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                 NEW ENGLAND ELECTRIC COMPANIES'

                  INCENTIVE COMPENSATION PLAN II













                                   Adopted - July 12, 1982
                                   Amended - December 18, 1984
                                   Amended - November 20, 1985
                                   Amended - December 1, 1986
                                   Amended - May 23, 1990
                                   Amended - December 1, 1991
                                   Amended - September 1, 1992
                                   Amended - January 1, 1994
                                   Amended - March 1, 1994
                                   Amended - January 1, 1995
                                   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 Benchmark. . . . . . . . . . . . . . . . . . . . . . 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 and 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 Determination. . . . . . . . . . . . . . . . . . . . . . . . . . 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

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

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 II

I.    PURPOSE

      The purpose of this Incentive Compensation Plan II (the Plan) is to
achieve and maintain a high level of corporate performance by making it
possible for those selected executives whose efforts and responsibilities have
direct influence on corporate earnings to earn significant 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 New England Electric Companies' 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:
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      (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 Benchmark means those standards established by
the  Management Committee to judge progress toward achievement of the
Financial Objective and each specific 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.

      2.14    Plan Year means a calendar year.

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      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 and 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 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 permitted 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, the Committee, or the Management Committee to
perform any act required by the Plan, the System, the Committee, 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.

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      4.02    Notification.  The Management Committee shall notify those
Participants who have been included in the Plan for the following year and
those who have been dropped from the Plan.

      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 Management Committee 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    Determination.  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 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.  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 16.5% of Base Compensation.  The targeted Financial
Objective Award is 9.9% of Base Compensation and the maximum Financial
Objective Award is 16.5%.

      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 target 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.  The Management Committee is expected
to use its 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 outside those calculated by the
formula.  Further, the Management Committee retains the discretion, from time
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to time, to add or delete Strategic Objectives and adjust Benchmarks as it
deems appropriate.

      7.07    Notification of Award.  The Management Committee shall be
responsible for seeing that each Participant 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 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 benefits under any group insurance plan or any other 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  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.
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      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