2000 Annual Report

                       North Atlantic Energy Corporation

                                     Index


Contents                                                               Page
--------                                                               ----

Management's Discussion and Analysis of Financial
  Condition and Results of Operations.............................       1

Report of Independent Public Accountants..........................       8

Statements of Income..............................................       9

Balance Sheets....................................................     10-11

Statements of Common Stockholder's Equity.........................       12

Statements of Cash Flows..........................................       13

Notes to Financial Statements.....................................     14-26

Selected Financial Data...........................................       27

Quarterly Financial Data (Unaudited)..............................       27

Statistics (Unaudited)............................................       27

Preferred Stockholder and Bondholder Information..................   Back Cover


                       North Atlantic Energy Corporation

-------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------------------------------------

Financial Condition
-------------------

Overview
North Atlantic Energy Corporation, (NAEC or the company), is a wholly owned
operating subsidiary of Northeast Utilities (NU) and is part of the Northeast
Utilities system (NU system). Public Service Company of New Hampshire (PSNH),
is another wholly owned subsidiary of NU.  PSNH is obligated to purchase the
capacity and output from NAEC's 35.98 percent joint ownership interest in the
Seabrook Station nuclear unit (Seabrook) under the terms of two life-of-unit,
full cost recovery contracts (Seabrook Power Contracts).

The company's only assets are Seabrook and other Seabrook-related assets and
its only source of revenues are the Seabrook Power Contracts.  PSNH's
obligations under the Seabrook Power Contracts are solely its own and have
not been guaranteed by NU.  The Seabrook Power Contracts contain no provisions
entitling PSNH to terminate its obligations.  If, however, PSNH were to fail
to perform its obligations under the Seabrook Power Contracts, the company
would be required to find other purchasers for Seabrook's power.

With the implementation of the "Agreement to Settle PSNH Restructuring"
(Settlement Agreement), PSNH and NAEC will restructure the power contracts
to provide for the buydown of the value of the Seabrook asset to $100 million.
NAEC will use a portion of these cash proceeds to retire its existing long-term
debt obligation.  NAEC will also return to NU parent another portion of these
cash proceeds in the form of a dividend.  The Settlement Agreement also
requires NAEC to sell via public auction its share of Seabrook, with the
sale to occur no later than December 31, 2003. Upon a successful sale of
NAEC's share of Seabrook, the existing Seabrook Power Contracts between PSNH
and NAEC will be terminated.  However, PSNH will continue to be responsible
for funding NAEC's ownership share of Seabrook's decommissioning liability.

In 2000, NAEC's revenues decreased to $274.3 million, down 4.5 percent from
revenues of $287.4 million in 1999. Revenues were $276.7 million in 1998.
In 2000, NAEC had net income of $32.5 million, compared to $29.6 million in
1999 and $29.5 million in 1998.

Consolidated Edison, Inc. Merger
--------------------------------

In 2000, NU and Consolidated Edison, Inc. (Con Edison) received most of the
approvals needed to complete the merger announced in October 1999.
Shareholders from both companies approved the merger in April 2000, and all
state regulatory approvals were granted by the end of the year.  Additionally,
the Federal Energy Regulatory Commission (FERC) approved the merger in May
2000, the Nuclear Regulatory Commission approved the transaction in August
2000, and the United States Department of Justice approved the merger in
February 2001.  Necessary approval from the Securities and Exchange Commission
(SEC) was expected to be received in mid-March 2001.

On February 28, 2001, NU's Board of Trustees requested that Con Edison provide
reasonable assurance, in writing, that it intended to comply with the terms of
the definitive merger agreement between the two companies.  This included
assurances that Con Edison would consummate the pending merger at the price set
forth in the agreement promptly following the receipt of SEC approval.  The
original request for assurance was to be received by March 2, 2001, however
that date was later extended to March 5, 2001.  On March 5, 2001, Con Edison
advised NU that it was not willing to close the merger on the agreed terms.
NU notified Con Edison that it was treating its refusal to proceed on the terms
set forth in the merger agreement as a repudiation and breach of the merger
agreement, and that NU would file suit to obtain the benefits of the
transaction as negotiated for NU shareholders.  On March 6, 2001, Con Edison
filed suit in the U.S. District Court for the Southern District of New York
(Southern District), seeking a declaratory judgment that NU failed to satisfy
conditions precedent under the merger agreement. On March 12, 2001, NU filed
suit against Con Edison in the Southern District seeking damages in excess of
$1 billion arising from Con Edison's breach of the merger agreement.
NU cannot predict the outcome of this matter nor its effect on NU.

Liquidity
---------

During 2000, net cash flows provided by operations were $117.6 million,
compared to $181.4 million in 1999 and $128.7 million in 1998.  The decrease
in 2000 was primarily due to an increase in receivables and an increase in
deferred income tax benefit due to lower tax depreciation.

Net cash flows used in financing activities were $112 million in 2000, compared
to $130 million in 1999 and $75 million in 1998.  This included $270 million to
retire long-term debt, compared to $70 million and $20 million in 1999 and
1998, respectively.  Cash dividends on common shares paid in 2000 were $42
million, compared to $60 million in 1999 and $45 million in 1998.

Including investments made in the NU System Money Pool, construction
expenditures and investments in nuclear decommissioning trusts, net cash flows
used in investing activities were $5.5 million in 2000, compared to $51.5
million in 1999 and $53.7 million in 1998.  NAEC currently forecasts
construction expenditures of $6.6 million for the year 2001.

In 2000, NAEC renewed its $200 million term credit agreement for 364 days.
In April 2000, Moody's Investors Service (Moody's) upgraded its credit ratings
for NAEC, and in October 2000, Fitch IBCA (Fitch) upgraded its credit ratings
for NAEC.  In January 2001, Moody's and Standard and Poor's upgraded their
credit ratings for NAEC, primarily as a result of the New Hampshire Supreme
Court's decision to uphold that state's restructuring plan and NU's general
financial recovery.

By the end of 2002, PSNH expects to complete the auction of approximately
1,200 MW of fossil and hydroelectric generation assets, as well NAEC's
share of Seabrook.  PSNH's restructuring settlement was predicated upon
receiving approximately $400 million of net proceeds from those sales.
Cash proceeds will be used to retire debt and to return equity capital to
the parent company.

In September 2000, the New Hampshire Public Utilities Commission (NHPUC)
approved a comprehensive restructuring settlement that allows PSNH to
securitize up to $670 million of stranded costs.  In January 2001, the New
Hampshire Supreme Court upheld this restructuring order on appeal.  However,
one of the appellants indicated publicly it would request a review of the
New Hampshire Supreme Court decision by the United States Supreme Court.
Such a request must be filed by May 1, 2001.  Management believes that such
an appeal would have a low probability of success, but cannot determine what
effect it might have on the timing of the issuance of securitization bonds and
the implementation of customer choice in New Hampshire.  PSNH currently
expects to work with the State of New Hampshire to issue securitization bonds
early in the second quarter of 2001.  Cash proceeds would be combined with
cash on hand and used primarily to buydown the power contract between PSNH
and NAEC, retire debt at the two companies of approximately $300 million and
return equity capital to the parent company from PSNH and NAEC of another
$375 million.

Restructuring
-------------

On September 8, 2000, the NHPUC issued two orders.  The first order approved
an Amended Settlement Agreement.  The Amended Settlement Agreement, as approved
by the NHPUC, will resolve 11 NHPUC dockets and PSNH's federal lawsuit which
had enjoined the state of New Hampshire from implementing its restructuring
legislation, will require PSNH to write off in excess of $200 million after-tax
of its stranded costs and allow for the recovery of the remaining amount.

The second order issued by the NHPUC was an order addressing financing issues,
primarily securitization. The order, among other things, authorizes PSNH to
issue up to $670 million of rate reduction bonds (RRB), permits PSNH to
establish a RRB charge, and establishes the terms of the RRB charge, including
the requirement that it be non-bypassable.  The New Hampshire legislature had
previously passed legislation, that permitted PSNH to issue up to $670 million
in RRBs to securitize certain regulatory assets.

The Settlement Agreement also requires NAEC to sell its share of the Seabrook
power plant, including Seabrook 2.  NAEC will use the proceeds of such a sale
to pay off any outstanding obligations.  Net proceeds in excess of book value
will be transferred to PSNH and applied against PSNH's stranded costs.  The
sales would be accomplished through an auction process subject to NHPUC
administration.

Nuclear Plant Performance and Divestiture
-----------------------------------------

Seabrook
Seabrook operated at a capacity factor of 78 percent in 2000.  The unit began
a scheduled refueling outage on October 21, 2000.  The outage was extended by
approximately two months as a result of the need to repair extensive problems
with a back-up diesel generator.  Seabrook returned to service on January 29,
2001.

On December 15, 2000, NU filed its divestiture plan for Seabrook with the
NHPUC and the Connecticut Department of Public Utility Control.  NU hopes
to complete the sale in 2002.

Nuclear Decommissioning
For further information regarding nuclear decommissioning, see Note 2, "Nuclear
Decommissioning and Plant Closure Costs," to the financial statements.

Spent Nuclear Fuel Disposal Costs
The United States Department of Energy (DOE) originally was scheduled to begin
accepting delivery of spent nuclear fuel in 1998.  However, delays in
confirming the suitability of a permanent storage site continually have
postponed plans for the DOE's long-term storage and disposal site.  Extended
delays or a default by the DOE could lead to consideration of costly
alternatives.  NU has the primary responsibility for the interim storage of
its spent nuclear fuel prior to divestiture of its nuclear units.

For further information regarding spent nuclear fuel disposal costs, see
Note 7C, "Commitments and Contingencies - Spent Nuclear Fuel Disposal Costs,"
to the financial statements.

Other Matters
-------------

Environmental Matters
NAEC is subject to environmental laws and regulations structured to mitigate or
remove the effect of past operations and to improve or maintain the quality of
the environment.  For further information regarding environmental matters, see
Note 7B, "Commitments and Contingencies - Environmental Matters," to the
financial statements.

Other Commitments and Contingencies
For further information regarding these other commitments and contingencies,
see Note 7, "Commitments and Contingencies," to the financial statements.

Forward Looking Statements
This discussion and analysis includes forward looking statements, which are
statements of future expectations and not facts including, but not limited to,
statements regarding future earnings, refinancing, the use of proceeds from
restructuring, and the recovery of operating costs.  Words such as estimates,
expects, anticipates, intends, plans, and similar expressions identify forward
looking statements.  Actual results or outcomes could differ materially as a
result of further actions by state and federal regulatory bodies, competition
and industry restructuring, changes in economic conditions, changes in
historical weather patterns, changes in laws, developments in legal or public
policy doctrines, technological developments, and other presently unknown or
unforeseen factors.

RESULTS OF OPERATIONS

The components of significant income statement variances for the past two years
are provided in the table below.

                                          Income Statement Variances
                                             (Millions of Dollars)

                               2000 over/(under) 1999   1999 over/(under) 1998
                               -----------------------------------------------
                                  Amount    Percent        Amount    Percent
                                  ------    -------        ------    -------

Operating Revenues                $(13)       (5)%          $ 11        4%

Operating Expenses:
Fuel, purchased and
  interchange power, net            (3)      (17)              2       17
Other operation and
  maintenance expense                -         -              10       19
Depreciation                         -         -               2        9
Amortization of
  regulatory assets                  -         -               -        -
Federal and state
  income taxes                       1         2              (1)      (4)
Taxes other than
  income taxes                      (6)      (42)              2       17
                                  ----       ---            ----      ---
Total operating expenses            (7)       (3)             15        7
                                  ----       ---            ----      ---
Operating Income                    (6)      (11)             (4)      (8)
                                  ----       ---            ----      ---
Other Income:
Deferred Seabrook return
  - other funds                     (2)      (52)             (2)     (34)
Other, net                           1        12               1       12
Other income tax                     4        19               5       33
                                  ----       ---            ----      ---
Net other income                     2        14               3       27
Interest charges                    (6)      (17)             (1)      (3)
                                  ----       ---            ----      ---
Net Income/(Loss)                 $  3        10            $ -         -
                                  ====       ===            ====      ===

Operating Revenues
Total operating revenues decreased by $13 million or 5 percent for 2000, as
compared to 1999, primarily due to lower operating costs billed to PSNH through
the Seabrook Power Contracts.

Operating revenues increased in 1999, primarily due to the higher operating
expenses related to the Seabrook refueling and maintenance outage in 1999.

Fuel, Purchased and Interchange Power, Net
Fuel expense decreased in 2000, as compared to 1999, primarily due to the
extended nuclear refueling outage in 2000.

Fuel expense increased in 1999, primarily due to a higher fuel amortization
rate since the Seabrook refueling outage.

Other Operation and Maintenance Expense
Other operation and maintenance (O&M) expenses were relatively unchanged in
2000, as compared to 1999.

Other O&M expenses increased in 1999, primarily due to higher costs relating
to the Seabrook refueling outage.

Depreciation
Depreciation expense was unchanged in 2000.

Depreciation increased in 1999 due to shorter useful lives for 1999 plant
asset additions.

Federal and State Income Taxes
Federal and state income taxes decreased during 2000, due to lower book
taxable income.

Federal and state income taxes decreased during 1999, due to lower book
taxable income.

Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2000, primarily due to the tax
true-up in the third quarter of 1999 as a result of a change to the statewide
utility property tax.

Taxes other than income taxes increased in 1999, as the result of the New
Hampshire change to a statewide utility property tax in place of the nuclear
station tax.

Deferred Seabrook Return - Other Funds
The deferred Seabrook return income decreased in 2000, as compared to 1999, as
NAEC continues to recover the Seabrook deferred return, reducing the
outstanding balance.

The deferred Seabrook return income decreased in 1999, as compared to 1998,
as NAEC continues to recover the Seabrook deferred return, reducing the
outstanding balance.

Other, Net
Other income, net increased in 2000, primarily due to higher interest income on
investments in the NU System Money Pool.

Other income, net increased in 1999, primarily due to higher interest income on
investments in the NU System Money Pool.

Interest Charges
Interest charges decreased in 2000, primarily due to lower long-term debt
outstanding.

Interest charges decreased in 1999, primarily due to lower long-term debt
outstanding.



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors
  of North Atlantic Energy Corporation:

We have audited the accompanying balance sheets of North Atlantic Energy
Corporation (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 2000 and 1999, and the related
statements of income, common stockholder's equity and cash flows for each
of the three years in the period ended December  31, 2000.  These financial
statements are the responsibility of the company's management.  Our
responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North Atlantic Energy
Corporation as of December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the
United States.




                                  /s/ ARTHUR ANDERSEN LLP
                                      ARTHUR ANDERSEN LLP


Hartford, Connecticut
January 23, 2001 (except with
respect to the matter discussed
in Note 11, as to which the
date is March 13, 2001)



NORTH ATLANTIC ENERGY CORPORATION

STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                        2000       1999       1998
-------------------------------------------------------------------------------------
                                                          (Thousands of Dollars)

<S>                                                  <C>       <C>        <C>
Operating Revenues................................. $ 274,319  $ 287,369  $ 276,685
                                                    ---------- ---------- ----------
Operating Expenses:
  Operation -
     Fuel..........................................    12,923     15,596     13,305
     Other.........................................    40,650     41,727     36,763
  Maintenance......................................    20,268     19,030     14,120
  Depreciation.....................................    27,823     27,576     25,381
  Amortization of regulatory assets, net...........    85,176     85,488     85,464
  Federal and state income taxes...................    35,675     34,854     36,194
  Taxes other than income taxes....................     7,727     13,370     11,401
                                                    ---------- ---------- ----------
        Total operating expenses...................   230,242    237,641    222,628
                                                    ---------- ---------- ----------
Operating Income...................................    44,077     49,728     54,057
                                                    ---------- ---------- ----------
Other Income/(Loss):
  Deferred Seabrook return - other funds...........     2,112      4,417      6,731
  Other, net.......................................    (6,544)    (7,432)    (8,435)
  Income taxes.....................................    22,792     19,131     14,378
                                                    ---------- ---------- ----------
        Other income, net..........................    18,360     16,116     12,674
                                                    ---------- ---------- ----------
        Income before interest charges.............    62,437     65,844     66,731
                                                    ---------- ---------- ----------
Interest Charges:
  Interest on long-term debt.......................    32,247     45,297     50,082
  Other interest...................................     1,423       (542)      (676)
  Deferred Seabrook return - borrowed funds........    (3,726)    (8,467)   (12,169)
                                                    ---------- ---------- ----------
        Interest charges, net......................    29,944     36,288     37,237
                                                    ---------- ---------- ----------

Net Income......................................... $  32,493  $  29,556  $  29,494
                                                    ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.



NORTH ATLANTIC ENERGY CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
AT DECEMBER 31,                                                   2000           1999
-----------------------------------------------------------------------------------------
                                                                 (Thousands of Dollars)
<S>                                                           <C>           <C>
ASSETS
------

Utility Plant, at original cost:
  Electric................................................   $    719,353   $    736,472

     Less: Accumulated provision for depreciation.........        223,465        196,694
                                                             -------------  -------------
                                                                  495,888        539,778
  Construction work in progress...........................          8,710         10,274
  Nuclear fuel, net.......................................         28,369         21,149
                                                             -------------  -------------
     Total net utility plant..............................        532,967        571,201
                                                             -------------  -------------

Other Property and Investments:
  Nuclear decommissioning trusts, at market...............         50,863         43,667
                                                             -------------  -------------
                                                                   50,863         43,667
                                                             -------------  -------------
Current Assets:
  Cash....................................................            118           -
  Notes receivable from affiliated companies..............         27,800         56,400
  Accounts receivable from affiliated companies...........         50,796         22,840
  Taxes receivable........................................            722         11,717
  Materials and supplies, at average cost.................         14,003         13,088
  Prepayments and other...................................          2,000          1,773
                                                             -------------  -------------
                                                                   95,439        105,818
                                                             -------------  -------------
Deferred Charges:
  Regulatory assets.......................................         48,068        129,641
  Unamortized debt expense................................            847          1,780
  Prepaid property tax....................................            630           -
  Other...................................................            150           -
                                                             -------------  -------------
                                                                   49,695        131,421
                                                             -------------  -------------

Total Assets..............................................   $    728,964   $    852,107
                                                             =============  =============
</TABLE>
The accompanying notes are an integral part of these financial statements.



NORTH ATLANTIC ENERGY CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
AT DECEMBER 31,                                                   2000           1999
-----------------------------------------------------------------------------------------
                                                                 (Thousands of Dollars)
<S>                                                          <C>            <C>
CAPITALIZATION AND LIABILITIES
------------------------------

Capitalization:
  Common stock, $1 par value - authorized 1,000 shares;
   1,000 shares outstanding in 2000 and 1999..............   $          1   $          1
  Capital surplus, paid in................................        160,999        160,999
  Retained earnings.......................................            (41)        12,752
                                                             -------------  -------------
           Total common stockholder's equity..............        160,959        173,752
  Long-term debt..........................................         65,000        135,000
                                                             -------------  -------------
           Total capitalization...........................        225,959        308,752
                                                             -------------  -------------

Current Liabilities:
  Notes payable to banks..................................        200,000           -
  Long-term debt - current portion........................         70,000        270,000
  Accounts payable........................................         16,543         11,694
  Accounts payable to affiliated companies................          1,389            806
  Accrued interest........................................          2,716          2,340
  Other...................................................            276            272
                                                             -------------  -------------
                                                                  290,924        285,112
                                                             -------------  -------------

Deferred Credits and Other Long-term Liabilities:
  Accumulated deferred income taxes.......................        184,763        222,601
  Deferred obligation to affiliated company...............          3,240         12,984
  Other...................................................         24,078         22,658
                                                             -------------  -------------
                                                                  212,081        258,243
                                                             -------------  -------------

Commitments and Contingencies (Note 7)

Total Capitalization and Liabilities......................   $    728,964   $    852,107
                                                             =============  =============
</TABLE>
The accompanying notes are an integral part of these financial statements.



NORTH ATLANTIC ENERGY CORPORATION

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                                     Capital    Retained
                                           Common    Surplus,   Earnings
                                           Stock     Paid In      (a)      Total
-----------------------------------------------------------------------------------
                                                   (Thousands of Dollars)

<S>                                             <C>   <C>        <C>       <C>
Balance at January 1, 1998.............. $       1  $ 160,999  $ 58,702  $ 219,702

    Net income for 1998.................                         29,494     29,494
    Cash dividends on common stock......                        (45,000)   (45,000)
                                         ---------- ---------- --------- ----------
Balance at December 31, 1998............         1    160,999    43,196    204,196

    Net income for 1999.................                         29,556     29,556
    Cash dividends on common stock......                        (60,000)   (60,000)
                                         ---------- ---------- --------- ----------
Balance at December 31, 1999............         1    160,999    12,752    173,752

    Net income for 2000.................                         32,493     32,493
    Cash dividends on common stock......                        (42,000)   (42,000)
    Tax expense for 1993-1999 from
     reduction on NU parent company
     losses (b).........................                         (3,286)    (3,286)
                                         ---------- ---------- --------- ----------
Balance at December 31, 2000............ $       1  $ 160,999  $    (41) $ 160,959
                                         ========== ========== ========= ==========

</TABLE>
(a) The dividend restriction allows all the retained earnings plus an allowance
    of $10,000,000 to be available.  However the company has a 25% common
    equity ratio test to meet.  Since the company's retained earnings are
    negative, only $9,959,000 of the allowance can be paid.

(b) The amount in 2000 represents the tax expense related to the previously
    unallocated 1993 through 1999 NU parent losses.

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



NORTH ATLANTIC ENERGY CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                For the Years Ended December 31,
--------------------------------------------------------------------------------------------------
(Thousands of Dollars)                                             2000        1999        1998
--------------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>         <C>
Operating Activities:
  Net income.................................................. $   32,493  $   29,556  $   29,494
  Adjustments to reconcile to net cash
   provided by operating activities:
    Depreciation..............................................     27,823      27,576      25,381
    Amortization of nuclear fuel..............................     10,221      12,642      10,453
    Deferred income taxes and investment tax credits, net.....    (25,579)        452       6,010
    Deferred return - Seabrook................................     (5,838)    (12,884)    (18,900)
    Amortization of regulatory assets, net....................     85,176      85,488      85,464
    Tax expense for 1993-1999 from
       reduction of NU parent losses..........................     (3,286)       -           -
    Deferred obligation to affiliated company.................     (9,744)     (9,744)     (9,744)
    Net other sources of cash.................................     18,645      35,486      18,214
  Changes in working capital:
    Receivables...............................................    (27,956)        964       1,891
    Materials and supplies....................................       (915)       (276)        191
    Accounts payable..........................................      5,432       5,709      (7,161)
    Accrued taxes.............................................       -           (710)        710
    Other working capital (excludes cash).....................     11,148       7,133     (13,258)
                                                               ----------- ----------- -----------
Net cash flows provided by operating activities...............    117,620     181,392     128,745
                                                               ----------- ----------- -----------
Investing Activities:
  Investments in plant:
    Electric utility plant....................................     (6,586)     (7,895)     (9,028)
    Nuclear fuel..............................................    (17,222)     (9,934)     (6,474)
                                                               ----------- ----------- -----------
    Net cash flows used for investments in plant..............    (23,808)    (17,829)    (15,502)

  Investment in NU system Money Pool..........................     28,600     (26,050)    (30,350)
  Investments in nuclear decommissioning trusts...............    (10,294)     (7,584)     (7,885)
                                                               ----------- ----------- -----------
Net cash flows used in investing activities...................     (5,502)    (51,463)    (53,737)
                                                               ----------- ----------- -----------

Financing Activities:
  Net increase/(decrease) in short-term debt..................    200,000        -         (9,950)
  Reacquisitions and retirements of long-term debt............   (270,000)    (70,000)    (20,000)
  Cash dividends on common stock..............................    (42,000)    (60,000)    (45,000)
                                                               ----------- ----------- -----------
Net cash flows used in financing activities...................   (112,000)   (130,000)    (74,950)
                                                               ----------- ----------- -----------

Net increase/(decrease) in cash for the period................        118         (71)         58
Cash - beginning of period....................................       -             71          13
                                                               ----------- ----------- -----------
Cash - end of period.......................................... $      118  $     -     $       71
                                                               =========== =========== ===========

Supplemental Cash Flow Information:
Cash paid during the year for:
  Interest, net of amounts capitalized........................ $   28,349  $   38,042  $   42,498
                                                               =========== =========== ===========
  Income taxes................................................ $   28,053  $    3,000  $   22,136
                                                               =========== =========== ===========

</TABLE>
The accompanying notes are an integral part of these financial statements.



NOTES TO THE FINANCIAL STATEMENTS
---------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.  About North Atlantic Energy Corporation
         North Atlantic Energy Corporation (NAEC or the company) along with The
         Connecticut Light and Power Company (CL&P), Public Service Company of
         New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO),
         and Holyoke Water Power Company (HWP) are the operating companies
         comprising the Northeast Utilities system (NU system) and are wholly
         owned by Northeast Utilities (NU).  The NU system serves in excess of
         30 percent of New England's electric needs and is one of the 25
         largest electric utility systems in the country as measured by
         revenues.  The NU system furnishes franchised retail electric service
         in New Hampshire, Connecticut and western Massachusetts through PSNH,
         CL&P and WMECO.  NAEC owns 35.98 percent of the Seabrook Station
         nuclear unit (Seabrook) and sells all of its entitlement to the
         capacity and output of Seabrook to PSNH under the terms of two life-
         of-unit, full cost recovery contracts (Seabrook Power Contracts).
         HWP, also is engaged in the production and distribution of electric
         power.

         NU is registered with the Securities and Exchange Commission (SEC)
         as a holding company under the Public Utility Holding Company Act
         of 1935 (1935 Act) and the NU system, including NAEC, is subject to
         provisions of the 1935 Act.  Arrangements among the NU system
         companies, outside agencies and other utilities covering
         interconnections, interchange of electric power and sales of utility
         property are subject to regulation by the Federal Energy Regulatory
         Commission (FERC) and/or the SEC.  NAEC is subject to further
         regulation for rates, accounting and other matters by the FERC and/or
         the New Hampshire Public Utilities Commission (NHPUC).

         Several wholly owned subsidiaries of NU provide support services for
         the NU system companies and, in some cases, for other New England
         utilities.  Northeast Utilities Service Company (NUSCO) provides
         centralized accounting, administrative, information resources,
         engineering, financial, legal, operational, planning, purchasing, and
         other services to the NU system companies.  Northeast Nuclear Energy
         Company acts as agent for the NU system companies and other New
         England utilities in operating the Millstone nuclear units.  North
         Atlantic Energy Service Corporation (NAESCO) has operational
         responsibility for Seabrook.

     B.  Presentation
         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect the reported amounts of
         assets and liabilities and disclosure of contingent 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 those estimates.

         Certain reclassifications of prior years' data have been made to
         conform with the current year's presentation.

         All transactions among affiliated companies are on a recovery of cost
         basis which may include amounts representing a return on equity and
         are subject to approval by various federal and state regulatory
         agencies.

     C.  New Accounting Standards
         Derivative Instruments:  Effective January 1, 2001, NAEC adopted
         Statement of Financial Accounting Standards (SFAS) No. 133,
         "Accounting for Derivative Instruments and Hedging Activities," as
         amended.  SFAS No. 133 requires that derivative instruments be
         recorded as an asset or liability measured at its fair value and that
         changes in the fair value of derivative instruments be recognized
         currently in earnings unless specific hedge accounting criteria
         are met.

         In order to implement SFAS No. 133 by January 1, 2001, NU established
         a cross-functional project team to identify all derivative
         instruments, measure the fair value of those derivative instruments,
         designate and document various hedge relationships, and evaluate the
         effectiveness of those hedge relationships.  NU has completed the
         process of identifying all derivative instruments and has established
         appropriate fair value measurements of those derivative instruments in
         place at January 1, 2001.  In addition, for those derivative
         instruments which are hedging an identified risk, NU has designated
         and documented all hedging relationships anew.

         Management believes the adoption of this new standard will not have a
         material impact on NAEC's financial position or results of operations.

     D.  Jointly Owned Electric Utility Plant
         Seabrook:  NAEC has a 35.98 percent ownership interest in Seabrook,
         a 1,148 megawatt nuclear generating unit.  NAEC sells all of its share
         of the power generated by Seabrook to PSNH under the Seabrook Power
         Contracts.  NAEC expects to auction its investment in Seabrook in 2001
         with a closing on the sale expected in 2002.

         NAEC's share of Seabrook's plant-in-service as of December 31, 2000
         and 1999, was $734.6 million and $728 million, respectively, and the
         accumulated provision for depreciation was $172.6 million and $153
         million, respectively.

     E.  Depreciation
         The provision for depreciation is calculated using the straight-line
         method based on estimated remaining useful lives of depreciable
         utility plant-in-service, adjusted for salvage value and removal
         costs, as approved by the appropriate regulatory agency, where
         applicable.  Except for major facilities, depreciation rates are
         applied to the average plant-in-service during the period.  Major
         facilities are depreciated from the time they are placed in service.
         When plant is retired from service, the original cost of the plant,
         including costs of removal less salvage, is charged to the accumulated
         provision for depreciation.  The costs of closure and removal of
         nonnuclear facilities are accrued over the life of the plant as a
         component of depreciation.  The depreciation rates for the several
         classes of electric plant-in-service are equivalent to a composite
         rate of 2.9 percent in 2000, 3.8 percent in 1999 and 3.5 percent
         in 1998.

     F.  Seabrook Power Contracts
         NAEC and PSNH have entered into two power contracts that obligate
         PSNH to purchase NAEC's 35.98 percent ownership of the capacity and
         output of Seabrook for the term of Seabrook's operating license.
         Under these power contracts, PSNH is obligated to pay NAEC's cost
         of service during this period, regardless of whether Seabrook is
         operating.  NAEC's cost of service includes all of its Seabrook-
         related costs, including operation and maintenance (O&M) expenses,
         fuel expense, income and property tax expense, depreciation expense,
         certain overhead and other costs, and a return on its allowed
         investment.

         The Seabrook Power Contracts established the value of the initial
         investment in Seabrook at $700 million.  As prescribed by the 1989
         rate agreement between NU, PSNH, and the state of New Hampshire
         (Rate Agreement), as of May 1, 1996, NAEC phased into rates 100
         percent of the recoverable portion of its investment in Seabrook.
         From June 5, 1992 (the date NU acquired PSNH and NAEC acquired
         Seabrook from PSNH - the Acquisition Date) through November 1997,
         NAEC recorded a $203.9 million deferred return on its investment
         in Seabrook.  At November 30, 1997, NAEC's utility plant included
         $84.1 million of the deferred return that was transferred as part
         of the Seabrook plant assets to NAEC on the Acquisition Date.

         With the implementation of the "Agreement to Settle PSNH
         Restructuring" (Settlement Agreement), NAEC and PSNH will restructure
         the power contracts to provide for the buydown of the value of the
         Seabrook asset to $100 million.  The Settlement Agreement also
         requires NAEC to sell via public auction its share of Seabrook, with
         the sale to occur no later than December 31, 2003.  Upon a successful
         sale of NAEC's share of Seabrook, the existing Seabrook Power
         Contracts between NAEC and PSNH will be terminated.

         Under the current Seabrook Power Contracts, if Seabrook is shut
         down prior to the expiration of its operating license, PSNH will
         be unconditionally required to pay NAEC termination costs for 39
         years, less the period during which Seabrook has operated.  These
         termination costs will reimburse NAEC for its share of Seabrook
         shut-down and decommissioning costs, and will pay NAEC a return of
         and on any undepreciated balance of its initial investment over the
         remaining term of the power contracts, and the return of and on any
         capital additions to the plant made after the Acquisition Date over
         a period of five years after shut down (net of any tax benefits to
         NAEC attributable to the cancellation).

     G.  Regulatory Accounting and Assets
         The accounting policies of NAEC and the accompanying financial
         statements conform to accounting principles generally accepted in the
         United States applicable to rate-regulated enterprises and
         historically reflect the effects of the rate-making process in
         accordance with SFAS No. 71.  During the fourth quarter of 2000,
         the Settlement Agreement became probable of implementation, therefore,
         PSNH discontinued the application of SFAS No. 71 for the generation
         portion of its business.  In accordance with the power contracts,
         NAEC will be paid for the cost of Seabrook, therefore, PSNH's
         discontinuation of SFAS No. 71 did not impact NAEC.

         Management continues to believe it is probable that NAEC will
         recover their investments in long-lived assets, including regulatory
         assets.  In addition, all material regulatory assets are earning a
         return.  The components of NAEC's regulatory assets are as follows:

         ----------------------------------------------------------------------
         At December 31,                                 2000        1999
         ----------------------------------------------------------------------
                                                       (Millions of Dollars)

         Deferred costs - Seabrook...............       $23.2       $ 88.5
         Income taxes, net.......................        23.4         35.6
         Recoverable energy costs................         1.5          1.7
         Unamortized loss on reacquired debt.....          -           3.8
                                                        -----       ------
                                                        $48.1       $129.6
                                                        =====       ======
         ----------------------------------------------------------------------

         Upon the implementation of the Settlement Agreement, as filed, PSNH
         will make a payment to NAEC to buydown the Seabrook Power Contracts
         to $100 million.  NAEC will reduce the Seabrook assets to $100
         million.  Upon the final sale of Seabrook, the Seabrook Power Contract
         will be terminated and any difference between the net proceeds and the
         Seabrook book value at the time will be transferred to PSNH and
         applied against PSNH's stranded costs.

     H.  Income Taxes
         The tax effect of temporary differences (differences between the
         periods in which transactions affect income in the financial
         statements and the periods in which they affect the determination of
         taxable income) is accounted for in accordance with the rate-making
         treatment of the applicable regulatory commissions.

         The tax effect of temporary differences, including timing differences
         accrued under previously approved accounting standards, which give
         rise to the accumulated deferred tax obligation is as follows:

         ----------------------------------------------------------------------
         At December 31,                                 2000        1999
         ----------------------------------------------------------------------
                                                       (Millions of Dollars)

         Accelerated depreciation and
           other plant-related differences.......       $197.8      $205.1
         Regulatory assets -
           income tax gross up...................          7.6        12.2
         Other...................................        (20.6)        5.3
                                                        ------      ------
                                                        $184.8      $222.6
                                                        ======      ======
         ----------------------------------------------------------------------

     I.  Recoverable Energy Costs
         Under the Energy Policy Act of 1992 (Energy Act), NAEC is assessed for
         its proportionate shares of the costs of decontaminating and
         decommissioning uranium enrichment plants owned by the United States
         Department of Energy (DOE) (D&D Assessment).  The Energy Act requires
         that regulators treat D&D Assessments as a reasonable and necessary
         current cost of fuel, to be fully recovered in rates like any other
         fuel cost.  NAEC is currently recovering these costs through the
         Seabrook Power Contracts.  As of December 31, 2000 and 1999, NAEC's
         total D&D Assessment deferral was $1.5 million and $1.7 million,
         respectively.

2.   NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS
     Seabrook: Under the terms of the Rate Agreement, PSNH is obligated to pay
     NAEC's share of Seabrook's decommissioning costs, even if the unit is shut
     down prior to the expiration of its operating license.  Accordingly, NAEC
     bills PSNH directly for its share of the costs of decommissioning
     Seabrook.  PSNH records its Seabrook decommissioning costs as a component
     of purchased-power expense.  Under the Rate Agreement, these costs are
     recovered through base rates.  The Seabrook decommissioning costs will
     continue to be increased annually by its respective escalation rates until
     the unit is sold.

     NAEC's existing decommissioning trusts will be increased at the time of
     the plant sale, however, PSNH will continue to be responsible for funding
     NAEC's ownership share of the remainder of Seabrook's decommissioning
     liability after its share of the unit is sold.  PSNH's obligation will
     be limited to the future funding of the decommissioning cost level in
     effect at the time of sale.  The Settlement Agreement provides PSNH for
     the recovery of these costs through a stranded cost recovery charge within
     rates.

     Under New Hampshire law, Seabrook decommissioning funding requirements
     are set by the New Hampshire Nuclear Decommissioning Financing Committee
     (NDFC).  During January 2000, the NDFC issued an order that adjusted the
     decommissioning collection period and funding levels assuming that
     Seabrook's anticipated energy producing life was 25 years from the date
     it went into commercial operation.  Decommissioning collections are now
     expected to be completed by October 2015, as opposed to 2026, for the
     decommissioning collection period only.  The cost of funding
     decommissioning Seabrook is now accrued over the estimated remaining
     accelerated funding period that was ordered by the NDFC.  This is eleven
     years earlier than the service life established by Seabrook's Nuclear
     Regulatory Commission's (NRC) operating license.

     Upon retirement, Seabrook must be decommissioned.  Current decommissioning
     studies conclude that complete and immediate dismantlement as soon as
     practical after retirement continues to be the most viable and economic
     method of decommissioning a unit.  These studies are reviewed and updated
     periodically to reflect changes in decommissioning requirements, costs,
     technology, and inflation.  Changes in requirements or technology, the
     timing of funding or dismantling or adoption of a decommissioning method
     other than immediate dismantlement would change decommissioning cost
     estimates and the amounts required to be recovered.

     The estimated cost of decommissioning NAEC's share of Seabrook, in year
     end 2000 dollars is $210.8 million. Nuclear decommissioning costs are
     accrued over the expected service life of the unit and are included in
     depreciation expense.  Nuclear decommissioning expenses for the unit
     amounted to $6.9 million in 2000, $6.8 million in 1999 and $4.7 million
     in 1998.  Nuclear decommissioning, as a cost of removal, is included in
     the accumulated provision for depreciation.

     Payments for NAEC's ownership share of the cost of decommissioning
     Seabrook are paid to an independent decommissioning financing fund managed
     by the state of New Hampshire.  Funding of the estimated decommissioning
     costs assumes escalated collections and after-tax earnings on the Seabrook
     decommissioning fund of 6.5 percent.

     As of December 31, 2000 and 1999, NAEC has paid $39.6 million and $32.7
     million (including payments made prior to the Acquisition Date by PSNH),
     into Seabrook's decommissioning financing fund.  Earnings on the
     decommissioning financing fund increase the decommissioning trust balance
     and the accumulated reserve for depreciation.  Unrealized gains and losses
     associated with the decommissioning financing fund also impact the balance
     of the trust and the accumulated reserve for depreciation.  The fair
     values of the amounts in the external decommissioning trust for NAEC were
     $50.9 million and $43.7 million at December 31, 2000 and 1999,
     respectively.

3.   SHORT-TERM DEBT
     Limits:  The amount of short-term borrowings that may be incurred by NAEC
     is subject to periodic approval by either the SEC under the 1935 Act or
     by the NHPUC.  As of December 31, 2000, NAEC is authorized by the NHPUC
     and the SEC to incur short-term borrowings up to a maximum of
     $260 million.

     Credit Agreements:  On November 9, 2000, NAEC entered into an unsecured
     364-day term credit agreement for $200 million, replacing a $225 million
     term loan which was to expire on November 9, 2000.  The proceeds from the
     term credit agreement were used to repay the $200 million outstanding
     under the previous term loan.  Additionally, the interest rate swaps and
     collar related to the previous term loan expired and were not replaced.
     The term credit agreement also contains two mandatory prepayment
     provisions; the first is a 50 percent mandatory principal repayment of
     amounts outstanding to $100 million within two days of the buydown of the
     Seabrook Power Contracts and the second is 100 percent prepayment within
     two days of the sale of Seabrook.  Any amounts prepaid can not be
     reborrowed.  Unless extended, the term credit agreement will expire on
     November 8, 2001.  At December 31, 2000 and 1999, there were $200 million
     in borrowings under the credit agreement and previous term loan.

     Under the aforementioned credit agreements, the respective borrowers
     may borrow at fixed or variable rates plus an applicable margin based
     upon certain debt ratings, as rated by the lower of Standard and Poor's
     or Moody's Investors Service.  The weighted average interest rate on
     NAEC's notes payable to banks outstanding on December 31, 2000, was
     8.3 percent.  Maturities of short-term debt obligations were for periods
     of three months or less.

     These credit agreements provide that NAEC must comply with certain
     financial and nonfinancial covenants as are customarily included in
     such agreements, including, but not limited to, common equity ratios and
     interest coverage ratios.  NAEC currently is and expects to remain in
     compliance with these covenants.

     Money Pool:  Certain subsidiaries of NU, including NAEC, are members
     of the Northeast Utilities System Money Pool (Pool).  The Pool provides
     a more efficient use of the cash resources of the NU system, and reduces
     outside short-term borrowings.  NUSCO administers the Pool as agent for
     the member companies.  Short-term borrowing needs of the member companies
     are first met with available funds of other member companies, including
     funds borrowed by NU parent.  NU parent may lend to the Pool but may not
     borrow.   Funds may be withdrawn from or repaid to the Pool at any time
     without prior notice.  Investing and borrowing subsidiaries receive
     or pay interest based on the average daily federal funds rate.  Borrowings
     based on loans from NU parent, however, bear interest at NU parent's cost
     and must be repaid based upon the terms of NU parent's original borrowing.
     At December 31, 2000 and 1999, NAEC had no borrowings outstanding from
     the Pool.

4.   LONG-TERM DEBT
     Details of long-term debt outstanding are:

     --------------------------------------------------------------------------
     At December 31,                                    2000          1999
     --------------------------------------------------------------------------
                                                       (Millions of Dollars)
     First Mortgage Bonds:
       9.05% Series A, due 2002...................      $135          $205
     Notes:
       Variable - Rate Facility, due 2000.........        -            200

     Less amounts due within one year                     70           270
                                                        ----          ----
     Long-term debt, net                                $ 65          $135
                                                        ====          ====
     --------------------------------------------------------------------------

     Long-term debt maturities and cash sinking fund requirements on debt
     outstanding at December 31, 2000, for the years 2001 and 2002 are $70
     million and $65 million, respectively.

     Essentially all utility plant of NAEC is subject to the liens of the
     company's first mortgage bond indenture.  NAEC's first mortgage bonds
     are also secured by payments made to NAEC by PSNH under the terms of the
     Seabrook Power Contracts.

     In 1999, interest rate swaps effectively fix the interest rate of NAEC's
     $200 million variable-rate bank note at interest rates ranging from 5.81
     percent to 6.07 percent.

5.   INCOME TAX EXPENSE
     The components of the federal and state income tax provisions were
     charged/(credited) to operations as follows:

     --------------------------------------------------------------------------
     For the Years Ended December 31,                2000      1999      1998
     --------------------------------------------------------------------------
                                                       (Millions of Dollars)
     Current income taxes:
       Federal....................................   $37.5     $15.1    $15.2
       State......................................     1.0       0.2      0.6
                                                     -----     -----    -----
         Total current............................    38.5      15.3     15.8
                                                     -----     -----    -----
     Deferred income taxes, net:
       Federal....................................   (23.6)      0.4      4.0
       State......................................    (2.0)       -       2.0
                                                     -----     -----    -----
         Total deferred...........................   (25.6)      0.4      6.0
                                                     -----     -----    -----

     Total income tax expense.....................   $12.9     $15.7    $21.8
                                                     =====     =====    =====
     --------------------------------------------------------------------------

     The components of total income tax expense/(credit) are classified as
     follows:

     --------------------------------------------------------------------------
     For the Years Ended December 31,                2000      1999      1998
     --------------------------------------------------------------------------
                                                       (Millions of Dollars)

     Income taxes charged to operating expenses...  $ 35.7    $ 34.8   $ 36.2
     Other income taxes...........................   (22.8)    (19.1)   (14.4)
                                                    ------    ------   ------
     Total income tax expense.....................  $ 12.9    $ 15.7   $ 21.8
                                                    ======    ======   ======
     --------------------------------------------------------------------------

     Deferred income taxes are comprised of the tax effects of temporary
     differences as follows:

     --------------------------------------------------------------------------
     For the Years Ended December 31,                2000      1999      1998
     --------------------------------------------------------------------------
                                                       (Millions of Dollars)

     Depreciation.................................  $ (6.5)  $ 19.5    $ 21.8
     Bond redemptions.............................    (1.4)    (2.8)     (2.8)
     Seabrook deferred return.....................   (17.3)   (15.7)    (14.2)
     Other........................................    (0.4)    (0.6)      1.2
                                                    ------   -------   ------
     Deferred income taxes, net...................  $(25.6)  $  0.4    $  6.0
                                                    ======   =======   ======
     --------------------------------------------------------------------------

     A reconciliation between income tax expense and the expected tax expense
     at 35 percent of pretax income is as follows:

     --------------------------------------------------------------------------
     For the Years Ended December 31,                2000      1999      1998
     --------------------------------------------------------------------------
                                                       (Millions of Dollars)

     Expected federal income tax..................  $15.9     $15.8     $18.0
     Tax effect of differences:
       Amortization of regulatory assets..........    7.1       7.0       7.1
       Depreciation...............................   (1.5)     (3.2)      1.6
       Deferred Seabrook return...................   (0.7)     (1.5)     (2.4)
       State income taxes, net of
         federal benefit..........................   (0.7)      0.1       1.7
       Allocation of Parent Company's loss........   (6.3)     (2.1)     (3.9)
       Other, net.................................   (0.9)     (0.4)     (0.3)
                                                    -----     -----     -----
     Total income tax expense.....................  $12.9     $15.7     $21.8
                                                    =====     =====     =====
     --------------------------------------------------------------------------

6.   DEFERRED OBLIGATION TO AFFILIATED COMPANY
     At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
     with the phase-in under the Rate Agreement, it began to accrue a deferred
     return on a portion of its Seabrook investment.  From May 16, 1991, to the
     Acquisition Date, PSNH accrued a deferred return of $50.9 million.  On the
     Acquisition Date, PSNH sold the $50.9 million deferred return to NAEC as
     part of the Seabrook-related assets.

     At the time PSNH transferred the deferred return to NAEC, it realized, for
     income tax purposes, a gain that was deferred under the consolidated
     income tax rules.  Beginning December 1, 1997, the gain is being amortized
     into income for income tax purposes, as the deferred return of $50.9
     million, and the associated income taxes of $32.9 million, are being
     collected by NAEC through the Seabrook Power Contracts.  As NAEC recovers
     the $32.9 million in years eight through ten of the Rate Agreement,
     corresponding payments are being made to PSNH.  The balance of the
     deferred obligation to PSNH at December 31, 2000 and 1999, was $3.2
     million and $13 million, respectively.

7.   COMMITMENTS AND CONTINGENCIES
     A.  Restructuring
         In September 2000, the NHPUC approved a comprehensive restructuring
         order that would allow PSNH to securitize up to $670 million of
         stranded costs.  In January 2001, the New Hampshire Supreme Court
         upheld this restructuring order on appeal.  However, one of the
         appellants indicated publicly it would request a review of the New
         Hampshire Supreme Court decision by the United States Supreme Court.
         Such a request must be filed by May 1, 2001.  Management believes
         that such an appeal would have a low probability of success, but
         cannot determine what effect it might have on the timing of the
         issuance of securitization bonds and the implementation of customer
         choice in New Hampshire.  PSNH currently expects to work with the
         State of New Hampshire to issue securitization bonds early in the
         second quarter of 2001.

     B.  Environmental Matters
         The NU system, including NAESCO on behalf of NAEC, is subject to
         environmental laws and regulations intended to mitigate or remove the
         effect of past operations and improve or maintain the quality of our
         environment.  As such, the NU system and NAESCO, have an active
         environmental auditing and training program and believe they are
         substantially in compliance with the current laws and regulations.

         However, the normal course of operations may involve activities and
         substances that expose NAEC to potential liabilities of which
         management cannot determine the outcome.  Additionally, management
         cannot determine the outcome for liabilities that may be imposed for
         past acts, even though such past acts may have been lawful at the
         time they occurred.  Management does not believe, however, that this
         will have a material impact on NAEC's financial statements.

     C.  Spent Nuclear Fuel Disposal Costs
         Under the Nuclear Waste Policy Act of 1982, NAEC must pay the DOE
         for the disposal of spent nuclear fuel and high-level radioactive
         waste.  The DOE is responsible for the selection and development of
         repositories for, and the disposal of, spent nuclear fuel and high-
         level radioactive waste.  Fees for nuclear fuel burned are billed
         currently to customers and paid to the DOE on a quarterly basis.

     D.  Nuclear Insurance Contingencies
         Insurance policies covering NAEC's ownership share of Seabrook have
         been purchased for the primary cost of repair, replacement or
         decontamination of utility property and certain extra costs for
         repair, replacement or decontamination or premature decommissioning
         of utility property.

         NAEC is subject to retroactive assessments if losses under those
         policies exceed the accumulated funds available to the insurer.  The
         maximum potential assessments against NAEC, including costs resulting
         from PSNH's contracts with NAEC, with respect to losses arising during
         the current policy year for the primary property insurance program and
         the excess property damage policies are $2 million and $2.4 million,
         respectively.  In addition, insurance has been purchased by the NU
         system in the aggregate amount of $200 million on an industry basis
         for coverage of worker claims.

         Under certain circumstances, in the event of a nuclear incident at one
         of the nuclear facilities covered by the federal government's third-
         party liability indemnification program, the NU system, including
         NAEC, could be assessed liabilities in proportion to its ownership
         interest in each of its nuclear units up to $83.9 million.  The NU
         system's payment of this assessment would be limited to, in proportion
         to its ownership interest in each of its nuclear units, $10 million
         in any one year per nuclear unit.  In addition, if the sum of all
         claims and costs from any one nuclear incident exceeds the maximum
         amount of financial protection, the NU system would be subject to an
         additional 5 percent, or $4.2 million, liability, in proportion to its
         ownership interest in each of its nuclear units.  Under the terms of
         the Seabrook Power Contracts with NAEC, PSNH could be obligated to pay
         for any assessment charged to NAEC as a cost of service.  Based upon
         NAEC's ownership interest in Seabrook, PSNH's maximum liability,
         including any additional assessments, would be $31.3 million per
         incident, of which payments would be limited to $3.6 million per year.

8.   MARKET RISK AND MANAGEMENT INSTRUMENTS
     Interest Rate Risk Management:  In 2000 and 1999, NAEC used interest rate
     collar and swap instruments with financial institutions to hedge against
     interest rate risk associated with its $200 million variable-rate bank
     note.  On November 9, 2000, this facility was replaced with a fixed-rate
     bank note.  The collar and swap instruments expired and were not replaced.

     Credit Risk:  These agreements have been made with various financial
     institutions, each of which is rated "A3" or better by Moody's Investors
     Service rating group.  NAEC is exposed to credit risk on its respective
     market risk management instruments if the counterparties fail to perform
     their obligations.  Management anticipates that the counterparties will
     fully satisfy their obligations under the agreements.

9.   FAIR VALUE OF FINANCIAL INSTRUMENTS
     The following methods and assumptions were used to estimate the fair
     value of each of the following financial instruments:

     Cash and Cash Equivalents:  The carrying amounts approximate fair value
     due to the short-term nature of cash and cash equivalents.

     Nuclear Decommissioning Trust: The investments held in NAEC's nuclear
     decommissioning trust were marked-to-market by $0.1 million as of
     December 31, 2000, and by $3.2 million as of December 31, 1999, with
     corresponding offsets to the accumulated provision for depreciation.
     The amounts adjusted in 2000 and in 1999 represent cumulative net
     unrealized gains.  Cumulative gross unrealized holding losses were
     immaterial for both 2000 and 1999.

     Long-Term Debt:  The fair value of NAEC's fixed-rate security is based
     upon the quoted market price for that issue or similar issues.  The
     adjustable rate security is assumed to have a fair value equal to
     its carrying value.

     The carrying amounts of NAEC's financial instruments and the estimated
     fair values are as follows:

     --------------------------------------------------------------------------
                                                   At December 31, 2000
     --------------------------------------------------------------------------
                                                  Carrying        Fair
     (Million of Dollars)                           Amount        Value
     --------------------------------------------------------------------------
     First mortgage bonds.................         $135.0        $136.8
     --------------------------------------------------------------------------

     --------------------------------------------------------------------------
                                                   At December 31, 1999
     --------------------------------------------------------------------------
                                                  Carrying        Fair
     (Million of Dollars)                           Amount        Value
     --------------------------------------------------------------------------
     First mortgage bonds.................         $205.0        $207.8
     Other long-term debt.................         $200.0        $200.0
     --------------------------------------------------------------------------

10.  SEGMENT INFORMATION
     Effective January 1, 1999, the NU system companies, including NAEC,
     adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and
     Related Information."  The NU system is organized between regulated
     utilities and competitive energy subsidiaries.  NAEC is included in the
     regulated utilities segment of the NU system and has no other reportable
     segments.

11.  SUBSEQUENT EVENT
     Merger Agreement with Consolidated Edison, Inc.:  In 2000, NU and
     Consolidated Edison, Inc. (Con Edison) received most of the approvals
     needed to complete the merger announced in October 1999.   Shareholders
     from both companies approved the merger in April 2000, and all state
     regulatory approvals were granted by the end of the year.  Additionally,
     the FERC approved the merger in May 2000, the NRC approved the transaction
     in August 2000, and the United States Department of Justice approved the
     merger in February 2001.  Necessary approval from the SEC was expected to
     be received in mid-March 2001.

     On February 28, 2001, NU's Board of Trustees requested that Con Edison
     provide reasonable assurance, in writing, that it intended to comply with
     the terms of the definitive merger agreement between the two companies.
     This included assurances that Con Edison would consummate the pending
     merger at the price set forth in the agreement promptly following the
     receipt of SEC approval.  The original request for assurance was to be
     received by March 2, 2001, however that date was later extended to
     March 5, 2001.  On March 5, 2001, Con Edison advised NU that it was not
     willing to close the merger on the agreed terms.  NU notified Con Edison
     that it was treating its refusal to proceed on the terms set forth in the
     merger agreement as a repudiation and breach of the merger agreement, and
     that NU would file suit to obtain the benefits of the transaction as
     negotiated for NU shareholders.  On March 6, 2001, Con Edison filed suit
     in the U.S. District Court for the Southern District of New York (Southern
     District), seeking a declaratory judgment that NU failed to satisfy
     conditions precedent under the merger agreement.  On March 12, 2001, NU
     filed suit against Con Edison in the Southern District seeking damages in
     excess of $1 billion arising from Con Edison's breach of the merger
     agreement.


<TABLE>
North Atlantic Energy Corporation
<CAPTION>
----------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA                    2000         1999          1998          1997          1996
----------------------------------------------------------------------------------------------------------
                                                              (Thousands of Dollars)
<S>                                      <C>          <C>           <C>          <C>           <C>
Operating Revenues..................     $274,319     $287,369      $276,685     $  192,381    $  162,152

Operating Income....................       44,077       49,728        54,057         57,061        54,889

Net Income..........................       32,493       29,556        29,494         29,953        32,072

Cash Dividends on Common Stock......       42,000       60,000        45,000         25,000        38,000

Total Assets........................      728,964      852,107       945,153      1,014,639     1,017,388

Long-Term Debt (a)..................      135,000      405,000       475,000        495,000       515,000
----------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (Unaudited)
------------------------------------------------------------------------------------------------
                                                      Quarter Ended
------------------------------------------------------------------------------------------------
2000                           March 31        June 30        September 30         December 31
------------------------------------------------------------------------------------------------
                                                  (Thousands of Dollars)
<S>                            <C>             <C>               <C>                 <C>
Operating Revenues             $66,276         $66,106           $66,921             $75,016
                               =======         =======           =======             =======

Operating Income               $11,657         $11,185           $10,470             $10,765
                               =======         =======           =======             =======

Net Income                     $ 7,753         $ 8,272           $ 8,063             $ 8,405
                               =======         =======           =======             =======
------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------

Operating Revenues             $70,289         $77,203           $69,779             $70,098
                               =======         =======           =======             =======

Operating Income               $12,475         $12,303           $12,122             $12,828
                               =======         =======           =======             =======

Net Income                     $ 6,461         $ 6,243           $ 6,442             $10,410
                               =======         =======           =======             =======
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
STATISTICS (Unaudited)          2000         1999        1998         1997         1996
-----------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>
Gross Electric Utility
  Plant at December 31,
  (Thousands of Dollars)     $756,432     $767,895     $784,113     $811,140     $816,446
                             ========     ========     ========     ========     ========
kWh Sales (Millions) for
  the year ended
  December 31,                  2,850        3,125        3,018        2,859        3,542
                             ========     ========     ========     ========     ========

(a) Includes portion due within one year.

</TABLE>