i n Thousands)

Federal Current $ (5) $ (4)

Deferred 681 947 Investment Tax C r e d i t s , Net (556) (556) 120 387 State Current Deferred T o t a l Federal and S t a t e Income Taxes I n 2004, a l l f e d e r a l t a x i s s u e s f o r t h e y e a r s 1990 and 1991 were resolved by a d e c i s i o n of the United S t a t e s Tax Court. The d e c i s i o n was n o t appealed. The Company r e c e i v e d $1.2 m i l l i o n i n i n t e r e s t and p a i d $0.4 m i l l i o n i n t a x e s . I n 2003, t h e Company s e t t l e d a l l o u t s t a n d i n g t a x i s s u e s f o r t h e y e a r s 1992 through 1997 with t h e I n t e r n a l Revenue S e r v i c e Appeals O f f i c e . The Company received $5.2 m i l l i o n of t a x refunds and $4.3 m i l l i o n of r e l a t e d i n t e r e s t refunds.

The t a x e s were recorded i n t h e a p p r o p r i a t e t a x balance s h e e t accounts. The i n t e r e s t refunds were c r e d i t e d t o o t h e r income and refunded t o t h e customers.

Deferred income taxes a r e provided t o recognize t h e income t a x e f f e c t of r e p o r t i n g c e r t a i n t r a n s a c t i o n s i n d i f f e r e n t y e a r s f o r income t a x and f i n a n c i a l r e p o r t i n g purposes i n accordance with t h e rate-making p o l i c i e s of t h e FERC. Provisions f o r d e f e r r e d income t a x e s r e f l e c t t h e t a x e f f e c t of a l l timing d i f f e r e n c e s .

Maine Yankee accounts f o r income t a x e s under t h e p r o v i s i o n s of SFAS 109, "Accounting f o r Income Taxes." The standard r e q u i r e s t h e use of t h e l i a b i l i t y method under which e x i s t i n g d e f e r r e d t a x e s w i l l b e a d j u s t e d c u r r e n t l y t o r e f l e c t t h e e f f e c t of t a x r a t e s a p p l i c a b l e t o t h e y e a r s i n which t h e s e t a x e s would become payable. Under t h i s method, d e f e r r e d t a x l i a b i l i t i e s and a s s e t s a r e determined based on t h e d i f f e r e n c e between t h e f i n a n c i a l statement and t a x b a s i s of a s s e t s and l i a b i l i t i e s using enacted t a x r a t e s i n e f f e c t i n t h e year i n which t h e d i f f e r e n c e s a r e expected t o r e v e r s e . The s t a n d a r d had no impact on t o t a l income t a x expense f o r f i n a n c i a l r e p o r t i n g purposes. The n e t r e g u l a t o r y l i a b i l i t y r e l a t e d t o income t a x e s i s

$0.8 m i l l i o n a s of December 31, 2004. This l i a b i l i t y i s being amortized c o n s i s t e n t with t h e Company's ratemaking.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004 INCOME TAX EXPENSE (continued)

Accumulated deferred income taxes consisted of the following as of December 31, 2004 and 2003:

2004 -

2003 (Dollars in Thousands)

Liabilities Unrecovered Assets ISFSI Decommissioning DOE D&D Fee Assets Investment Tax Credits Loss and Credit Carryforwards DOE D&D Fee Other

- ~- - - - -

Accumulated Deferred Income Tax Net Liability $ (62,241) $ (61,477)

A valuation allowance was not recorded at December 31, 2004 and 2003, as the Company expects that all deferred income tax assets will be realized in the future.

Investment tax credits utilized to reduce federal income taxes currently payable are deferred and amortized over the financial reporting lives of the related assets.

The following table reconciles the statutory federal income tax rate to the effective tax rate for financial reporting purposes:

2004 2003 (Dollars in Thousands)

Amount Amount Statutory Federal Income Tax $ 873 $1,362 Increase (Reduction) in Taxes Resulting from:

Unrecovered Asset Tax Basis Less Than Book Basis 220 Spent Fuel Trust Municipal Earnings (231)

Investment Tax Credits -

Nonqualified Decommissioning (556)

Trust Investments State Tax Impact (297)

Other (33)

Effective Income Tax (Benefit) $ (24)

(1.3)

(0.9)

(36)

$387 (0.9) 9.7

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

4. PLANT DECOMMISSIONING COSTS Maine Yankee's decommissioning cost estimate as of December 31, 1999, which included ISFSI-related costs, the fixed-price decommissioning operations contract and contingency, was $541 million (in mid-1998 dollars). After accounting for the estimated increased costs resulting from the termination of the decommissioning operations contract and from enhanced Plant and ISFSI security and subtracting unrelated savings in other areas, the Company's expenditures for the project through 2004 for decommissioning, including ISFSI-related costs and after crediting both the performance and payment bond proceeds of $44 million and proceeds of a settlement for a contractor dispute of $10.4 million, and Stone & Webster estate proceeds of $14.5 million is $485.4 million (in nominal dollars). The Company continues to pursue its litigation-related recovery options as they pertain to the termination of the Stone & Webster decommissioning operations contract. For a discussion of related litigation, see Note 11 "Commitments and Contingencies" - "Termination of Decommissioning Operations Contract and Resulting Litigation."

The total decommissioning fund cost basis as of December 31, 2004, was

$61.5 million (including earnings, the receipt of performance and payment bond settlements of $44 million, the contractor dispute settlement of $10.4 million, Stone & Webster estate proceeds of $14.5 million and net of $485.4 million expended by Maine Yankee for decommissioning expenses through December 31, 2004) with an adjusted market value as of December 31, 2004, of $56.3 million. The Company currently estimates that future costs for decommissioning, including ISFSI operations through 2023, will be $173 million (in 2004 dollars),

which includes $20 million for the balance of decontamination and dismantlement of the plant and site in 2005. The Company incurred decommissioning expenses of $65.1 million in 2004, prior to crediting the settlement proceeds.

The Company recognizes the relative uncertainties associated with decommissioning, including changing technology and the possibility of new requirements of law and therefore recognizes the need to monitor and adjust decommissioning collections through supplemental rate filings with the FERC.

5. FUEL DISPOSAL In 1983, the Company entered into a contract with the federal Department of Energy ("DOE") for disposal of its spent nuclear fuel, as required by the Nuclear Waste Policy Act of 1982, pursuant to which a fee of $1.00 per megawatt-hour was assessed against current generation and paid to the DOE quarterly. The Company also has an obligation of

$50.4 million with respect to generation prior to April 7, 1983 (the date current DOE assessments began), all of which the Company had already collected from its customers, but for which a reserve was not funded. The Company elected, under the terms of this contract, to make a single payment of this obligation prior to the first delivery of spent fuel to DOE, which was scheduled to begin by January 31, 1998, but has not yet taken place. Interest on the obligation accrues at the

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004 FUEL DISPOSAL (continued) 13-week Treasury B i l l r a t e compounded on a q u a r t e r l y b a s i s from A p r i l 7 , 1983 through t h e d a t e of t h e a c t u a l payment and i s b i l l e d under t h e terms of t h e Power C o n t r a c t .

I n t e r e s t accrued and b i l l e d through December 31, 2004, amounted t o

$109.8 m i l l i o n . The Company formed a t r u s t , t h e Spent Fuel Disposal T r u s t , t o provide f o r payment of t h i s long-term f u e l o b l i g a t i o n . Maine l e g i s l a t i o n enacted i n 1999 allowed Maine Yankee t o use funds from t h e f u e l d i s p o s a l t r u s t f o r c o n s t r u c t i o n of t h e ISFSI. The Company can r e c o v e r from t h e Sponsors f u e l d i s p o s a l t r u s t funds used f o r ISFSI c o s t s once c o n d i t i o n s s p e c i f i e d i n t h e 1999 r a t e - c a s e s e t t l e m e n t a r e met. Through 2004, Maine Yankee had used $77.5 m i l l i o n of f u e l d i s p o s a l t r u s t funds f o r ISFSI c o n s t r u c t i o n and f u e l t r a n s f e r s . The t o t a l s p e n t f u e l fund b a l a n c e , h e l d by an independent t r u s t e e , a s of December 31, 2004, was $83.6 m i l l i o n ( i n c l u d i n g i n t e r e s t earned, u n r e a l i z e d l o s s , and n e t of funds used f o r ISFSI c o n s t r u c t i o n ) and i s i n c l u d e d i n Deferred Charges and Other A s s e t s on t h e accompanying balance s h e e t s . As of December 31, 2004, t h e s p e n t f u e l d i s p o s a l trust b a l a n c e r e f l e c t e d a n e t u n r e a l i z e d l o s s of $195 thousand, which i s i n c l u d e d i n o t h e r r e g u l a t o r y a s s e t s and i s a n t i c i p a t e d t o be recovered i n the future.

The f o l l o w i n g t a b l e shows t h e s p e n t f u e l d i s p o s a l t r u s t fund i n v e s t m e n t s ' g r o s s u n r e a l i z e d l o s s e s and f a i r v a l u e , aggregated by investment category and l e n g t h of t i m e t h a t i n d i v i d u a l s e c u r i t i e s have been i n a continuous u n r e a l i z e d l o s s p o s i t i o n , a t December 31, 2004.

Domestic U.S. Govt Corporate Equity

& Agency Municipal & Foreign Mutual Obligations Obligations Bonds Funds Total

( D o l l a r s i n Thousands)

Less Than 12 Months F a i r Value $ 963 $ - $ 497 $ - $ 1,460 Unrealized Losses $ (3) $ - $ (2) $ - $ (5) 12 Months o r More F a i r Value $1,754 $128 $ 776 $33,127 $35,785 Unrealized Losses $ (25) $ (2) $ (13) $(3,496) $(3,536)

T o t a l Temporarily Impaired S e c u r i t i e s F a i r Value $2,717 $128 $1,273 $33,127 $37,245 Unrealized Losses $ (28) $ (2) $ (15) $ (3,496) $ (3,541)

The trust i s funded by t h e Company through d e p o s i t s , which began i n December 1985, with expected a d d i t i o n a l d e p o s i t s , from recovery through r a t e s o r t h e Company's ongoing l i t i g a t i o n with t h e DOE, of approximately $83 m i l l i o n , and $ 2 . 9 m i l l i o n of Stone & Webster e s t a t e p r o c e e d s , expected t o b e used f o r ISFSI c o n s t r u c t i o n and f u e l t r a n s f e r s . The trust fund d e p o s i t s p l u s e s t i m a t e d e a r n i n g s a r e p r o j e c t e d t o meet t h e t o t a l e s t i m a t e d f u t u r e l i a b i l i t y of $191 m i l l i o n a t October 31, 2010.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

5. EWEL DISPOSAL (continued)

For discussion of litigation that resulted from DOE'S refusal to assume responsibility for disposal of such spent fuel, see Note 11 "Commitments and Contingenciesw - "Nuclear Fuel Storage."

6. DOE DECONTAMINATION AND DECOMMISSIONING FEE Title XI of the Energy Policy Act of 1992 (the "Policy Act") provides for the decontamination and decommissioning of DOE'S enrichment facilities that is partially funded by a special assessment against domestic utilities. Under the Policy Act, the total amount collected for a fiscal year will not exceed $150 million escalated by the Consumer Price Index ("CPI") annually, and the collection of the amounts will cease after the earlier of (1) 15 years after the date of the enactment or (2) the collection of $2.25 billion (escalated by the CPI annually). Each utility's share of the assessment is based on its cumulative consumption of DOE enrichment services.

A liability for the Company's DOE obligation, along with a corresponding regulatory asset, has been recognized in the accompanying financial statements. The total liability at December 31, 2004 was $27.1 million, of which the Company had paid $23.1 million. The outstanding liability at December 31, 2004, was $4.1 million, of which $2 million was included in current liabilities.

Through December 2004, the Company had expensed and recovered $21.6 million. The unrecovered balance of the regulatory asset at December 31, 2004 and 2003, was $5.6 million and $7.5 million, respectively.

The Company believes that the full assessment will be recovered in rates as provided in the Policy Act.

7. LONG-TERM DEBT AND REVOLVING LOANS On April 7, 1998, Maine Yankee refunded all of its First Mortgage Bonds and Nuclear Fuel Financing Notes by means of a three-year revolving credit facility with two major banks and a $48 million term loan due in 2006 from a major institutional investor, and discharged its First Mortgage Indenture. The banks1 revolving credit commitments were reduced through planned prepayments structured to conform to Maine Yankee's projected cash flows, in two decrements from their initial level of $80 million to a working-capital level of

$20 million on March 31, 2000. There were no balances outstanding on this line when the Company terminated the revolving credit facility on March 29, 2002. The term loan is secured by a security interest in Maine Yankee's rights in its Power Contracts, Additional Power Contracts, and Capital Funds Agreements with its Sponsors and its rights to certain third-party payments. The term loan facility also contains restrictions on the payment of common-stock dividends and return of equity capital based on Maine Yankee's cash position and a debt-service coverage test. The amount of unrestricted dividends and equity capital ratios are based on estimates that are expected to vary over time and may vary from actual results.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

7. LONG-TERM DEBT AND REVOLVING LOANS (continued)

In addition to its quarterly payments of principal and interest to retire the term loan, the Company applied the $9.5 and $0.8 million proceeds of a federal income tax refunds to reduce the principal of the term loan in the last quarter of 2003 and first quarter 2005, respectively.

Certain other information relating to the term loan is as follows:

Year Ended December 31, 2004

- - - - 2003 (Dollars in Thousands)

Promissory Note Outstanding at End of Period $ 2,515 $12,280 Average Daily Outstanding Borrowings $ 8,680 $27,066 Highest Level of Borrowing $12,279 $31,200 Annual Interest Rate at End of Period 7.87% 7.87%

Effective Average Annual Interest Rate 7.87% 7.87%

8. ASSET RETIREMENT OBLIGATION The Company adopted SFAS 143, "Accounting for Asset Retirement obligation^^^, effective January 1, 2003. Under SFAS 143, entities are required to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred.

When a new liability is recorded, the entity capitalizes the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period until the liability is satisfied, and the capitalized cost is depreciated over the useful life of the related asset.

The following table presents the detail of the Company's asset retirement obligation which is included in Deferred Credits on the accompanying balance sheets.

Year Ended December 31, 2004 (Dollars in Thousands) 2003 Beginning Balance Adoption Accretion Settled Adjustments Ending Balance

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

8. ASSET RETIREMENT OBLIGATION (continued)

As of January 1, 2003, the value of the plant balance that generated the asset retirement obligation was fully depreciated. On adoption of SFAS 143, the incremental asset recorded as an offset to the asset retirement obligation was fully depreciated as well since the plant asset had no remaining useful life. In accordance with SFAS 71, the Company recorded no income statement impact for either the cumulative depreciation charged on the incremental asset or the reduction of liability recorded as a result of adopting SFAS 143.

The assets included in the decommissioning trust are restricted for settling the asset retirement obligation.

9. RETAINED EARNINGS The total dividends declared per share for 2004 and 2003 were $27.40 and $18.63, respectively. Under the terms of the most restrictive test in the Company's articles of incorporation, no dividend may be paid on any class of its capital stock unless the Company is in compliance with specific equity ratio requirements. Through December 31, 2004, the Company was in compliance with these requirements. The amount of unrestricted dividends and equity capital ratios are based on estimates which are expected to vary over time and may vary from actual results.

In 2001 Maine Yankee initiated a program intended to retire substantially all of its then-outstanding 500,000 shares of common stock by 2008 at a redemption price determined by a formula in its articles of incorporation. The following table contains relevant information on the redemptions completed through December 31, 2004:

Number Of Number Of Shares Shares Date of Redemption Price Per Share Redeemed Remaininq September 30, 2001 $132.8415 75,200 424,800 July 1, 2002 $132.8415 22,600 402,200 October 1, 2002 $132.8415 33,900 368,300 January 1, 2003 $132.8415 33,800 334,500 October 1, 2003 $132.8415 45,200 289,300 January 1, 2004 $132.8415 30,100 259,200

10. PENSION AND OTHER POSTRETIREMENT BENEFITS The Company has a noncontributory defined-benefit pension plan that covers substantially all of its employees, excepting those hired on or after January 31, 2002. The Company's funding policy is to contribute an amount equal to the minimum required employer contribution under the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company may determine to be appropriate.

Maine Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004 PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)

Maine Yankee's postretirement welfare benefit plans are funded through nonunion and union Voluntary Employee Beneficiary Association Trusts and a nonunion 401(h) pension plan subaccount. Future Company billings shall always be funded as filed and approved by FERC.

Accrued and prepaid benefit costs recognized on the balance sheets at December 31, 2004 and 2003, have offsetting regulatory assets and liabilities, respectively, as they are expected to be included in billing in future years.

Pension Benefits Change in Projected Benefit Obligation ( "PBOqV )

2004 2003 (Dollars in Thousands)

PBO at Beginning of Year Service Cost Interest Cost Plan Amendment Curtailment Settlement Actuarial Loss Benefits Paid PBO at End of Year Accrued Benefit Obligation ("ABOV) at End of Year $ 5,938 $ 7,548 Change in Plan Assets 2004 2003 (Dollars in Thousands)

Fair Value of Plan Assets at Beginning of Year $ 9,671 $ 34,739 Actual Re turn on Plan Assets 167 1,452 Settlement (3,506) (24,334)

Benefits Paid - (2,185)

Fair Value of Plan Assets at End of Year Expected Company Contributions The Company expects to make no contributions in 2005.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

10. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)

Reconciliation of Prepaid Cost 2004 2003 (Dollars in Thousands)

Funded Status of the Plan $ 298 Unrecognized Net Transition Asset (9)

Unrecognized Prior Service Cost 151 Unrecognized Net Gain 1 300 Net Amount Recognized $1.740 Amount Recognized in the Balance Sheet Prepaid Benefit Cost $1,740 Components of Net Periodic Benefit Income 2004 2003 (Dollars in Thousands)

Service Cost Interest Cost Expected Return on Plan Assets Amortization of Unrecognized:

Net Transition Asset Prior Service Cost Net Gain Settlement/Curtailment Loss Net Periodic Pension Income Assumptions Weighted Average Assumptions 2004 2003 Used to Determine Benefit Obligations at December 31 Discount Rate 5.75% 6.00%

Rate of Compensation Increase 3.00% 3.00%

Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31 Discount Rate Rate of Compensation Increase Expected Long-Term Return on Plan Assets

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

10. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)

Plan Assets Maine Yankee's Pension Plan weighted-average asset allocation at December 31, 2004 and 2003, by asset category are as follows:

Pension Plan Assets at December 31, Asset Category Equity Securities Debt Securities Cash and Equivalents Total The current asset allocation reflects a conservative posture due to the relatively short-term nature of the liabilities following annuitization of retiree and terminated vested employee liabilities.

In 2003 the Company annuitized certain retiree and terminated vested employee liabilities, which resulted in a settlement of $24.3 million. The investment structure is a cash-matched/duration-matched strategy for benefit payments through projected end of pension liabilities by the end of 2006.

Maine Yankee's 401(h) subaccount (part of the Pension Plan but only applicable to Welfare Benefit Plan medical expenses) weighted-average asset allocations at December 31, 2004 and 2003, by asset category are as follows:

401 (h) Assets at December 31, Asset Category Equity Securities Debt Securities Cash and Equivalents Total The 401(h) subaccount employs a similar strategy to that of the Pension Plan, with benefit payments expected to the projected exhaustion of funds in the 2008 time frame.

Postretirement Welfare Benefits Change in Accumulated Projected Benefit Obligation ("APBO")

2004 -

2003 (Dollars in Thousands)

APBO at Beginning of Year $13,993 $16,107 Service Cost Interest Cost Actuarial Loss (Gain)

Benefits Paid APBO at End of Year

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

10. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)

Chanqe in Plan Assets 2004 -

2003 (Dollars in Thousands)

Fair Value of Plan Assets at Beginning of Year $ 9,301 Actual Return on Plan Assets 747 Employer Contribution 1,205 Benefits Paid (373)

Fair Value of Plan Assets at End of Year $10,880 Reconciliation of Prepaid (Accrued) Benefit Cost 2004 (Dollars in 2003

~housxss)

Funded Status of the Plan $ (935) $ (4,692)

Unrecognized Net Transition Obligation 386 483 Unrecognized Prior Service Cost - 149 Unrecognized Net Loss 42 2,809 Net Amount Recognized $ (507) $ (1,251)

Amount Recognized in the Balance Sheet Prepaid Benefit Cost Accrued Benefit Cost Net Amount Components of Net Periodic Benefit Cost 2004 -

2003 (Dollars in Thousands)

Service Cost $ - 30 Interest Cost 719 Expected Return on Plan Assets (540)

Amortization of Unrecognized:

Net Transition Obligation 97 Prior Service Cost 150 Net Loss - 6 Net Periodic Benefit Cost $ 4-62

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

10. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)

Assumptions Weighted Average Assumptions Used to Determine Benefit Obligations at December 31 Discount Rate Health Care Cost Trend Rate Assumed for Next Year Ultimate Health Care Cost Trend Rate Year that the Trend Rate Reaches the Ultimate Trend Rate Rate of Compensation Increase Nonunion Plan Union Plan Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31 Discount Rate Health Care Cost Trend Rate Assumed for Next Year Ultimate Health Care Cost Trend Rate Year that the Trend Rate Reaches the Ultimate Trend Rate Rate of Compensation Increase Expected Long-Term Return on Plan Assets Effects of a One-Percentage-Point Change in the Health Care Cost Trend Rate Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care trend rates would have the following effects :

1-Percentage 1-Percentage Point Increase Point Decrease (Dollars in Thousands)

Effect on Total of Service Cost and Interest Cost Components $ 101 $ (89)

Effect on Postretirement Benefit Obligation $ 1,573 $ (1,389)

Recognition of Medicare Act On December 8, 2003, President Bush signed into law a bill that expands Medicare primarily by adding a prescription drug benefit for Medicare-eligible retirees in 2006. The Company has elected to defer recognition of the new provisions.

Expected Company Contributions The Company expects to contribute $1,447,100 in 2005.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

10. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)

Plan Assets The weighted-average asset allocation for Maine Yankee's Non-Union Postretirement Plan at December 31, 2004 and 2003, by asset category are as follows:

Non-Union Postretirement Plan Assets at December 31, Asset Category Equity Securities Debt Securities Cash and Equivalents Total The current asset allocation target for the Plan is 65% equity, 33%

fixed income, and 2% cash. This target allocation reflects the long-term nature of the liabilities associated with this Plan. The primary goals in the management of Plan assets are to maintain the funds1 purchasing power and to maximize the long-term after-tax total return within the context of a moderate-risk environment.

The weighted-average asset allocations for Maine Yankee's Union Postretirement Plan at December 31, 2004 and 2003, by asset category are as follows:

Union Postretirement Plan Assets at December 31, Asset Category -2004 -2003 Equity Securities Debt Securities Cash and Equivalents Total The current asset allocation target for the Plan is 60% equity, 38%

fixed income, and 2% cash. This target allocation reflects the long-term nature of the liabilities associated with this Plan. The primary goals in the management of Plan assets are to maintain the funds1 purchasing power and to maximize the long-term total return within the context of a moderate-risk environment.

11. COMMITMENTS AND CONTINGENCIES Maine Yankee Sponsors: Under the terms of Maine Yankee's Power Contracts, as amended, with its Sponsors, each Sponsor is required to pay Maine Yankee an amount equal to its entitlement percentage of Maine Yankee's total operating expenses, including a return on net investment. A default by a Maine Yankee Sponsor in making payments under its Power Contract could have a material adverse effect on Maine Yankee, depending on the magnitude of the default, unless cured within applicable grace periods.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

11. COMMITMENTS AND CONTINGENCIES (continued)

Termination of Decommissioning Operations Contract and Resultinq Litigation: In May 2000, Maine Yankee terminated its decommissioning operations contract with Stone & Webster Engineering Corp. ("Stone &

webster") pursuant to the terms of the contract. - stone & Webster disputed Maine Yankee's grounds for the termination. In June 2000, Stone & Webster filed a voluntary petition under Chapter 11 of the United States Bankruptcy Co& with the United States Bankruptcy Court for the District of Delaware. Also in June 2000, Federal Insurance Company ("Federal") filed a &claratory judgment action against Maine Yankee in the same bankruptcy court seeking to absolve itself from any obligations to pay Maine Yankee under performance and payment bonds related to the Stone & Webster contract. Since the contract termination, Maine Yankee has managed the decommissioning project itself.

In December 2001, Maine Yankee and Federal entered into a settlement agreement resolving the litigation between the parties, pursuant to which Federal paid Maine Yankee $44 million. That amount represented full payment under the performance bond provided by Federal, plus an additional amount under its payment bond reflecting certain payments previously made by Maine Yankee to subcontractors and suppliers who had not been fully paid by Stone & Webster. Maine Yankee deposited the payment in its decommissioning trust fund to offset past and future expenses resulting from the failures of Stone & Webster.

In addition, Maine Yankee pursued its claim for damages against Stone

& Webster and its then parent corporations. After recognizing the payment from Federal, Maine Yankee asserted a right to recover an additional $20.8 million in court from the bankrupt estates. After extensive interim proceedings and negotiations, in the third quarter of 2003 the major parties agreed to a joint plan of reorganization under which Maine Yankee would have an allowed claim of $20.3 million against the principal bankrupt estate, subject to certain contingencies that could reduce Maine Yankee's proceeds to no more than $18.5 million. On January 13, 2004, the Bankruptcy Court approved the plan. Under the plan Maine Yankee would also have a first lien on any distributions from a related bankrupt estate in the proceeding on any amount needed to increase its actual cash recovery to $18.5 million, depending on the equity voting results. On February 3, 2004, Maine Yankee received an initial distribution of

$8.4 million, which it deposited in its decommissioning trust fund.

On December 27,2004, Maine Yankee received a payment of $6.1 million,

$3.2 million of which was deposited in the decommissioning trust fund and $2.9 million in the spent fuel trust fund. The amount of cash that Maine Yankee will actually recover on the balance of its claim remains contingent on a number of factors beyond Maine Yankee's control that affect the amount of bankrupt estate assets ultimately available to pay the claim.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

11. COMMITMENTS AND CONTINGENCIES (continued) 2003 FERC Rate Case: In accordance with its 1999 FERC rate case settlement, on October 20, 2003, Maine Yankee filed a revised formula rate schedule with the FERC, proposing an effective date of January 1, 2004. The filing contained a revised decommissioning cost estimate and collection schedule to assure that adequate funds are available to safely and promptly decommission the Plant and operate and manage the ISFSI. In the filing, Maine Yankee also requested a change in its billing formula and an increase in the level of collection for certain postretirement benefits. To meet these needs, the Company proposed to collect an additional $3.77 million per year over then current decommissioning collection levels through October 2008, exclusive of any income-tax liability, for the decommissioning and spent-fuel management expense, and to collect from November 2008 through October 2010 the amounts needed to replenish its spent fuel disposal trust for funds previously used for ISFSI construction and fuel transfers, currently estimated to be $83 million. On December 19, 2003, the FERC issued an order accepting the new rates effective January 1, 2004, subject to refund pending a hearing. After engaging in discovery and settlement discussions, on July 9, 2004, the active parties to the proceeding submitted an offer of settlement to the FERC for certification as an uncontested settlement by the presiding administrative law judge. The FERC approved the settlement by order issued September 16, 2004. The terms of the settlement are substantially similar to the rate revisions proposed by the Company in its October 2003 filing.

Heightened Plant Security: Maine Yankee initiated additional plant security measures subsequent to the September 11, 2001, terrorist attacks in New York a n d Virginia. since then the NRC has issued security orders requiring additional security measures, including requirements applicable to the ISFSI. The Company will continue to review its plant security programs regularly in conjunction with directives and regulations of the NRC and other governmental agencies to assure that they remain appropriate and in compliance under current conditions .

Nuclear Fuel Storage and Litigation: Federal legislation enacted in 1987 directed the DOE to proceed with the studies necessary to develop and operate a permanent high-level waste repository at Yucca Mountain in Nevada. The project has encountered delays, and the DOE indicated that the permanent disposal site was not expected to open before 2010, although originally scheduled to open in 1998.

In accordance with the process set forth in the legislation, in February 2002, the Secretary of Energy recommended the Yucca Mountain site to the President for the development of a nuclear waste repository, and the President then recommended development of the site to the Congress. As provided in the statutory procedure, the State of Nevada formally objected to the site in April 2002 and in July 2002, the Congress overrode the objection. Construction of the repository requires the approval of the NRC, upon application of the DOE and after a public adjudicatory hearing, as well as a second NRC approval, after completion of construction to operate the facility.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004 COMMITMENTS AND CONTINGENCIES (continued)

After the action by Congress, a number of parties, including the State of Nevada and several environmental groups, brought legal actions challenging the selection of the Yucca Mountain site. The legal actions were consolidated and argued before a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit on January 14, 2004. On July 9, 2004, the Court, although it rejected substantially all of the arguments raised by the plaintiffs against the Yucca Mountain repository, including contentions that it was unconstitutional for Congress to designate Nevada over its opposition as the host state, ruled that the federal standards for protecting the public from radiation leaks at the repository, which extended 10,000 years, were inadequate in their duration. The Court's decision was not appealed. The federal Environmental Protection Agency ("EPA") could conduct a rulemaking proceeding to revise the standards or Congress could take legislative action to address the Court' s finding of inadequacy. In addition, since the Court decision Congress substantially reduced the DOE'S 2005 funding request for the project and the DOE delayed its licensing filing with the NRC that had been scheduled for December 2004. The DOE announced recently that Yucca Mountain is not expected to open until 2012. The Company cannot predict whether or when the EPA or Congress will take remedial action or what effect the Court's decision will have on the completion of the Yucca Mountain project, but further delay appears likely.

At the same time, as an interim measure until the DOE meets its contractual obligation to dispose of Maine Yankee's spent fuel, the Company constructed an ISFSI, utilizing dry-cask storage, on the Plant site and completed the transfer of the spent fuel from the spent-fuel pool and a comparatively small amount of GTCC to the individual casks and the casks to the ISFSI. The Company's total cost of maintaining the ISFSI will be substantially affected by heightened security costs and by the length of time it is required to operate the ISFSI before the DOE honors its contractual obligation to take the fuel and GTCC waste from the site. The Company's current decommissioning cost estimate is based on an assumption that its operation of the ISFSI will end in 2023, but the actual period of operation and cost may vary.

In June 1998, the Company filed suit in the United States Court of Federal Claims against the United States for in excess of $100 million for a partial breach of contract arising from the United States Department of Energy's refusal to accept nuclear waste from the Plant. Pursuant to the Nuclear Waste Policy Act of 1982 the DOE had agreed to take responsibility for the spent nuclear fuel ("SNFN) and high-level radioactive waste from commercial reactors by January 31, 1998.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

11. COMMIrmENTS AND CONTINGENCIES (continued)

In November 1998 the Court denied the DOE1s request to refer the Company's damage claim for administrative determination by the DOE and ruled that the DOE had breached its SNF contract and was liable for damages, leaving the amount of damages to be determined by the Court after an evidentiary hearing. In August 2000 the United States Court of Appeals affirmed the Court of Claims ruling.

In June 1999 the Company filed detailed pre-trial submissions to establish its right to damages, and in March 2002 the DOE filed responsive pre-trial submissions that disputed the Companyfs entitlement to virtually any damages. In March 2003 the Company filed updated pre-trial submissions, including a revised claim for damages in the amount of approximately $160 million. The DOE continued to dispute the Company's entitlement to damages.

One issue affecting the amount of the Company's damages entitlement is the rate at which the DOE is required to accept the Company's SNF.

The DOE contended that the 1983 contract established a mechanism for determining that rate, which the Company disputed. In June 2003 the Court rejected the DOEfs position and ruled that it would determine based on the evidentiary hearing what a reasonable rate of SNF acceptance would have been if the DOE had complied with the contract.

Another issue on which the parties disagree is whether GTCC waste is covered by the 1983 contract. The DOE has contended that such waste is not covered by the contract and that the Company would have incurred substantial expense to provide for GTCC waste storage alone, thus resulting in lower damages incurred by the Company as a result of the DOE'S failure to remove SNF. The Company has disputed those contentions and in addition has argued, among other things, that even if GTCC waste is not covered by the contract the DOE, having a statutory obligation to dispose of GTCC waste, would have taken the GTCC waste at the same time as it took the SNF. The Company also argued that it would not have built an ISFSI to store only GTCC waste .

After completion of discovery and resolution of pre-trial issues, a seven-week evidentiary hearing to determine the damages incurred by the Company, Yankee Atomic and Connecticut Yankee concluded in August 2004. Post-trial briefing and other submittals, as well as oral arguments, were completed in February 2005, and the parties are awaiting the Court's decision. The Company believes it is entitled to substantial damages for the failure of the DOE to remove the Company's nuclear waste covered by the 1983 contract, but due to the novelty and complexity of the issues and the possibility of appeals, cannot predict the amount of damages it will receive or the timing of the final determination of such damages.

On January 15, 2003, the Company notified NAC International ("NAC"),

the contractor responsible for providing for the fabrication of the spent-fuel casks and transferring the fuel to the casks and the casks

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

11. COMMITMENTS AND CONTINGENCIES (continued) t o t h e ISFSI, t h a t t h e Company was t e r m i n a t i n g i t s c o n t r a c t with NAC f o r f a i l u r e t o perform i t s c o n t r a c t u a l o b l i g a t i o n s and t o p r o v i d e adequate assurance of i t s a b i l i t y t o do s o i n t h e f u t u r e , pursuant t o t h e t e r m s of t h e c o n t r a c t . NAC had been e x p e r i e n c i n g f i n a n c i a l d i f f i c u l t i e s and had requested r e l i e f from t h e terms of t h e c o n t r a c t .

NAC d i s p u t e d Maine Yankeef s b a s i s f o r t e r m i n a t i n g t h e c o n t r a c t and s e r v e d Maine Yankee w i t h a demand t o a r b i t r a t e t h e d i s p u t e and a r e q u e s t f o r damages, and Maine Yankee, i n t u r n , f i l e d s u i t i n t h e U.S. D i s t r i c t Court f o r t h e D i s t r i c t of Maine a g a i n s t NAC, i t s bonding company, and i t s p a r e n t g u a r a n t o r . Maine Yankee a l s o e n t e r e d i n t o c o n t r a c t s with t h e major subcontractors and resumed t h e t r a n s f e r of f u e l t o t h e ISFSI under i t s own management. I n A p r i l 2003, a f t e r e x t e n s i v e n e g o t i a t i o n s , t h e p a r t i e s e n t e r e d i n t o a comprehensive s e t t l e m e n t agreement r e s o l v i n g a l l t h e d i s p u t e d i s s u e s and p r o v i d i n g f o r Maine Yankee t o r e p l a c e NAC i n managing t h e completion of t h e f u e l - t r a n s f e r work. The s e t t l e m e n t i n c l u d e d a payment of $10.4 m i l l i o n t o Maine Yankee, which t h e Company d e p o s i t e d i n i t s s p e n t f u e l t r u s t , t o compensate Maine Yankee f o r h i g h e r c o s t s as a r e s u l t of N A C f s f a i l u r e t o perform i t s c o n t r a c t u a l o b l i g a t i o n s . The t r a n s f e r of s p e n t f u e l t o t h e ISFSI w a s completed on February 27, 2004.

Nuclear L i a b i l i t y Insurance : The Price-Anderson A c t ( t h e " A c t f f ) , a f e d e r a l s t a t u t e t h a t mandates an industry-wide program of n u c l e a r l i a b i l i t y i n s u r a n c e f o r n u c l e a r f a c i l i t i e s , e x p i r e d on December 31, 2003. Under t h e A c t , primary i n s u r a n c e w a s p r o v i d e d by commercial i n s u r a n c e companies and secondary i n s u r a n c e coverage through a r e t r o s p e c t i v e assessment l e v i e d on each of t h e u n i t s l i c e n s e d t o o p e r a t e i n t h e United S t a t e s .

On January 20, 1998, t h e Company submitted t o t h e NRC a r e q u e s t f o r a r e d u c t i o n i n t h e primary i n s u r a n c e l a y e r and withdrawal from t h e r e t r o s p e c t i v e assessment program. The exemption w a s g r a n t e d on January 7 , 1999. The primary l a y e r of i n s u r a n c e w a s reduced t o $100 m i l l i o n and t h e Company no l o n g e r i s s u b j e c t t o t h e secondary coverage requirements. An indemnity agreement w i t h t h e NRC p r o v i d e s f o r p r o t e c t i o n above t h e primary coverage l a y e r up t o $560 m i l l i o n .

Maine Yankee i s n o t r e s p o n s i b l e f o r r e t r o s p e c t i v e premiums r e s u l t i n g from any e v e n t o r i n c i d e n t o c c u r r i n g a f t e r January 7 , 1999. Under t h e b i l l i n g p r o v i s i o n s of t h e Power C o n t r a c t s , t h e s e assessments, if any, would b e i n c l u d e d i n t h e c o s t o f power. In addition, i n r e c o g n i t i o n of t h e s t a t u s of decommissioning of t h e P l a n t , the Company reduced i t s p r o p e r t y i n s u r a n c e coverage t o l e v e l s c o n s i s t e n t with lower l i m i t s p e r m i t t e d by t h e NRC.

Low-Level W a s t e Disposal: The f e d e r a l Low-Level R a d i o a c t i v e W a s t e P o l i c y Amendments A c t , enacted i n 1986, r e q-u i r e d states, e i t h e r alone o r i n m u l t i s t a t e compacts, t o p r o v i d e f o r t h e d i s p o s a l of low-level r a d i o a c t i v e w a s t e generated within t h e i r borders. The states of Maine, Texas, and Vermont e n t e r e d i n t o a compact f o r the d i s p o s a l o f low-level w a s t e over a 30-year p e r i o d a t a then-planned f a c i l i t y i n w e s t Texas.

The terms of t h e compact provided t h a t t h e S t a t e of Maine would

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

11. COMMITMENTS AND CONTINGENCIES (continued) contribute $25 million, payable (1) in two equal installments, the first after ratification by Congress and the second upon commencement of operation of the Texas facility, or (2) alternatively, if agreed by the three states, in accordance with the schedule for repayment of bonds issued for the development or operation of the facility. By statute, those costs were to be initially assessed against the Company, as the operator of a nuclear power plant in Maine.

As required by the 1986 Act, the United States Congress ratified the compact in September 1998. However, in October 1998 the Texas Natural Resource Conservation Commission denied a permit for the proposed west Texas disposal site and efforts to site such a facility in Texas were suspended. Maine Yankee has been shipping its low-level waste to other facilities licensed to accept such material.

At its 2002 session, the Maine legislature enacted legislation providing for the withdrawal of the State of Maine from the Texas Compact pursuant to the terms of the Compact. The legislation cited the 1997 closure of the Maine Yankee plant and the inability of the State of Texas to cause a disposal facility to be built in a timely manner under the Compact as the reasons for initiating the withdrawal process. However, in its 2003 session, the Texas legislature enacted a bill that reactivated the process of siting a disposal facility in Texas and provided for Texas to seek payment from Maine of $12.5 million under the Compact. By letter dated September 10, 2003, the Attorney General of Texas requested payment of $12.5 million from the State of Maine, to which the State of Maine responded by denying liability. Maine Yankee believes that withdrawal from the Compact by the State of Maine is legally justified, but cannot predict the results of the Texas legislation on the State of Maine or Maine Yankee or of any attempt by any party to challenge through litigation or otherwise the State of Maine's withdrawal from the Compact or to assess Maine Yankee for any payments under the Compact.

Town of Wiscasset Property Taxes: Maine Yankee received a property-tax bill for 2003 from the Town of Wiscasset in the amount of approximately $3.6 million, whereas the 2002 tax payment was $1 million. Maine Yankee believes the 2003 tax assessment is excessive and based on an improper theory of valuation. Subsequently, the Company paid an amount comparable to taxes associated with its 2002 property tax and is vigorously contesting the assessment through the legal abatement process. In September 2004, the Town of Wiscasset filed a lien against Maine Yankee property for the unpaid amount. A hearing on the abatement by the Maine Board of Property Tax Appeals began on February 2, 2005, and is currently scheduled to conclude on April 1, 2005. The Company does not expect a decision from the Board until the conclusion of post-hearing briefing and arguments, which have not yet been scheduled. Maine Yankee has received similar bills for subsequent periods and has continued to make payments based on the 2002 assessed value. The Company cannot predict the result of the abatement proceeding.

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

11. COMMITMENTS AND CONTINGENCIES (continued)

Jurisdictional Issues: At its 2000 session, the Maine Legislature enacted a bill to create new radiological standards that are more stringent than NRC standards. The legislation also provided for evaluating a cumulative risk assessment and provided the state with additional power to monitor activities and radioactive wastes at the Maine Yankee site.

The Maine Department of Environmental Protection also asserted jurisdiction over the radiological aspects, as well as the environmental siting aspects of the ISFSI. Maine Yankee challenged the statefs attempts to regulate the ISFSI in the United States District Court for the District of Maine on the basis that such regulation was preempted by federal law. On May 4, 2000, the Court held that the state could not interfere with those aspects of the ISFSI project that remained exclusively within the province of the NRC, including the determination of whether Maine Yankee should use dry-cask storage or some other storage method, the on-site transfer of the spent fuel, specifications regarding construction of the casks, and other such matters. In July 2000, the Maine Board of Environmental Protection and the Town of Wiscasset Planning Board granted their approvals and construction of the ISFSI was completed.

Workers' Compensation: The Company is self-insured for workersf compensation up to $500,000 per claim and carries an excess insurance policy to cover all claims in excess of $500,000. To conform to requirements of the Maine Bureau of Insurance and the Maine Workersf Compensation Act, the Company funds a trust to pay for workers1 compensation claims. The balance of the trust was approximately

$177,000 and $172,000 at December 31, 2004 and 2003, respectively.

Loss experience associated with workersf compensation claims for the years ended December 31, 2004 and 2003 has been minimal. Based on loss experience, the trust is funded at a level that exceeds state requirements.

In addition, the Company established a $400,000 standby letter of credit with a bank to comply with the U.S. Department of Labor' s Longshore and Harbor Workers1 Compensation Act. (The letter of credit expires on July 1, 2005 and will be renewed as needed to comply with the Act) .

Maine Yankee Atomic Power Company NOTES TO FINANCIAL STATEMENTS December 31, 2004

12. UNAUDITED QUARTERLY FINANCIAL DATA Unaudited quarterly financial data are shown below.

Quarter Ended March 31 June 30 September 30 December 31 (Dollars in Thousands, Except Per Share Amounts) 2004 Electric Operating Revenues Operating Income Net Income Earnings Per Share of Common Stock 2003 Electric Operating Revenues Operating Income (Loss)

Net Income Earnings Per Share of Common Stock

13. TRANSACTIONS WITH ASSOCIATED COMPANIES Central Maine Power Company ("CMP") has furnished the Company certain engineering, administrative and legal services, furnished certain facilities at cost, and provided electric service at its filed rates.

During 2004 and 2003, CMP was reimbursed in the amount of $0.6 million and $1.0 million, respectively for such services.

Maine Y a n k e e A t o m i c P o w e r C o m p a n y DIRECTORS AND EXECUTIVE O F F I C E R S D e c e m b e r 31, 2004 Directors T h e directors of the C o m p a n y and their p r i n c i p a l occupations and a l l p o s i t i o n s and offices w i t h the C o m p a n y are as f o l l o w s as of the date of t h i s r e p o r t :

Name Principal Occupation G e r a l d C . Poulin Consultant; formerly Vice C h a i r m a n of t h e B o a r d of P r e s i d e n t , Generation, Directors CMP G r o u p , I n c .

B r e n t M. B o y l e s Senior V i c e P r e s i d e n t and C h i e f Director Operating O f f i c e r , Maine hrblic Service C o m p a n y Sara J. B u r n s President, C e n t r a l Maine Director Power Company C u r t i s I. C a l l Assistant Controller, Director Energy E a s t Management Corporation J a m e s L. C o n n o r s , Q . C . V i c e President, R e g u l a t o r y Director A f f a i r s , E m e r a Inc.

R o b e r t J. D e A n g e l o Director - Investment Director Management, N o r t h e a s t U t i l i t i e s Service C o m p a n y Frederic E . Greenman C o n s u l t a n t ; V i c e P r e s i d e n t and Director General C o u n s e l ( r e t i r e d ) ,

New E n g l a n d P o w e r C o m p a n y M i c h a e l J. H a g e r V i c e President, E n e r g y Director Supply - New E n g l a n d , New E n g l a n d P o w e r Company W i l l i a m S. H a s s Manager of E n e r g y A r r a n g e m e n t s ,

Director N a t i o n a l G r i d USA R i c h a r d M. K a c i c h President, Y a n k e e A t o m i c Director E l e c t r i c Company

Maine Y a n k e e A t o m i c P o w e r C o m p a n y DIRECTORS AND EXECUTIVE OFFICERS D e c e m b e r 31, 2004 Directors (continued)

Name Principal Occupation B r u c e D. K e n y o n President - Generation G r o u p Director (Retired) , Northeast U t i l i t i e s ;

C h a i r m a n and C h i e f E x e c u t i v e O f f i c e r ,

Y a n k e e A t o m i c E l e c t r i c C o m p a n y and C o n n e c t i c u t Yankee Atomic Power Company R . S c o t t Mahoney Vice President, Controller, Director T r e a s u r e r and C l e r k , C e n t r a l Maine P o w e r Company R o b e r t H. Martin D i r e c t o r , E l e c t r i c and G a s C o n t r a c t Director A d m i n i s t r a t i o n , NSTAR E l e c t r i c &

Gas Corporation P e t e r J. M o y n i h a n C o n s u l t a n t and D i r e c t o r ,

Director Energy E a s t Corporation Stephen W. Page Manager, E n e r g y A d m i n i s t r a t i o n ,

Director C e n t r a l V e r m o n t P u b l i c Service Corporation K i r k L. R a m s a u e r Deputy General Counsel, Director N a t i o n a l G r i d USA Service Company, Inc .

Maine Yankee Atomic Power Company DIRECTORS AND EXECUTIVE OFFICERS December 31, 2004 Executive Officers The following are the executive officers of the Company with all positions and offices held as of the date of this report:

Name Off ice Gerald C. Poulin Chairman of the Board of Directors Ted C. Feigenbaum President and Chief Executive Officer Michael J. Meisner Vice President and Chief Nuclear Officer Michael E. Thomas Vice President and Chief Financial Officer Carrie D. Guerrette Treasurer William M. Finn Secretary Robert S. Mahoney Clerk Maine Yankee Atomic Power Company Dated: March 17, 2005

~ i c h a e fE. Thomas -

Vice President and Chief Financial Officer