UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.  20549  Form 10-Q  [X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended   June 30, 2009Or[   ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from  to  Commission File Number:001-14768  NSTAR(Exact name of registrant as specified in its charter)  Massachusetts04-3466300(State or other jurisdiction of
incorporation or organization)(I.R.S.  Employer Identification Number)800 Boylston Street, Boston, Massachusetts02199(Address of principal executive offices)(Zip Code)  (617) 424-2000(Registrant's telephone number, including area code)  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. [X]Yes[  ]No  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [  ]Yes[  ]No  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).  Large accelerated filer[ X ]Accelerated filer[   ]Non-accelerated filer[    ]Smaller reporting company[   ](Do not check if a smaller reporting company)  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [   ]Yes[ X ]No  The number of shares outstanding of the registrant's class of common stock was 106,808,376 Common Shares, par value $1 per share, as of July 31, 2009.    NSTAR Form 10-Q Quarterly Period Ended June 30, 2009  Table of Contents Page No.Glossary of Terms2Cautionary Statement Regarding Forward-Looking Information3Part I.  Financial Information:Item 1.Financial StatementsConsolidated Statements of Income4Consolidated Statements of Retained Earnings5Consolidated Statements of Comprehensive Income5Consolidated Balance Sheets6 - 7Consolidated Statements of Cash Flows8Notes to Consolidated Financial Statements9 - 20Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations21 - 38Item 3.Quantitative and Qualitative Disclosures About Market Risk38 - 39Item 4.Controls and Procedures39Part II.  Other Information:Item 1.Legal Proceedings40Item 1A.Risk Factors40Item 2.Unregistered Sales of Equity Securities and Use of Proceeds40Item 4.Submission of Matters to a Vote of Security Holders41Item 6.Exhibits42Signature43Exhibit 31.1Section 302 CEO CertificationExhibit 31.2Section 302 CFO CertificationExhibit 32.1Section 906 CEO CertificationExhibit 32.2Section 906 CFO CertificationImportant Shareholder InformationNSTAR files its Forms 10-K, 10-Q, and 8-K reports, proxy statements, and other information with the SEC.  You may access materials free of charge NSTAR has filed with the SEC on NSTARs website at: www.nstar.com:  Select "Investor Relations" and "Financial Information" or on the SECs website at www.sec.gov.  Copies of NSTARs SEC filings may also be obtained free of charge by writing to NSTARs Investor Relations Department at the address on the cover of this Form 10-Q or by calling 781-441-8338.

In addition, NSTARs Board of Trustees has several committees, including an Audit, Finance and Risk Management Committee, an Executive Personnel Committee and a Board Governance and Nominating Committee.  The Board of Trustees also has a standing Executive Committee.  The Board of Trustees has adopted the NSTAR Board of Trustees Guidelines on Significant Corporate Governance Issues, a Code of Ethics for the Principal Executive Officer, General Counsel, and Senior Financial Officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, and a Code of Ethics and Business Conduct for Trustees, Officers and Employees ("Code of Conduct").  NSTAR intends to disclose any amendment to, and any waiver from, a provision of the Code of Ethics that applies to the Chief Executive Office or Chief Financial Officer or any other executive officer and that relates to any element of the Code of Ethics definition enumerated in Item 406(b) of Regulation S-K, on Form 8-K, within four business days following the date of such amendment or waiver.  NSTARs Corporate Governance documents, including charters, guidelines and codes, and any amendments to such charters, guidelines and codes that are applicable to NSTARs executive officers, senior financial officers or trustees can be accessed free of charge on NSTARs website at: www.nstar.com:  Select "Investor Relations" and Company Information."

The certifications of NSTAR's Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached to this Quarterly Report on Form 10-Q as Exhibits 31.1, 31.2, 32.1, and 32.2.   1    Glossary of Terms  The following is a glossary of abbreviated names or acronyms frequently used throughout this report.  NSTAR CompaniesNSTARNSTAR (Parent company), Company or NSTAR and its    subsidiaries (as the context requires)NSTAR ElectricNSTAR Electric CompanyNSTAR GasNSTAR Gas CompanyNSTAR Electric & GasNSTAR Electric & Gas CorporationMATEPMedical Area Total Energy Plant, Inc.AESAdvanced Energy Systems, Inc.  (Parent company of MATEP)NSTAR ComNSTAR Communications, Inc.HopkintonHopkinton LNG Corp.Unregulated operationsRepresents non rate-regulated operations of AES, NSTAR
Com, and HopkintonRegulatory and Other AuthoritiesAGAttorney General of the Commonwealth of MassachusettsDOEU. S. Department of EnergyDPUMassachusetts Department of Public UtilitiesFASBFinancial Accounting Standards BoardFERCFederal Energy Regulatory CommissionIRSU. S. Internal Revenue ServiceISO-NEISO (Independent System Operator) - New England Inc.NYMEXNew York Mercantile ExchangePCAOBPublic Company Accounting Oversight Board (United States)SECU. S. Securities and Exchange CommissionOtherAFUDCAllowance for Funds Used During ConstructionARRAAmerican Recovery and Reinvestment Act of 2009BBtuBillions of British thermal unitsCGACCost of Gas Adjustment ClauseCPSLCapital Projects Scheduling ListCYConnecticut Yankee Atomic Power CompanyDSMDemand-Side ManagementEPSEarnings Per Common ShareGAAPGenerally Accepted Accounting Principles in the
United States of AmericaGCAMassachusetts Green Communities ActLDACLocal Distribution Adjustment ClauseMD&AManagement's Discussion and Analysis of Financial Condition
and Results of OperationsMGPManufactured Gas PlantMWhMegawatthour (equal to one million watthours)MYMaine Yankee Atomic Power CompanyPAMPension and PBOP Rate Adjustment MechanismPBOPPostretirement Benefits Other than PensionsRMRReliability Must RunROEReturn on EquityRTORegional Transmission OrganizationSFASStatement of Financial Accounting StandardsSIPSimplified Incentive PlanSQIService Quality IndicatorsSSCMSimplified Service Cost MethodYAYankee Atomic Electric Company   2     Cautionary Statement Regarding Forward-Looking Information  This Quarterly Report on Form 10-Q contains statements that are considered forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.  These forward-looking statements may also be contained in other filings with the SEC, in press releases, and oral statements.  You can identify these statements by the fact that they do not relate strictly to historical or current facts.  They use words such as anticipate, estimate, expect, project, intend, plan, believe, and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.  These statements are based on the current expectations, estimates or projections of management and are not guarantees of future performance.  Some or all of these forward-looking statements may not turn out to be what NSTAR expected.  Actual results could differ materially from these statements.  Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.  Examples of some important factors that could cause our actual results or outcomes to differ materially from those discussed in the forward-looking statements include, but are not limited to, the following:  ·adverse financial market conditions including changes in interest rates and the availability and cost of capital·adverse economic conditions·changes to prevailing local, state, and federal governmental policies and regulatory actions (including those of the DPU and the FERC) with respect to allowed rates of return, rate structure, continued recovery of regulatory assets and energy costs, financings, municipalization, acquisition and disposition of assets, operation and construction of facilities, changes in tax laws and policies, and changes in and compliance with environmental and safety laws and policies·new governmental regulations or changes to existing regulations that impose additional operating requirements or liabilities·changes in available information and circumstances regarding legal issues and the resulting impact on our estimated litigation costs·weather conditions that directly influence the demand for electricity and natural gas·impact of continued cost control processes on operating results·ability to maintain current credit ratings·impact of uninsured losses·impact of adverse union contract negotiations·damage from major storms·impact of conservation measures and self-generation by our customers·changes in financial accounting and reporting standards·changes in hazardous waste site conditions and the cleanup technology·prices and availability of operating supplies·impact of terrorist acts and cyber-attacks, and·impact of service quality performance measures  Any forward-looking statement speaks only as of the date of this filing and NSTAR undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.  You are advised, however, to consult all further disclosures NSTAR makes in its filings to the SEC.  Other factors in addition to those listed here could also adversely affect NSTAR.  This Quarterly Report also describes material contingencies and critical accounting policies and estimates in the accompanying Part I, Item 2, "Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in the accompanying Notes to Consolidated Financial Statements and NSTAR encourages a review of these items.  3     Part I.  Financial Information Item 1.  Financial Statements NSTAR Consolidated Statements of Income (Unaudited) (in thousands, except per share amounts)    Three Months EndedSix Months EndedJune 30,June 30,2009200820092008Operating revenues$707,525$743,715$1,655,314$1,639,296Operating expenses:Purchased power and transmission309,874308,041707,760654,889Cost of gas sold43,00469,760200,082232,326Operations and maintenance98,087113,928208,105226,256Depreciation and amortization93,37893,248194,662192,462DSM and renewable energy programs19,19816,69538,36834,995Property and other taxes25,42923,08355,32050,097Income taxes33,51930,86169,42764,747Total operating expenses622,489655,6161,473,7241,455,772Operating income85,03688,099181,590183,524Other income (deductions):Other income, net1,8801,2152,8435,305Other deductions, net(303)(313)(659)(647)Total other income, net1,5779022,1844,658Interest charges (income):Long-term debt34,53033,34568,47166,732Transition property securitization4,9607,12710,80315,108Short-term debt and other, net(10,176)(1,701)(14,188)(3,174)AFUDC(125)(629)(262)(1,069)Total interest charges29,18938,14264,82477,597Net income57,42450,859118,950110,585Less: Preferred stock dividends of
subsidiary to the noncontrolling interest490490980980Net income attributable to common
shareholders$56,934$50,369$117,970$109,605Weighted average common shares outstanding:Basic106,808106,808106,808106,808Diluted106,961107,038106,989107,024Earnings per common share:Basic$0.53$0.47$1.10$1.03Diluted$0.53$0.47$1.10$1.02Dividends declared per common share$0.375$0.35$0.75$0.70   The accompanying notes are an integral part of the consolidated financial statements.  4     NSTAR Consolidated Statements of Retained Earnings (Unaudited) (in thousands)  Three Months EndedSix Months EndedJune 30,June 30,2009200820092008Balance at the beginning of the period$897,254$812,779$876,271$790,926Add:Net income57,42450,859118,950110,585954,678863,638995,221901,511Deduct:Dividends declared:Common shares40,05337,38380,10674,766Preferred stock dividends of
subsidiary to the
noncontrolling interest49049098098040,54337,87381,08675,746Balance at the end of the period$914,135$825,765$914,135$825,765   The accompanying notes are an integral part of the consolidated financial statements.      NSTAR Consolidated Statements of Comprehensive Income (Unaudited) (in thousands)  Three Months EndedSix Months EndedJune 30,June 30,2009200820092008Net income$57,424$50,859$118,950$110,585Other comprehensive income, net:Pension and postretirement
benefits costs418481799959Deferred income tax expense(173)(187)(329)(373)Total other comprehensive income, net245294470586Comprehensive income57,66951,153119,420111,171Less: Preferred stock dividends of
subsidiary to the noncontrolling interest490490980980Comprehensive income attributable
to NSTAR$57,179$50,663$118,440$110,191   5     The accompanying notes are an integral part of the consolidated financial statements.  6    NSTAR Consolidated Balance Sheets (Unaudited) (in thousands)  June 30,December 31,20092008AssetsUtility plant:Electric and gas plant in service, at original cost$5,839,698$5,694,537Less: accumulated depreciation1,464,5721,418,4294,375,1264,276,108Construction work in progress103,317122,294Net utility plant4,478,4434,398,402Other property and investments:Nonutility property, net137,414139,764Electric equity investments5,7666,701Other investments70,30672,475213,486218,940Current assets:Cash and cash equivalents28,55021,984Restricted cash9,4049,581Accounts receivable, net of allowance of $36,717 and
$32,859, respectively303,230332,465Accrued unbilled revenues53,15061,892Regulatory assets301,798439,914Inventory, at average cost65,19593,684Refundable income taxes129,120129,120Other40,17032,721930,6171,121,361Deferred debits:Regulatory assets2,375,7552,466,018Other67,28764,7682,443,0422,530,786Total assets$8,065,588$8,269,489   The accompanying notes are an integral part of the consolidated financial statements.  7     NSTAR Consolidated Balance Sheets (Unaudited) (in thousands)  June 30,December 31,20092008Capitalization and LiabilitiesCommon equity:Common shares, par value $1 per share, 200,000,000shares authorized, 106,808,376 issued and outstanding$106,808$106,808Premium on common shares813,398818,601Retained earnings914,135876,271Accumulated other comprehensive loss(13,055)(13,525)Total common equity1,821,2861,788,155Noncontrolling interest  preferred stock of subsidiary43,00043,000Long-term debt:Long-term debt1,488,3592,012,467Transition property securitization252,931331,2091,741,2902,343,676Current liabilities:Long-term debt631,4375,444Transition property securitization98,27892,580Notes payable493,500582,883Income taxes71,85587,880Accounts payable185,444291,012Power contract obligations131,387155,815Accrued interest31,18931,073Dividends payable40,38040,380Accrued expenses13,90119,251Other83,22688,6641,780,5971,394,982Deferred credits:Accumulated deferred income taxes1,166,3061,130,437Power contract obligations281,203345,993Pension and other postretirement liability761,612749,774Regulatory liability - cost of removal270,249264,959Other200,045208,5132,679,4152,699,676Commitments and contingenciesTotal capitalization and liabilities$8,065,588$8,269,489   The accompanying notes are an integral part of the consolidated financial statements.  8     NSTAR Consolidated Statements of Cash Flows (Unaudited) (in thousands)  Six Months EndedJune 30,20092008Operating activities:Net income$118,950$110,585Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization197,717195,902Deferred income taxes12,156(4,577)Noncash stock-based compensation4,7475,403Net changes in:Accounts receivable and accrued unbilled revenues37,97722,222Inventory, at average cost28,48917,456Other current assets(7,449)(21,775)Accounts payable(61,780)(23,763)Accrued expenses(5,350)(3,007)Other current liabilities(21,347)10,576Regulatory assets105,07487,968Long-term power contract obligations(60,668)(78,069)Net change from other miscellaneous operating activities20,408(23,530)Net cash provided by operating activities368,924295,391Investing activities:Plant expenditures (including AFUDC)(207,097)(196,028)Proceeds from sale of utility property1,9951,750Decrease (increase) in restricted cash177(11,295)Net change in other investment activities(1,623)(419)Net cash used in investing activities(206,548)(205,992)Financing activities:Long-term debt redemptions(3,141)(2,923)Transition property securitization redemptions(72,580)(75,836)Issuance of long-term debt100,000-Premium on issuance of long-term debt4,553-Debt issuance costs(875)-Net change in notes payable(89,383)70,600Change in disbursement accounts(5,578)(10,226)Common share dividends paid(80,106)(74,766)Preferred stock dividends of subsidiary to the noncontrolling interest(980)(980)Cash received for exercise of equity compensation1,046163Cash used to settle equity compensation(9,010)(5,596)Windfall tax effect of settlement of equity compensation244306Net cash used in financing activities(155,810)(99,258)Net increase (decrease) in cash and cash equivalents6,566(9,859)Cash and cash equivalents at the beginning of the year21,98434,121Cash and cash equivalents at the end of the period$28,550$24,262Supplemental disclosures of cash flow information:Cash paid during the period for:Interest, net of amounts capitalized$78,676$84,149Income taxes$50,359$85,762Noncash financing activity:Plant expenditures included in accounts payable$14,149$32,833  The accompanying notes are an integral part of the consolidated financial statements.  9     Notes to Consolidated Financial Statements (Unaudited)  The accompanying notes should be read in conjunction with Notes to Consolidated Financial Statements included in NSTAR's 2008 Annual Report on Form 10-K.  Note A.  Business Organization and Summary of Significant Accounting Policies  1.  About NSTAR  NSTAR (or the Company) is a holding company engaged through its subsidiaries in the energy delivery business.  The Company serves approximately 1.4 million customers in Massachusetts, including approximately 1.1 million electric distribution customers in 81 communities and approximately 300,000 natural gas customers in 51 communities.  NSTAR's retail electric distribution and transmission and retail natural gas distribution subsidiaries are NSTAR Electric and NSTAR Gas, respectively.  Reference in this report to "NSTAR" shall mean the registrant NSTAR or NSTAR and its subsidiaries as the context requires. NSTAR also has ownership and is engaged in unregulated business operations.   2.  Basis of Consolidation and Accounting  The accompanying consolidated financial information presented as of June 30, 2009 and for the three and six-month periods ended June 30, 2009 and 2008 has been prepared from NSTAR's books and records without audit by an independent registered public accounting firm.  However, NSTAR's independent registered public accounting firm has performed a review of these interim financial statements in accordance with standards established by the PCAOB.  The review report is filed as Exhibit 99.1 to this Form 10-Q. Financial information as of December 31, 2008 was derived from the audited consolidated financial statements of NSTAR, but does not include all disclosures required by GAAP.  In the opinion of NSTAR's management, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial information for the periods indicated, have been included. Certain immaterial reclassifications have been made to the accompanying prior period Consolidated Statement of Cash Flow amounts to conform to the current periods presentation.  NSTAR's utility subsidiaries follow accounting policies prescribed by the FERC and the DPU.  In addition, NSTAR and its subsidiaries are subject to the accounting and reporting requirements of the SEC. NSTAR's utility subsidiaries are subject to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71).  The application of SFAS 71 results in differences in the timing of recognition of certain revenues and expenses from those of other businesses and industries.  The distribution and transmission businesses are subject to rate-regulation that is based on cost recovery and meet the criteria for application of SFAS 71.  The preparation of financial statements in conformity with GAAP requires management of NSTAR and its subsidiaries to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  The results of operations for the three and six-month periods ended June 30, 2009 and 2008 are not indicative of the results that may be expected for an entire year.  The demand for electricity and natural gas is affected by weather conditions, economic conditions and consumer conservation behavior.  Electric energy sales and revenues are typically higher in the winter and summer months than in the spring and fall months.  Natural gas energy sales and revenues are typically higher in the winter months than during other periods of the year.   10    3.  Pension and Postretirement Benefits Other than Pensions (PBOP) Plans  NSTARs net periodic Pension Plan and PBOP Plan benefit costs for the second quarter are based on the latest available participant census data.  An annual actuarial valuation was completed during the second quarter, and cost estimates were adjusted based on the actual actuarial study results.  NSTARs Pension Plan and PBOP Plan assets are affected by fluctuations in the financial markets.  Net periodic pension and postretirement benefit costs for 2009 have increased over 2008 primarily due to the decline in the Plans asset values during 2008.  Fluctuations in the fair value of the Pension Plan and PBOP Plan assets impact the funded status, accounting costs, and cash funding requirements of these Plans. The earnings impact of increased Pension and PBOP costs is mitigated by NSTARs DPU-approved Pension and PBOP rate adjustment mechanism (PAM).  Pension  NSTAR provides a defined benefit retirement plan, the NSTAR Pension Plan (the Plan), that covers substantially all employees.  During the six months ended June 30, 2009, NSTAR contributed approximately $16 million to the Plan.  NSTAR contributed an additional $5 million to the Plan in July 2009 and currently anticipates contributing approximately $9 million to the Plan during the remainder of 2009.  The actual level of funding may change depending on managements assessment of market conditions.  Components of net periodic pension benefit cost were as follows:  Three Months EndedSix Months EndedJune 30,June 30,(in millions)2009200820092008Service cost$5.4$5.1$11.1$10.6Interest cost16.115.832.231.8Expected return on Plan assets(14.8)(21.7)(29.1)(43.1)Amortization of prior service cost(0.2)0.1(0.4)0.1Recognized actuarial loss13.63.927.18.0Net periodic pension benefit cost$20.1$3.2$40.9$7.4  The first quarter net periodic pension cost is typically estimated utilizing projections based on the previous years liability and asset levels.  The net periodic pension costs for the six months ended June 30, 2009 and 2008 have been adjusted to reflect the final actuarial study cost amounts for 2009 and 2008.  This adjustment decreased the periodic pension benefit cost by approximately $0.3 million and $0.5 million for the three and six-month periods ended June 30, 2009 and 2008, respectively, and is recognized in the second quarter of each year.  Postretirement Benefits Other than Pensions  NSTAR also provides health care and other benefits to retired employees who meet certain age and years of service eligibility requirements.  Under certain circumstances, eligible retirees are required to contribute to the costs of postretirement benefits.  During the six months ended June 30, 2009, NSTAR contributed approximately $14 million to this plan and anticipates contributing approximately $16 million for the remainder of 2009 toward these benefits.   11    Components of net periodic postretirement benefit cost were as follows:  Three Months EndedSix Months EndedJune 30,June 30,(in millions)2009200820092008Service cost$1.5$1.3$3.1$2.9Interest cost8.79.118.118.1Expected return on Plan assets(4.6)(7.0)(9.0)(14.2)Amortization of prior service cost(0.3)(0.4)(0.7)(0.8)Amortization of transition obligation0.20.20.40.4Recognized actuarial loss4.52.49.64.5Net periodic postretirement benefit cost$10.0$5.6$21.5$10.9  The first quarter net periodic postretirement benefit cost is typically estimated based on the previous years liability and asset levels.  The net periodic postretirement benefit costs for the six months ended June 30, 2009 and 2008 have been adjusted to reflect the final actuarial study cost amounts for 2009 and 2008.  This adjustment decreased the periodic postretirement benefit costs by approximately $0.8 million and increased the periodic postretirement benefit costs by approximately $0.1 million for the three and six-month periods ended June 30, 2009 and 2008, respectively, and is recognized in the second quarter of each year.  4.  Noncontrolling Interest  Cumulative Non-Mandatory Redeemable Preferred Stock of Subsidiary  NSTAR Electric has two outstanding series of non-mandatory redeemable preferred stock.  Both series are part of a class of NSTAR Electrics Cumulative Preferred Stock.  Upon any liquidation of NSTAR Electric, holders of the Cumulative Preferred Stock are entitled to receive the liquidation preference for their shares before any distribution to the holder of the common stock.  The liquidation preference for each outstanding series of Cumulative Preferred Stock is equal to the par value plus accrued and unpaid dividends.  Non-mandatory redeemable series:  Par value $100 per share, 2,890,000 shares authorized and 430,000 shares issued and outstanding:  (in thousands, except per share amounts)SeriesCurrent SharesOutstandingRedemption Price/ShareJune 30, 2009December 31, 20084.25%180,000$103.625$18,000$18,0004.78%250,000$102.8025,00025,000Total non-mandatory redeemable series$43,000$43,000  During the year ended December 31, 2008 and during the six months ended June 30, 2009, there were no changes in the noncontrolling interest of NSTAR Electric.  SFAS No. 160  SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  This standard is effective and was applied prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which were applied retrospectively for all periods presented.  The adoption of this standard requires NSTAR to reflect NSTAR Electrics noncontrolling interest preferred stock as noncontrolling interest of a subsidiary in the accompanying Consolidated Balance Sheets outside of permanent equity.  Each of the two preferred stock series contains provisions relating to non-payment of preferred dividends that could potentially result in the preferred shareholders being granted the majority control of the Board of Directors of NSTAR  12    Electric until all preferred dividends are paid.  As a result, the preferred stock has not been classified within permanent equity.  The dividends on NSTAR Electrics preferred stock to the noncontrolling interest are reflected separately after net income and before net income attributable to common shareholders on the accompanying Consolidated Statements of Income.  The dividends are reported as comprehensive income attributable to the noncontrolling interest on the accompanying Consolidated Statements of Comprehensive Income.  5.  Short-Term Debt and Other Interest Charges (Income), net  Major components of interest charges (income) related to short-term debt and other, net were as follows:  Three Months EndedSix Months EndedJune 30,June 30,(in thousands)2009200820092008Short-term debt$297$2,254$987$5,582Regulatory assets(5,973)(3,305)(11,021)(7,437)Interest on income tax items(5,489)(1,200)(6,287)(2,736)Other9895502,1331,417Total short-term debt and other, net$(10,176)$(1,701)$(14,188)$(3,174)  6. New Accounting Standards  SFAS No. 165  In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  This standard is effective for interim financial periods ending after June 15, 2009.  As required, NSTAR has adopted this standard effective June 30, 2009.  SFAS No. 167  In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which amends the consolidation guidance applicable to variable interest entities.  The amendments will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R).  This standard is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and will be effective for the Company beginning in fiscal 2010.  The Company continues to assess the potential impact of adoption.  SFAS No. 168  In June 2009, the FASB issued SFAS 168, the Accounting Standards Codification,(Codification), as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff.  The Codification, which changes the referencing of financial standards, is effective for interim or annual financial periods ending after September 15, 2009. Therefore, in the third quarter of 2009, all references made to U.S. GAAP will use the new Codification system prescribed by the FASB.  As the Codification is not intended to change or alter existing U.S. GAAP, it will not have any impact on NSTARs consolidated financial position or results of operations.  7. Subsequent Events  In accordance with SFAS 165, management has reviewed subsequent events through July 31, 2009 and concluded that no material subsequent events have occurred that are not accounted for in the accompanying financial statements or disclosed in the accompanying notes.  13     Note B.  Cost of Removal  For NSTAR's regulated utility businesses, the ultimate cost to remove utility plant from service (cost of removal) is recognized as a component of depreciation expense in accordance with approved regulatory treatment.  As of June 30, 2009 and December 31, 2008, the estimated amounts of the cost of removal included in regulatory liabilities were approximately $270 million and $265 million, respectively, and are reflected as Deferred credits: Regulatory liability  cost of removal on the accompanying Consolidated Balance Sheets.  These estimates are based on the cost of removal component in current depreciation rates.  Note C.  Derivative Instruments  Energy Contracts  NSTAR accounts for its energy contracts in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities(SFAS 133) and SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities" (SFAS 149).  NSTAR has determined that its electricity supply contracts qualify for, and NSTAR has elected, the normal purchases and sales exception. As a result, these agreements are not reflected on the accompanying Consolidated Balance Sheets.  NSTAR Gas has only one significant gas supply contract.  This contract is an all-requirements portfolio asset management contract that expires in October 2009.  This contract contains market-based pricing terms, and, therefore, no financial statement adjustments to mark the contracts to market are required.  Gas supply costs incurred related to this contract were $19 million and $98 million for the three-month periods and $113 million and $193 million for the six-month periods ended June 30, 2009 and 2008, respectively, and have been recorded to Cost of gas sold on the accompanying Consolidated Statements of Income. Refer to the accompanying Part 1, Item 3, Quantitative and Qualitative Disclosures About Market Risksfor a further discussion.  Gas Hedging Agreements  In accordance with a DPU order, NSTAR Gas purchases financial contracts based upon NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase price for approximately one-third of its natural gas purchases.  This practice is an attempt to minimize the impact of fluctuations in prices to NSTARs firm gas customers. These financial contracts do not procure gas supply.  These contracts qualify as derivative financial instruments under SFAS 133,as amended by SFAS 149. Accordingly, the fair value of these instruments is recognized on the accompanying Consolidated Balance Sheets as an asset or liability representing amounts due from or payable to the counter parties of NSTAR Gas, as if such contracts were settled as of the balance sheet date.  All actual costs incurred or benefits realized are included in the CGAC of NSTAR Gas.  As a result, NSTAR Gas records an offsetting regulatory asset or liability for the market price changes, in lieu of recording an adjustment to Other Comprehensive Income.  Currently, these derivative contracts extend through April 2010.  14     SFAS No. 161  NSTAR adopted the provisions of SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, effective January 1, 2009.  The following disclosures relate to the implementation of this standard, and summarize the fair value of NSTAR Gas hedging agreements, the asset and liability positions of these hedging agreements and related settlements:  (in thousands)June 30,
2009December 31,
2008Gas Hedging AgreementsBalance Sheet Account:Current liabilities  power contract obligations$4,325$32,275Deferred credits  power contract obligations-600Total potential liability for derivative instruments$4,325$32,875  Amount of Gain or (Loss) RecognizedThree Months Ended
June 30,Six Months Ended
June 30,Settlement of gas hedging agreements2009200820092008Consolidated Statement of Income Account:(Increase) decrease to Cost of gas sold$(11,544)$2,131$(42,960)$(2,443)Increase (decrease) to revenues reflecting
recovery of or return of settlements
to customers11,544(2,131)42,9602,443Net earnings impact$-$-$-$-  As of June 30, 2009, these gas hedging agreements, representing eight individual contracts, hedged approximately 6,320 BBtu.  The settlement of these contracts may have a short-term cash flow impact but over the long-term, any such effects are mitigated by a regulatory recovery mechanism for those costs.  Potential counterparty credit risk is minimized by collateral requirements as specified in credit support agreements to the contracts that are based on the credit rating of the counterparty and the fair value exposure under the contracts term.  In the event of a downgrade in the credit rating of either party, these agreements may require that party to immediately collateralize, by either cash payment, letter of credit, or other qualifying security instrument, any exposure that exists for obligations in excess of specified threshold amounts.  NSTAR Gas is also subject to this credit risk-related contingent feature.  Based on market conditions at the time of a downgrade, NSTAR Gas could be required to post collateral in an amount that could be equal to or less than the fair value of the liability at the time of the downgrade.  As of June 30, 2009, NSTAR Gas has an A+ Standard & Poors Credit Issuer rating.  Collateral obligations are required in the event of a downgrade below an A rating by Standard & Poors and/or if the fair value of the contract exceeds established credit thresholds.  Based on NSTAR Gas liability position with its gas hedge contract counterparties as of June 30, 2009, should NSTAR Gas credit rating be downgraded the following collateral obligations would result:  Level BelowIncrementalCumulativeCredit Ratings Downgraded to:A RatingObligationsObligations(in thousands)A-/A31$           -$         -BBB+/Baa12--BBB/Baa23--BBB-/Baa3, or below investment grade44,3254,325   15    In addition, these agreements contain cross-default provisions that would allow NSTAR Gas and its counterparties to terminate and liquidate a gas hedge contract if either party is in default on other swap agreements with that same counterparty, or another unrelated agreement with that same counterparty in excess of stipulated threshold amounts.  Note D.  Income Taxes  Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes"(SFAS 109).  SFAS 109 requires the recognition of deferred tax assets and liabilities for the future tax effects of temporary differences between the carrying amounts and the tax basis of assets and liabilities.  In accordance with SFAS 71 and SFAS 109, net regulatory assets of $28.3 million and $29.2 million and corresponding net increases in accumulated deferred income taxes were recorded as of June 30, 2009 and December 31, 2008, respectively.  The regulatory assets represent the additional future revenues to be collected from customers for deferred income taxes.  The following table reconciles the statutory federal income tax rate to the annual estimated effective income tax rate for 2009 and the actual effective income tax rate for the year ended December 31, 2008:  20092008Statutory tax rate35%35%State income tax, net of federal income tax benefit4%5%Other(2)%(2)%Effective tax rate37%38%  Uncertain Tax Positions  NSTAR continues to pursue its appeal with the IRS appellate division related to the audit of Federal income tax returns of 2001-2004.  NSTAR is appealing the disallowance of ordinary loss deductions related to its previous investment in RCN Corporation in 2003.  NSTAR now anticipates the completion of the appeals process within the next 12 months.  Any agreement executed with the appellate division is subject to approval by the U.S. Congress Joint Committee on Taxation.  On January 1, 2007 when NSTAR adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109, Accounting for Income Taxes,it recorded a tax benefit of $39.6 million to retained earnings related to this item.  Upon the final outcome of the appeals process, the Company could be required to reverse all or a portion of that tax benefit.  In addition, the Company could be subject to an interest obligation.  NSTAR cannot predict the ultimate outcome resulting from this process.  Interest on tax positions  Unrecognized benefits associated with interest on construction-related uncertain tax positions from the use of SSCM were $4.4 million and $9 million as of June 30, 2009 and December 31, 2008, respectively. During the second quarter of 2009, NSTAR recognized $4.6 million of these previously unrecognized benefits.  The likelihood that the amount of the remaining unrecognized benefits relating to the deduction for these construction-related costs will be recognized in the form of interest income is remote.  Note E.  Earnings Per Common Share  Basic EPS is calculated by dividing net income attributable to common shareholders, which includes a deduction for preferred dividends of a subsidiary, by the weighted average common shares outstanding during the respective period.  Diluted EPS is similar to the computation of basic EPS except that the weighted average common shares are increased to include the impact of potential (nonvested) shares and stock options granted (stock-based compensation), in accordance with NSTARs Long Term Incentive Plan.   16    The following table summarizes the reconciling amounts between basic and diluted EPS:  Three Months EndedSix Months EndedJune 30,June 30,(in thousands, except per share amounts)2009200820092008Net income attributable to common shareholders$56,934$50,369$117,970$109,605Basic EPS$0.53$0.47$1.10$1.03Diluted EPS$0.53$0.47$1.10$1.02Weighted average common sharesoutstanding for basic EPS106,808106,808106,808106,808Effect of diluted shares:Weighted average dilutive potential
common shares153230181216Weighted average common shares
outstanding for diluted EPS106,961107,038106,989107,024  Note F.  Segment and Related Information  For the purpose of providing segment information, NSTAR's principal operating segments are its traditional core businesses of electric and natural gas retail transmission and distribution utilities that provide energy delivery services in 107 cities and towns in Massachusetts.  The unregulated operating segment engages in business activities that include district energy operations, telecommunications, and liquefied natural gas service.  Amounts shown on the following table for the three and six-month periods ended June 30, 2009 and 2008 include the allocation of NSTAR's (Holding Company) results of operations (primarily interest costs) and assets (primarily investment assets) to each business segment, net of inter-company transactions. The allocation of Holding Company charges is based on an indirect allocation of the Holding Companys investment relating to these various business segments.  Financial data for the operating segments were as follows:  Utility OperationsUnregulatedConsolidated(in thousands)ElectricGasOperationsTotalThree months ended June 30,2009Operating revenues$604,267$74,911$28,347$707,525Segment net income$54,400$603$2,421$57,4242008Operating revenues$604,824$103,282$35,609$743,715Segment net income (loss)$48,280$(1,351)$3,930$50,859Six months ended June 30,2009Operating revenues$1,276,747$307,052$71,515$1,655,314Segment net income$94,004$17,025$7,921$118,9502008Operating revenues$1,224,015$337,939$77,342$1,639,296Segment net income$84,250$17,352$8,983$110,585Total assetsJune 30, 2009$7,147,308$717,642$200,638$8,065,588December 31, 2008$7,214,780$855,555$199,154$8,269,489   17    Note G.  Fair Value Measurement  SFAS No. 157, as amended, "Fair Value Measurements(SFAS 157), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. While the standard does not expand the use of fair value, it has applicability to several current accounting standards that require or permit measurement of assets and liabilities at fair value.  The Company prospectively adopted SFAS 157 on January 1, 2008, with no impact to its results of operations, financial position, or cash flows.  SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to determine fair value and requires the Company to classify assets and liabilities carried at fair value based on the observability of these inputs.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three levels of the fair value hierarchy defined by SFAS 157 are:  Level 1  Unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date.  Financial assets utilizing Level 1 inputs include active exchange-traded equity securities.  Level 2  Quoted prices available in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are directly observable, and inputs derived principally from market data.  Level 3  Unobservable inputs from objective sources.  These inputs may be based on entity-specific inputs. Level 3 inputs include all inputs that do not meet the requirements of Level 1 or Level 2.  The following represents the fair value hierarchy of NSTARs financial assets and liabilities that were recognized at fair value on a recurring basis as of June 30, 2009 and December 31, 2008.  As required by SFAS 157, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.  Recurring Fair Value Measures:June 30, 2009(in millions)Level 1Level 2TotalAssets:Government Money Market Securities(a)$17$-$17Deferred Compensation Assets (b)23-23Investments (b)13-13Total$53$-$53Liabilities:Gas Hedges(c)$-$4$4Total$-$4$4  December 31, 2008Level 1Level 2TotalAssets:Government Money Market Securities(a)$10$-$10Deferred Compensation Assets (b)27-27Investments (b)13-13Total$50$-$50Liabilities:Gas Hedges(c)$-$33$33Total$-$33$33   18    (a)  -  Included in Cash and cash equivalents on the accompanying Consolidated Balance Sheets (b)  -  Included in Other investments on the accompanying Consolidated Balance Sheets (c)  -  Included in Current liabilities: Other and Deferred credits: Power contract obligations on the          accompanying Consolidated Balance Sheets  Financial Instruments  The carrying amounts for cash and cash equivalents, net accounts receivable, other current assets, certain current liabilities, and notes payable as of June 30, 2009 and December 31, 2008, respectively, approximate fair value due to the short-term nature of these securities.  The fair values of long-term indebtedness (excluding notes payable) are based on the quoted market prices of similar issues.  Carrying amounts and fair values as of June 30, 2009 and December 31, 2008 were as follows:  June 30, 2009December 31, 2008(in thousands)Carrying
AmountFair
ValueCarrying
AmountFair
ValueLong-term indebtedness
(including current maturities)$2,471,005$2,531,800$2,441,700$2,474,960  Note H.  Long-Term Debt Issuance  On February 13, 2009, NSTAR Electric sold, at a premium, $100 million of fixed rate (5.625%) Debentures due November 15, 2017 (effective rate of 4.976%).  The Debentures form a single series and are fungible with NSTAR Electrics 5.625% $300 million Debentures due November 15, 2017 issued on November 19, 2007.  Note I.  Commitments and Contingencies  1.  Environmental Matters  NSTAR subsidiaries face possible liabilities as a result of involvement in several multi-party disposal sites, state-regulated sites or third party claims associated with contamination remediation.  NSTAR generally expects to have only a small percentage of the total potential liability for the majority of these sites.  As of June 30, 2009 and December 31, 2008, NSTAR had a liability of approximately $0.7 million and $0.8 million, respectively, for these environmental sites.  This estimated liability recorded is based on an evaluation of all currently available facts with respect to these sites.  NSTAR Gas is participating in the assessment or remediation of certain former MGP sites and alleged MGP waste disposal locations to determine if and to what extent such sites are contaminated and whether NSTAR Gas may be responsible to undertake remedial action.  The DPU permits recovery of costs associated with MGP sites over a 7-year period, without carrying costs.  As of June 30, 2009 and December 31, 2008, NSTAR had a liability of approximately $13.2 million and  $13.3 million, respectively, as an estimate for site cleanup costs for several MGP sites for which NSTAR Gas has been identified as a potentially responsible party.  A corresponding regulatory asset has been recorded that reflects the future rate recovery for these costs.  Estimates related to environmental remediation costs are reviewed and adjusted as further investigation and assignment of responsibility occurs and as additional sites are identified or NSTAR's responsibilities for such sites evolve or are resolved.  NSTAR's ultimate liability for future environmental remediation costs may vary from these estimates.  Based on NSTAR's current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, NSTAR does not believe that these environmental remediation costs will have a material adverse effect on NSTAR's consolidated results of operations, financial position, or cash flows.  19     2.  Regulatory and Legal Matters  Wholesale Power Cost Savings Initiatives  The Rate Settlement Agreement includes incentives to encourage NSTAR Electric to continue its efforts to advocate on behalf of customers at the FERC to mitigate wholesale electricity cost inefficiencies that would be borne by regional customers.  If NSTAR Electric's efforts to reduce customers costs are successful, it is allowed to retain a portion of those savings as an incentive, as well as recover related litigation costs.  Under the terms of the Rate Settlement Agreement, NSTAR Electric was to share in 25% of the savings applicable to its customers.  The recovery of NSTAR Electric's share of benefits is to be collected over three years. As a result of its role in two RMR cases, NSTAR Electric had sought to collect $9.8 million annually for three years and began collecting some of these incentive revenues from its customers effective January 1, 2007, subject to final DPU approval.  Through June 30, 2009, $15.7 million has been collected from customers for the Wholesale Power Cost Savings Initiatives.  NSTAR is unable to predict the timing or ultimate outcome of this DPU proceeding.  In the event an adverse decision is issued, it would not have a material impact on the Company's results of operations.  DPU Safety and Reliability Programs (CPSL)  As part of the Rate Settlement Agreement, NSTAR Electric is allowed to recover incremental spending for the double pole inspection, replacement/restoration and transfer program and the underground electric safety program, which includes stray-voltage remediation and manhole inspections, repairs, and upgrades. Recovery of these Capital Program Scheduling List (CPSL) costs is subject to DPU review and approval. NSTAR Electric incurred incremental costs of $11.1 million and $13.1 million in 2006 and 2007, respectively.  This includes incremental operations and maintenance and revenue requirements on capital investments.  The final reconciliation of 2006 and 2007 CPSL costs recovery is currently under review by the DPU.  The incremental costs for the year 2008 are currently under review by the Company and are estimated to be approximately $15 million.  NSTAR anticipates filing its final 2008 CPSL cost recovery reconciliation with the DPU in the third quarter of 2009.  NSTAR cannot predict the timing of a DPU order related to these pending filings.  Should an adverse decision be issued that would disallow a significant portion of CPSL cost recovery, it could have a material adverse impact to NSTARs results of operations, financial position, and cash flows.  Basic Service Bad Debt Adder  On July 1, 2005, in response to a generic DPU order that required electric utilities in Massachusetts to reflect the cost of the energy-related portion of bad debt costs in their Basic Service rates, NSTAR Electric increased its Basic Service rates and reduced its distribution rates for those bad debt costs.  In furtherance of this generic DPU order, NSTAR Electric included a bad debt cost recovery mechanism as a component of the Rate Settlement Agreement.  This recovery mechanism (bad debt adder) allows NSTAR Electric to recover its Basic Service bad debt costs on a fully reconciling basis.  These rates were implemented, effective January 1, 2006, as part of NSTAR Electrics Rate Settlement Agreement.  On February 7, 2007, NSTAR Electric filed its 2006 Basic Service reconciliation with the DPU proposing an adjustment related to the increase of its Basic Service bad debt charge-offs.  This proposed rate adjustment was anticipated to be implemented effective July 1, 2007.  On June 28, 2007, the DPU issued an order approving the implementation of a revised Basic Service rate.  However, the DPU instructed NSTAR Electric to reduce distribution rates by the increase in its Basic Service bad debt charge-offs.  Such action would result in a further reduction to distribution rates from the adjustment NSTAR Electric made when it implemented the Settlement Agreement and effectively eliminates the fully reconciling nature of the Basic Service bad debt adder.  NSTAR Electric has not implemented the components of the June 28, 2007 DPU order.  Implementation of this order would require NSTAR Electric to write-off a previously recorded regulatory asset related to its  20    Basic Service bad debt costs.  NSTAR Electric believes its position is appropriate and that it is probable that it will ultimately prevail.  However, in the event the DPU does not rule in its favor, NSTAR Electric intends to pursue all legal options.  As of June 30, 2009, the potential impact to earnings of a disallowance of the bad debt adder would be approximately $18.3 million, pre-tax.  NSTAR cannot predict the timing of this proceeding.  Service Quality Indicators  NSTAR Electric filed its 2007 and 2008 Service Quality Reports with the DPU that demonstrated the Company achieved sufficient levels of service performance.  The reports indicate that no penalty was assessable for 2007 or 2008.  Other  In the fourth quarter of each year, NSTAR Electric files proposed distribution rate adjustments for effect on January 1, of the following year.  These rate adjustments include a SIP rate factor and several other fully reconciling cost recovery items.  Consistent with previous reconciliation filings, the 2008 filings include a combination of actual and forecasted data for 2008 that NSTAR Electric will update during 2009 with year-end data to allow a final investigation and reconciliation.  There are several case years that remain outstanding at the DPU.  These cases are pending decisions at the DPU and NSTAR cannot predict the timing or the ultimate outcome of these filings.  3.  Yankee Companies Spent Fuel Litigation  In October 2006, the U.S. Court of Federal Claims issued a judgment in a spent nuclear fuel litigation, in the amounts of $34.2 million, $32.9 million and $75.8 million for Connecticut Yankee Atomic Power Company (CY), Yankee Atomic Electric Company (YA) and Maine Yankee Atomic Power Company (MY), respectively.  This judgment in favor of these Yankee Companies relates to the alleged failure of the Department of Energy (DOE) to provide for a permanent facility to store spent nuclear fuel for years prior to 2001 for CY and YA, and prior to 2002 for MY (DOE Phase I Damages).  NSTAR Electrics portion of the Phase I judgments amounts to $4.8 million, $4.6 million and $3 million, respectively.  On July 1, 2009, the Yankee Companies filed for additional damages related to the alleged failure of the DOE to provide for a permanent facility to store spent nuclear fuel for the years from January 2002 through December 2008 for CY and YA, and from January 2003 through December 2008 for MY (DOE Phase II Damages).  This phase of the spent nuclear fuel litigation specifies damages in the amounts of $135.4 million, $86.1 million and $43 million for CY, YA and MY, respectively.  Claim amounts applicable to NSTAR Electric are $19 million, $12 million and $1.7 million, respectively.  NSTAR cannot predict the ultimate outcome of these pending decisions for trial, appeal or the potential subsequent complaints.  However, should NSTAR Electric ultimately prevail, proceeds received would be refunded to customers.  4.  Legal Matters  In the normal course of its business, NSTAR and its subsidiaries are involved in certain legal matters, including civil litigation.  Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs ("legal liabilities") that would be in excess of amounts accrued and amounts covered by insurance.  Based on the information currently available, NSTAR does not believe that it is probable that any such legal liabilities will have a material impact on its consolidated financial position.  However, it is reasonably possible that additional legal liabilities that may result from changes in circumstances could have a material impact on its results of operations, financial condition, and cash flows.   21    Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)  The accompanying MD&A focuses on factors that had a material effect on the financial condition, results of operations, and cash flows of NSTAR during the periods presented and should be read in conjunction with the accompanying consolidated financial statements and related notes and with the MD&A in NSTAR's 2008 Annual Report on Form 10-K.  Business Overview  NSTAR (the Company) is a holding company engaged through its subsidiaries in the energy delivery business serving approximately 1.4 million customers in Massachusetts, including approximately 1.1 million electric distribution customers in 81 communities and approximately 300,000 natural gas distribution customers in 51 communities.  NSTAR's core business is a traditional "pipes and wires" company with a continuing focus on shareholder value and a continued commitment for safe and reliable energy delivery to customers. NSTAR also focuses on providing accurate information and other helpful assistance to its customers, thereby providing a superior customer experience.  NSTAR's strategy is to invest in transmission and distribution assets that will align with its core competencies.  Electric utility operations.For the six months ended June 30, 2009, NSTAR derived 77% of its operating revenues from the transmission and distribution of electric energy through NSTAR Electric.  Gas operations.For the six months ended June 30, 2009, NSTAR derived 19% of its operating revenues from the distribution of natural gas through NSTAR Gas.  Unregulated operations.For the six months ended June 30, 2009, NSTAR derived 4% of its operating revenues from non-utility, unregulated operating subsidiaries involved in telecommunications and district energy operations.  Earnings.NSTAR's earnings are impacted by its customers' requirements for energy in the form of unit sales of electricity and natural gas, which directly determine the levels of electric retail distribution and transmission revenues and natural gas firm and transportation revenues recognized.  In accordance with the regulatory rate structures in which NSTAR operates, its recovery of energy and energy-related costs are fully reconciled with the level of energy revenues currently recorded and, therefore, do not have an impact on earnings.  Net income attributable to common shareholders for the three and six-month periods ended June 30, 2009 was $56.9 million and $118 million, or $0.53 and $1.10 diluted earnings per share, respectively, as compared to $50.4 million and $109.6 million, or $0.47 and $1.02 diluted earnings per share for the same periods in 2008, as further explained in this discussion.  Critical Accounting Policies and Estimates  For a complete discussion of critical accounting policies, refer to "Critical Accounting Policies and Estimates" in Item 7 of NSTAR's 2008 Form 10-K.  There have been no substantive changes to those policies and estimates.   Rate Structure  a.  Rate Settlement Agreement  The DPU approved a seven-year Rate Settlement Agreement ("Rate Settlement Agreement") between NSTAR, the AG, and several other interveners.  Beginning January 1, 2007 and continuing through 2012, the Rate Settlement Agreement establishes for NSTAR Electric, among other things, annual inflation-adjusted distribution rate adjustments that are generally offset by an equal and corresponding reduction in  22    transition rates.  Uncollected transition charges as a result of the reductions in transition rates are deferred and collected through future rates with a carrying charge.  b.  Electric Rates  Retail electric delivery rates are established by the DPU and are comprised of:  ·a distribution charge, which includes a fixed customer charge and a demand and/or energy charge (to collect the costs of building and expanding the infrastructure to deliver power to its destination, as well as ongoing operating costs), a Pension and PBOP Rate Adjustment Mechanism (PAM) related costs adjustment and a reconciling rate adjustment mechanism for recovery of certain DPU-approved safety and reliability program costs,·a basic service chargerepresents the collection of energy costs, including costs related to charge-offs of uncollected energy costs, through DPU-approved rate mechanisms.  Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers through Basic Service for those who choose not to buy energy from a competitive energy supplier.  Basic Service rates are reset every six months (every three months for large commercial and industrial customers).  The price of Basic Service is intended to reflect the average competitive market price for electric power,·a transition charge represents the collection of costs primarily from previously held investments in generating plants and costs related to existing above-market power contracts, and contract costs related to long-term power contracts buy-outs,·a transmission charge represents the collection of costs of moving the electricity over high voltage lines from generating plants to substations located within NSTARs service area including costs allocated to NSTAR Electric by ISO-NE to maintain the wholesale electric market,·an energy conservation chargerepresents a legislatively-mandated charge to collect costs for demand-side management programs and energy efficiency programs, and·a renewable energy charge represents a legislatively-mandated charge to collect the costs to support the development and promotion of renewable energy projects.  c.  Gas Rates  NSTAR Gas generates revenues primarily through the sale and/or transportation of natural gas.  Gas sales and transportation services are divided into two categories: firm, whereby NSTAR Gas must supply gas and/or transportation services to customers on demand; and interruptible, whereby NSTAR Gas may, generally during colder months, temporarily discontinue service to high volume commercial and industrial customers.  Sales and transportation of gas to interruptible customers have no impact on NSTAR Gas operating income because substantially the entire margin for such service is returned to its firm customers as rate reductions.  Retail gas delivery and supply rates are established by the DPU and are comprised of:  ·a distribution charge consists of a fixed customer charge and a demand and/or energy charge that collects the costs of building and expanding the gas infrastructure to deliver gas supply to its customers destination.  This also includes collection of ongoing operating costs,·a seasonal cost of gas adjustment clause (CGAC)represents the collection of gas supply costs, pipeline and storage capacity, costs related to charge-offs of uncollected energy costs and working capital related costs.  The CGAC is reset every six months.  In addition, NSTAR Gas is required to file interim changes to its CGAC factor when the actual costs of gas supply vary from projections by more than 5%,  23     ·a local distribution adjustment clause (LDAC) primarily represents the collection of demand-side management costs, environmental costs, PAM related costs, and costs associated with the residential assistance adjustment clause.  The LDAC is reset annually and provides for the recovery of certain costs applicable to both sales and transportation customers.  NSTAR Gas purchases financial contracts based on NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase price for approximately one-third of its natural gas purchases.  This practice attempts to minimize the impact of fluctuations in prices to NSTARs firm gas customers.  These financial contracts do not procure gas supply.  All costs incurred or benefits realized when these contracts are settled are included in the CGAC of NSTAR Gas.  d.  Regulatory Matters  Wholesale Power Cost Savings Initiatives  The Rate Settlement Agreement includes incentives to encourage NSTAR Electric to continue its efforts to advocate on behalf of customers at the FERC to mitigate wholesale electricity cost inefficiencies that would be borne by regional customers.  If NSTAR Electric's efforts to reduce customers costs are successful, it is allowed to retain a portion of those savings as an incentive, as well as recover related litigation costs.  Under the terms of the Rate Settlement Agreement, NSTAR Electric was to share in 25% of the savings applicable to its customers.  The recovery of NSTAR Electric's share of benefits is to be collected over three years. As a result of its role in two RMR cases, NSTAR Electric had sought to collect $9.8 million annually for three years and began collecting some of these incentive revenues from its customers effective January 1, 2007, subject to final DPU approval.  Through June 30, 2009, $15.7 million has been collected from customers for the Wholesale Power Cost Saving Initiatives.  NSTAR is unable to predict the timing or ultimate outcome of this DPU proceeding.  In the event an adverse decision is issued, it would not have a material impact on the Company's results of operations.  DPU Safety and Reliability Programs (CPSL)  As part of the Rate Settlement Agreement, NSTAR Electric is allowed to recover incremental spending for the double pole inspection, replacement/restoration and transfer program and the underground electric safety program, which includes stray-voltage remediation and manhole inspections, repairs, and upgrades. Recovery of these Capital Program Scheduling List (CPSL) costs is subject to DPU review and approval. NSTAR Electric incurred incremental costs of $11.1 million and $13.1 million in 2006 and 2007, respectively.  This includes incremental operations and maintenance and revenue requirements on capital investments.  The final reconciliation of 2006 and 2007 CPSL costs recovery is currently under review by the DPU.  The incremental costs for the year 2008 are currently under review by the Company and are estimated to be approximately $15 million.  NSTAR anticipates filing its final 2008 CPSL cost recovery reconciliation with the DPU in the third quarter of 2009.  NSTAR cannot predict the timing of a DPU order related to these pending filings.  Should an adverse decision be issued that would disallow a significant portion of CPSL cost recovery, it could have a material adverse impact to NSTARs results of operations, financial position, and cash flows.  Basic Service Bad Debt Adder  On July 1, 2005, in response to a generic DPU order that required electric utilities in Massachusetts to reflect the cost of the energy-related portion of bad debt costs in their Basic Service rates, NSTAR Electric increased its Basic Service rates and reduced its distribution rates for those bad debt costs.  In furtherance of this generic DPU order, NSTAR Electric included a bad debt cost recovery mechanism as a component of its Rate Settlement Agreement.  This recovery mechanism (bad debt adder) allows NSTAR Electric to recover its Basic Service bad debt costs on a fully reconciling basis.  These rates were implemented, effective January 1, 2006, as part of NSTAR Electrics Rate Settlement Agreement.   24    On February 7, 2007, NSTAR Electric filed its 2006 Basic Service reconciliation with the DPU proposing an adjustment related to the increase of its Basic Service bad debt charge-offs.  This proposed rate adjustment was anticipated to be implemented effective July 1, 2007.  On June 28, 2007, the DPU issued an order approving the implementation of a revised Basic Service rate.  However, the DPU instructed NSTAR Electric to reduce distribution rates by the increase in its Basic Service bad debt charge-offs.  Such action would result in a further reduction to distribution rates from the adjustment NSTAR Electric made when it implemented the Settlement Agreement and effectively eliminates the fully reconciling nature of the Basic Service bad debt adder.  NSTAR Electric has not implemented the components of the June 28, 2007 DPU order.  Implementation of this order would require NSTAR Electric to write-off a previously recorded regulatory asset related to its Basic Service bad debt costs.  NSTAR Electric believes its position is appropriate and that it is probable that it will ultimately prevail.  However, in the event the DPU does not rule in its favor, NSTAR Electric intends to pursue all legal options.  As of June 30, 2009, the potential impact to earnings of a disallowance of the bad debt adder would be approximately $18.3 million, pre-tax.  NSTAR cannot predict the timing of this proceeding.  FERC Transmission ROE  NSTAR earns an 11.14% ROE on local transmission facility investments.  The ROE on NSTARs regional transmission facilities is 11.64%.  Additional incentive adders are decided on a case-by-case basis according to FERCs national transmission incentive rules.  The FERC may grant a variety of financial incentives, including ROE basis point incentive adders for qualified investments made in new regional transmission facilities that can bring the ROE for NSTAR up to 12.64% for certain qualified regional investments.  In addition, NSTAR may qualify for other incentives on future transmission projects based upon certain conditions that could bring the ROE to 13.1%.  e. American Recovery and Reinvestment Act of 2009 (ARRA)  The American Recovery and Reinvestment Act of 2009 (ARRA) provides resources for significant increases in spending in several energy-related areas that have relevance to NSTAR, including energy efficiency, smart grid funding, renewable energy financing and transmission projects.  These initiatives are largely directed through federal and state governmental agencies and not-for-profit public agencies. NSTAR continues to evaluate the impact of this legislation on its business initiatives in these areas.  Any action will require regulatory approval.  NSTAR is currently pursuing Department of Energy (DOE) Funding Opportunities made available under the ARRA.  During August 2009, NSTAR anticipates applying for Federal grants for the Smart Grid Programs. The requested financing amounts represent 50% of the estimated total project costs.  NSTAR anticipates that most of the remaining costs not recovered through the grant process will be recovered from customers. These projects are anticipated to enhance information technology, communications and monitoring functions and improve reliability and efficiency on NSTAR Electrics distribution network.  f.Proposed Transmission Investment  On May 21, 2009, NSTAR and Northeast Utilities announced that the FERC issued a declaratory judgment that ruled favorably on the proposed structure of a transmission arrangement for a new participant-funded transmission line between New England and Quebec.   Under this arrangement, firm transmission rights would be assigned to Hydro-Quebec, and the proposed line would transmit at least 1,200 megawatts of power.  NSTAR, Northeast Utilities and Hydro-Quebec have agreed to develop this project, and are currently negotiating long-term agreements.   25    Results of Operations  The following section of MD&A compares the results of operations for each of the three and six-month periods ended June 30, 2009 and 2008 and should be read in conjunction with the accompanying Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this report.  Earnings Outlook  NSTAR reaffirms its 2009 earnings guidance and expects to report earnings for the year in the $2.33 per share to $2.43 per share earnings range, assuming more normal weather conditions for the remainder of the year. In addition, the Company now expects to reduce operations and maintenance costs by 4% compared to previous guidance of a reduction of 2%.  Common Share Dividends  NSTAR's current quarterly cash dividend rate is $0.375 per share or $1.50 per share on an annualized basis. On June 18, 2009, NSTAR's Board of Trustees declared a quarterly cash dividend of $0.375 per share for shareholders of record on July 10, 2009, payable August 1, 2009.  Three Months Ended June 30, 2009 compared to Three Months Ended June 30, 2008  Executive Summary of Quarterly Results  Earnings per common share were as follows:  Three Months Ended June 30,20092008% ChangeBasic and Diluted$0.53$0.4712.8  Net income attributable to common shareholders was $56.9 million for the quarter ended June 30, 2009 compared to $50.4 million for the same period in 2008.  Major factors (after-tax) that contributed to the $6.5 million, or 12.9%, increase in 2009 earnings include:  ·Lower operations and maintenance expense was impacted by the timing of current year maintenance costs as compared to 2008. Milder weather in 2009 led to fewer emergent restoration events and lower storm-related costs, and allowed the deployment of employees to capital-related projects rather than expense-related projects.  Also contributing were lower liability claims, lower incidence of employee medical claims, control of outside services and other administrative costs, and fluctuations in the fair value of deferred compensation liabilities ($10.2 million)·Lower net interest charges primarily due to decreases in short-term interest rates, increased interest income on income tax items, and increased interest income on regulatory deferrals resulting from higher balances ($3.9 million)  These increases in earnings factors were partially offset by:  ·Lower electric distribution revenues due to a 5.5% decrease in sales offset by the annual inflation rate adjustment ($4.8 million)·Lower transmission margin primarily due to a favorable annual cost recovery reconciliation recorded in the second quarter of 2008 offset by higher current earnings resulting from higher investment base ($1.2 million)·Higher depreciation and property tax expenses in 2009 related to higher electric and gas plant investments and higher municipal tax rates ($2.5 million)   26    Significant cash flow events during the quarter include the following:  ·Cash flows from operating activities provided approximately $126.2 million, an increase of $32.6 million as compared to the same period in 2008.  The increase primarily reflects a change in the timing of income tax payments.  During the second quarter of 2009, estimated tax payments were lower by $35.7 million as compared to the same period of 2008·NSTAR invested approximately $98.9 million in capital projects to improve system reliability and capacity·NSTAR paid approximately $40.1 million in common share dividends and retired approximately $38.1 million in long-term and securitized debt  Energy sales  The following is a summary of retail electric and firm gas energy sales for the periods indicated:  Retail Electric Sales - MWhThree Months Ended June 30,20092008% ChangeResidential1,390,4941,475,305(5.7)Commercial, Industrial and other3,443,6583,641,352(5.4)Total retail sales4,834,1525,116,657(5.5)  Firm Gas Sales and Transportation - BBtuThree Months Ended June 30,20092008% ChangeResidential2,6502,932(9.6)Commercial and Industrial3,8313,913(2.1)Municipal456479(4.8)Total firm sales6,9377,324(5.3)  NSTARs electric energy sales in the three months ended June 30, 2009 declined 5.5% compared to 2008 primarily due to unfavorable weather conditions resulting from a cooler spring during 2009 as compared to 2008.  Cooling degree-days in the Boston area in the month of June 2009 were down 83% from June 2008. Electric sales were also impacted by economic conditions.  The 5.3% decrease in firm gas and transportation sales is due to economic conditions and continued customer conservation efforts.  Weather, fluctuations in fuel costs, conservation measures, and economic conditions affect sales to NSTARs residential and small commercial customers.  Economic conditions, fluctuations in fuel costs, and conservation measures affect NSTARs large commercial and industrial customers.  In terms of customer sector characteristics, industrial sales are less sensitive to weather than residential and commercial sales, which are influenced by temperature variations.  Refer to the Electric Revenues and Gas Revenues sections below for more detailed discussions.  Weather Conditions  NSTAR forecasts its electric and natural gas sales based on normal weather conditions.  Actual results may vary from those projected due to actual weather conditions, economic conditions, energy conservation, and other factors.  Refer to the Cautionary Statement Regarding Forward-Looking Information section preceding Part 1 Financial Information of this Form 10-Q.  The demand for electricity and natural gas is affected by weather conditions.  Weather conditions impact electric sales primarily during the summer and, to a greater extent, gas sales during the winter season in NSTARs service area.  Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur (as further discussed below), particularly when weather  27    patterns experienced are consistently colder or warmer.  Also, NSTARs electric and gas businesses are sensitive to variations in daily weather, are highly influenced by New Englands seasonal weather variations, and are susceptible to severe storm-related incidents that could adversely affect the Companys ability to provide energy.  Degree-days measure changes in daily mean temperature levels.  A degree-day is a unit measuring how much the outdoor daily mean temperature falls below (in the case of heating) or rises above (in the case of cooling) a base of 65 degrees.  The comparative information below relates to heating degree-days for the three months ended June 30, 2009 and 2008 and the number of heating degree-days in a normal year using a 30-year average.  NSTAR uses the normal 30-year average degree-days data to compare current temperature readings to a baseline or normal period, that is recalculated every ten years for the preceding 30 years (currently 1971-2000), as collected at the Worcester Massachusetts airport and Bostons Logan Airport for heating degree-day data and cooling degree-day data, respectively.  Weather conditions during the three months ended June 30, 2009 measured by heating and cooling degree-days, respectively, were 7.3% higher/colder related to heating degree-days and 62.4% lower/cooler related to cooling degree-days for 2009 as compared to 2008.  Refer to the Electric Revenues and Gas Revenues sections below for more detailed discussions.  Heating Degree-DaysThree months ended June 30, 2009938Three months ended June 30, 2008874Normal 30-Year Average972Percentage that 2009 was colder than 20087.3%Percentage that 2009 was warmer than 30-year average3.5%  Cooling Degree-DaysThree months ended June 30, 200979Three months ended June 30, 2008210Normal 30-Year Average176Percentage that 2009 was cooler than 200862.4%Percentage that 2009 was cooler than 30-year average55.1%  Operating revenues  Operating revenues for the second quarter of 2009 decreased $36.2 million or 4.9% from the same period in 2008 as follows:  (in millions)Three Months Ended June 30,Increase/(Decrease)20092008AmountPercentElectric revenuesRetail distribution and transmission$245.8$231.9$13.96.0%Energy, transition and other358.5372.9(14.4)(3.9%)Total retail electric revenues604.3604.8(0.5)(0.1%)Gas revenuesFirm and transportation24.524.7(0.2)(0.8%)Energy supply and other50.478.6(28.2)(35.9%)Total gas revenues74.9103.3(28.4)(27.5%)Unregulated operations revenues28.335.6(7.3)(20.5%)Total operating revenues$707.5$743.7$(36.2)(4.9%)   28    Electric revenues  NSTAR's largest earnings sources are the revenues derived from distribution and transmission rates approved by the DPU and the FERC.  Electric retail distribution revenues primarily represent charges to customers for recovery of the Company's capital investment, including a return component, and operation and maintenance costs related to its electric distribution infrastructure.  The transmission revenue component represents charges to customers for the recovery of similar costs to move the electricity over high voltage lines from the generator to the Company's substations.  The increase of $13.9 million, or 6.0%, in retail distribution and transmission revenues primarily reflects:  ·Increase in transmission revenues is primarily due to the recovery of a higher transmission investment base and recovery of higher regional network service costs ($21.8 million)  These increases were partially offset by:  ·Decreased energy sales of 5.5% due to the impact of weather conditions, economic conditions and customer conservation measures, offset by increased electric revenues resulting from the annual inflation rate adjustment ($7.9 million)  Energy, transition, and other revenues primarily represent charges to customers for the recovery of costs incurred by the Company in order to acquire the energy supply on behalf of its customers and a transition charge for recovery of the Company's prior investments in generating plants and the costs related to long-term power contracts.  The energy revenues relate to customers being provided energy supply under Basic Service.  These revenues are fully reconciled to the costs incurred and have no impact on NSTAR's consolidated net income.  Energy, transition, and other revenues also reflect revenues related to the Company's ability to effectively reduce stranded costs (incentive entitlements), rental revenue from electric property, and annual cost reconciliation true-up adjustments.  The $14.4 million decrease in energy, transition, and other revenues is primarily attributable to lower demand and lower energy costs.  Uncollected transition costs as a result of the reductions in transition rates are deferred and collected through future rates with a carrying charge.  Gas Revenues  Firm and transportation gas revenues primarily represent charges to customers for the Companys recovery of costs of its capital investment in gas infrastructure, including a return component, and for the recovery of costs for the ongoing operation and maintenance of that infrastructure.  The transportation revenue component represents charges to customers for the recovery of costs to move the natural gas over pipelines from gas suppliers to take stations located within the Company's service area.  Firm and transportation revenues decreased $0.2 million primarily attributable to the 5.3% decrease in BBtu sales.  Energy supply and other gas revenues primarily represent charges to customers for the recovery of costs to the Company in order to acquire the natural gas in the marketplace and a charge for recovery of the Company's gas supplier service costs.  The energy supply and other revenues decrease of $28.2 million primarily reflects a decrease in the cost of gas supply.  These revenues are fully reconciled with the costs currently recognized by the Company and, as a result, do not have an effect on NSTARs consolidated net income.  Unregulated Operations Revenues  Unregulated operating revenues are derived from NSTAR's district energy and telecommunications operations.  Unregulated revenues were $28.3 million for the quarter ended June 30, 2009 compared to $35.6 million in 2008, a decrease of $7.3 million, or 20.5%.  The decrease in unregulated revenues is primarily the result of lower energy sales prices and decreased sales for steam and electric services.  29     Operating expenses  Purchased power and transmission expense was $309.9 million in the second quarter of 2009 compared to $308 million in the same period of 2008, an increase of $1.9 million, or 0.6%.  Despite lower energy sales of 5.5%, the increase in expense reflects higher transmission costs of $26 million due to an increase in regional network support costs.  This increase is partially offset by lower basic service and other energy supply costs for both NSTARs regulated and unregulated companies of $20.3 million. NSTAR Electric adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis. Due to this rate adjustment mechanism, changes in the amount of energy supply expense have no impact on consolidated net income.  Cost of gas sold, representing NSTAR Gas' supply expense, was $43 million in the second quarter of 2009 compared to $69.8 million in 2008, a decrease of $26.8 million, or 38.4%.  The decrease in expense primarily reflects a decrease in natural gas supply costs.  NSTAR Gas maintains a flexible resource portfolio consisting of an all-requirements gas supply contract, transportation contracts on interstate pipelines, market area storage, and peaking services.  NSTAR Gas adjusts its rates to collect costs related to gas supply from customers on a fully reconciling basis and therefore changes in the amount of energy supply expense have no impact on consolidated net income.  Operations and maintenance expense was $98.1 million in the second quarter of 2009 compared to $113.9 million in the same period of 2008, a decrease of $15.8 million, or 13.9%.  Lower operations and maintenance expense was impacted by the timing of current year maintenance costs as compared to 2008 ($3.4 million).  Milder weather in 2009 led to lower storm-related costs ($3.1 million).  Also contributing were lower liability claims ($1.2 million), lower incidence of employee medical claims ($2.5 million), control of outside services and other administrative costs ($2.4 million), and fluctuations in the fair value of deferred compensation liabilities ($1.6 million).  Depreciation and amortization expense was $93.4 million in the second quarter of 2009 compared to $93.2 million in the same period of 2008, an increase of $0.2 million or 0.2%.  The increase primarily reflects higher depreciable distribution and transmission plant in service.  DSM and renewable energy programs expense was $19.2 million in the second quarter of 2009 compared to $16.7 million in the same period of 2008, an increase of $2.5 million, or 15%.  The increase reflects higher spending levels during 2009 and is consistent with the collection of conservation and renewable energy revenues.  These costs are in accordance with program guidelines established by the DPU and are collected from customers on a fully reconciling basis plus an incentive return.  NSTAR anticipates a further increase in DSM spending during 2009 driven by requirements of the Massachusetts Green Communities Act (GCA).  Those spending increases are expected to be funded partially through proceeds from the Regional Greenhouse Gas Initiative and through NSTARs participation in the Forward Capacity Market.  Property and other taxes expense was $25.4 million in the second quarter of 2009 compared to $23.1 million in the same period of 2008, an increase of $2.3 million, or 10%, reflecting higher overall property investments and higher tax rates.  Income tax expenseattributable to operations was $33.5 million in the second quarter of 2009 compared to $30.9 million in the same period of 2008, an increase of $2.6 million, or 8.4%, reflecting higher pre-tax operating income in 2009.   30    Other income, net  Total other income, net was approximately $1.6 million in the second quarter of 2009 compared to $0.9 million in the same period of 2008, an increase of $0.7 million, or 78%.  The increase relates to increases to the cash surrender value of executive life insurance policies in 2009.  Interest charges (income)  Long-term debt and transition property securitization certificates interest charges were $39.5 million in the second quarter of 2009 compared to $40.5 million in the same period of 2008, a decrease of $1.0 million, or 2.5%.  This decrease in interest charges reflects:  ·Lower interest costs of $2.2 million on transition property securitization debt attributable to scheduled principal pay downs  This decrease was partially offset by:  ·Higher interest costs of $1.3 million associated with NSTAR Electrics February 2009 $100 million issuance of 5.625% debentures  Short-term debt and other interest charges (income), net were $10.2 million of net interest income in the second quarter of 2009 compared to $1.7 million of net interest income in the same period of 2008, a change of $8.5 million.  The change in short-term and other net interest charges (income) reflects:  ·Lower short-term borrowing costs of $2 million resulting from a 195 basis point decrease in the weighted average short-term borrowing rates from second quarter 2008 (2.30%) to second quarter 2009 (0.35%). Partially offsetting the lower rates was an increase in the average level of borrowed funds as compared to the same period in 2008·Increased interest income of $7 million related to the timing of collections from customers of certain regulatory assets and interest income on tax related items  Six Months Ended June 30, 2009 compared to Six Months Ended June 30, 2008  Executive Summary of Year to Date Results  Earnings per common share were as follows:  Six Months Ended June 30,20092008% ChangeBasic$1.10$1.036.8Diluted$1.10$1.027.8  Net income attributable to common shareholders was $118 million for the six-month period ended June 30, 2009 compared to $109.6 million for the same period in 2008.  Major factors (after-tax) that contributed to the $8.4 million, or 7.7%, increase in 2009 earnings include:  ·Lower operations and maintenance expense was impacted by the timing of current year maintenance costs as compared to 2008.  Milder weather in 2009 led to fewer emergent restoration events and lower storm-related costs, and allowed the deployment of employees to capital-related projects rather than expense-related projects.  Also contributing were lower liability claims, lower incidence of employee medical claims, control of outside services and other administrative costs, and fluctuations in the fair value of deferred compensation liabilities ($12.6 million)  31     ·Lower net interest charges primarily due to decreases in short-term interest rates, increased interest income on income tax items and increased interest income on regulatory deferrals ($5.6 million)·Higher firm gas revenues due to higher sales of 0.8% ($1.0 million)·Higher transmission revenues as a result of increased transmission investment base ($2.2 million)  These increases in earnings factors were partially offset by:  ·Lower electric distribution revenues due to a 3.8% decrease in sales offset by the annual inflation rate adjustment ($4.1 million)·Higher depreciation and property tax expenses in 2009 related to higher electric and gas plant investment and higher municipal tax rates ($5.3 million)·The absence of income from an environmental settlement that occurred during the first half of 2008 ($2.9 million)·The absence of a cumulative impact in 2008 of implementing the March 29, 2008 FERC ROE order ($2.4 million)  Significant cash flow events during the first half of 2009 include the following:  ·Cash flows from operating activities provided approximately $368.9 million, an increase of $73.5 million, as compared to the same period in 2008.  The increase primarily reflects a change in the timing of income tax payments and the timing of the recovery of energy supply costs when compared to the same period in 2008.  Estimated tax payments were lower by $35.4 million during the period as compared to payments made in 2008.  These positive sources of cash were partially offset by the timing of payables and energy supply payments·NSTAR invested approximately $207 million in capital projects to improve system reliability and capacity·NSTAR paid approximately $80.1 million in common share dividends and retired approximately $75.7 million in long-term and securitized debt  Energy sales  The following is a summary of retail electric and firm gas energy sales for the periods indicated:  Retail Electric Sales - MWhSix Months Ended June 30,20092008% ChangeResidential3,116,5883,173,798(1.8)Commercial, Industrial and other7,023,4717,367,598(4.7)Total retail sales10,140,05910,541,396(3.8)  Firm Gas Sales and Transportation - BBtuSix Months Ended June 30,20092008% ChangeResidential12,98412,6412.7Commercial and Industrial12,67512,847(1.3)Municipal1,8961,8582.0Total firm sales27,55527,3460.8  NSTARs electric energy sales in the six months ended June 30, 2009 declined 3.8% compared to 2008. Electric sales have been impacted by cooler weather in the second quarter of 2009 and by economic conditions.   32    Weather conditions positively impacted gas sales.  The 0.8% increase in firm gas and transportation sales is due to the colder winter weather that directly impacts residential sales.  Each of the gas customer segments experienced unfavorable offsetting impacts from economic conditions and continued customer conservation efforts.  Weather, fluctuations in fuel costs, conservation measures, and economic conditions affect sales to NSTARs residential and small commercial customers.  Economic conditions, fluctuations in fuel costs, and conservation measures affect NSTARs large commercial and industrial customers.  In terms of customer sector characteristics, industrial sales are less sensitive to weather than residential and commercial sales, which are influenced by temperature variations.  Refer to the Electric Revenues and Gas Revenues sections below for more detailed discussions.  Weather Conditions  Refer to and consider for this six-month period ended June 30, 2009 discussion, NSTARs disclosure on factors that affect its energy sales, including the effect of variable weather conditions, and a description and use of energy degree-days, as found in the Three Months Ended June 30, 2009 compared to the Three Months Ended June 30, 2008  Weather Conditions section of this MD&A.  The following comparative information relates to heating and cooling degree-days for the six months ended June 30, 2009 and 2008 and the number of heating and cooling degree-days in a normal year using a 30-year average.  Weather conditions during the six months ended June 30, 2009 measured by heating and cooling degree-days, respectively, were 5.7% higher/colder related to heating degree-days and 62.4% lower/cooler related to cooling degree-days for 2009 as compared to 2008.  Refer to the Electric Revenues and Gas Revenues sections below for more detailed discussions.  Heating Degree-DaysSix months ended June 30, 20094,290Six months ended June 30, 20084,060Normal 30-Year Average4,276Percentage that 2009 was colder than 20085.7%Percentage that 2009 was colder than 30-year average0.3%  Cooling Degree-DaysSix months ended June 30, 200979Six months ended June 30, 2008210Normal 30-Year Average176Percentage that 2009 was cooler than 200862.4%Percentage that 2009 was cooler than 30-year average55.1%   33    Operating revenues  Operating revenues for the first half of 2009 increased $16 million or 1.0% from the same period in 2008 as follows:  (in millions)Six Months Ended June 30,Increase/(Decrease)20092008AmountPercentElectric revenuesRetail distribution and transmission$482.3$446.3$36.08.1%Energy, transition and other794.5777.716.82.2%Total retail electric revenues1,276.81,224.052.84.3%Gas revenuesFirm and transportation86.685.11.51.8%Energy supply and other220.4252.8(32.4)(12.8%)Total gas revenues307.0337.9(30.9)(9.1%)Unregulated operations revenues71.577.4(5.9)(7.6%)Total operating revenues$1,655.3$1,639.3$16.01.0%  Electric revenues  NSTAR's largest earnings sources are the revenues derived from distribution and transmission rates approved by the DPU and the FERC.  Electric retail distribution revenues primarily represent charges to customers for recovery of the Company's capital investment, including a return component, and operation and maintenance costs related to its electric distribution infrastructure.  The transmission revenue component represents charges to customers for the recovery of similar costs to move the electricity over high voltage lines from the generator to the Company's substations.  The increase of $36.0 million, or 8.1%, in retail distribution and transmission revenues primarily reflects:  ·Increase in transmission revenues primarily due to the recovery of a higher transmission investment base and recovery of higher regional transmission network service costs ($43.1 million)  These increases were partially offset by:  ·Decreased energy sales of 3.8% due primarily to the impacts of weather conditions, economic conditions, customer conservation measures and the additional day in February 2008 caused by the leap year that had an unfavorable 0.6% impact on sales offset by increased electric revenues resulting from the annual inflation rate adjustment ($6.7 million)  Energy, transition, and other revenues primarily represent charges to customers for the recovery of costs incurred by the Company in order to acquire the energy supply on behalf of its customers and a transition charge for recovery of the Company's prior investments in generating plants and the costs related to long-term power contracts.  The energy revenues relate to customers being provided energy supply under Basic Service.  These revenues are fully reconciled to the costs incurred and have no impact on NSTAR's consolidated net income.  Energy, transition, and other revenues also reflect revenues related to the Company's ability to effectively reduce stranded costs (incentive entitlements), rental revenue from electric property, and annual cost reconciliation true-up adjustments.  The $16.8 million increase in energy, transition, and other revenues is primarily attributable to the increased recovery of energy supply costs. Uncollected transition costs as a result of the reductions in transition rates are deferred and collected through future rates with a carrying charge.   34    Gas Revenues  Firm and transportation gas revenues primarily represent charges to customers for the Companys recovery of costs of its capital investment in gas infrastructure, including a return component, and for the recovery of costs for the ongoing operation and maintenance of that infrastructure.  The transportation revenue component represents charges to customers for the recovery of costs to move the natural gas over pipelines from gas suppliers to take stations located within the Companys service area.  The $1.5 million increase in firm and transportation revenues is primarily attributable to colder weather conditions in the first quarter partially offset by customers converting to alternate fuel sources from natural gas as a result of higher energy price concerns.  These factors resulted in the increase in sales volumes of 0.8%.  Energy supply and other gas revenues primarily represent charges to customers for the recovery of costs to the Company in order to acquire the natural gas in the marketplace and a charge for recovery of the Company's gas supplier service costs.  The energy supply and other revenues decrease of $32.4 million primarily reflects a decrease in the cost of gas supply.  These revenues are fully reconciled with the cost currently recognized by the Company and, as a result, do not have an effect on NSTARs consolidated net income.  Unregulated Operations Revenues  Unregulated operating revenues are derived from NSTAR's district energy and telecommunications operations.  Unregulated revenues were $71.5 million through June 30, 2009 compared to $77.4 million in 2008, a decrease of $5.9 million, or 7.6%.  The decrease in unregulated revenues is primarily the result of decreases in energy sales due to weather conditions and customer conservation measures, lower energy sales prices and lower ISO-NE forward reserve revenues during 2009.  Operating expenses  Purchased power and transmission expense was $707.8 million in the first half of 2009 compared to $654.9 million in the same period of 2008, an increase of $52.9 million, or 8.1%.  Despite lower energy sales of 3.8%, the increase in expense reflects higher transmission costs of $55 million primarily due to an increase in regional network support costs.  NSTAR Electric adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis.  Due to this rate adjustment mechanism, changes in the amount of energy supply expense have no impact on consolidated net income.  Cost of gas sold, representing NSTAR Gas' supply expense, was $200.1 million in the first half of 2009 compared to $232.3 million in 2008, a decrease of $32.2 million, or 13.9%.  Despite slightly higher firm gas sales of 0.8%, the decrease in cost primarily reflects the lower costs of gas supply per therm. NSTAR Gas adjusts its rates to collect costs related to gas supply from customers on a fully reconciling basis and therefore changes in the amount of energy supply expense have no impact on consolidated net income.  Operations and maintenance expense was $208.1 million in the first half of 2009 compared to $226.3 million in the same period of 2008, a decrease of $18.2 million, or 8%.  Lower operations and maintenance expense was impacted by the timing of current year maintenance costs as compared to 2008 ($3.1 million). Milder weather in 2009 led to lower storm-related costs ($4.8 million).  Also contributing were lower liability claims ($1.8 million), lower incidence of employee medical claims ($0.7 million), control of outside services and other administrative costs ($4.1 million), higher PAM amortization ($3.4 million), and fluctuations in the fair value of deferred compensation liabilities ($1.3 million).  Depreciation and amortization expense was $194.7 million in the first half of 2009 compared to $192.5 million in the same period of 2008, an increase of $2.2 million or 1.1%.  The increase primarily reflects higher depreciable distribution and transmission plant in service.  DSM and renewable energy programs expense was $38.4 million in the first half of 2009 compared to $35.0 million in the same period of 2008, an increase of $3.4 million, or 9.7%.  The increase reflects  35    higher spending levels during 2009 and is consistent with the collection of conservation and renewable energy revenues.  These costs are in accordance with program guidelines established by the DPU and are collected from customers on a fully reconciling basis plus an incentive return.  NSTAR anticipates a further increase in DSM spending during 2009 driven by requirements of the GCA.  These spending increases are expected to be funded partially through proceeds from the Regional Greenhouse Gas Initiative and through NSTARs participation in the Forward Capacity Market.  Property and other taxes expense was $55.3 million in the first half of 2009 compared to $50.1 million in the same period of 2008, an increase of $5.2 million, or 10.4%, reflecting higher overall property investments and higher tax rates.  Income tax expenseattributable to operations was $69.4 million in the first half of 2009 compared to $64.7 million in the same period of 2008, an increase of $4.7 million, or 7.3%, reflecting higher pre-tax operating income in 2009.  Other income, net  Total other income, net was approximately $2.2 million in the first half of 2009 compared to $4.7 million in the same period of 2008, a decrease of $2.5 million, or 53%.  The decrease relates primarily to the absence of income related to an environmental settlement in the first quarter of 2008 ($2.9 million), partially offset by the receipt of proceeds in 2009 from executive life insurance proceeds ($0.8 million).  Interest charges (income)  Long-term debt and transition property securitization certificates interest charges were $79.3 million in the first half of 2009 compared to $81.8 million in the same period of 2008, a decrease of $2.5 million, or 3%.  This decrease in interest charges reflects:  ·Lower interest costs of $4.3 million on transition property securitization debt attributable to scheduled principal pay downs  This decrease was partially offset by:  ·Higher interest costs of $2 million associated with NSTAR Electrics February 2009 $100 million issuance of 5.625% debentures  Short-term debt and other interest charges (income), net were $14.2 million of net interest income in the first half of 2009 compared to $3.2 million of net interest income in the same period of 2008, a change of $11 million.  The change in short-term and other net interest charges (income) reflects:  ·Lower borrowing costs of $4.6 million resulting from a 241 basis point decrease in the  weighted average short-term borrowing rates from the first half of 2008 (2.90%) to the first half of 2009 (0.49%).  Partially offsetting the lower rates was an increase in the average level of borrowed funds as compared to the same period in 2008·Increased interest income of $7.2 million related to the timing of collections from customers of certain regulatory assets and interest income on federal income tax items  AFUDC decreased $0.8 million in the first half of 2009 due to lower short-term borrowing rates.   36    Liquidity and Capital Resources  Financial Market Impact  Ongoing volatility and uncertainty in the financial markets may adversely impact the availability of credit and the cost of credit to NSTAR and its subsidiary companies.  NSTAR and its subsidiaries utilize the commercial paper market to meet their short-term cash requirements.  NSTAR and NSTAR Electric currently have Revolving Credit Agreements in place through December 2012.  These Credit Agreements serve as a liquidity backup to the commercial paper program.  Short-term commercial paper debt obligations are commonly refinanced to long-term obligations with fixed-rate bonds or notes as needed and when interest rates are considered favorable.  Refer to Item 1A, Risk Factors,in NSTARs Annual Report on Form 10-K for the year ended December 31, 2008, for a further discussion.  As a result of declines in the financial markets and their impact on NSTARs Pension and PBOP Plan investments, NSTAR continues to evaluate the extent to which it may make additional cash contributions. Should NSTAR elect to increase its level of funding to these plans, NSTAR believes it has adequate access to capital resources to support its contributions.  Working Capital  NSTAR anticipates refinancing its current maturities of long-term debt obligations.  NSTAR (parent company) has a $500 million facility due in February 2010.  NSTAR Electric has a $125 million facility due in May 2010.  Refinancing may take the form of a public debt offering or may take place through bank facilities, depending upon credit market conditions and financing terms.  Current Cash Flow Activity  Operating Activities  The net cash provided by operating activities was $369 million in the first half of 2009, as compared to $295.4 million in the same period in 2008, an increase of approximately $74 million primarily due to lower income tax payments related to higher bonus depreciation partially offset by higher contributions to the pension and postretirement plans.  Also contributing are higher collections of energy supply costs. Partially offsetting these factors are higher payments of accounts payable.  NSTAR anticipates making an additional $14 million of contributions to the Pension Plan and an additional $16 million to the PBOP Plan during the second half of 2009.  Investing Activities  The net cash used in investing activities in the first half of 2009 was $206.5 million, compared to $206.0 million during the same period in 2008.  The majority of these expenditures were for system reliability improvements and capacity improvements in the NSTAR service territory.  Financing Activities  Net cash used in financing activities in the first half of 2009 was $156 million compared to $99 million in the first half of 2008.  Uses of cash primarily reflect long-term and securitized debt redemptions of $76 million in 2009 compared to $79 million in 2008, dividend payments of $81 million in 2009 compared to $76 million in 2008.  In addition, NSTAR's short-term debt decreased by $89 million to $493.5 million at June 30, 2009 compared to $582.9 million at December 31, 2008.  Sources of cash during the first half of 2009 included proceeds from NSTAR Electric's issuance, at a premium of $4.6 million, of $100 million in ten-year fixed-rate (5.625%) Debentures that were used to pay down short-term debt.  The banking arrangements in place require NSTAR and its subsidiaries to make daily cash transfers to fund vendor checks that are presented for payment. These banking arrangements do not permit the right of offset among the Companys subsidiaries cash accounts.  In the event of a credit book balance in any  37    one of the Companys cash accounts resulting from uncleared checks, the Company will adjust its disbursement cash account accordingly. Changes in the balances of the disbursement cash accounts are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows.  Income Tax Payments  During the first half of 2009 and 2008, NSTAR made income tax payments of $50.4 million and $85.8 million, respectively.  Refundable Income Tax  The refundable income tax of $129.1 million related to the SSCM will be fully refunded to NSTAR including interest.  Subject to timely completion of IRS appeals discussions, approximately $100 million is expected by December 31, 2009 and the remainder is expected by March 31, 2010.  Sources of Additional Capital and Financial Covenant Requirements  With the exception of bond indemnity agreements and gas hedging agreements, NSTAR has no financial guarantees, commitments, debt or lease agreements that would require a change in terms and conditions, such as acceleration of payment obligations, as a result of a change in its credit rating. However, in addition to the bond indemnity and gas hedging agreements, NSTAR's subsidiaries could be required to provide additional security for energy supply contract performance obligations, such as a letter of credit for their pro-rata share of the remaining value of such contracts.  NSTAR and NSTAR Electric have no financial covenant requirements under their respective long-term debt arrangements.  Pursuant to a revolving credit agreement, NSTAR Electric must maintain a total debt to capitalization ratio no greater than 65% at all times, excluding Transition Property Securitization Certificates and excluding accumulated other comprehensive income (loss) from common equity. NSTAR Gas was in compliance with its financial covenant requirements including a minimum equity requirement, under its long-term debt arrangements at June 30, 2009 and December 31, 2008.  Under the minimum equity requirement, the outstanding long-term debt of NSTAR Gas must not exceed equity.  NSTAR's long-term debt other than its secured debt, issued by NSTAR Gas and MATEP, is unsecured.  NSTAR (Holding Company) currently has a $175 million revolving credit agreement that expires December 31, 2012.  At June 30, 2009 and December 31, 2008, there were no amounts outstanding under the revolving credit agreement.  This credit facility serves as a backup to NSTAR's $175 million commercial paper program that, at June 30, 2009 and December 31, 2008, had $163 million and $175 million outstanding, respectively.  Under the terms of the credit agreement, NSTAR is required to maintain a maximum total consolidated debt to total capitalization ratio of not greater than 65% at all times, excluding Transition Property Securitization Certificates, and excluding accumulated other comprehensive income (loss) from common equity.  Commitment fees must be paid on the total agreement amount.  At June 30, 2009 and December 31, 2008, NSTAR was in full compliance with the aforementioned covenant as the ratios were 59.6% and 60.2%, respectively.  On April 6, 2009, the DPU approved NSTAR Electrics new two-year financing plan to issue an additional $500 million in long-term debt securities.  NSTAR Electric has approval from the FERC to issue short-term debt securities from time to time on or before October 22, 2010, with maturity dates no later than October 21, 2011, in amounts such that the aggregate principal does not exceed $655 million at any one time.  NSTAR Electric has a five-year, $450 million revolving credit agreement that expires December 31, 2012.  However, unless NSTAR Electric receives necessary approvals from the DPU, the credit agreement will expire 364 days from the date of the first draw under the agreement.  At June 30, 2009 and December 31, 2008, there were no amounts outstanding under the revolving credit agreement.  This credit facility serves as backup to NSTAR Electric's $450 million commercial paper program that had $330.5 million and $354.6 million outstanding balances at June 30, 2009 and December 31, 2008, respectively.  Under the terms of the revolving credit  38    agreement, NSTAR Electric is required to maintain a consolidated maximum total debt to capitalization ratio of not greater than 65% at all times, excluding Transition Property Securitization Certificates, and excluding accumulated other comprehensive income (loss) from common equity.  At June 30, 2009 and December 31, 2008, NSTAR Electric was in full compliance with its covenants in connection with its short-term credit facilities, as the ratios were 48.3% and 47.6%, respectively.  NSTAR Gas has a $100 million line of credit.  This line of credit is due to expire on December 11, 2009. NSTAR Gas anticipates that this line of credit will be renewed.  As of June 30, 2009 and December 31, 2008, NSTAR Gas had zero and $53.3 million outstanding, respectively.  On July 24, 2009, NSTAR Gas filed an application with the DPU to seek approval to issue up to $125 million of long-term debt.  Historically, NSTAR and its subsidiaries have had a variety of external sources of financing available, as previously indicated, at favorable rates and terms to finance its external cash requirements.  However, the availability of such financing at favorable rates and terms depends heavily upon prevailing market conditions and NSTAR's or its subsidiaries' financial condition and credit ratings.  NSTAR's goal is to maintain a capital structure that preserves an appropriate balance between debt and equity.  As of June 30, 2009, NSTARs subsidiaries could declare and pay dividends of up to approximately $1.2 billion of their total common equity (approximately $2.4 billion) to NSTAR and remain in compliance with debt covenants.  Based on NSTAR's key cash resources available as previously discussed, management believes its liquidity and capital resources are sufficient to meet its current and projected cash requirements.  Commitments and Contingencies  NSTAR is exposed to certain matters as discussed in this section under the caption "Critical Accounting Policies and Estimates."  Item 3.  Quantitative and Qualitative Disclosure About Market Risk  Risk Management  NSTARs Energy Procurement Policy governs all energy-related procurement transactions of NSTAR Electric and NSTAR Gas. This Policy is reviewed annually and is administered by NSTARs Risk Committee. The Committee is chaired by NSTARs chief executive officer and includes other senior officers.  Items covered by this Policy and approved by the Committee are all new energy supply transactions, authorization limits, energy related derivative and hedging transactions, and counter-party credit profiles.  Commodity and Credit Risk  Although NSTAR has material energy commodity purchase contracts, any potential market risk, including counter-party credit risk, should not have an adverse impact on NSTARs results of operations, cash flows, or financial position.  NSTAR Electric and NSTAR Gas have rate-making mechanisms that allow for the recovery of energy supply costs from those customers who make commodity purchases from NSTARs electric and gas subsidiaries rather than from the competitive market supplier.  All energy supply costs incurred by NSTAR Electric and NSTAR Gas in providing energy to their retail customers are recovered on a fully reconciling basis.  In addition, NSTAR has minimal cash flow risk due to the short-term nature of these contracts and the rate-making mechanics that permit recovery of these costs in a timely manner.  The majority of NSTARs electric and gas commodity purchase contracts range in term from three to twelve months.  NSTAR Electric has the ability to seek cost recovery and adjust its rates as frequently as every three months for its large commercial and industrial customers and every six months for its residential customers.  NSTAR Gas  39    has the ability to seek cost recovery as required if costs exceed 5% of the current projected cost recovery level.  Both NSTAR Electric and NSTAR Gas earn a carrying charge on under-collected commodity balances that would mitigate any incremental short-term borrowings costs.  NSTAR believes it is unlikely that it would be exposed to a liquidity risk resulting from significant market price increases based on the recovery mechanisms currently in place.  To mitigate the cash flow and cost variability related to the commodity price risk on approximately one-third of its natural gas purchases, NSTAR Gas purchases financial futures contracts on behalf of its customers.  NSTAR Gas has a rate-making mechanism that provides for recovery of the actual settlement value of these contracts on a fully reconciling basis.  Refer to the accompanying Notes to Consolidated Financial Statements, Note C. Derivative Instruments, Gas Hedging Agreements for a further discussion.  Certain renewable energy requirements of the GCA may require NSTAR to enter into renewable energy supply contracts extending longer than twelve months, in order to satisfy renewable supply requirements.  Interest Rate Risk  NSTAR believes its interest risk primarily relates to short-term debt obligations and anticipated future long-term debt financing requirements to fund its capital programs.  These short-term debt obligations are typically refinanced with fixed-rate long-term notes as needed and when market interest rates are favorable. The Company is exposed to changes in interest rates primarily based on levels of short-term commercial paper outstanding.  The weighted average interest rates, including fees for short-term indebtedness, were 0.35% and 2.30% for the three months ended June 30, 2009 and 2008, respectively, and 0.49% and 2.90% for the six months ended June 30, 2009 and 2008, respectively.  On a long-term basis, NSTAR mitigates its interest rate risk through the issuance of mostly fixed rate debt of various maturities.  Item 4.  Controls and Procedures  NSTAR's disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  As of the end of the period covered by this Quarterly Report on Form 10-Q, NSTAR carried out an evaluation, under the supervision and with the participation of NSTAR's management, including NSTAR's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of NSTAR's disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that NSTAR's disclosure controls and procedures were effective (1) to timely alert them to material information relating to NSTAR's information required to be disclosed by NSTAR in the reports that it files or submits under the Securities Exchange Act of 1934 and (2) to ensure that appropriate information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.  There have been no changes in NSTAR's internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934) during NSTAR's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, NSTAR's internal control over financial reporting.   40    Part II.  Other Information   Item 1.  Legal Proceedings  In the normal course of its business, NSTAR and its subsidiaries are involved in certain legal matters, including civil litigation.  Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs ("legal liabilities") that would be in excess of amounts accrued and amounts covered by insurance.  Based on the information currently available, NSTAR does not believe that it is probable that any such legal liability will have a material impact on its consolidated financial position.  However, it is reasonably possible that additional legal liabilities that may result from changes in estimates could have a material impact on its results of operations, financial condition, or cash flows.  Item 1A.  Risk Factors  Shareholders or prospective investors should carefully consider the risk factors that were previously disclosed in NSTAR's Annual Report on Form 10-K for the year ended December 31, 2008.  Item 2(c).  Unregistered Sales of Equity Securities and Use of Proceeds  Common shares of NSTAR issued under the NSTAR Dividend Reinvestment and Direct Common Shares Purchase Plan, the NSTAR Long Term Incentive Plan and the NSTAR Savings Plan may consist of newly issued shares from the Company or shares purchased in the open market by the Company or an independent agent.  During the three-month period ended June 30, 2009, all shares listed below were acquired in the open market.  Total Number of Common Shares
PurchasedAverage Price
Paid Per ShareApril266,712$30.99May198,616$30.94June36,067$30.66Total second quarter501,395$30.94   41     Item 4.  Submission of Matters to a Vote of Security Holders  NSTARs Annual Meeting of Shareholders was held on April 30, 2009.  Proxies representing 90,862,993 shares, or 85%, of the 106,808,376 outstanding shares entitled to vote were present at the Annual Meeting, constituting a quorum.  The shareholder voting results of the election of three Class I trustees, the ratification of the appointment of NSTARs independent registered public accounting firm, and shareholder approval of an amendment to NSTARs Declaration of Trust are presented as follows:  Proposal 1.  The following three Class I trustees were elected to serve until the 2012 Annual Meeting and until the election and qualification of their respective successors:  NomineesForWithheldThomas G. Dignan, Jr.89,157,1461,705,847Matina S. Horner89,198,0461,664,947Gerald L. Wilson89,354,3251,508,668  Proposal 2.  Shareholders ratified the appointment of PricewaterhouseCoopers LLP as NSTARs independent registered public accounting firm for the 2009 fiscal year (which required the approval of a majority of the votes cast), as follows:  ForAgainstAbstain89,354,57198.3%984,9751.1%523,4470.6%  Proposal 3.  Shareholders approved an amendment to NSTARs Declaration of Trust (which required the approval of a majority of the outstanding shares), to require a majority vote standard for the election of trustees in uncontested elections, as follows:  ForAgainstAbstainUnvoted87,634,44882.0%2,338,0082.2%890,5370.8%15,945,38315.0%   42    Item 6.  Exhibits  Exhibit4-Instruments Defining the Rights of Security Holders, Including Indentures-Management agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any agreement or instrument of NSTAR and its subsidiaries defining the rights of holders of any non-registered debt whose authorization does not exceed 10% of total assets.Exhibits filed herewith:Exhibit15-Letter Re Unaudited Interim Financial Information15.1PricewaterhouseCoopers LLP Awareness LetterExhibit31-Rule 13a - 14(a)/15d-14(a) Certifications31.1Certification Statement of Chief Executive Officer of NSTAR pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2Certification Statement of Chief Financial Officer of NSTAR pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit32-Section 1350 Certifications32.1Certification Statement of Chief Executive Officer of NSTAR pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2Certification Statement of Chief Financial Officer of NSTAR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit99-Additional Exhibits99.1Report of Independent Registered Public Accounting Firm**Rule 436(c) of the 1933 Act provides that a report on unaudited interim financial information shall not be considered part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Section 7 or 11 of the 1933 Act.  Therefore, the accountant is not subject to the liability provisions of Section 11 of the 1933 Act.  43      SIGNATURE  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.     NSTAR(Registrant)Date:   July 31, 2009By: /s/ R.  J.  WEAFER, JR.Robert J.  Weafer, Jr.
Vice President, Controller and
Chief Accounting Officer
      44