10-Q 1 q10q0902.txt BANGOR HYDRO-ELECTRIC COMPANY 10Q 09-30-2002 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended SEPTEMBER 30, 2002 Commission File No. 1-10922 ------------------ ------- BANGOR HYDRO-ELECTRIC COMPANY ----------------------------- (Exact Name of Registrant as specified in its Charter) MAINE 01-0024370 ----- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 33 STATE STREET, BANGOR, MAINE 04401 ------------------------------ ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code 207-945-5621 ------------ NONE ---- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS ------------------- 7% Preferred Stock, $100 Par Value 4 1/4% Preferred Stock, $100 Par Value 4% Preferred Stock Series A, $100 Par Value 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 ____ ----- FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002 PAGE ---- Cover Page 1 Index 2 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements Consolidated Statements of Income 3 Consolidated Balance Sheets - September 30, 2002 And December 31, 2001 4 Consolidated Statements of Capitalization 6 Consolidated Statements of Cash Flows 7 Consolidated Statements of Common Stock Investment 8 Notes to the Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 34 Item 4. Controls and Procedures 35 PART II - OTHER INFORMATION --------------------------- Item 5 - Other Information 36 Item 6 - Exhibits and Reports on Form 8-K 36 Signature Page 37 Certifications 38 PART I. FINANCIAL INFORMATION Item 1. Financial Statements BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME 000's Omitted Except Share and Per Share Amounts (Unaudited)

BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS 000's Omitted (Unaudited) Sept. 30, Dec. 31, Assets 2002 2001 ----------- ----------- Investment In Utility Plant: Electric plant in service, at original cost $ 330,960 $ 328,560 Less - Accumulated depreciation and amortization 96,920 93,985 ----------- ----------- $ 234,040 $ 234,575 Construction work in progress 7,612 7,308 ----------- ----------- $ 241,652 $ 241,883 Investments in corporate joint ventures: Maine Yankee Atomic Power Company $ 4,284 $ 4,422 Maine Electric Power Company, Inc. 963 853 ----------- ----------- $ 246,899 $ 247,158 ----------- ----------- Other Investments, at cost $ 3,332 $ 3,498 ----------- ----------- Funds held by trustee, at cost $ 21,537 $ 22,695 ----------- ----------- Current Assets: Cash and cash equivalents $ 956 $ 885 Accounts receivable, net of reserve of $1,183 for 2002 and $761 for 2001 19,395 19,269 Unbilled revenue receivable 6,459 15,380 Inventories, at average cost: Material and supplies 2,504 2,532 Fuel oil 43 53 Prepaid expenses (23) 671 ----------- ----------- Total current assets $ 29,334 $ 38,790 ----------- ----------- Regulatory Assets and Deferred Charges: Goodwill-EMERA Acquisition $ 82,537 $ 82,537 Investment in Seabrook nuclear project 22,297 23,572 Costs to terminate/restructure purchased power contracts 77,630 92,057 Maine Yankee decommissioning costs 29,052 37,307 Above-market purchased power contract obligations 66,696 73,954 Other regulatory assets 58,066 52,657 Other deferred charges 4,943 4,020 ----------- ----------- Total regulatory assets and deferred charges $ 341,221 $ 366,104 ----------- ----------- Total Assets $ 642,323 $ 678,245 =========== =========== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS 000's Omitted (Unaudited) Sept. 30, Dec. 31, 2002 2001 Stockholders' Investment and Liabilities ----------- ----------- Capitalization: Common stock investment $ 206,999 $ 205,557 Preferred stock 4,734 4,734 Long-term debt, net of current portion 98,592 131,968 ----------- ----------- Total capitalization $ 310,325 $ 342,259 ----------- ----------- Current Liabilities: Notes payable - banks $ 38,500 $ 8,000 ----------- ----------- Other current liabilities - Current portion of long-term debt $ 33,982 $ 43,246 Accounts payable 20,183 22,492 Dividends payable 66 66 Accrued interest 3,070 2,663 Customers' deposits 565 573 Current income taxes (refundable) payable (883) 1,917 ----------- ----------- Total other current liabilities $ 56,983 $ 70,957 ----------- ----------- Total current liabilities $ 95,483 $ 78,957 ----------- ----------- Regulatory and Other Long-term Liabilities: Deferred income taxes - Seabrook $ 11,559 $ 12,224 Other accumulated deferred income taxes 47,026 47,405 Maine Yankee decommissioning liability 29,052 37,307 Deferred gain on asset sale 10,680 14,574 Above-market purchased power contract obligations 66,696 73,954 Other regulatory liabilities 14,737 18,962 Unamortized investment tax credits 1,217 1,312 Accrued pension and postretirement benefit costs 43,694 39,655 Other long-term liabilities 11,854 11,636 ----------- ----------- Total regulatory and other long-term liabilities $ 236,515 $ 257,029 ----------- ----------- Total Stockholders' Investment and Liabilities $ 642,323 $ 678,245 =========== =========== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION 000's Omitted (Unaudited) Sept. 30, Dec. 31, 2002 2001 ---------- ---------- Common Stock Investment Common stock, no par value, stated value $5 per share $ 36,817 $ 36,817 -Authorized--10,000,000 shares -Outstanding--7,363,424 shares Amounts paid in excess of par value 165,352 165,352 Accumulated other comprehensive loss - (47) Retained earnings 4,830 3,435 ----------- ----------- Total common stock investment $ 206,999 $ 205,557 ----------- ----------- Preferred Stock Non-participating, cumulative, par value $100 per share, authorized 600,000 shares, not redeemable or redeemable solely at the option of the issuer- 7%, Noncallable, 25,000 shares authorized and outstanding $ 2,500 $ 2,500 4.25%, Callable at $100, 4,840 shares authorized and outstanding 484 484 4%, Series A, Callable at $110, 17,500 shares authorized and outstanding 1,750 1,750 ----------- ----------- $ 4,734 $ 4,734 ----------- ----------- Long-Term Debt First Mortgage Bonds- 10.25% Series due 2020 $ 30,000 $ 30,000 8.98% Series due 2022 20,000 20,000 7.38% Series due 2002 - 20,000 7.30% Series due 2003 15,000 15,000 ----------- ----------- $ 65,000 $ 85,000 ----------- ----------- Other Long-Term Debt- Finance Authority of Maine - Taxable Electric Rate Stabilization Revenue Notes, 7.03% Series 1995A, due 2005 $ 55,400 $ 71,500 Medium Term Notes, Variable interest rate- LIBO rate plus 1.125%, due 2002 - 5,460 Municipal Review Committee Note, 5%, due 2008 12,158 13,235 Other Miscellaneous Notes Payable, 3.90%, due 2003 16 19 ----------- ----------- $ 67,574 $ 90,214 Less: Current portion of long-term debt 33,982 43,246 ----------- ----------- $ 33,592 $ 46,968 ----------- ----------- Total Long-Term Debt $ 98,592 $ 131,968 ----------- ----------- Total Capitalization $ 310,325 $ 342,259 =========== =========== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS 000's Omitted (Unaudited) Nine Months Ended Sept. 30, Sept. 30, 2002 2001 ------------------------ Cash Flows From Operating Activities: Net income $ 9,094 $ 7,445 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 7,955 7,827 Amortization of Seabrook nuclear project 1,274 1,274 Amortization of contract buyouts and restructuring 15,320 16,918 Amortization of deferred asset sale gain (3,890) (5,971) Other amortizations 182 1,194 Allowance for equity funds used during construction (371) (465) Deferred income tax provision and amortization of investment tax credits (339) (5,676) Changes in assets and liabilities: Costs to restructure purchased power contract (750) (750) Deferred standard-offer service costs (2,444) 4,580 Deferred special rate contract revenues (249) (2,276) Employee transition costs (3,406) - Exercise of PERC warrants-cash paid in lieu of issuing shares - (9,227) Accounts receivable, net and unbilled revenue 8,794 1,299 Accounts payable (3,987) (2,773) Accrued interest 406 837 Current income taxes (2,800) 3,356 Accrued pension and postretirement benefit costs 2,817 2,183 Other current assets and liabilities, net 725 581 Other, net (2,254) (2,337) ------------------------ Net Increase in Cash From Operating Activities: $ 26,077 $ 18,019 ------------------------ Cash Flows From Investing Activities: Construction expenditures $ (7,318)$ (10,274) Allowance for borrowed funds used during construction (349) (423) ------------------------ Net Decrease in Cash From Investing Activities $ (7,667)$ (10,697) ------------------------ Cash Flows From Financing Activities: Dividends on preferred stock $ (199)$ (199) Dividends on common stock (7,500) (4,418) Payments on long-term debt (42,639) (19,720) Capital reserve funs used in repayment on long-term debt 1,500 - Short-term debt, net 30,500 6,000 ------------------------ Net Decrease in Cash From Financing Activities $ (18,338)$ (18,337) ------------------------ Net Increase (Decrease) in Cash and Cash Equivalents $ 72 $ (11,015) Cash and Cash Equivalents at Beginning of Period 884 12,463 ------------------------ Cash and Cash Equivalents at End of Period $ 956 $ 1,448 ======================== Cash Paid During the Period for: Interest (Net of Amount Capitalized) $ 8,903 $ 9,058 Income Taxes 9,349 7,772 ======================== See notes to the consolidated financial statements. BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT 000's Omitted (Unaudited)

BANGOR HYDRO-ELECTRIC COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) (1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES: Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Bangor Hydro-Electric Company (the Company), the disclosures contained in this Form 10-Q are adequate to make the information presented not misleading. The year end condensed balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements, footnotes and all other information included in the 2001 Form 10-K. In the opinion of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of September 30, 2002 and the results of operations and cash flows for the periods ended September 30, 2002 and 2001. The Company's significant accounting policies are described in the Notes to the Consolidated Financial Statements included in its 2001 Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows these same basic accounting policies but considers each interim period as an integral part of an annual period. Accordingly, certain expenses are allocated to interim periods based upon estimates of such expenses for the year. (2) INCOME TAXES: The following table reconciles a provision calculated by multiplying income before federal income taxes by the statutory federal income tax rate to the federal income tax provision: Nine Months Ended Sept. 30, 2002 2001 Amount % Amount % ------ - ------ - (Dollars in Thousands) Federal income tax provision at statutory rate $5,146 35.0 $4,541 35.0 (Less)Plus permanent reductions in tax expense resulting from statutory exclusions from taxable income (213) (1.4) 140 1.1 ------ ---- ------ ---- Federal income tax provision before effect of temporary differences and investment tax credits $4,933 33.6 $4,681 36.1 Less temporary differences that are flowed through for rate- making and accounting purposes (337) (2.4) (378) (2.9) Less utilization and amortization of investment tax credits (95) (.6) (105) (.8) ------ ---- ------ ---- Federal income tax provision $4,501 30.6 $4,198 32.4 ====== ==== ====== ==== (3) INVESTMENT IN JOINTLY OWNED FACILITIES: Condensed financial information for Maine Yankee Atomic Power Company (Maine Yankee)and Maine Electric Power Company, Inc. (MEPCO) is as follows: MAINE YANKEE MEPCO ------------ ----- (Dollars in Thousands - Unaudited) Operations for Nine Months Ended -------------------------------------- Sep. 30, Sep. 30, Sep. 30, Sep. 30, 2002 2001 2002 2001 OPERATIONS: -------- -------- -------- -------- As reported by investee- Operating revenues $ 44,019 $ 47,419 $ 3,241 $ 3,606 ======== ======== ======== ======== Earnings applicable to common stock $ 2,898 $ 3,336 $ 806 $ 1,085 ======== ======== ======== ======== Company's reported equity- Equity in net income $ 203 $ 234 $ 114 $ 154 Add-Effect of adjusting Company's estimate to actual 10 7 6 45 -------- -------- -------- -------- Amounts reported by Company $ 213 $ 241 $ 120 $ 199 ======== ======== ======== ======== MAINE YANKEE MEPCO ------------ ----- (Dollars in Thousands - Unaudited) Financial Position at ---------------------------------------- Sep. 30, Dec. 31, Sep. 30, Dec. 31, 2002 2001 2002 2001 FINANCIAL POSITION: --------- --------- --------- -------- As reported by investee- Total assets $ 714,164 $ 802,118 $ 7,068 $ 6,870 Less- Long-term debt 24,000 31,200 - - Other liabilities and deferred credits 628,990 707,643 234 770 ---------- ---------- -------- -------- Net assets $ 61,174 $ 63,275 $ 6,834 $ 6,100 ========== ========== ======== ======== Company's reported equity- Equity in net assets $ 4,282 $ 4,429 $ 970 $ 866 Add (deduct) effect of adjusting Company's estimate to actual 2 (7) (7) (12) ---------- ---------- -------- -------- Amounts reported by Co. $ 4,284 $ 4,422 $ 963 $ 854 ========== ========== ======== ======== (4) EARNINGS PER SHARE: The following table reconciles basic and diluted earnings per common share assuming all outstanding stock warrants were converted to common shares, for the 2001 periods only. (Amounts in 000's, except per share data) For the Three For the Nine Months Ended Months Ended -------------------- ------------------ Sep. 30, Sep. 30, Sep. 30, Sep. 30, 2002 2001 2002 2001 -------- -------- -------- --------- Earnings applicable to common stock $ 4,235 $ 2,996 $ 8,895 $ 7,246 -------- -------- -------- -------- Average common shares outstanding 7,363 7,363 7,363 7,363 Plus: incremental shares from assumed conversion - 704 - 792 ------- -------- -------- ------- Average common shares outstanding plus assumed warrants converted 7,363 8,067 7,363 8,155 ------- -------- -------- ------- Basic earnings per common share $ .58 $ .41 $ 1.21 $ .98 ======= ======= ======= ======= Diluted earnings per common share $ .58 $ .37 $ 1.21 $ .89 ======= ======= ======= ======= (5) ALTERNATIVE RATE PLAN AND REORGANIZATION: As reported in the 2001 Form 10-K, on February 14, 2002, the Company presented to the Maine Public Utilities Commission (MPUC) a proposed resolution of the ongoing Alternative Rate Plan (ARP) proceeding that called for a multi-year freeze in the distribution portion of the Company's rates. The ARP proceeding, as well as proposed proceedings to implement a general increase in the Company's distribution rates and to initiate a management investigation of the Company, were suspended to provide the Company and interested parties additional time to negotiate a potential settlement of these interrelated proceedings. On April 25, 2002, the Company and other parties to the proceeding executed a stipulation to present to the MPUC a single comprehensive ARP applying to the Company's MPUC jurisdictional distribution revenue requirement and rates. On June 6, 2002, the MPUC approved the ARP and also dismissed the pending management investigation of the Company. The terms of the ARP include a rate plan to be in effect through December 31, 2007, with the Company's core distribution rates being adjusted downward on July 1 of each year from 2003 to 2007, at annual rates ranging from 2% to 2 3/4%. The Company is also allowed rate adjustments associated with certain specified categories of costs. The ARP also includes a mechanism whereby distribution returns on common equity outside of a certain range will be shared evenly between the Company and ratepayers. The Company is also required to meet certain customer service quality standards during the term of the ARP, and rate reduction penalties will result from not meeting the various performance measures as set forth in the stipulation. Finally, the ARP provides the Company with an accounting order allowing for the deferral of employee transition costs during 2002 and 2003 in connection with reductions in operating costs, which are discussed below. These deferred costs are being amortized over a ten year period, starting in June 2002. Successful implementation of the ARP necessitated a significant decrease in the Company's operating costs. The restructuring, which encompasses all aspects of the Company, is expected to reduce operating costs by approximately 20%. The Company will also begin to transfer a portion of its fixed costs to variable costs, and improve processes to enhance long-term performance. As part of the restructuring, employment levels have been adjusted downward in the second and third quarters of 2002 by in excess of 100 employees through early retirement and severance arrangements. The total employee transition costs incurred in were approximately $8.1 million and recorded as a component of Other Regulatory Assets on the consolidated balance sheets. (6) NEW ACCOUNTING PRONOUNCEMENT: In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", effective for years beginning after December 15, 2001. Statement 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". Goodwill will no longer be amortized, but it will be reviewed at least annually for impairment. Statement 142 specifies that at the time of adoption an impairment review should be performed. If an impairment of the existing goodwill is determined, any charge would be recorded as a cumulative effect of a change in accounting principle. Subsequent impairment charges would be presented within operating results. In 2001, the Company adopted the non-amortization provision for goodwill associated with its acquisition by Emera, Inc (Emera). The Company adopted the remaining provisions of Statement 142 effective January 1, 2002. As a result of its initial goodwill impairment test, the Company has determined that no goodwill impairment exists. There is no pro forma effect of Statement 142, assuming the Company had adopted this standard as of January 1, 2001, since the goodwill associated with the Emera acquisition has not been amortized. (7) RECLASSIFICATIONS: Certain 2001 amounts have been reclassified to conform with the presentation used in Form 10-Q for the quarter ended September 30, 2002. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's Discussion and Analysis of the Results of Operations and Financial Condition contained in Bangor Hydro-Electric Company's (the Company) Annual Report on Form 10-K for the year ended December 31, 2001 (2001 Form 10-K) should be read in conjunction with the comments below. EARNINGS For the quarters ended September 30, 2002 and 2001 basic earnings per common share were $.58 and $.41, respectively. The largest single item positively impacting the increased earnings in the third quarter of 2002 was the establishment of a reserve in the third quarter of 2001 ($.13 reduction in earnings per common share in 2001) in connection with potential loss exposure associated with regulatory proceedings in which the Company was a party in 2001. Also positively impacting earnings in the third quarter of 2002 was a reduction in labor costs as a result of the corporate restructuring that took place in the second quarter of 2002 ($.11 increase in earnings per common share in 2002). These increases in earnings in the third quarter of 2002 were offset to some extent by an increase in bad debt expense as compared to the third quarter of 2001 ($.03 decrease in earnings per common share in 2002). Additionally, in the third quarter of 2001, the Company received an accounting order from the Federal Energy Regulatory Commission allowing the Company to defer previously incurred expenses associated with the Company's involvement in the development of a regional transmission organization (RTO) in New England. This resulted in the Company recording deferred RTO costs previously charged to operating expense in 2001, prior to the third quarter, resulting in a $.03 per common share increase in earnings. For a more complete discussion of the RTO see the Form 2001 10-K. IMPORTANT CURRENT ACTIVITIES CURRENT REGULATORY PROCEEDINGS AND REORGANIZATION - As reported in the 2001 Form 10-K, on February 14, 2002, the Company presented to the Maine Public Utilities Commission (MPUC) a proposed resolution of the ongoing ARP proceeding that called for a multi-year freeze in the distribution portion of the Company's rates. The ARP proceeding, as well as proposed proceedings to implement a general increase in the Company's distribution rates and to initiate a management investigation of the Company, were suspended to provide the Company and interested parties additional time to negotiate a potential settlement of these interrelated proceedings. On April 25, 2002, the Company and other parties to the proceeding executed a stipulation to present to the MPUC a single comprehensive ARP applying to the Company's MPUC juris- dictional distribution revenue requirement and rates. On June 6, 2002, the MPUC approved the ARP and also dismissed the pending management investigation of the Company. The terms of the ARP include a rate plan to be in effect through December 31, 2007, with the Company's core distribution rates being adjusted downward on July 1 of each year from 2003 to 2007, at annual rates ranging from 2% to 2 3/4%. The Company is also allowed rate adjustments associated with certain specified categories of costs. The ARP also includes a mechanism whereby distribution returns on common equity outside of a certain range will be shared evenly between the Company and ratepayers. The Company is also required to meet certain customer service quality standards during the term of the ARP, and rate reduction penalties will result from not meeting the various performance measures as set forth in the stipulation. Finally, the ARP provides the Company with an accounting order allowing for the deferral of employee transition costs during 2002 and 2003 in connection with reductions in operating costs, which are discussed below. These deferred costs are being amortized over a ten year period, starting in June 2002. Successful implementation of the ARP necessitated a significant decrease in the Company's operating costs. The restructuring, which encompasses all aspects of the Company, is expected to reduce operating costs by approximately 20%. The Company will also begin to transfer a portion of its fixed costs to variable costs, and improve processes to enhance long-term performance. As part of the restructuring, employment levels were adjusted downward in the second and third quarters of 2002 by in excess of 100 employees through early retirement and severance arrangements. The total employee transition costs incurred in the second and third quarters of 2002 were approximately $8.1 million and are recorded as a component of Other Regulatory Assets on the consolidated balance sheets. In February 2002, the MPUC issued an Order in connection with changes in the Company's stranded cost rates. As a result of the Order, and to recover the stranded costs created as a result of the restructuring of the electric utility industry in the State of Maine, the Company's stranded cost rates were increased effective March 1, 2002. The stranded cost rate increase resulted in the Company's total electric rates increasing by approximately 6.5%. The stranded cost rates are set for a period not to exceed three years, although the Company has the right to seek adjustments to these rates if certain economic situations occur. Also effective March 1, 2002, the Company is no longer responsible for being the standard-offer service provider. The Company, though, still has a standard-offer related power supply commitment with a third party through February 2004 amounting to approximately $57 million. The power delivered under this contract is being resold to one of the new standard- offer service providers, with estimated revenues to be realized of approximately $40 million. The difference between the cost of the power and the resale revenues are being recovered in the Company's stranded cost rates starting March 1, 2002. As a result of the Company no longer being the standard-offer provider effective in March 2002, and the previously discussed power contract obligation, there is an impact on the comparability of revenues and expenses for the 2002 periods presented in this filing in relation to 2001. REVENUES With the implementation of competition in the electric utility industry starting March 1, 2000, and excluding the standard-offer service through February 2002, the Company no longer sells electricity to its customers. The Company's transmission and distribution (T&D) and stranded cost charges to customers, though, continue to be based on customers' electricity usage measured in kilowatt-hours (kWh). Consequently, discussion related to electric operating revenues will continue to have a kWh sales, or hereafter referred to as energy sales, component. Electric operating revenue increased by $838,000 in the third quarter of 2002 as compared to the third quarter of 2001. The increase was principally the result of the previously discussed 6.54% rate increase associated with stranded cost recovery. Also impacting the increased revenues in the third quarter of 2002 was a 1.6.% increase in energy sales, which excludes certain large special contract customers. Energy sales volume in gigawatt hours is as follows for each of the quarters ending September 30, 2002 and 2001: 2002 2001 Change Residential 139.1 130.5 8.6 Commercial 157.6 160.6 -3.0 Industrial 52.8 53.1 -.3 Other 3.2 3.1 .1 ------ ----- ----- Subtotal 352.7 347.3 5.4 Large Special Contracts 59.3 68.9 -9.6 ------ ----- ----- Total Energy Sales 412.0 416.2 -4.2 ------ ----- ----- Off-system sales, which are sales related to power pool and inter- connection agreements and resales of purchased power, were approximately $7.1 million greater in the third quarter of 2002 in relation to the comparable 2001 quarter. The increase is due principally to the previously discussed resale of power associated with the former standard-offer power supply contract. The $22.6 million decrease in standard-offer service revenues in the third quarter of 2002 is due to the Company no longer being the standard- offer provider effective March 1, 2002. The standard offer revenues recorded in the third quarter of 2002 are a result of residual standard offer related adjustments. EXPENSES Fuel for generation and purchased power expense, excluding the cost of standard-offer service purchased power, increased $7.6 million in the third quarter of 2002 as compared to 2001. The largest item affecting the increased expense was approximately $9.1 million of costs in the third quarter of 2002 associated with the previously discussed former standard- offer power contract obligation. This increase was offset to some extent by a $907,000 reduction in Maine Yankee costs in the third quarter of 2002, due mostly to the previously discussed establishment of a reserve in connection with potential loss exposure associated with regulatory proceedings in which the Company was a party in 2001. Also, effective July 1, 2001, the Company entered into a special rate contract with a large industrial customer to provide fully bundled electric service (both T&D and energy) to this customer. Formerly, the Company was only providing T&D service to this customer. The Company entered into a power purchase contract to procure the power necessary to serve this customer under this contact. In the third quarter of 2001, the Company incurred $1.1 million of purchased power expense associated with serving the customer. Standard-offer purchased power expense decreased by approximately $22.4 million in the third quarter of 2002 relative to the third quarter of 2001. The decrease was due to the Company no longer being the standard offer service provider on March 1, 2002. As discussed above, there were some small residual standard offer related purchased power adjustments in the third quarter of 2002. Other operation and maintenance (O&M) expense decreased by approximately $909,000 in the third quarter of 2002 in comparison to the third quarter of 2001. Principally as a result of the workforce reductions in the second quarter of 2002, O&M payroll expense was approximately $1.4 million lower in the third quarter of 2002 relative to the 2001 quarter. This decrease was offset to some extent by the previously discussed increase in bad debt expense in the third quarter of 2002 by approximately $329,000. Depreciation and amortization expense increased by approximately $241,000 in the third quarter of 2002 relative to the third quarter of 2001 principally as a result of electric plant in service additions. Regulatory amortizations represent current amortizations allowed in the Company's distribution and stranded cost rates as allowed by the MPUC in prior rate orders. These include the amortization of purchased power contract buyouts/restructurings, Seabrook investment, deferred asset sale gain, and other regulatory amortizations. Effective March 1, 2002, in connection with the implementation of new stranded cost electric rates, the Company began amortizing stranded cost related regulatory assets and liabilities that had been previously deferred on the Company's balance sheets. Also, certain existing stranded cost related amortizations were modified effective March 1, 2002 in connection with the stranded cost rate change. The following summarizes the components of the regulatory amortizations for the third quarter of 2002 as compared to the third quarter of 2001 (in 000's): 2002 2001 ---- ---- Contract buyouts and restructurings $4,954 $5,639 Seabrook investment 425 425 Deferred asset sale gain (791) (2,112) Other stranded cost related regulatory assets and liabilities (1,496) 97 Distribution related regulatory assets and liabilities 290 290 Employee transition costs 196 - ------ ------ Total Regulatory Amortizations $3,578 $4,339 ====== ====== The increase in total federal and state income taxes was principally a function of greater earnings in the third quarter of 2002 as compared to the 2001 quarter. See Footnote 2 to the Consolidated Financial Statements for a reconciliation of the Company's effective federal income tax rate. INTEREST EXPENSE Long-term debt interest expense decreased $517,000 in the third quarter of 2002 relative to 2001 due primarily to a $16.1 million principal payment on the Company's Finance Authority of Maine (FAME) Revenue Notes at the end of June 2002, the impact of monthly principal payments on the $24.8 million medium term notes, and the retirement of the $20 million in 7.38% first mortgage bonds at the end of July 2002. These decreases were offset to some extent by additional interest expense in the third quarter of 2002 resulting from the issuance of a $13.7 million note in October 2001 with the Municipal Review Committee (MRC) in connection with the exercise of common stock warrants. Other interest expense increased $177,000 in the third quarter of 2002 quarter due principally to higher interest expense as a result of increased borrowings under the Company's revolving credit facility. The increased borrowings were necessitated to some extent by the funding of debt service payments ($16.1 million in principal plus interest) on the FAME Revenue Notes at the end of June 2002 and the retirement of $20 million in 7.38% first mortgage bonds in July 2002. NINE MONTHS OF 2002 AS COMPARED TO THE NINE MONTHS OF 2001 EARNINGS For the nine months ended September 30, 2002 and 2001 basic earnings per common share were $1.21 and $.98, respectively. The increased earnings in the 2002 period were due to several factors, including the establishment of a reserve ($.13 reduction in earnings per common share in 2001) in connection with potential loss exposure associated with regulatory proceedings in which the Company was a party in 2001. Earnings were positively impacted by a $1.2 million reduction in O&M labor costs in 2002 ($.09 increase in comparable earnings per common share in 2002) due primarily to the corporate restructuring. Also, the New England independent system operator (ISO New England) costs associated with transmission constraints were approximately $554,000 greater ($.04 increase in comparable earnings per common share in 2002) in 2001 as compared to 2002. These earnings improvements in 2002 were offset somewhat by an approximately $488,000 increase ($.04 reduction in comparable earnings per common share in 2002) in expense associated with pension and other postretirement benefits. REVENUES Electric operating revenue decreased by approximately $72,000 in the first nine months of 2002 in comparison to the 2001 period. The decrease was due to several factors. Negatively affecting electric operating revenue in the first nine months of 2002 was the impact of a 1% decrease in energy sales, which excludes certain large special contract customers. The Company experienced above average temperatures in the first nine months of 2002 relative to 2001. Electric operating revenues were lower in 2002 as a result of a $2.8 million reduction in certain stranded cost related revenue deferrals. The decrease is due to the implementation of new stranded cost rates on March 1, 2002, as well as the impact of the previously discussed reserve established in the third quarter of 2001 associated with potential loss exposure associated with regulatory proceedings in which the Company was a party. Also, other revenues associated with charging electric generators for wheeling power over the Company's transmission lines and out of its service territory were approximately $1.7 million lower in first nine months of 2002 compared to the 2001 period. The decrease is due primarily to the fact that the new standard offer service provider is purchasing power from the Company to resell to standard offer customers in the Company's service territory that, prior to March 1, 2002, was wheeled outside of the service territory. Offsetting these decreases to a great extent was the impact of the previously discussed 6.54% stranded cost rate increase on March 1, 2002. Energy sales volume in gigawatt hours is as follows for each of the nine months ending September 30, 2002 and 2001: 2002 2001 Change Residential 413.4 409.1 4.3 Commercial 439.0 447.5 -8.5 Industrial 148.1 154.7 -6.6 Other 8.8 8.5 .3 ------- ------- ----- Subtotal 1,009.3 1,019.8 -10.5 Large Special Contracts 184.4 182.4 2.0 ------- ------- ----- Total Energy Sales 1,193.7 1,202.2 -8.5 ------- ------- ----- Off-system sales were approximately $16.7 million greater in the 2002 period in relation to the 2001 period. The increase is due principally to the previously discussed resale of power associated with the former standard- offer power supply contract. For the reason previously discussed, standard-offer service revenues decreased approximately $54.6 million in the first nine months of 2002 as compared to the first nine months of 2001. EXPENSES Fuel for generation and purchased power expense, excluding the cost of standard-offer service purchased power, increased $19.5 million in the 2002 period as compared to 2001. The largest item affecting the increased expense was approximately $20.7 million of costs in 2002 associated with the previously discussed former standard-offer power contract obligation. Offsetting this somewhat was an approximately $1.2 million decrease in Maine Yankee costs, due mostly to the reason previously discussed for the third quarters of 2002 as compared to 2001, as well as a $1.1 million decrease in purchased power costs in 2002 in connection with serving a portion of a power sale contract. This reduction was due to decreases in the market prices of power in 2002 as compared to 2001. Consistent with the previously discussed reasons associated with the quarters ending September 30, 2002 and 2001, standard-offer purchased power expense for the first nine months of 2002 relative to the first nine months of 2001 decreased by approximately $54 million. Other O&M expense decreased by approximately $1.9 million in the first nine months of 2002 relative to the first nine months of 2001. As a result of the previously discussed corporate restructuring in the second quarter of 2002, O&M labor costs were approximately $1.2 million lower in 2002 as compared to 2001. The Company also incurred approximately $404,000 less in non-labor expense in 2002 associated with regulatory and legal activities, due to the end of the Company's term as the standard offer service provider and fewer regulatory related activities at the MPUC. Also, as a result of cost reduction efforts in 2002, other O&M non-labor expenses were generally lower as compared to 2001. Other O&M expense was increased in 2001 by the establishment of a $318,000 environmental remediation reserve related to a waste disposal site with which the Company was previously associated. Offsetting these decreases in comparable O&M expense to some extent was an approximately $488,000 increase in pension and other postretirement benefits expense in 2002. The increased expense is principally attributable to decreases in the discount rate used to actuarially compute the expense as well as reduced returns on plan assets as a result of poor stock market performance. The reason for the $128,000 increase in depreciation and amortization expense in 2002 as compared to 2001 is consistent with the previous discussion for the third quarters of each year. The following summarizes the components of the regulatory amortizations for the first nine months of 2002 as compared to the first nine months of 2001 (in 000's): 2002 2001 ---- ---- Contract buyouts and restructurings $15,320 $16,918 Seabrook investment 1,274 1,274 Deferred asset sale gain (3,890) (5,971) Other stranded cost related regulatory assets and liabilities (3,425) 290 Distribution related regulatory assets and liabilities 870 870 Employee transition costs 261 - ------ ----- Total Regulatory Amortizations $10,410 $13,381 ======= ======= The increase in total federal and state income taxes in 2002 relative to 2001 was principally a function of higher earnings in 2002, as well the impact of $183,000 in additional income tax expense in 2001 in connection with disallowed investment tax credits. OTHER INCOME AND (DEDUCTIONS) AND INTEREST EXPENSE Allowance for funds used during construction, which includes carrying costs on certain regulatory assets and liabilities, decreased by $168,000 in first nine months of 2002 relative to the 2001 period. The decrease was primarily a result of the implementation of new stranded cost rates on March 1, 2002, whereby the rate recovery of various regulatory assets began and the accrual of carrying costs ended. The decrease in long-term and increase in other interest expense in the 2002 period in comparison to 2001 were principally attributable to the reasons previously discussed for the quarters ending September 30, 2002 and 2001. Also, other interest expense was impacted somewhat by a $95,000 reduction in amortization of debt issuance costs in 2002 due to the expiration of certain amortizations. LIQUIDITY AND CAPITAL RESOURCES The Consolidated Statements of Cash Flows reflect events in the first nine months of 2002 and 2001 as they affect the Company's liquidity. Net increase in cash from operating activities was $26.1 million in the 2002 period as compared to $18 million in 2001. The single largest item affecting the comparability of operating cash flows in the two periods was approximately $9.2 million in payments in 2001 in connection with the exercise of the Company's common stock warrants. Operating cash flows are also impacted in each period by the standard-offer service. In 2002, the Company's standard-offer service costs exceeded revenues by approximately $2.4 million, while in 2001, revenues exceeded associated costs by approximately $4.6 million. Changes in accounts receivable and accounts payable in the statement of cash flows are also greatly impacted by the standard-offer related revenues and purchased power obligations. Negatively impacting operating cash flows in 2002 was $3.4 million in payments associated with benefits provided to terminated employees in connection with the previously discussed cost reduction efforts. Construction expenditures were approximately $3 million lower in the 2002 period as compared to 2001 due to reductions in the Company's capital spending in 2002. In the 2002 period, the Company made $7.5 million common dividend payments to its parent company, Emera, Inc., while in 2001, which preceded the Emera acquisition, common dividends of $.20 per share were paid to shareholders in each of the first three quarters. The increase in payments on long-term debt is due principally to higher monthly principal payments on the $24.8 million medium term notes in the 2002 period as compared to 2001, and at the end of June 2002 the Company made a $16.1 million principal payment on the FAME revenue notes, as compared to a $15.1 million principal payment at the end of June 2001. Also, in July 2002 the Company retired $20 million of 7.38% first mortgage bonds. Finally, the Company made approximately $1.1 of principal payments in 2002 on the $13.7 million MRC note. The Company had maintained full borrowing capacity under its revolving credit facility from the second quarter of 1999 through June 2001, but it became necessary to renew borrowings under the revolving line in June 2001 to fund the $15.1 million FAME debt payment. The Company's utilization of the line of credit was also impacted by the merger related costs and the cash payments to common stock warrant holders in 2001. The Company also utilized this line of credit to provide the funds necessary to make the FAME and 7.38% first mortgage bond debt payment in 2002. The Company's borrowings under this arrangement amounted to $38.5 million at September 30, 2002 as compared to $8 million at September 30, 2001. On June 29, 2001, the Company extended the revolving credit agreement until October 1 and then until March 31, 2002, and the agreement has since been further extended until June 30, 2003 with some modifications. The facility was increased to $60 million to accommodate the previously discussed debt retirements in 2002 and act as a bridge financing until permanent financing is put in place. The terms are similar to the prior amendment, with the major differences being the addition of another pricing level to recognize the Company's improved credit and modifications to some of the financial covenants. Also, the Company extended until June 1, 2003 the promissory note that was entered into in 2001. This note allows the Company to borrow up to an additional $10 million. This unsecured facility is used by the Company to manage working capital needs, and the interest rate setting mechanism and other major terms of the note are similar to terms in the revolving credit agreement. The Company is currently in the process of completing a financing arrangement for the private placement of up to $20 million of unsecured medium term notes, the proceeds of which will be used to pay down a portion of the outstanding borrowings under the revolving credit facility. The Company is currently evaluating its pension benefit plan assumptions including asset return performance. Any changes in the benefit plan assumptions as well as the funded status of the plan, may impact funding and expense levels in the future. ENVIRONMENTAL MATTERS The Company is regulated by the United States Environmental Protection Agency (EPA) as to compliance with the Federal Water Pollution Control Act, the Clean Air Act, and several federal statutes governing the treatment and disposal of hazardous wastes. The Company is also regulated by the Maine Department of Environmental Protection (DEP) under various Maine environmental statutes. The Company is actively engaged in complying with these federal and state acts and statutes, and it has not, to date, encountered material difficulties in connection with such compliance. In 1992, the Company received notice from the DEP that it was investigating the cleanup of several sites in Maine that were used in the past for the disposal of waste oil and other hazardous substances, and that the Company, as a generator of waste oil that was disposed at those sites, may be liable for certain cleanup costs. The Company learned in October 1995 that the EPA placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act and would pursue potentially responsible parties. With respect to this site, the Company is one of a number of waste generators under investigation. The Company has recorded a liability, based on currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this waste disposal site. Additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, and possible effects of future legislation or regulation and the possible effects of technological changes. At September 30, 2002, the liability recorded by the Company for its estimated environmental remediation costs amounted to approximately $416,000. The Company's actual future environmental remediation costs may change as additional factors become known. The Company estimates that during 2002 it will incur approximately $171,000 in operations expense to comply with environmental standards for air, water and hazardous materials. This amount may change based on facts and circumstances that occur in 2002. OTHER Management's discussion and analysis of results of operations and financial condition contains items that are "forward-looking" as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Factors that might cause such differences include, but are not limited to, the Company's reorganization, future economic conditions, relationships with lenders, developments in the legislative, regulatory and competitive environments in which the Company operates and other circumstances that could affect revenues and costs. NEW ACCOUNTING PRONOUNCEMENTS In June 2002, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Asset Retirement Obligations". This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Management does not believe that the implementation of this Statement will materially impact the Company's financial position, earnings or cash flows, principally as a result of the regulatory accounting utilized by the Company. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's major financial market risk exposure is changing interest rates. Changes in interest rates will affect interest paid on variable rate debt and the fair value of fixed rate debt. The Company manages interest rate risk through a combination of both fixed and variable rate debt instruments. The Company also was a party to an interest rate swap associated with the variable rate medium term notes (See Note 13 to the 2001 Form 10-K). This debt was fully repaid in July 2002. Item 4. CONTROLS AND PROCEDURES During the 90-day period prior to the filing date of this report, management, including the Company's Principal Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon, and as of the date of that evaluation, the Principal Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation. PART II. OTHER INFORMATION Item 5. OTHER INFORMATION Robert Briggs and Richard Smith resigned from the Company's Board of Directors effective April 25, 2002. Robert Briggs has stayed on as a Director of Emera, Inc., a parent of the Company, and Rick Smith has stayed on as Assistant Secretary to the Company and as Corporate Secretary and Clerk to Emera, Inc, a parent of the Company. Carroll Lee resigned from the Company's Board of Directors effective August 1, 2002. Item 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits - None. Reports on Form 8-K - None. SIGNATURES 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. BANGOR HYDRO-ELECTRIC COMPANY ----------------------------- (Registrant) /s/ David R. Black Dated: November 4 , 2002 _____________________________ David R. Black Chief Financial Officer CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Bangor Hydro-Electric Company (the Company) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on November , 2002, we, the undersigned, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ David R. Black ------------------ David R. Black Chief Financial Officer November 4, 2002 /s/ Raymond R. Robinson ----------------------- Raymond R. Robinson Principal Executive Officer November 4, 2002 This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. I, David R. Black, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bangor Hydro- Electric Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2002 /s/ David R. Black ------------------ David R. Black Chief Financial Officer I, Raymond R. Robinson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bangor Hydro- Electric Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2002 /s/ Raymond R. Robinson ----------------------- Raymond R. Robinson Principal Executive Officer

BANGOR HYDRO ELECTRIC CO 10-Q