<PAGE>

















                 NEW ENGLAND ELECTRIC COMPANIES'

                INCENTIVE COMPENSATION PLAN III














                                 Adopted - November 29, 1988
                                 Amended - May 23, 1990
                                 Amended - December 1, 1991
                                 Amended - January 1, 1994
                                 Amended - March 1, 1994
                                 Amended - January 1, 1995
                                 Amended - January 1, 1996
                                 Amended - January 1, 1998
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                        TABLE OF CONTENTS


                                                                       Page

I.    PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

II.   DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
      2.01       Base Compensation. . . . . . . . . . . . . . . . . .   1
      2.02       Beneficial Owner. . . . . . . . . . . . . . . . .  .   1
      2.03       Board. . . . . . . . . . . . . . . . . . . . . . . .   1
      2.04       Bonus Award. . . . . . . . . . . . . . . . . . . . .   1
      2.05       Change in Control. . . . . . . . . . . . . . . . . .   2
      2.06       Exchange Act. . . . . . . . . . . . . . . . . . .  .   2
      2.07       Financial Objective. . . . . . . . . . . . . . . . .   3
      2.08       A Major Transaction. . . . . . . . . . . . . . . . .   3
      2.09       Management Committee.. . . . . . . . . . . . . . . .   4
      2.10       New England Electric System. . . . . . . . . . . . .   4
      2.11       Participant. . . . . . . . . . . . . . . . . . . . .   4
      2.12       Performance Benchmarks.. . . . . . . . . . . . . . .   4
      2.13       Person.. . . . . . . . . . . . . . . . . . . . . . .   5
      2.14       Plan Year. . . . . . . . . . . . . . . . . . . . . .   5
      2.15       Senior Incentive Compensation Plan.. . . . . . . . .   5
      2.16       Strategic Objectives.. . . . . . . . . . . . . . . .   5
      2.17       System.. . . . . . . . . . . . . . . . . . . . . . .   5

III.  ADMINISTRATION.. . . . . . . . . . . . . . . . . . . . . . . . . .   6
      3.01       Administration and Interpretation. . . . . . . . . .   6
      3.02       Amendment or Termination.. . . . . . . . . . . . . .   6
      3.03       No Segregation of Assets; No Assignment. . . . . . .   6
      3.04       Participant List.. . . . . . . . . . . . . . . . . .   7
      3.05       Effectuation of Interest.. . . . . . . . . . . . . .   7
      3.06       Accounting.. . . . . . . . . . . . . . . . . . . . .   7

IV.   PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . .   7
      4.01       Selection. . . . . . . . . . . . . . . . . . . . . .   7
      4.02       Notification.. . . . . . . . . . . . . . . . . . . .   7
      4.03       Objectives.. . . . . . . . . . . . . . . . . . . . .   7

V.    PARTICIPANTS' COMPENSATION.. . . . . . . . . . . . . . . . . . . .   8
      5.01       Base Compensation and Incentive Compensation.. . . .   8

VI.   BASE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . .   8
      6.01       Performance Evaluation.. . . . . . . . . . . . . . .   8

VII.  INCENTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . .  8
      7.01       Incentive Compensation Amounts. . . . . . . . . . . .  8
      7.02       Use of Benchmarks.. . . . . . . . . . . . . . . . . .  9
      7.03       Components. . . . . . . . . . . . . . . . . . . . . .  9
      7.04       Financial Objective Award.. . . . . . . . . . . . . .  9
      7.05       Strategic Objective Award.. . . . . . . . . . . . . .  9
      7.06       Exercise of Discretion. . . . . . . . . . . . . . . .  9
      7.07       Notification of Award.. . . . . . . . . . . . . . . . 10

VIII. PAYMENT UPON CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . 10
      8.01       Change of Control.. . . . . . . . . . . . . . . . . . 10

<PAGE>
IX.   GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 11
      9.01       Other Benefit Plans.. . . . . . . . . . . . . . . . . 11
      9.02       Termination of Participation; Interplan Transfer. . . 11
      9.03       Future Employment.. . . . . . . . . . . . . . . . . . 11
      9.04       Headings. . . . . . . . . . . . . . . . . . . . . . . 12
      9.05       Gender and Number.. . . . . . . . . . . . . . . . . . 12
      9.06       Governing Law.. . . . . . . . . . . . . . . . . . . . 12
      9.07       Effective Date. . . . . . . . . . . . . . . . . . . . 12

SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
















                                II
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                 NEW ENGLAND ELECTRIC COMPANIES'
                INCENTIVE COMPENSATION PLAN III

I.   PURPOSE

     The purpose of this Incentive Compensation Plan III (the Plan) is to
achieve and maintain a high level of corporate performance by making it
possible for executives whose efforts and responsibilities have an influence
on corporate earnings to earn compensation rewards in proportion to (i)
corporate achievement of financial and strategic objectives and (ii) the
executive's contribution thereto.  This amendment, effective January 1, 1998,
is designed to focus on the post-divestiture growth and profitability of the
System.

II.  DEFINITIONS

     2.01  Base Compensation means the compensation referred to in Section
6.01.

     2.02  Beneficial Owner shall have the meaning defined in Rule 13d-3
under the Exchange Act.

     2.03  Board means the Board of Directors of New England Electric
System.

     2.04  Bonus Award means the compensation referred to in Article VII.

     2.05  Change in Control occurs when the conditions set forth in either
of the following paragraphs shall have been satisfied:

     (a)   any Person is or becomes the Beneficial Owner, directly or
           indirectly, of securities of New England Electric System (not
           including in the securities beneficially owned by such Person
           any securities acquired directly from New England Electric
           System or its affiliates) representing 20% or more of the
           combined voting power of New England Electric System's then
           outstanding securities; or

     (b)   during any period of not more than two consecutive years
           individuals who at the beginning of such period constitute the
           Board and any new director (other than a director designated by
           a Person who has entered into an agreement with New England
           Electric System to effect a transaction described in clause (a)
           of this paragraph) whose election by the Board or nomination for
           election by New England Electric System's shareholders was
           approved or recommended by a vote of at least two-thirds of the
           directors then still in office who either were directors at the
           beginning of the period or whose election or nomination for
           election was previously so approved or recommended cease for any
           reason to constitute a majority of the Board.

     2.06  Exchange Act means the Securities Exchange Act of 1934.

     2.07  Financial Objective means the same annual financial target
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.

     2.08  A Major Transaction shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:

<PAGE>
           (a)   the shareholders of New England Electric System approve a
                 merger or consolidation with any corporation or business
                 trust, other than (i) a merger or consolidation which
                 would result in the individuals who prior to such merger
                 or consolidation constitute the Board constituting at
                 least two-thirds of the board of directors of New England
                 Electric System or the surviving or succeeding entity
                 immediately after such merger or consolidation, or (ii) a
                 merger or consolidation effected to implement a
                 recapitalization (or similar transaction) in which no
                 Person acquires more than 20% of the combined voting
                 power of New England Electric System's then outstanding
                 securities;

           (b)   the shareholders of New England Electric System approve a
                 plan of complete liquidation thereof; or

           (c)   the shareholder of New England Electric System approve an
                 agreement for the sale or disposition of all or
                 substantially all of New England Electric System's
                 assets, other than a sale or disposition which would
                 result in the individuals who prior to such sale or
                 disposition constitute the Board constituting at least
                 two-thirds of the board of directors of the Person
                 purchasing such assets immediately after such sale or
                 disposition.

     2.09  Management Committee means the Chief Executive Officer of New
England Electric System and the Chairman of New England Electric System.

     2.10  New England Electric System means the trustee or trustees for
the time being (as trustee or trustees but not personally) under an agreement
and declaration of trust dated January 2, 1926, as amended, which is hereby
referred to, and a copy of which as amended has been filed with the Secretary
of The Commonwealth of Massachusetts.  Any agreement, obligation, or liability
made, entered into or incurred by or on behalf of New England Electric System
binds only its trust estate, and no shareholder, director, trustee, officer,
or agent thereof assumes or shall be held to any liability therefor.

     2.11  Participant means an individual who has been selected, in
accordance with Section 4.01, or an equivalent prior provision, to be a
participant in the Plan.

     2.12  Performance Benchmarks means those standards established by the
Management Committee to judge progress toward achievement of the Financial
Objective and each Strategic Objective.  Individual objective or subjective
performance measures may also be developed for each Participant to assist in
the evaluation of his or her contribution toward the corporate achievement of
the Strategic Objectives assigned to the individual.

     2.13  Person shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) New England Electric System or any
subsidiary thereof, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of New England Electric System or any subsidiary
thereof, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of New England Electric System in
substantially the same proportions as their ownership of shares of New England
Electric System.
<PAGE>
     2.14  Plan Year means a calendar year.

     2.15  Senior Incentive Compensation Plan means New England Electric
Companies' Senior Incentive Compensation Plan, as amended from time to time.

     2.16  Strategic Objectives means the same Strategic Objectives
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.

     2.17  System means the New England Electric System holding company
system.


III. ADMINISTRATION

     3.01  Administration and Interpretation.  The Plan shall be
administered by the  Management Committee, and interpretations of the Plan by
the Management Committee shall be final and binding by all parties.

     3.02  Amendment or Termination.    The Management Committee may amend
or terminate the Plan at any time, provided that: 

     (a)   no such action shall affect any right or obligation with respect
           to any Bonus Award previously granted; 

     (b)   the provisions of Article VII and Sections 2.05 and 2.08 may not
           be amended without the written consent of any Participant
           affected; and 

     (c)   no amendment or termination of the Plan may be made after a
           Major Transaction unless the shareholders have rescinded their
           approval.

     3.03  No Segregation of Assets; No Assignment.  The New England
Electric System is not required to set aside or segregate any assets of any
kind to meet obligations under this Plan.  A Participant has no rights under
this Plan to any specific assets of the New England Electric System.  A
Participant may not commute, sell, assign, transfer, or otherwise convey the
right to receive any payments under this Plan, which payments and the right
thereto shall be, to the fullest extent permited by law, nonassignable and
nontransferable, whether voluntarily or involuntarily.

     3.04  Participant List.  The Management Committee shall be responsible
for maintaining an up-to-date list of the Participants in the Plan.

     3.05  Effectuation of Interest.  In the event it should become
impossible for the System or the Management Committee to perform any act
required by the Plan, the System or the  Management Committee may perform such
other act as it in good faith determines will most nearly carry out the intent
and purpose of the Plan.

     3.06  Accounting.  The Manager of Internal Audits and the Controller
will be responsible to the Management Committee for accounting matters
directly affecting the Plan.

IV.  PARTICIPATION

     4.01  Selection.  The Participants in the Plan will be selected by the
Senior Management.
<PAGE>
     4.02  Notification.  The member of senior management to whom the
Participant reports shall notify him or her of their inclusion in the Plan for
the following year.

     4.03  Objectives.  All Participants will have the Financial Objective. 
Individual Participants may participate in different Strategic Objectives. 
Further, their Strategic Objectives may be differently weighted.  The member
of senior management to whom the Participant reports shall determine such
objectives and weighting.  Participants will be advised of their Strategic
Objectives prior to the Plan Year for which they apply.

V.   PARTICIPANTS' COMPENSATION

     5.01  Base Compensation and Incentive Compensation.  The compensation
for each Participant will consist of two parts:  Base Compensation and
Incentive Compensation.

VI.  BASE COMPENSATION

     6.01  Performance Evaluation.  A Participant's performance will be
evaluated and his or her compensation, including any merit or promotional
increase, will be set in accordance with the New England Electric Salary
Management Program

VII. INCENTIVE COMPENSATION

     7.01  Incentive Compensation Amounts.  When the books are closed at
the end of a Plan Year, the member of senior management to whom the
Participant reports will recommend to the Management Committee and the
Management Committee will determine the appropriate amount to be awarded each
Participant, and this money will be distributed to the Participants by the
March 15 following the Plan Year.

     7.02  Use of Benchmarks.  Senior management and the Management
Committee will use the Performance Benchmarks and individual performance
measures as guides to evaluate each Participant's achievement in each area.

     7.03  Components.  The Bonus Award has two components: a Financial
Objective Award and a Strategic Objectives Award.  The targeted Strategic
Objective Award is 7.5% of Base Compensation.  The targeted Financial
Objective Award is 4.5% of Base Compensation and the maximum Financial
Objective Award is 7.5%.

     7.04  Financial Objective Award.  The calculation of the Financial
Objective Award will parallel the calculation under the New England Electric
Companies' Senior Incentive Compensation Plan.  If the Financial Objective
Benchmark is achieved, full targeted credit will be given for this target. 
The Financial Objective Bonus Award will be adjusted up or down to reflect
income greater than, or less than, the Benchmark.

     7.05  Strategic Objective Award.  Each Participant's award shall be
governed by the contribution of the Participant toward meeting his or her
Strategic Objectives.  The Strategic Objective Bonus Award will be adjusted
downward to reflect shortfalls in Performance Benchmark achievement.

     7.06  Exercise of Discretion.  Senior management and the Management
Committee are expected to use their judgment in evaluating performance with
the Objectives and Benchmarks as standards, not cliffs.  The Management
Committee may reduce bonuses from those calculated by the formula if
circumstances warrant.  The Management Committee may also award bonuses
<PAGE>
outside those calculated by the formula.  Further, the  Management Committee
retains the discretion, from time to time, to add or delete Strategic
Objectives and adjust Benchmarks as it deems appropriate.

     7.07  Notification of Award.  The member of Senior Management to whom
the Participant reports shall be responsible for seeing that he or she is told
the basis for the size of his or her Bonus Award.

VIII.      PAYMENT UPON CHANGE OF CONTROL

     8.01  Change of Control.  In the event of a Change in Control or Major
Transaction, each Participant will receive, within 30 days of the consummation
of the Change in Control or of the transaction approved by the Major
Transaction, a cash payment equal to the average of the bonus percentages for
this Plan for the last three years for this Plan prior to the Change in
Control or Major Transaction times the Participant's annualized Base
Compensation.  Further, if the consummation of the Change in Control or of the
transaction approved by the Major Transaction occurs prior to the
determination and payment of the Bonus Award for the prior Plan Year, the
Participant will also receive within 30 days a cash payment equal to said
percentage times the Participant's Base Compensation received in the prior
Plan Year.  No further benefits will be payable from this Plan.

IX.  GENERAL PROVISIONS

     9.01  Other Benefit Plans.  Bonus Awards will not be used in
determining a Participant's benefits under any group insurance plan or any
incentive program other than New England Electric Companies' Incentive Share
Plan.  Bonus Awards will be included in pension plan calculations to the
extent otherwise provided in these plans.

     9.02  Termination of Participation; Interplan Transfer.  If, for any
reason, a Participant should cease to be actively employed by a subsidiary of
the New England Electric System prior to July 1 of a Plan Year, that person
will not be deemed a Participant for that year, unless the member of the
Management Committee determines there are extraordinary circumstances which
justify inclusion.  A Participant who ceases to be so actively employed during
the last six months of a Plan year will be deemed a Participant for that year
on a proportional basis.  The Management Committee  will also determine the
extent, if any, of participation by the person replacing a Participant.  If a
Participant becomes a participant in another incentive compensation plan
during the Plan Year, the Participant will be deemed to be a Participant for
that year on a proportional basis in each of the Plans, respectively.

     9.03  Future Employment.  Neither the Plan nor the making of awards
hereunder shall be construed to create any obligation to continue the Plan or
to give any present or future employee any right to continued employment.

     9.04  Headings.  The headings of articles and sections of the Plan are
for convenience of reference only.

     9.05  Gender and Number.  Unless the context requires otherwise, the
singular shall include the plural; the masculine gender shall include the
feminine; and such words as "herein," "hereinafter," "hereof," and "hereunder"
shall refer to this instrument as a whole and not merely to the subdivisions
in which such words appear.

     9.06  Governing Law.  Except as otherwise required by law, the Plan
and all matters arising thereunder shall be governed by the laws of The
Commonwealth of Massachusetts.
<PAGE>
     9.07  Effective Date.  This Amendment shall be effective January 1,
1998.


                                   /s/ Alfred D. Houston
                                   ___________________________________


                                   /s/ Richard P. Sergel
                                   ___________________________________

                                   The Management Committee

                                   In accordance with votes dated
                                   November 24, 1997 and August 25,
                                   1998 of the New England Electric
                                   System Compensation Committee