EXHIBIT 13.4
                    PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

                           AMENDED 1997 ANNUAL REPORT

                    Public Service Company of New Hampshire

                           Amended 1997 Annual Report

                                     Index


Contents                                                              Page
                                                                        
                                                                           
Balance Sheets (Restated)..........................................    2

Statements of Income (Restated)....................................    4

Statements of Cash Flows (Restated)................................    5

Statements of Common Stockholder's Equity (Restated)...............    6

Notes to Financial Statements (Restated)...........................    7

Report of Independent Public Accountants...........................    40

Management's Discussion and Analysis of Financial
  Condition and Results of Operations (Restated)...................    42

Selected Financial Data (Restated).................................    50

Statistics.........................................................    52

Statements of Quarterly Financial Data (Restated)..................    52

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




                                   PART I.  FINANCIAL INFORMATION

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
At December 31,                                                   1997           1996
                                                               (Restated)     (Restated)
-----------------------------------------------------------------------------------------
                                                                 (Thousands of Dollars)
<S>                                                             <C>            <C>
ASSETS
------

Utility Plant, at cost:
  Electric................................................   $  1,898,319   $  1,877,955

     Less: Accumulated provision for depreciation.........        590,056        552,780
                                                             -------------  -------------
                                                                1,308,263      1,325,175
  Unamortized acquisition costs...........................        402,285        491,709
  Construction work in progress...........................         10,716         11,032
  Nuclear fuel, net.......................................          1,308          1,313
                                                             -------------  -------------
      Total net utility plant.............................      1,722,572      1,829,229
                                                             -------------  -------------
Other Property and Investments:                              
  Nuclear decommissioning trusts, at market...............          4,332          3,229
  Investments in regional nuclear generating                 
   companies and subsidiary company, at equity............         19,169         19,578
  Other, at cost..........................................          3,773          1,835
                                                             -------------  -------------
                                                                   27,274         24,642
                                                             -------------  -------------
Current Assets:                                              
  Cash and cash equivalents...............................         94,459          1,015
  Notes receivable from affiliated companies..............           -            18,250
  Receivables, less accumulated provision for 
    uncollectible accounts of $1,702,000 in 1997
    and of $1,700,000 in 1996.............................         89,338        105,381
  Accounts receivable from affiliated companies...........         38,520         32,452
  Accrued utility revenues................................         36,885         36,317
  Fuel, materials, and supplies, at average cost..........         40,161         44,852
  Recoverable energy costs, net--current portion..........         31,886           -
  Prepayments and other...................................         11,271         24,629
                                                             -------------  -------------
                                                                  342,520        262,896
                                                             -------------  -------------
Deferred Charges:                                            
  Regulatory assets.......................................        695,418        684,504
  Deferred receivable from affiliated company.............         32,472         33,284
  Unamortized debt expense................................         11,749         12,731
  Other...................................................          5,154          3,926
                                                             -------------  -------------
                                                                  744,793        734,445
                                                             -------------  -------------





      Total Assets........................................   $  2,837,159   $  2,851,212
                                                             =============  =============

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




PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
At December 31,                                                   1997           1996
                                                               (Restated)     (Restated)
-----------------------------------------------------------------------------------------
                                                                 (Thousands of Dollars)
<S>                                                             <C>            <C>
CAPITALIZATION AND LIABILITIES
------------------------------

Capitalization:                                              
  Common stock--$1 par value.                                
   Authorized and outstanding 1,000 shares................   $          1   $          1
  Capital surplus, paid in................................        423,713        423,058
  Retained earnings (Note 1)..............................        170,501        175,254
                                                             -------------  -------------
           Total common stockholder's equity..............        594,215        598,313
  Preferred stock subject to mandatory redemption.........         75,000        100,000
  Long-term debt..........................................        516,485        686,485
                                                             -------------  -------------
           Total capitalization...........................      1,185,700      1,384,798
                                                             -------------  -------------

Obligations Under Seabrook Power Contracts
 and Other Capital Leases.................................        799,450        871,707
                                                             -------------  -------------
Current Liabilities:                                                       
  Long-term debt and preferred stock--current portion.....        195,000         25,000
  Obligations under Seabrook Power Contracts and other                     
   capital leases--current portion........................        122,363         42,910
  Accounts payable........................................         21,231         37,675
  Accounts payable to affiliated companies................         32,677         31,130
  Accrued taxes...........................................         69,445             81
  Accrued interest........................................          7,197          7,992
  Accrued pension benefits................................         46,061         44,790
  Other...................................................          9,417         36,616
                                                             -------------  -------------
                                                                  503,391        226,194
                                                             -------------  -------------
Deferred Credits:                                            
  Accumulated deferred income taxes.......................        204,406        258,654
  Accumulated deferred investment tax credits.............          3,972          4,511
  Deferred contractual obligations........................         83,042         50,271
  Deferred revenue from affiliated company................         32,472         33,284
  Other...................................................         24,726         21,793
                                                             -------------  -------------
                                                                  348,618        368,513
                                                             -------------  -------------
Commitments and Contingencies (Note 11)
                                                             -------------  -------------
           Total Capitalization and Liabilities...........   $  2,837,159   $  2,851,212
                                                             =============  =============
                                                                           
</TABLE>                                                                   
The accompanying notes are an integral part of these financial statements. 



PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                              
--------------------------------------------------------------------------------------
For the Years Ended December 31,                        1997        1996       1995    
                                                     (Restated)  (Restated)
--------------------------------------------------------------------------------------
                                                           (Thousands of Dollars)

<S>                                                  <C>         <C>          <C>
Operating Revenues................................. $1,108,459  $1,110,169  $ 979,971
                                                    ----------- ----------- ----------
Operating Expenses:                                 
  Operation --                                      
     Fuel, purchased and net interchange power.....    326,745     356,679    257,008
     Other.........................................    368,363     326,337    313,604
  Maintenance......................................     38,320      45,728     42,244
  Depreciation.....................................     44,377      42,983     44,337
  Amortization of regulatory assets, net...........     56,557      56,884     55,547
  Federal and state income taxes...................     86,450      80,677     69,817
  Taxes other than income taxes....................     43,623      45,123     41,786
                                                    ----------- ----------- ----------
        Total operating expenses (Note 1)..........    964,435     954,411    824,343
                                                    ----------- ----------- ----------
Operating Income...................................    144,024     155,758    155,628
                                                    ----------- ----------- ----------
                                                    
Other Income:                                      
  Equity in earnings of regional nuclear            
    generating companies and subsidary company.....      1,373       2,075      1,645
  Other, net.......................................        698       8,075      3,162
  Income taxes.....................................     (2,391)     (7,723)      (770)
                                                    ----------- ----------- ----------
        Other (loss)/income, net...................       (320)      2,427      4,037
                                                    ----------- ----------- ----------
        Income before interest charges.............    143,704     158,185    159,665
                                                    ----------- ----------- ----------

Interest Charges:                                   
  Interest on long-term debt.......................     51,259      57,557     76,320
  Other interest...................................        273       3,163         90
                                                    ----------- ----------- ----------
        Interest charges, net......................     51,532      60,720     76,410
                                                    ----------- ----------- ----------

                                                     
Net Income (Note 1)................................ $   92,172  $   97,465  $  83,255
                                                    =========== =========== ==========





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

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
 
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1997        1996        1995
                                                                (Restated)  (Restated)
--------------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                              <C>         <C>         <C>
Operating Activities:                                          
  Net Income.................................................. $   92,172  $   97,465  $   83,255
  Adjustments to reconcile to net cash                         
   from operating activities:                                  
    Depreciation..............................................     44,377      42,983      44,337
    Deferred income taxes and investment tax credits, net.....     21,645      94,983      69,986
    Recoverable energy costs, net of amortization.............    (12,336)     31,663     (15,266)
    Amortization of acquisition costs.........................     56,557      56,884      55,547
    Deferred Seabrook capital costs...........................     (8,376)       -           -
    Other sources of cash.....................................     51,054      65,922      15,973
    Other uses of cash........................................    (67,590)    (51,188)       -
  Changes in working capital:                                  
    Receivables and accrued utility revenues..................      9,407     (36,907)    (10,506)
    Fuel, materials and supplies..............................      4,691      (3,135)     (4,264)
    Accounts payable..........................................    (14,897)     (7,714)      2,375
    Accrued taxes.............................................     69,364        (717)     (3,506)
    Other working capital (excludes cash).....................    (13,365)    (13,559)         16
                                                               ----------- ----------- -----------
Net cash flows from operating activities (Note 1).............    232,703     276,680     237,947
                                                               ----------- ----------- -----------
                                                               

Financing Activities:                                          
  Reacquisitions and retirements of long-term debt............       -       (172,500)   (141,000)
  Reacquisitions and retirements of preferred stock...........    (25,000)       -           -
  Cash dividends on preferred stock...........................    (11,925)    (13,250)    (13,250)
  Cash dividends on common stock..............................    (85,000)    (52,000)    (52,000)
                                                               ----------- ----------- -----------
Net cash flows used for financing activities..................   (121,925)   (237,750)   (206,250)
                                                               ----------- ----------- -----------
                                                               
Investment Activities:                                         
  Investment in plant:                                         
    Electric utility plant....................................    (33,570)    (37,480)    (46,672)
    Nuclear fuel..............................................          5         129        (184)
                                                               ----------- ----------- -----------
  Net cash flows used for investments in plant................    (33,565)    (37,351)    (46,856)
  NU System Money Pool........................................     18,250         850      15,900
  Investment in nuclear decommissioning trusts................       (490)       (521)       (489)
  Other investment activities, net............................     (1,529)     (1,010)       (431)
                                                               ----------- ----------- -----------
Net cash flows used for investments...........................    (17,334)    (38,032)    (31,876)
                                                               ----------- ----------- -----------
Net Increase/(Decrease) in Cash For The Period................     93,444         898        (179)
Cash - beginning of period....................................      1,015         117         296
                                                               ----------- ----------- -----------
Cash - end of period.......................................... $   94,459  $    1,015  $      117
                                                               =========== =========== ===========
Supplemental Cash Flow Information:                            
Cash paid/(refunded) during the year for:                      
  Interest, net of amounts capitalized........................ $   51,775  $   58,835  $   74,543
                                                               =========== =========== ===========
  Income taxes................................................ $   10,612  $     (457) $    1,369
                                                               =========== =========== ===========
Increase in obligations:                                       
  Seabrook Power Contracts and other capital leases........... $    6,197  $       93  $   28,028
                                                               =========== =========== ===========




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

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------
                                                       Capital     Retained
                                            Common     Surplus,    Earnings 
                                             Stock     Paid In     (Note 1)     Total
---------------------------------------------------------------------------------------
                                                      (Thousands of Dollars)

<S>                                              <C>   <C>         <C>         <C>
Balance at January 1, 1995...............  $     1    $421,784    $125,034    $546,819
    Net income for 1995..................                           83,255      83,255
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Cash dividends on common stock.......                          (52,000)    (52,000)
    Capital stock expenses, net..........                  601                     601
                                           --------   ---------   ---------   ---------
Balance at December 31, 1995.............        1     422,385     143,039     565,425
    Net income for 1996 (Note 1).........                           97,465      97,465
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Cash dividends on common stock.......                          (52,000)    (52,000)
    Capital stock expenses, net..........                  673                     673
                                           --------   ---------   ---------   ---------
Balance at December 31, 1996 (Restated)..        1     423,058     175,254     598,313
    Net income for 1997 (Note 1).........                           92,172      92,172
    Cash dividends on preferred stock....                          (11,925)    (11,925)
    Cash dividends on common stock.......                          (85,000)    (85,000)
    Capital stock expenses, net..........                  655                     655
                                           --------   ---------   ---------   ---------
Balance at December 31, 1997 (Restated)..  $     1    $423,713    $170,501    $594,215
                                           ========   =========   =========   =========


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

           

Public Service Company of New Hampshire

NOTES TO FINANCIAL STATEMENTS


1.   SECURITIES AND EXCHANGE COMMISSION INQUIRY

In a letter dated March 25, 1998, the Securities and Exchange Commission (SEC)
inquired into Northeast Utilities' (NU) accounting for nuclear compliance costs.
These costs are the unavoidable incremental costs associated with the current
nuclear outages required to be incurred  prior to restart of the units in
accordance with correspondence received from the Nuclear Regulatory Commission
(NRC) early in 1996.  The SEC's view is that these unavoidable costs associated
with nuclear outages and procedures to be implemented at nuclear power plants in
response to regulatory requirements required prior to restart of the units
should be expensed as incurred. During 1996 and 1997,  NU and its wholly owned
subsidiaries, The Connecticut Light and Power Company (CL&P), Public Service
Company of New Hampshire (PSNH) and Western Massachusetts Electric Company
(WMECO), reserved for these unavoidable incremental costs that they expected to
incur to meet NRC standards.  The SEC advised NU, CL&P, PSNH and WMECO to
reflect these costs as they are incurred. While NU and its independent auditors,
Arthur Andersen LLP, believed the accounting was required by, and was in
accordance with, generally accepted accounting principles, NU has agreed to
adjust its accounting for nuclear compliance costs and amend its 1996 and 1997
Form 10-K filings.  The financial statements in this report have been restated
to reflect the change in accounting.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   A.  ABOUT PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
       Public Service Company of New Hampshire (PSNH or the company), CL&P,
       WMECO, North Atlantic Energy Corporation (NAEC), and Holyoke Water
       Power Company (HWP) are the operating subsidiaries comprising the
       Northeast Utilities system (the NU system) and are wholly owned by NU.

       The NU system furnishes franchised retail electric service in
       Connecticut, New Hampshire, and western Massachusetts through CL&P,
       PSNH, WMECO, and HWP.  A fifth subsidiary, NAEC, sells all of its
       entitlement to the capacity and output of the Seabrook nuclear
       generating unit (Seabrook, a 1,148-megawatt (MW) nuclear generating
       unit) to PSNH under two long-term contracts (the Seabrook Power
       Contracts).  In addition to its franchised retail service, the NU
       system furnishes firm and other wholesale electric services to various
       municipalities and other utilities, and participates in limited retail
       access programs, providing off-system retail electric service.  The NU
       system serves about 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.

       Other 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.  North Atlantic Energy
       Service Corporation (NAESCO) acts as agent for CL&P and NAEC, and has
       operational responsibilities for Seabrook. Northeast Nuclear Energy
       Company (NNECO) acts as agent for the NU system companies and other New
       England utilities in operating the Millstone nuclear generating
       facilities.

   B.  PRESENTATION
       The preparation of financial statements in conformity with generally
       accepted accounting principles 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.  PUBLIC UTILITY REGULATION
       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).  NU and its subsidiaries, including PSNH, are subject to
       the provisions of the 1935 Act. Arrangements among the NU system
       companies, outside agencies and other utilities covering inter-
       connections, interchange of electric power and sales of utility
       property are subject to regulation by the Federal Energy Regulatory
       Commission (FERC) and/or the SEC.  PSNH is subject to further
       regulation for rates, accounting and other matters by the FERC and/or
       the applicable state regulatory commissions.

       For information regarding proposed changes in the nature of industry
       regulation, see Note 11A, "Commitments and Contingencies -
       Restructuring and Rate Matters."

   D.  NEW ACCOUNTING STANDARDS
       The Financial Accounting Standards Board (FASB) issued a new accounting
       standard in February 1997:  Statement of Financial Accounting Standards
       (SFAS) 129, "Disclosure of Information about Capital Structure." SFAS
       129 establishes standards for disclosing information about an entity's
       capital structure.  PSNH's current disclosures are consistent with the
       requirements of SFAS 129.

       During June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
       Income" and SFAS 131, "Disclosures about Segments of an Enterprise and
       Related Information." SFAS 130 establishes standards for the reporting
       and disclosure of comprehensive income.  To date, the NU system
       companies have not had material transactions that would be required to
       be reported as comprehensive income.  SFAS 131 determines the standards
       for reporting and disclosing qualitative and quantitative information
       about a company's operating segments. This information includes segment
       profit or loss, certain segment revenue and expense items and segment
       assets and a reconciliation of these segment disclosures to
       corresponding amounts in the company's general purpose financial
       statements. Management performance is currently evaluated using a cost-
       based budget and the information required by SFAS 131 is not available.
       Therefore, these disclosure requirements are not applicable.  Management
       believes that the implementation of SFAS 130 and SFAS 131 will not have
       a material impact on PSNH's current disclosures.

       See Note 11C, "Commitments and Contingencies-Environmental Matters,"
       for information on other newly issued accounting and reporting
       standards related to this area.

   E.  INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
       Regional Nuclear Generating Companies:  PSNH owns common stock of four
       regional nuclear generating companies (Yankee companies). PSNH's
       investments in the Yankee companies are accounted for on the equity
       basis due to PSNH's ability to exercise significant influence over
       their operating and financial policies.  The Yankee companies, with
       PSNH's ownership interests, are:


       Connecticut Yankee Atomic Power Company (CYAPC) ................   5.0%
       Yankee Atomic Electric Company (YAEC) ..........................   7.0
       Maine Yankee Atomic Power Company (MYAPC) ......................   5.0
       Vermont Yankee Nuclear Power Corporation (VYNPC) ...............   4.0


       PSNH's equity investments in the Yankee companies at December 31, 1997
       are:

                                                         (Thousands of Dollars)

       CYAPC ..............................................         $ 5,761
       YAEC ...............................................           1,427
       MYAPC ..............................................           3,880
       VYNPC ..............................................           2,085

                                                                    $13,153

       Each Yankee company owns a single nuclear generating unit. Under the
       terms of the contracts with the Yankee companies, the shareholders-
       sponsors, including PSNH, are responsible for their proportionate share
       of the costs of each unit, including decommissioning.  The energy and
       capacity costs from VYNPC and nuclear decommissioning costs of the
       Yankee companies that have been shut down are billed as purchased power
       to PSNH.

       The electricity produced by the Vermont Yankee nuclear generating
       facility (VY) is committed substantially on the basis of ownership
       interests and is billed pursuant to contractual agreements.  YAEC's,
       CYAPC's and MYAPC's nuclear power plants were shut down permanently on
       February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
       Under ownership agreements with the Yankee companies, PSNH may be asked
       to provide direct or indirect financial support for one or more of the
       companies.  For more information on the Yankee companies, see Note 5,
       "Nuclear Decommissioning," and Note 11F, "Commitments and Contingencies
       - Long-Term Contractual Arrangements."

       Millstone 3:  PSNH has a 2.85 percent joint ownership interest in
       Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
       1997 and 1996, plant-in-service included approxi-mately $118.7 million
       and the accumulated provision for depreciation included approximately
       $32.3 million and $29.4 million, respectively, for PSNH's share of
       Millstone 3.  PSNH's share of Millstone 3 expenses is included in the
       corresponding operating expenses on the accompanying Statements of
       Income.  The Millstone 3 unit is out of service.  NU hopes to return
       Millstone 3 to service in early spring of 1998.  For more information
       on the Millstone 3 unit, see Note 11B, "Commitments and Contingencies -
       Nuclear Performance."

       Wyman Unit 4:  PSNH has a 3.14 percent ownership interest in Wyman
       Unit 4 (Wyman), a 632-MW oil-fired generating unit.  At December 31,
       1997 and 1996, plant-in-service included approximately $6.0 million,
       respectively and the accumulated provision for depreciation included
       approximately $3.9 million and $3.7 million, respectively, for PSNH's
       share of Wyman.  PSNH's share of Wyman expenses is included in the
       corresponding operating expenses on the accompanying Statements of
       Income.

   F.  DEPRECIATION
       The provision for depreciation is calculated using the straight-line
       method based on estimated remaining lives of depreciable utility
       plant-in-service, adjusted for salvage value and removal costs, as
       approved by the appropriate regulatory agencies.

       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 plant, including costs of
       removal, less salvage, is charged to the accumulated provision for
       depreciation.  The depreciation rates for the several classes of
       electric plant-in-service are equivalent to a composite rate of 3.7
       percent in 1997 and 1996, and 3.8 percent in 1995.  See Note 5,
       "Nuclear Decommissioning," for information on nuclear plant
       decommissioning.

       PSNH's non-nuclear generating facilities have limited service lives.
       Plant may be retired in place or dismantled based upon expected future
       needs, the economics of the closure and environmental concerns.  The
       costs of closure and removal are incremental costs and, for financial
       reporting purposes, are accrued over the life of the asset as part of
       depreciation.  At December 31, 1997 and 1996, the accumulated provision
       for depreciation included approximately $34.2 million and $31.1
       million, respectively, accrued for the cost of removal, net of salvage
       for nonnuclear generation property.

   G.  REVENUES
       Other than revenues under fixed-rate agreements negotiated with certain
       wholesale, industrial and commercial customers and limited retail
       access programs, utility revenues are based on authorized rates applied
       to each customer's use of electricity. In general, rates can be changed
       only through a formal proceeding before the appropriate regulatory
       commission. Regulatory commissions also have authority over the terms
       and conditions of nontraditional rate making arrangements.  At the end
       of each accounting period, PSNH accrues an estimate for the amount of
       energy delivered but unbilled.

       For information on the PSNH rate proceeding and its impact on PSNH, see
       Management's Discussion and Analysis of Financial Condition and Results
       of Operations (MD&A).

   H.  REGULATORY ACCOUNTING AND ASSETS
       The accounting policies of PSNH and the accompanying financial
       statements conform to generally accepted accounting principles
       applicable to rate-regulated enterprises and reflect the effects of the
       ratemaking process in accordance with SFAS 71, "Accounting for the
       Effects of Certain Types of Regulation." Assuming a cost-of-service
       based regulatory structure, regulators may permit incurred costs,
       normally treated as expenses, to be deferred and recovered through
       future revenues. Through their actions, regulators also may reduce or
       eliminate the value of an asset, or create a liability.  If any portion
       of PSNH's operations were no longer subject to the provisions of SFAS
       71, as a result of a change in the cost-of-service based regulatory
       structure or the effects of competition, PSNH would be required to write
       off all of its related regulatory assets and liabilities unless there is
       a formal transition plan which provides for the recovery, through
       established rates, for the collection of approved stranded costs and to
       maintain the cost-of-service basis for the remaining regulated
       operations.  At the time of transition, PSNH would be required to
       determine any impairment to the carrying costs of deregulated plant and
       inventory assets.

       Management anticipates that a restructuring program will be implemented
       within New Hampshire during the next few years.  In a restructured
       environment, PSNH's generation business no longer will be rate regulated
       on a cost-of-service basis.  The majority of PSNH's regulatory assets
       are related to its generation business.

       The staff of the SEC has had concerns regarding the appropriateness of
       the utilities' ability to continue application of SFAS 71 for the
       generation portion of their business in a restructured environment.  The
       SEC referred the issue to the Emerging Issues Task Force (EITF) of the
       FASB which reached a consensus and issued "Deregulation of the Pricing
       of Electricity - Issues Related to the Application of FASB Statements
       No. 71 and 101," (EITF 97-4). The EITF concluded:  (1) the future
       recognition of regulatory assets for the portion of the business that no
       longer qualifies for application of SFAS 71 depends on the regulators'
       treatment of the recovery of those costs and other stranded assets from
       cash flows of other portions of the business still considered to be
       regulated, and (2) a utility should discontinue the application of SFAS
       71 when a legislative and regulatory plan has been enacted, which would
       include transition plans into a competitive environment, and when the
       stranded costs which are subject to future rate recovery are determined.
       EITF 97-4 became effective in August 1997.

       The issue  of restructuring the electric utility industry in New
       Hampshire is currently the focus of negotiations and proceedings within
       the federal and state court systems .  Management believes that PSNH's
       use of regulatory accounting remains appropriate while this issue
       remains in litigation.

       PSNH expects that its transmission and distribution business will
       continue to be rate-regulated on a cost-of-service basis, and
       accordingly, will continue to apply SFAS 71 to this portion of its
       business.

       For more information on PSNH's regulatory environment and the potential
       impacts of rstructuring, see Note 11A, "Commitments and Contingencies -
       Restructuring and Rate Matters," and the MD&A.

       SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
       Long-Lived Assets to be Disposed Of," requires the evaluation of long-
       lived assets, including regulatory assets, for impairment when certain
       events occur or when conditions exist that indicate the carrying amounts
       of assets may not be recoverable.  SFAS 121 requires that any long-lived
       assets which are no longer probable of recovery through future revenues
       be revalued based on estimated future cash flows. If this revaluation is
       less than the book value of the asset, an impairment loss would be
       charged to earnings.

       Management continues to believe that it is probable that PSNH will
       recover its investments in long-lived assets through future revenues.
       This conclusion may change in the future as the implementation of
       restructuring plans within the state of New Hampshire will generally
       require the formation of a separate generation entity which will be
       subject to competitive market conditions.  As a result, PSNH will be
       required to assess the carrying amounts of its long-lived assets in
       accordance with SFAS 121.

       The components of PSNH's regulatory assets are as follows:


       At December 31,                                      1997        1996
                                                       (Thousands of Dollars)


       Recoverable energy costs, net
         (Note 2K)  .................................    $191,686      $211,236
       Income taxes, net (Note 2I)...................     128,244       151,431
       Unrecovered contractual                                          
         obligations (Note 5)........................      83,042        50,271
       Deferred costs, nuclear
         plants  (Note 3)............................     281,856       269,233
       Seabrook deferral (Note 2K)...................       8,376          -
       Other.........................................       2,214         2,333

                                                         $695,418      $684,504

   I.  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 ratemaking treatment of
       the applicable regulatory commissions.  See Note 10, "Income Tax
       Expense" for the components of income tax expense.

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

       At December 31,                                  1997           1996
                                                      (Restated)     (Restated)
                                                        (Thousands of Dollars)

       Accelerated depreciation and
         other plant-related differences ...........   $103,985       $225,263
       Net operating loss (NOL)
         carryforwards .............................    (94,822)       (94,149)
       Regulatory assets - income tax                                 
         gross up ..................................     49,101         68,652
       Other .......................................    146,142         58,888

                                                       $204,406       $258,654


       At December 31, 1997, PSNH had a NOL carryforward of approximately $293
       million, that can be used against PSNH's federal taxable income and
       which, if unused, expires between the years 2000 and 2006. PSNH also
       had Investment Tax Credit (ITC) carryforwards of $40 million which if
       unused, expires between the years 1998 and 2004.  For a portion of the
       carryforward amounts indicated above, the reorganization of PSNH under
       Chapter 11 of the United States Bankruptcy Code limits the annual
       amount of NOL and ITC carryforwards that may be used.  Approximately
       $31 million of the NOL and $9 million of the ITC carryforwards are
       subject to this limitation.

       See Note 11A, "Commitments and Contingencies - Restructuring and Rate
       Matters," for the possible impacts on PSNH from the NHPUC's decision
       related to industry restructuring.

   J.  UNAMORTIZED ACQUISITION COSTS
       The unamortized PSNH acquisition costs represent the aggregate value
       placed by the 1989 rate agreement with the state of New Hampshire (Rate
       Agreement) on PSNH's assets in excess of the net book value of PSNH's
       non-Seabrook assets, plus the $700 million value assigned to Seabrook by
       the Rate Agreement, as part of the bankruptcy resolution on June 5, 1992
       (Acquisition Date).  The Rate Agreement provides for the recovery
       through rates, with a return, of the unamortized PSNH acquisition costs.
       The Rate Agreement provides that $425 million of the unamortized PSNH
       acquisition costs be amortized over the first seven years after PSNH's
       May 16, 1991 reorganization from bankruptcy (Reorganization Date) with
       the remaining  amount to be amortized over the 20-year period after the
       Reorganization Date.  The unrecovered balance of PSNH acquisition costs
       at December  31, 1997, was approximately $402.3 million.  In accordance
       with the Rate Agreement, approximately $32.9 million of this amount will
       be recovered through rates by June 1, 1998, and the remaining amount of
       approximately $369.4 million will be recovered through rates by 2011.
       As of  December 31, 1997, PSNH has collected approximately $591 million
       of acquisition costs through rates.

   K.  RECOVERABLE ENERGY COSTS
       Under the Energy Policy Act of 1992 (Energy Act), PSNH is assessed for
       its proportionate share of the costs of decontaminating and
       decommissioning uranium enrichment plants owned by the United States
       Department of Energy (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.
       PSNH is currently recovering these costs through rates. As of December
       31, 1997, PSNH's total D&D deferrals were approximately $300 thousand.

       The Rate Agreement includes a comprehensive fuel and purchased power
       adjustment clause (FPPAC) permitting PSNH to pass through to retail
       customers, for a ten-year period that began in May 1991, the retail
       portion of differences between the fuel and purchased power costs
       assumed in the Rate Agreement and PSNH's actual costs, which include the
       costs related to the Seabrook Power Contracts and the Clean Air Act
       Amendment.  The cost components of the FPPAC are subject to a prudence
       review by the New Hampshire Public Utilities Commission (NHPUC).

       Under the Rate Agreement, charges made by NAEC through the Seabrook
       Power Contracts, including the deferred Seabrook capital expenses, are
       being deferred by PSNH and subsequently will be subsequently billed and
       collected by PSNH through the FPPAC.  PSNH began to defer the amount of
       these costs on December 1, 1997 and will continue to do so for the
       period December 1, 1997 through May 31, 1998.  Beginning on June 1,
       1998, these costs will be recovered over a 36-month period.  At December
       31, 1997, PSNH has deferred approximately $8.4 million of these costs,
       which balance is recorded in PSNH's deferred costs, nuclear plants.

       On February 10, 1998, the NHPUC established a FPPAC rate for the period
       December 1, 1997 through May 31, 1998.  The new FPPAC rate increased
       customer billings by approximately six percent. This rate continues to
       defer a substantial portion of these costs.

       At December 31, 1997, PSNH's net recoverable energy costs, excluding
       current net recoverable energy costs, were approximately $191.7 million.
       This amount includes approximately $172.9 million of deferred small
       power producer costs.

       See Note 11A, "Commitments and Contingencies - Restructuring and Rate
       Matters" for the possible impacts on PSNH of the NHPUC's decision
       related to industry restructuring.


   L.  SPENT NUCLEAR FUEL DISPOSAL COSTS
       Under the Nuclear Waste Policy Act of 1982, PSNH must pay the United
       States Department of Energy (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 are billed
       currently to customers and paid to the DOE on a quarterly basis.

       The DOE was originally scheduled to begin accepting delivery of spent 
       fuel in 1998.  However, delays in identifying a permanent storage site 
       have continually 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.  The company has primary
       responsibility for the interim storage of its spent nuclear fuel.
       Current capability to store spent fuel at Seabrook are estimated to be
       adequate until the year 2010. Meeting spent fuel storage requirements
       beyond this period could require new and separate storage facilities,
       the costs for which have not been determined.  Storage facilities for
       Millstone 3 are expected to be adequate for the projected life of the
       unit.

       In November 1997, the U.S. District Court of Appeals for the D.C. Circuit
       ruled that the lack of an interim storage facility does not excuse the
       DOE  from meeting its contractual obligation to begin accepting spent
       nuclear fuel no later than January 31, 1998.  Currently, the DOE has not
       taken the spent nuclear fuel as scheduled and, as a result, may have to
       pay contract damages. The ultimate outcome of this legal proceeding is
       uncertain at this time.

   M.  CASH AND CASH EQUIVALENTS
       Cash and cash equivalents includes cash on hand and short-term cash
       investments which are highly liquid in nature and have original
       maturities of three months or less.

3. SEABROOK POWER CONTRACTS

   PSNH and NAEC 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 Nuclear Regulatory Commission (NRC)
   operating license.  Under these power contracts, PSNH is obligated to pay
   NAEC's cost of service during this period, regardless of whether Seabrook 1
   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.

   PSNH has included its right to buy power from NAEC on its Balance Sheets as
   part of utility plant and regulatory assets with a corresponding
   obligation.  At December 31, 1997, this right was valued at approximately
   $917.1 million.

   The contracts established the value of the initial investment in Seabrook
   (initial investment) at $700 million. As prescribed by the Rate Agreement,
   as of May 1, 1996, NAEC phased into rates 100 percent of its investment in
   Seabrook 1. This plan is in compliance with SFAS 92,"Regulated Enterprises-
   Accounting for Phase-in Plans." From the Acquisition Date through November
   1997, NAEC recorded $203.9 million of deferred return on its investment in
   Seabrook 1. At November 30, 1997, NAEC's utility plant included $84.1
   million of deferred return that was transferred as part of the Seabrook
   plant assets to NAEC on the Acquisition Date. Beginning on December 1,
   1997, the deferred return, including the portion transferred to NAEC, is
   currently being billed through the Seabrook Power Contracts to PSNH and
   will be fully recovered from customers by May 2001. NAEC depreciated its
   initial investment over the term of Seabrook 1's operating license (39
   years), and any subsequent plant additions are depreciated on a straight-
   line basis over the remaining term of the power contracts at the time the
   subsequent additions are placed in service.

   If Seabrook 1 is shut down prior to the expiration of the NRC operating
   license, PSNH will be unconditionally required to pay NAEC termination
   costs for 39 years, less the period during which Seabrook 1 has operated.
   These termination costs will reimburse NAEC for its share of Seabrook 1
   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 the cancellation).

   Contract payments charged to operating expenses are approximately:

     Year                                                  Contract Payments
                                                         (Thousands of Dollars)

     1997.................................                      $188,000
     1996.................................                       159,000
     1995.................................                       154,000

   Interest included in the contract payment was $57 million in 1997, $55
   million in 1996, and $51 million in 1995.


   Future minimum payments, excluding executory costs, such as property taxes,
   state use taxes, insurance and maintenance, under the terms of the
   contracts, as of December 31, 1997, are approximately:

     Year                               Seabrook Power Contracts
                                         (Thousands of Dollars)


     1998   ................................      $199,000
     1999   ................................       184,000
     2000   ................................       183,000
     2001   ................................       108,000
     2002   ................................        69,100
     After 2002.............................     1,077,000

     Future minimum payments................     1,820,100

     Less amount representing
       interest.............................       903,000

     Present value of Seabrook Power
       Contracts payments ..................     $ 917,100



   See Note 11A, "Commitments and Contingencies - Restructuring and Rate
   Matters" for the possible impacts the NHPUC's restructuring decision may
   have on the Seabrook Power Contracts.

4. LEASES
   PSNH has entered into lease agreements, some of which are capital leases,
   for the use of data processing and office equipment, vehicles and office
   space.  The provisions of these lease agreements generally provide for
   renewal options.  The following rental payments have been charged to
   expense:

   Year               Capital Leases      Operating Leases


   1997............    $1,579,000           $5,657,000
   1996............     1,105,000            4,884,000
   1995............     1,103,000            5,291,000

   Interest included in capital lease rental payments was $272,000 in 1997,
   $292,000 in 1996, and $351,000 in 1995.


   Future minimum rental payments, excluding executory costs, such as property
   taxes, state use taxes, insurance and maintenance, under long-term
   noncancellable leases, as of December 31, 1997, are:

   Year                        Capital Leases    Operating Leases
                                     (Thousands of Dollars)

   1998     ......................    $1,500         $ 6,100
   1999     ......................     1,200           5,300
   2000     ......................     1,000           4,700
   2001     ......................     1,000           4,200
   2002     ......................       100           2,200
   After 2002 ....................       500           5,100
   Future minimum lease
     payments ....................     5,300         $27,600
   Less amount representing
    interest .....................       600          
   Present value of future
     minimum lease payments ......    $4,700


5. NUCLEAR DECOMMISSIONING

   Millstone and Seabrook:  Millstone 3 and Seabrook 1 have service lives that
   are expected to end during the years 2025 and 2026, respectively. Upon
   retirement, these units must be decommissioned. Current decommissioning
   studies concluded that complete and immediate dismantlement at retirement
   continues to be the most viable and economic method of decommissioning
   Millstone 3 and Seabrook 1. Decommissioning studies are reviewed and
   updated periodically to reflect  changes in decommissioning requirements,
   costs, technology and inflation.

   The estimated cost of decommissioning PSNH's 2.85 percent ownership share
   of Millstone 3 and NAEC's 35.98 percent share of Seabrook 1, in year-end
   1997 dollars, is $15.6 million and $170.2 million, respectively.  Millstone
   3 and Seabrook 1 decommissioning costs will be increased annually by their
   respective escalation rates.  PSNH's Millstone 3 decommissioning costs are
   accrued over the expected service life of the unit and are included in
   depreciation expense on its Statements of Income.  Nuclear decommissioning
   costs related to PSNH's share of Millstone 3 amounted to $0.4 million in
   1997 and 1996, and $0.3 million in 1995.  Nuclear decommissioning, as a
   cost of removal, is included in the accumulated provision for depreciation
   on PSNH's Balance Sheets.  At December 31, 1997 and 1996, the balance in
   the accumulated reserve for depreciation amounted to $4.3 million and $3.2
   million, respectively.

   PSNH makes payments to an independent decommissioning trust for its portion
   of the costs of decommissioning Millstone 3. NAEC's portion of the cost of
   decommissioning Seabrook 1 is paid to an independent decommissioning
   financing fund managed by the state of New Hampshire.  Funding of the
   estimated decommissioning costs assumes levelized collections for Millstone
   3 and escalated collections for Seabrook 1, and after-tax earnings on the
   Millstone and Seabrook decommissioning funds of approximately 5.5 percent
   and 6.5 percent, respectively.  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 1. PSNH records its Seabrook decommissioning costs
   as a component of purchased power expense on its Statements of Income.
   Under the Rate Agreement, PSNH's Seabrook decommissioning costs are
   recovered through base rates.

   As of December 31, 1997, PSNH collected through rates approximately $2.6
   million toward the future decommissioning costs of its share of
   Millstone 3, which has been transferred to the external decommissioning
   trust. As of December 31, 1997, NAEC has paid approximately $21.1 million
   (including payments made prior to the Acquisition Date by PSNH), into
   Seabrook 1's decommissioning financing fund. Earnings on the
   decommissioning trust and financing fund increase the decommissioning trust
   balance and the accumulated reserve for depreciation. Unrealized gains and
   losses associated with the decommissioning trust and financing fund also
   impact the balance of the trust, and the accumulated reserve for
   depreciation.

   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.  PSNH attempts to recover sufficient amounts
   through its allowed rates to cover its expected decommissioning costs.
   Only the portion of currently estimated total decommissioning costs that
   has been accepted by regulatory agencies is reflected in rates of PSNH.
   Based on present estimates and assuming its nuclear units operate to the
   end of their respective licensing periods, PSNH expects that the
   decommissioning trust and financing fund will be substantially funded when
   the units are retired from service.

   Yankee Companies: VYNPC owns and operates a nuclear generating unit with a
   service life that is expected to end in 2012. PSNH's ownership share of
   estimated costs, in year-end 1997 dollars, of decommissioning the unit owned
   and operated by VYNPC is $20.2 million.

   On August 6, 1997, the board of directors of MYAPC voted unanimously to
   cease permanently the production of power at its nuclear generating facility
   (MY).  The NU system companies had relied on MY for approximately one
   percent of their capacity.  During November 1997, MYAPC filed an amendment
   to its power contracts clarifying the obligations of its purchasing
   utilities following the decision to cease power production.  During January
   1998, the FERC accepted the amendments and proposed rates, subject to
   refund.  At December 31, 1997, the remaining estimated obligation, including
   decommissioning, amounted to approximately $867.2 million, of which PSNH's
   share was approximately $43.4 million.

   On December 4, 1996, the board of directors of CYAPC voted unanimously to
   cease permanently the production of power at its nuclear generating plant
   (CY).  During 1996, the NU system companies had relied on CY for
   approximately three percent of their capacity. During late December 1996,
   CYAPC filed an amendment to its power contracts clarifying the obligations
   of its purchasing utilities following the decision to cease power
   production.  On February 27, 1997, the FERC approved an order for hearing
   which, among other things, accepted CYAPC's contract amendment.  The new
   rates became effective March 1, 1997, subject to refund.  At December 31,
   1997, the remaining estimated obligation, including decommissioning,
   amounted to $619.9 million, of which PSNH's share was approximately $31.0
   million.

   YAEC is in the process of decommissioning its nuclear facility.  At December
    31, 1997, the estimated remaining costs, including decommissioning, amounted
   to $124.4 million, of which PSNH's share was approximately $8.7 million.

   Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
   shareholder-sponsor companies, including PSNH, are responsible for their
   proportionate share of the costs of the units, including decommissioning.
   Management expects that PSNH will continue to be allowed to recover these
   costs from its customers.  Accordingly, PSNH has recognized these costs as
   regulatory assets, with corresponding obligations.

   Proposed Accounting: The staff of the SEC has questioned certain current
   accounting practices of the electric utility industry, including PSNH,
   regarding the recognition, measurement and classification of decommissioning
   costs for nuclear generating units in the financial statements. In response
   to these questions, the FASB has agreed to review the accounting for closure
   and removal costs, including decommissioning.  If current electric utility
   industry accounting practices for nuclear power plant decommissioning are
   changed, the annual provision for decommissioning could increase relative to
   1997, and the estimated cost for decommissioning could be recorded as a
   liability (rather than as accumulated depreciation), with recognition of an
   increase in the cost of the related nuclear power plant.  Management
   believes that PSNH will continue to be allowed to recover decommissioning
   costs through rates.

6. SHORT-TERM DEBT

   The amount of short-term borrowings that may be incurred by PSNH is subject
   to periodic approval by the SEC under the 1935 Act or by the NHPUC.
   Effective May 1997, PSNH was authorized under a waiver from the NHPUC, to
   incur short-term borrowings up to a maximum of $125 million.

   PSNH has a $125 million revolving credit agreement that will expire in
   April 1999.  The revolving credit agreement is with a group of 16 banks.
   PSNH is obligated to pay a facility fee of .50 percent per annum on the
   commitment of $125 million.  At December 31, 1997 and 1996, there were no
   borrowings under the facility.

   Under the credit facility discussed above, PSNH may borrow funds on a
   short-term revolving basis under its agreement, using either fixed-rate
   loans or standby loans.  Fixed rates are set using competitive bidding.
   Standby loans are based upon several alternative variable rates.

   Money Pool:  Certain subsidiaries of NU, including PSNH, are members of the
   Northeast Utilities System Money Pool (Pool).  The Pool provides a more
   efficient use of the cash resources of the 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.  However, borrowings based on
   loans from NU parent bear interest at NU parent's cost and must be repaid
   based upon the terms of NU parent's original borrowing. At December 31,
   1997 and 1996, PSNH had no outstanding borrowings from the Pool.

   Maturities of PSNH's short-term debt obligations are for periods of three
   months or less. For further information on short-term debt, see the MD&A.

7. EMPLOYEE BENEFITS

   A.  PENSION BENEFITS
       The NU system subsidiaries participate in a uniform noncontributory
       defined benefit retirement plan covering all regular NU system
       employees. Benefits are based on years of service and employees'
       highest eligible compensation during 60 consecutive months of
       employment.  PSNH's direct portion of the NU system's pension cost,
       part of which was charged to utility plant, approximated $1.3 million
       in 1997, $6.2 million in 1996, and $2.3 million in 1995. Pension
       (credits)/costs for 1997 and 1996 included approximately $(1.0) million
       and $1.9 million, respectively, related to workforce reduction
       programs.

       Currently, PSNH funds annually an amount at least equal to that which
       will satisfy the requirements of the Employee Retirement Income
       Security Act and the Internal Revenue Code. Pension costs are
       determined using market-related values of pension assets.  Pension
       assets are invested primarily in domestic and international equity
       securities and bonds.

       The components of net pension cost for PSNH are:

     For the Years Ended December 31,           1997       1996        1995
                                                 (Thousands of Dollars)

     Service cost..........................   $ 2,987     $ 6,161     $ 3,462
     Interest cost.........................    13,398      12,808      11,923
     Return on plan assets.................   (34,622)    (24,393)    (33,156)
     Net amortization......................    19,508      11,608      20,108
     Net pension cost......................   $ 1,271     $ 6,184     $ 2,337

         For calculating pension cost, the following assumptions were
         used:

     For the Years Ended December 31,           1997       1996        1995


     Discount rate..........................    7.75%      7.50%       8.25%
     Expected long-term rate of return......    9.25       8.75        8.50
     Compensation/progression rate..........    4.75       4.75        5.00


   The following table represents the plan's funded status
   reconciled to the Balance Sheets:

       At December 31,                                 1997            1996
                                                     (Thousands of Dollars)

       Accumulated benefit obligation,
         including vested benefits at
         December 31, 1997 and 1996 of
         $(140,089,000) and $(131,624,000),
         respectively ...........................   $(152,709)     $(143,377)
       Projected benefit obligation .............   $(187,968)     $(179,192)
       Market value of plan assets ..............     195,612        173,035
       Market value in excess (less than) of   
        projected benefit obligation .............      7,644         (6,157)
       Unrecognized transition amount ............      4,003          4,337
       Unrecognized prior service costs ..........      7,597          8,135
       Unrecognized net gain .....................    (65,305)       (51,105)
       Accrued pension liability .................   $(46,061)     $ (44,790)


   The following actuarial assumptions were used in calculating the plan's
   year-end funded status:

       For the Years Ended December 31,                1997            1996

     Discount rate................................    7.25%            7.75%
     Compensation/progression rate................    4.25             4.75



  B.   POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
       The NU system subsidiaries provide certain health care benefits,
       primarily medical and dental, and life insurance benefits through a
       benefit plan to retired employees (referred to as SFAS 106 benefits).
       These benefits are available for employees retiring from the NU system
       who have met specified service requirements. For current employees and
       certain retirees, the total SFAS 106 benefit is limited to two times
       the 1993 per-retiree health care cost. The SFAS 106 obligation has been
       calculated based on this assumption.  PSNH's direct portion of SFAS 106
       benefits, part of which was deferred or charged to utility plant,
       approximated $4.9 million in 1997, $6.2 million in 1996, and $7.2
       million in 1995.

       PSNH is funding SFAS 106 postretirement costs through external trusts.
       PSNH is funding, on an annual basis, amounts that have been rate-
       recovered and which also are tax-deductible under the Internal Revenue
       Code.  The trust assets are invested primarily in equity securities and
       bonds.

       The components of health care and life insurance cost are:


       For the Years Ended December 31,        1997         1996       1995
                                                 (Thousands of Dollars)

       Service cost ....................      $  802       $  914     $  933
       Interest cost ...................       3,352        3,559      4,063
       Return on plan assets ...........      (3,753)      (1,720)    (1,694)
       Amortization of unrecognized
         transition obligation .........       2,941        2,941      2,941
       Other amortization, net .........       1,541          547        998

       Net health care and life
         insurance cost ................      $4,883       $6,241     $7,241


       For calculating PSNH's SFAS 106 benefit costs, the following
       assumptions were used:


       For the Years Ended December 31,        1997         1996       1995


       Discount rate ....................      7.75%       7.50%       8.00%
       Long-term rate of return -
          Health assets, net of tax .....      6.00        5.25        5.00
          Life assets ...................      9.25        8.75        8.50



       The following table represents the plan's funded status reconciled to
       the Balance Sheets:

 

       At December 31,                                1997             1996
                                                      (Thousands of Dollars)
                                                      
       Accumulated postretirement benefit
         obligation of:
          Retirees ............................    $(36,790)         $(38,245)
          Fully eligible active
            employees .........................         (31)              (22)
          Active employees not
            eligible to retire ................      (9,788)           (9,696)
       Total accumulated post-
         retirement benefit
         obligation ...........................     (46,609)          (47,963)
       Market value of plan assets ............      22,908            17,882

       Accumulated postretirement
         benefit obligation in
         excess of plan assets ................     (23,701)          (30,081)
       Unrecognized transition
         amount ...............................      44,108            47,049
       Unrecognized net gain ..................     (20,407)          (17,139)
       Accrued postretirement benefit
         liability ............................     $  -               $ (171)



     The following actuarial assumptions were used in calculating
     the plan's year-end funded status:


       At December 31,                                 1997             1996

       Discount rate .............................    7.25%             7.75%
       Health care cost trend rate (a) ...........    5.76              7.23


       (a)  The annual growth in per capita cost of covered health care
            benefits was assumed to decrease to 4.40 percent by 2001.

       The effect of increasing the assumed health care cost trend rate by one
       percentage point in each year would increase the accumulated
       postretirement benefit obligation as of December 31, 1997, by $3.1
       million and the aggregate of the service and interest cost components
       of net periodic postretirement benefit cost for the year then ended by
       $245 thousand.  The trust holding the health plan assets is subject to
       federal income taxes at a 39.6 percent tax rate.

       PSNH currently is recovering SFAS 106 costs through rates.

8.  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION

    Details of preferred stock subject to mandatory redemption are:

                                  Shares
                                Outstanding             December 31,
   Description                December 31, 1997     1997      1996    1995
                                                     (Thousands of Dollars)

   10.60%
   Series A of 1991 ..........  4,000,000         $100,000   $125,000  $125,000

   Less preferred stock
     to be redeemed
     within one year .........  1,000,000           25,000     25,000      -


   Total preferred stock
     subject to
     mandatory redemption ....                    $ 75,000   $100,000   $125,000


   In case of default on dividends or sinking-fund payments, no payments may
   be made on any junior stock by way of dividends or otherwise (other than in
   shares of junior stock) so long as the default continues.  If PSNH is in
   arrears in the payment of dividends on any outstanding shares of preferred
   stock, PSNH would be prohibited from redemption or purchase of less than
   all of the preferred stock outstanding.  The Series A Preferred
   Stock is not subject to optional redemption by PSNH.  It is subject  to an
   annual sinking fund requirement of $25 million, which began on June 30,
   1997, sufficient to retire annually 1,000,000 shares at $25 per share.

9. LONG-TERM DEBT

   Details of long-term debt outstanding are:
    At December 31                                       1997           1996
                                                        (Thousands of Dollars)
   First Mortgage Bonds:
    9.17%   Series B, due 1998.....................    $170,000      $170,000

            Total First Mortgage Bonds...............   170,000       170,000

   Pollution Control Revenue Bonds:
   7.65%    Tax-Exempt Series A, due 2021............    66,000        66,000
   7.50%    Tax-Exempt Series B, due 2021............   108,985       108,985
   7.65%    Tax-Exempt Series C, due 2021............   112,500       112,500
   Adjustable Rate, Taxable, Series D,
     due 2021 .......................................    39,500        39,500
   Adjustable Rate, Taxable, Series E,
     due 2021 .......................................    69,700        69,700
   Adjustable Rate, Tax-Exempt, Series D,
     due 2021 .......................................    75,000        75,000
   Adjustable Rate, Tax-Exempt, Series E
     due 2021 .......................................    44,800        44,800
   Less:  Amounts due within one year ...............   170,000             -

          Long-term debt, net .......................  $516,485      $686,485


   Long-term debt maturities and cash sinking-fund requirements on debt
   outstanding at December 31, 1997 aggregate approximately $170 million for
   1998.  There are neither sinking-fund requirements nor debt maturities
   existing for the years 1999 through 2002. Also, there are annual renewal
   and replacement fund requirements equal to 2.25 percent of the average of
   net depreciable utility property owned by PSNH at the Reorganization Date,
   plus cumulative gross property additions thereafter.  PSNH expects to meet
   these future fund requirements by certifying property additions.  Any
   deficiency would need to be satisfied by the deposit of cash or bonds.

   Essentially, all utility plant of PSNH is subject to the lien of its first
   mortgage bond indenture.  PSNH's Revolving Credit Facility has a second
   lien, junior to the lien of its first mortgage bond indenture, on all PSNH
   property located in New Hampshire which will expire in April 1999.  At
   December 31, 1997, there were no borrowings under the Revolving Credit
   Facility.

   Concurrent with the issuance of PSNH's Series A and B First Mortgage Bonds,
   PSNH entered into financing arrangements with the Business Finance
   Authority of the state of New Hampshire (BFA).  Pursuant to these
   arrangements, the BFA issued seven series of Pollution Control Revenue
   Bonds (PCRBs) and loaned the proceeds to PSNH. At December 31, 1997,
   approximately $516.5 million of PCRBs were outstanding.  The average
   effective interest rates on the variable-rate pollution control notes
   ranged from 3.8 percent to 5.6 percent for 1997, and from 3.5 percent to
   5.5 percent for 1996.  PSNH's obligation to repay each series of PCRBs is
   secured by a series of First Mortgage Bonds that were issued under its
   indenture.  Each such series of First Mortgage Bonds contains terms and
   provisions with respect to maturity, principal payment, interest rate, and
   redemption that correspond to those of the applicable series of PCRBs.  For
   financial reporting purposes, these bonds would not be considered
   outstanding unless PSNH fails to meet its obligations under the PCRBs.

   The PCRBs, except for Series D and E, are redeemable on or after May 1,
   2001, at the option of the company with accrued interest and at specified
   premiums.  Under current interest rate elections by PSNH, the Series D and
   E PCRBs are redeemable, at par plus accrued interest at the end of each
   interest-rate period.  Future interest-rate elections by PSNH could
   significantly defer or eliminate the availability of optional redemptions
   by PSNH, and could affect costs as well.

10.INCOME TAX EXPENSE

   The components of the federal and state income tax provisions charged to
   operations are:


   For the Years Ended December 31,              1997        1996        1995
                                             (Restated)   (Restated)
                                                      (Thousands of Dollars)

   Current income taxes:
     Federal ...............................   $67,148      $(4,978)   $(1,166)
     State .................................        48       (1,605)     1,767
       Total current .......................    67,196       (6,583)       601


   Deferred income taxes, net:
     Federal ...............................    20,983       95,225     72,147
     State .................................     1,202          306     (1,606)
       Total deferred  .....................    22,185       95,531     70,541

   Investment tax credits, net .............      (540)        (548)      (555)
   Total income tax expense ................   $88,841      $88,400    $70,587


   The components of total income tax expense are classified as follows:

   Income taxes charged to operating
    expenses ...............................   $86,450      $80,677    $69,817
   Other income taxes ......................     2,391        7,723        770

   Total income tax expense ................   $88,841      $88,400    $70,587
                                           


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

                                         
   For the Years Ended December 31,              1997       1996       1995
                                              (Restated) (Restated)
                                                    (Thousands of Dollars)

   Depreciation ............................   $(1,937)     $(1,055)  $ 1,294
   Deferred tax asset associated
     with NOL ..............................      -          96,756    57,543
   Energy adjustment clauses ...............    16,839      (10,716)    5,098
   Amortization of regulatory
     settlement ............................    11,501       11,501    11,501
   Other ...................................    (4,218)        (955)   (4,895)

   Deferred income taxes, net ..............   $22,185      $95,531   $70,541


   A reconciliation between income tax expense and the expected tax expense at
   the applicable statutory rate is as follows:

   For the Years Ended December 31,              1997        1996       1995
                                              (Restated)  (Restated)
                                                     (Thousands of Dollars)

   Expected federal income tax at
     35 percent of pretax income ...........   $63,355     $64,931    $53,845

   Tax effect of differences:
     Depreciation ..........................     1,890       1,896      1,868
     Amortization of acquisition costs .....    31,298      31,410     31,522
     Seabrook intercompany loss ............    (4,616)     (7,504)   (13,048)
     Investment tax credit amortization ....      (540)       (548)      (555)
     State income taxes, net of
       federal benefit .....................     1,085        (845)       105
     Other, net ............................    (3,631)       (940)    (3,150)
   Total income tax expense ................   $88,841     $88,400    $70,587



11.  COMMITMENTS AND CONTINGENCIES

     A.RESTRUCTURING AND RATE MATTERS
       The 1996 restructuring legislation that the NHPUC is charged with
       implementing provides that the NHPUC may not adopt a restructuring plan
       that imposes a severe financial hardship on a utility.  Management
       believes that PSNH is entitled to full recovery of its prudently
       incurred costs, including regulatory assets and other strandable costs.
       It bases this belief both on the general nature of public utility
       industry cost-of-service based regulation and the specific circumstances
       of the resolution of PSNH's previous bankruptcy proceedings and its
       acquisition by NU, including the recoveries provided by the Rate
       Agreement and related agreements.

       On February 28, 1997, the NHPUC issued its decision related to
       restructuring the state's electric utility industry and setting interim
       stranded cost charges for PSNH pursuant to legislation enacted in New
       Hampshire in 1996.  In the decision, the NHPUC announced a departure
       from cost-based ratemaking and instead adopted a market-priced approach
       to ratemaking and stranded cost recovery.  Accordingly, unless the NHPUC
       modifies its position or the litigation described below results in
       necessary modifications to the final plan which leads management to
       conclude that the ratemaking approach utilized in the NHPUC's
       restructuring decision will not go into effect, PSNH no longer will be
       subject to the provisions of  SFAS 71.  That would result in PSNH
       writing off from its balance sheet substantially all of its regulatory
       assets.  The amount of the potential write-off triggered by the order is
       currently estimated at over $400 million, after taxes.  PSNH does not
       believe that under the decision, it would be required to recognize any
       additional loss resulting from the impairment of the value of its other
       long-lived assets under the provisions of SFAS 121.

       On March 3, 1997, PSNH, NU, NAEC and NUSCO filed for a temporary
       restraining order, preliminary and permanent injunctive relief and for
       declaratory judgment in the United States  District Court for New
       Hampshire (District  Court).  The case was subsequently transferred to
       Rhode Island. On March 10, 1997, the Chief Judge of the Rhode Island
       federal court issued a temporary restraining order which stayed the
       NHPUC's February 28, 1997 decision to the extent it established a rate-
       setting methodology that is not designed to recover PSNH's costs of
       providing service and would require PSNH to write off any regulatory
       assets.

       During 1997, a mediation process ended without a resolution.  The
       District Court had suspended the procedural schedule associated with
       this court proceeding pending the resolution of appeals of certain
       preliminary rulings by the U.S. Circuit Court of Appeals for the First
       Circuit (First Circuit).  On February 3, 1998, the First Circuit denied
       the appeals taken by would-be intervenors in PSNH's federal court
       proceeding concerning the NHPUC's final plan on restructuring.  The
       First Circuit affirmed a previous court decision stating that the
       opposing interests in this case were adequately represented by the NHPUC
       or by PSNH.  As a result of this decision, the proceedings in the
       District Court may resume. On February 17, 1998, the NHPUC filed a
       petition for rehearing with the First Circuit.  The temporary
       restraining order issued by the District Court in March 1997 will remain
       in effect until further orders by either court.

       During 1997, the NHPUC reopened its proceeding to reconsider certain
       limited matters in its restructuring orders.  The scope of the PSNH-
       specific rehearing proceedings included alternative rate-setting
       methodologies proposed by the intervenors; to decide the appropriate
       methodology to be used to determine PSNH's interim stranded costs; and
       to set PSNH's interim stranded cost charges utilizing the determined
       methodology.  In testimony filed with the NHPUC in  November 1997, PSNH
       proposed a new methodology to quantify its strandable costs.  Under this
       proposal, PSNH would divest all owned generation and purchased-power
       obligations via auction.  To the extent that the auction fails to
       produce sufficient revenues to cover the net book value of owned
       generation and contractual payment obligations of purchased-power, the
       difference would be recovered from customers through a non-bypassable
       distribution charge.  The new proposal also relies upon securitization
       of certain assets to further reduce rates.

       On December 15, 1997, the NHPUC officially announced that industry
       restructuring would not take place on January 1, 1998.  Management
       believes that industry restructuring will not take place in New
       Hampshire until the courts resolve the issues brought before them, or
       the parties involved reach a settlement.

       PSNH and NAEC are parties to a variety of financing agreements providing
       that the credit thereunder can be terminated or accelerated if they do
       not maintain specified minimum ratios of common equity to capitalization
       (as defined in each agreement).  In addition, PSNH and NAEC are parties
       to a variety of financing agreements providing in effect that the credit
       thereunder can be terminated or accelerated if there are actions taken,
       either by PSNH or NAEC or by the state of New Hampshire, that deprive
       PSNH and/or NAEC of the benefits of the Rate Agreement and/or the
       Seabrook Power Contracts.

       If the NHPUC's February 28, 1997 decision were to become effective, it
       would, unless PSNH and NAEC receive waivers from their respective
       lenders, result in (i) write-offs that would cause PSNH's common equity
       to fall below the contractual minimums (ii) reductions in income that
       would cause PSNH's income to fall below the contractual minimums, (iii)
       potential violation of the contractual provisions with respect to
       actions depriving PSNH and NAEC of the benefits of the Rate Agreement
       and (iv) the potential for cross defaults to other PSNH and NAEC
       financing documents.  Substantially all of PSNH's and NAEC's debt
       obligations would be affected.

       If these events transpired and if the creditors holding PSNH and NAEC
       debt obligations decide to exercise their rights to demand payment then
       either creditors or PSNH and NAEC could initiate proceedings under
       Chapter 11 of the bankruptcy laws.

       As a result of the NHPUC decision and the potential consequences
       discussed above, the reports of our auditors on the individual financial
       statements of PSNH and NAEC contain explanatory paragraphs.  Those
       explanatory paragraphs indicate that a substantial doubt exists
       currently about the ability of PSNH and NAEC to continue as going
       concerns.  The accounts of PSNH and NAEC are included in the
       consolidated financial statements of NU on the basis of a going concern.
       While the effect of the implementation of that decision would have a
       material adverse impact on NU's financial position, results of
       operations, and cash flows, it would not in and of itself result in
       defaults under borrowing or other financial agreements of NU or its
       other subsidiaries.

       On May 2, 1997, PSNH made a rate filing with the NHPUC.  For information
       regarding this rate proceeding, see the MD&A.

       For information regarding the FERC rate proceedings for CYAPC and MYAPC,
       see Note 5, "Nuclear Decommissioning."

   B.  NUCLEAR PERFORMANCE
       Millstone:  The three Millstone units are managed by NNECO. Millstone 1,
       2 and 3 have been out of service since November 4, 1995, February 21,
       1996 and March 30, 1996, respectively, and are on the NRC's watch list.
       PSNH's ownership interest in the Millstone units is limited to a 2.85
       percent joint ownership interest in Millstone 3. NU has restructured its
       nuclear organization and is currently implementing comprehensive plans
       to restart the units.

       Subsequent to its January 31, 1996 announcement that Millstone had been
       placed on its watch list, the NRC stated that the units cannot return
       to service until independent, third-party verification teams have
       reviewed the actions taken to improve the design, configuration and
       employee concerns issues that prompted the NRC to place the units on
       its watch list.  The actual date of the return to service for each of
       the units is dependent upon the completion of independent inspections
       and reviews by the NRC and a vote by the NRC commissioners.  NU hopes
       to return Millstone 3 to service in early spring of 1998 and Millstone
       2 three to four months after Millstone 3.  Millstone 1 is currently in
       extended maintenance status.

       Management cannot predict when the NRC will allow any of the Millstone
       units to return to service and thus cannot precisely estimate the total
       replacement power costs the NU system companies will ultimately incur.
       Replacement power costs incurred by NU attributable to the Millstone
       outages averaged approximately $28 million per month during 1997, and
       for 1998 are projected to average approximately $9 million per month
       for Millstone 3, $9 million per month for Millstone 2, and $6 million
       per month for Millstone 1 while the plants remain out of service.  To
       date, PSNH's share of replacement power costs has not been material.
       PSNH's share of replacement power costs is not expected to be material
       for 1998, while Millstone 3 is out of service.  CL&P, WMECO and PSNH
       will continue to expense their replacement power costs in 1998.

       Based on the current estimates of expenditures and restart dates,
       management believes the NU system has sufficient resources to fund the
       restoration of the Millstone units and related replacement power costs.
       If the return to service of Millstone 3 or 2 is delayed substantially
       beyond the present restart estimates, if some financing  facilities
       become unavailable because of difficulties in meeting borrowing
       conditions or renegotiating extensions, if CL&P and WMECO encounter
       additional significant costs or if any other  significant deviations
       from management's assumptions occur, CL&P and WMECO could be unable to
       meet their cash requirements.  In those circumstances, management would
       take even more stringent actions to reduce costs and cash outflows and
       attempt to obtain additional sources of funds.  The availability of
       these funds would be dependent upon general market conditions and
       CL&P's and WMECO's respective credit and financial conditions at that
       time.

       For information regarding Millstone restart costs, see the MD&A.

       Litigation:  On August 7, 1997, the non-NU owners of Millstone 3 filed
       demands for arbitration with CL&P and WMECO as well as lawsuits in
       Massachusetts Superior Court against NU and its current and former
       trustees.  The non-NU owners raise a number of contract, tort and
       statutory claims arising out of the operation of Millstone 3.  The
       arbitrations and lawsuits seek to recover compensatory damages, punitive
       damages, treble damages and attorneys' fees.  Owners representing
       approximately two-thirds of the non-NU interests in Millstone 3 claimed
       compensatory damages in excess of $200 million.  In addition, one of the
       lawsuits seeks to restrain NU from disposing of its shares of the stock
       of WMECO and HWP, pending the outcome of the lawsuit.  Management cannot
       estimate the potential outcome of these suits but believes there is no
       legal basis for the claims and intends to defend against them
       vigorously.  To date, no reserves have been established for this
       litigation.  At December 31, 1997, the costs related to this litigation
       for the NU system were estimated to be $100 million for incremental O&M
       costs and approximately $100 million for replacement power costs.  These
       costs are likely to increase as long as Millstone 3 remains out of
       service.

   C.  ENVIRONMENTAL MATTERS
       The NU system is subject to regulation by federal, state and local
       authorities with respect to air and water quality, the handling and
       disposal of toxic substances and hazardous and solid wastes, and the
       handling and use of chemical products.  The NU system has an active
       environmental auditing and training program and believes that it is in
       substantial compliance with current environmental laws and regulations.
       However, the NU system is subject to certain pending enforcement
       actions and governmental investigations in the environmental area.
       Management cannot predict the outcome of these enforcement actions and
       investigations.

       Environmental requirements could hinder the construction of new
       generating units, transmission and distribution lines, substations and
       other facilities. Changing environmental requirements could also
       require extensive and costly modifications to PSNH's existing
       generating units, and transmission and distribution systems, and could
       raise operating costs significantly.  As a result, PSNH may incur
       significant additional environmental costs, greater than amounts
       included in cost of removal and other reserves, in connection with the
       generation and transmission of electricity and the storage,
       transportation and disposal of by-products and wastes.  PSNH may also
       encounter significantly increased costs to remedy the environmental
       effects of prior waste handling activities. The cumulative long-term
       cost impact of increasingly stringent environmental requirements cannot
       be estimated accurately.

       PSNH has recorded a liability based upon currently available
       information for what it believes are its estimated environmental
       remediation costs that it expects to incur for waste disposal sites.
       In most cases, additional future environmental cleanup costs are not
       reasonably estimable due to a number of factors, including the unknown
       magnitude of possible contamination, the appropriate remediation
       methods, the possible effects of future legislation or regulation and
       the possible effects of technological changes.  At December 31, 1997,
       the net liability recorded by PSNH for its estimated environmental
       remediation costs, excluding any possible insurance recoveries or
       recoveries from third parties, amounted to approximately $5.6 million,
       which management has determined to be the most probable amount.

       During 1997, PSNH adopted Statement of Position 96-1, "Environmental
       Remediation Liabilities" (SOP). The principal objective of the SOP is
       to improve the manner in which existing authoritative accounting
       literature is applied by entities to specific situations of
       recognizing, measuring and disclosing environmental remediation
       liabilities.  The adoption of the SOP resulted in an increase of
       approximately $400 thousand to PSNH's environmental reserve in 1997.

       PSNH cannot estimate the potential liability for future claims,
       including environmental remediation costs, that may be brought against
       it.  However, considering known facts, existing laws, and regulatory
       practices, management does not believe the matters disclosed above will
       have a material effect on PSNH's financial position or future results
       of operations.

   D.  NUCLEAR INSURANCE CONTINGENCIES
       Under certain circumstances, in the event of a nuclear incident at one
       of the nuclear facilities in the country covered by the federal
       government's third-party liability indemnification program, an owner of
       a nuclear unit could be assessed in proportion to its ownership
       interest in each of its nuclear units up to $75.5 million.  Payments of
       this assessment would be limited to $10.0 million in any one year per
       nuclear incident based upon the owner's pro rata ownership interest in
       each of its nuclear units.  In addition, the owner would be subject to
       an additional five percent or $3.8 million, in proportion to its
       ownership interests in each of its nuclear units, if the sum of all
       claims and costs from any one nuclear incident exceeds the maximum
       amount of financial protection. 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 on its ownership
       interest in Millstone 3 and NAEC's ownership interest in Seabrook 1,
       PSNH's maximum liability, including any additional assessments, would
       be $30.8 million per incident of which payments would be limited to
       $3.9 million per year. In addition, through power purchase contracts
       with MYAPC, VYNPC and CYAPC, PSNH would be responsible for up to an
       additional $11.1 million per incident, of which payments would be
       limited to a maximum of $1.4 million per year.

       Insurance has been purchased to cover the primary cost of repair,
       replacement or decontamination of utility property resulting from
       insured occurrences at Millstone 3 and CY.  PSNH is subject to
       retroactive assessments if losses exceed the accumulated funds
       available to the insurer. The maximum potential assessment against PSNH
       with respect to losses arising during the current policy year is
       approximately $0.4 million under the primary property insurance
       program.

       Insurance has been purchased to cover certain extra costs incurred in
       obtaining replacement power during prolonged accidental outages and the
       excess cost of repair, replacement, or decontamination or premature
       decommissioning of utility property resulting from insured occurrences.
       PSNH is subject to retroactive assessments if losses exceed the
       accumulated funds available to the insurer. The maximum potential
       assessments against PSNH (including costs resulting from PSNH's
       contracts with NAEC), with respect to losses arising during current
       policy years are approximately $2.2 million under the replacement power
       policies and $5.2 million under the excess property damage,
       decontamination and decommissioning policies. Although PSNH has
       purchased the limits of coverage currently available from the
       conventional nuclear insurance pools, the cost of a nuclear incident
       could exceed available insurance proceeds.

       Insurance has been purchased aggregating $200 million on an industry
       basis for coverage of worker claims.  All participating reactor
       operators insured under this coverage are subject to retrospective
       assessments of $3 million per reactor. The maximum potential assessment
       against  PSNH (including costs resulting from the Seabrook Power
       Contracts with NAEC), with respect to losses arising during the current
       policy period is approximately $1.8 million.  Effective January 1,
       1998, a new worker policy was purchased which is not subject to
       retrospective assessments.

   E.  CONSTRUCTION PROGRAM
       The construction program is subject to periodic review and revision by
       management.  PSNH currently forecasts construction expenditures of
       approximately $302.6 million for the years 1998-2002, including
       approximately $41.9 million for 1998. In addition, PSNH estimates that
       nuclear fuel requirements, for its share of Millstone 3, will be $5.1
       million for the years 1998-2002, including $1.7 million for 1998.

   F.  LONG-TERM CONTRACTUAL ARRANGEMENTS
       Yankee Companies:  PSNH, CL&P and WMECO rely on VY for approximately
       1.7 percent of their capacity under long-term contracts.  Under the
       terms of their agreements, the NU system companies pay their ownership
       (or entitlement) shares of costs, which include depreciation, O&M
       expenses, taxes, the estimated cost of decommissioning and a return on
       invested capital. These costs are recorded as purchased power expense
       and are recovered through the companies' rates.  PSNH's total cost of
       purchases under contracts with VYNPC, amounted to $6.2 million in 1997,
       $6.5 million in 1996 and 1995.

       The other Yankee generating facilities, MY, CY and Yankee Rowe, were
       permanently shutdown as of August 6, 1997, December 4, 1996, and
       February 26, 1992, respectively.  See Note 2E, "Summary of Significant
       Accounting Policies-Investments and Jointly Owned Electric Utility
       Plant," for more information on the Yankee companies.  See Note 5,
       "Nuclear Decommissioning," regarding information on the related
       decommissioning studies.

       Nonutility Generators (NUGs):  PSNH has requirements under various
       arrangements for the purchase of capacity and energy from NUGs. These
       arrangements have terms from 20 to 30 years, currently expiring in the
       years 1998 through 2023, and require PSNH to purchase energy at
       specified prices or formula rates.  For the 12 months ending December
       31, 1997, approximately 14 percent of the NU system electricity
       requirements were met by NUGs. PSNH's total cost of purchases under
       these arrangements amounted to $133.1 million in 1997, $132.6 million
       in 1996, and $124.0 million in 1995.  These costs may be deferred for
       eventual recovery through rates.  For additional information, see Note
       2K, "Summary of Significant Accounting Policies-Recoverable Energy
       Costs."

       New Hampshire Electric Cooperative:  PSNH entered into a buy-back
       agreement to purchase the capacity and energy of the New Hampshire
       Electric Cooperative, Inc.'s (NHEC) share of Seabrook 1 and to pay all
       of NHEC's Seabrook 1 costs for a ten-year period, which began on July
       1, 1990.  The total cost of purchases under this agreement was $23.4
       million in 1997, $14.6 million in 1996, and $15.8 million in 1995.  The
       total cost of these purchases has been collected through the FPPAC in
       accordance with the Rate Agreement. In connection with the agreement,
       NHEC agreed to continue as a firm-requirements customer of PSNH for 15
       years.

       Hydro-Quebec:  Along with other New England utilities, PSNH, CL&P,
       WMECO, and HWP have entered into agreements to support transmission and
       terminal facilities to import electricity from the Hydro-Quebec system
       in Canada.  PSNH is obligated to pay, over a 30-year period ending in
       2020, its proportionate share of the annual O&M and capital costs of
       these facilities.

       Estimated Annual Costs:  The estimated annual costs of PSNH's
       significant long-term contractual arrangements are as follows:


                                     1998     1999     2000      2001    2002
                                            (Millions of Dollars)

       VYNPC ...................   $  7.1    $  7.1    $  6.7   $  7.4  $  7.7
       NUGs ....................    139.4     142.9     147.1    151.3   155.5
       NHEC ....................     30.0      30.0      14.6      -       -
       Hydro-Quebec ............     10.2       9.8       9.7      9.4     9.2


       For additional information regarding the recovery of purchased
        power costs, see Note 2K, "Summary of Significant Accounting Policies -
       Recoverable Energy Costs."

   G.  DEFERRED RECEIVABLE FROM 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 accruing 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 is deferred under the consolidated
       income tax rules.  Beginning December 1, 1997, this gain is being
       restored 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, it will be obligated to make these corresponding payments to
       PSNH.

       On the Acquisition Date, PSNH recorded the $32.9 million of income
       taxes associated with the deferred return as a deferred receivable from
       NAEC, with a corresponding entry to deferred revenue, on its Balance
       Sheet.  In 1993, due to changes in tax rates, this amount was adjusted
       to $33.2 million.

       For further information related to the phase-in of the Seabrook power
       plant, see Note 3, "Seabrook Power Contracts."

       See Note 11A, "Commitments and Contingencies - Restructuring and Rate
       Matters" for the possible impacts of the NHPUC's decision related to
       industry restructuring on this intercompany transaction between PSNH
       and NAEC.

12.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 nuclear decommissioning trusts:  The carrying amounts approximate
   fair value.

   SFAS 115, "Accounting for Certain Investments in Debt and Equity
   Securities," requires investments in debt and equity securities to be
   presented at fair value.  Unrealized gains and losses resulting from the
   use of SFAS 115 accounting have not been material.

   Preferred stock and long-term debt:  The fair value of PSNH's fixed-rate
   securities is based upon the quoted market price for those issues or
   similar issues.  Adjustable rate securities are assumed to have a fair
   value equal to their carrying value. The carrying amounts of PSNH's
   financial instruments and the estimated fair values are as follows:


                                                        Carrying         Fair
     At December 31, 1997                                Amount         Value
                                                       (Thousands of Dollars)

     Preferred stock subject to
       mandatory redemption........................    $100,000       $ 99,000
     Long-term debt - First Mortgage Bonds.........     170,000        170,425
     Other long-term debt..........................     516,485        537,599



                                                        Carrying         Fair
     At December 31, 1996                                Amount         Value
                                                       (Thousands of Dollars)

     Preferred stock subject to
       mandatory redemption........................    $125,000       $125,000
     Long-term debt - First Mortgage Bonds.........     170,000        175,729
     Other long-term debt..........................     516,485        523,536




   The fair values shown above have been reported to meet the disclosure
   requirements and do not purport to represent the amounts at which those
   obligations would be settled.





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors
   of Public Service Company of New Hampshire:



We have audited the accompanying balance sheets, as restated - see Note 1,
of Public Service Company of New Hampshire (a New Hampshire corporation and
a wholly owned subsidiary of Northeast Utilities) as of December 31, 1997
and 1996, and the related statements of income, common stockholder's
equity, and cash flows, as restated - see Note 1, for each of the three
years in the period ended December 31, 1997.  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 generally accepted auditing
standards. 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 Public Service Company
of New Hampshire as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern.  As discussed in Note 11A, on
February 28, 1997, the State of New Hampshire Public Utilities Commission
(the NHPUC) issued an order outlining its final plan to restructure the
electric utility industry.  The final plan announced a departure from cost-
based rate making, which, if implemented, would require the company to
discontinue the application of Financial Accounting Standard No. 71,
"Accounting for the Effects of Certain Types of Regulation," (FAS 71).  The
implementation of the final plan, including the effect of the
discontinuation of FAS 71, would result in after tax write-off of over $400
million.  Such a write-off would cause the company to be in technical
default under financial covenants imposed by lenders, which, would, if not
waived or renegotiated, give rise to the rights of lenders to accelerate
the repayment of approximately $686 million of the company's indebtedness
and approximately $495 million of an affiliated company's indebtedness.
These conditions raise substantial doubt about the company's ability to
continue as a going concern.  The financial statements referred to above do
not include any adjustments that might result from the outcome of this
uncertainty.

As explained in Note 1 to the consolidated financial statements, the
company has given retroactive effect to the change in accounting for
nuclear compliance costs.



                                         /s/ARTHUR ANDERSEN LLP
                                            ARTHUR ANDERSEN LLP


Hartford, Connecticut
February 20, 1998 (except with respect to the matter discussed in
  Note 1, as to which the date is June 10, 1998)








                    PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

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


This section contains management's assessment of Public Service Company of New
Hampshire's (PSNH or the company) financial condition and the principal factors
having an impact on the results of operations.  The company is a wholly-owned
subsidiary of Northeast Utilities (NU).  This discussion should be read in
conjunction with the company's financial statements and footnotes.


FINANCIAL CONDITION

OVERVIEW
Net income was approximately $92 million for 1997 compared to approximately $97
million for 1996. The decrease in net income was primarily due to higher
operation expenses.

Retail kilowatt-hour sales were essentially unchanged in 1997.

A significant issue facing PSNH in 1998 is the industry restructuring efforts in
New Hampshire.  A temporary restraining order issued by a U.S. District Court is
currently blocking the New Hampshire Public Utilities Commission (NHPUC) from
implementing a February 1997 restructuring order that would have resulted in a
write-off by PSNH of more than $400 million. Management hopes to negotiate an
alternative restructuring proposal in 1998 that will produce significant PSNH
rate reductions and allow retail customers to choose their electric suppliers,
but still give PSNH and North Atlantic Energy Corporation (NAEC) an opportunity
to maintain an adequate financial condition and earn fair returns on their
investments.
                                      
RESTRUCTURING
In February, 1997, the NHPUC issued orders to restructure the state's electric
utility industry and set interim stranded cost charges for PSNH.  In the orders,
the NHPUC announced a departure from cost-based ratemaking and adopted a market-
priced approach to stranded cost recovery.  PSNH, NU, NAEC and Northeast
Utilities Service Company (NUSCO) filed for a temporary restraining order,
preliminary and permanent injunctive relief and a declaratory judgment in the
United States District Court of New Hampshire.  The case subsequently was
transferred to the United States District Court of Rhode Island (District Court)
where a temporary restraining order was granted, staying, indefinitely, the
enforcement of the NHPUC's restructuring orders as they affected PSNH.  Certain
appeals to the preliminary ruling have been denied and proceedings in the
District Court are expected to resume.

The NHPUC conducted rehearing proceedings in 1997 to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs and to set
PSNH's interim stranded cost charges utilizing the determined methodology.  The
NHPUC has not indicated when it will issue a decision in these proceedings.

On December 15, 1997, the NHPUC officially announced that industry restructuring
would not take place on January 1, 1998.  On December 24, 1997, the Governor's
office filed a motion with the NHPUC formally requesting that certain issues
concerning the rate agreement (Rate Agreement) between NU, PSNH and the state of
New Hampshire, entered into in 1989 in connection with NU's reorganization plan
to resolve PSNH's bankruptcy, be transferred to the New Hampshire Supreme Court
for decision.  The motion recommends that the NHPUC not issue any new rulings
concerning the Rate Agreement pending such Supreme Court decision.  On February
20, 1998, the NHPUC petitioned the New Hampshire Supreme Court to review two
issues regarding the Rate Agreement; (i) whether the Rate Agreement creates
private rights which would allow PSNH to seek damages under a contract theory if
PSNH receives less than the full amount it claims as strandable costs under the
Rate Agreement, and (ii) if yes, against whom and under what conditions such
rights be enforceable.  The Supreme Court first must determine whether it will
accept the NHPUC's petition.

As part of the rehearing proceedings, PSNH proposed a new methodology to
quantify its stranded costs.  Under this proposal, PSNH would divest its owned
generation and purchased power obligations via auction.  To the extent that the
auction fails to produce sufficient revenues to cover the net book value of
owned generation and contractual payment obligations of purchased power, the
difference would be recovered from customers through a non-bypassable
distribution charge.  The new proposal also relies upon securitization of
certain assets to further reduce rates.

On February 20, 1998, PSNH forwarded a settlement offer to representatives from
the state of New Hampshire that was consistent with PSNH's proposal in the
rehearing proceedings, including among other things, a 20 percent rate reduction
at the beginning of 1999, an auction of PSNH's non-nuclear generating units and
securitization of approximately $1.15 billion of PSNH's stranded costs.

See the "Notes to Financial Statements," Note 11A, for the potential accounting
impacts of restructuring.

RATE MATTERS
PSNH's Rate Agreement provided for seven base rate increases and a comprehensive
fuel and purchased power adjustment clause (FPPAC).  In June 1996, the final
base rate increase of 5.5 percent went into effect.  Although the FPPAC
continues for an additional four years beyond the end of the fixed rate period,
there is uncertainty regarding how it will continue to function.  The costs
associated with purchases by PSNH from certain non-utility generators (NUGs) at
prices above the level assumed in rates are deferred and recovered through the
FPPAC.  At December 31, 1997, NUG deferrals totaled approximately $173 million.

On May 2, 1997, PSNH made a rate filing with the NHPUC requesting base rates to
remain at their current level after May 31, 1997.  By order dated November 6,
1997, the NHPUC ordered a temporary rate reduction for PSNH at a revenue level
6.87 percent lower than current rates. The NHPUC also set an interim return on
equity of 11 percent.  The temporary rates became effective December 1, 1997. A
final decision, which will be reconciled to July 1, 1997, is not expected to be
issued until September, 1998. A portion of this reduction was offset by an
increase to rates through the FPPAC.

On February 10, 1998, the NHPUC ordered an FPPAC rate for the period December 1,
1997 through May 31, 1998, which increased customer bills by approximately 6
percent.  Prior to this increase, the FPPAC rate had been a credit to reflect a
customer refund ordered by the NHPUC beginning in June 1996.  This rate
continues to defer recovery of a substantial portion of costs for the future.
In addition, recovery of the Seabrook deferred return (approximately $127
million annually) is scheduled to begin in June 1998.  On March 19, 1998, PSNH
filed a proposed change to its rates, effective June 1, 1998.  Public hearings
are scheduled to take place in May 1998.

The NHPUC also confirmed in its February 10, 1998 decision that it would
disallow approximately $3 million in replacement power costs related to outages
at Connecticut Yankee, Maine Yankee and Vermont Yankee and require PSNH to set
aside $10 million as a reserve for potential overpayments due to the fact that
PSNH has not required small power producers to reduce deliveries during so-
called "light-loading" periods, pending the NHPUC's review of this matter.  The
decision also alleges various breaches of the Rate Agreement and ordered PSNH to
meet with the State to discuss these matters.  Finally, the decision indicated
that the NHPUC would open a proceeding to review whether the proceeds from the
sale of steam generators (approximately $20.9 million for NAEC's share) related
to the canceled Unit II at Seabrook station should flow through rates to reduce
customer bills.

See the "Notes to Financial Statements," Note 2K, for further information on the
FPPAC.

LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $44 million in 1997,
compared to 1996, primarily due to lower recoveries through the FPPAC as a
result of a customer refund ordered by the NHPUC and higher costs due to the
Seabrook outage that are not being recovered currently, partially offset by
higher working capital. Cash used for financing activities decreased
approximately $116 million in 1997, compared to  1996, due primarily to the
repayment of long-term debt in 1996, partially offset by the higher payment of
cash dividends on common stock and the repayment of preferred stock in 1997.
Cash used for investments decreased approximately $21 million in 1997, compared
to 1996, primarily due to a decrease in investments in the NU system Money Pool.

PSNH has a $125 million revolving credit agreement that will expire in April
1999. At December 31, 1997 there were no borrowings under the facility.

PSNH has a first mortgage bond maturity of $170 million, plus accrued interest,
on May 14, 1998. PSNH expects to meet that maturity with cash on hand and
borrowing under the revolving credit agreement.

Each major subsidiary of NU finances its own needs.  Neither CL&P nor WMECO has
any financing agreements containing cross defaults based on financial defaults
by NU, PSNH or NAEC.  Similarly, neither PSNH nor NAEC has any financing
agreements containing cross defaults based on financial defaults by NU, CL&P or
WMECO. Nevertheless, it is possible that investors will take negative operating
results or regulatory developments at one company in the NU system into account
when evaluating other companies in the NU system. That could, as a practical
matter and despite the contractual and legal separations among the NU companies,
negatively affect each company's access to financial markets.

NUCLEAR PERFORMANCE
MILLSTONE 3
PSNH has a 2.85 percent joint ownership interest in Millstone 3. Millstone 3 has
been out of service since March 30, 1996.

Subsequent to its January 31, 1996, announcement that Millstone had been placed
on its watch list, the NRC has stated that the unit cannot return to service
until independent, third party verification teams have reviewed the actions
taken to improve the design, configuration and employee concerns issues that
prompted the NRC to place the unit on its watch list.  The actual date of the
return to service for the unit is dependent upon the completion of independent
inspections, reviews by the NRC and a vote by the NRC commissioners.

In January 1998, NU declared Millstone 3 physically ready for restart, which
meant that almost all of the restart-required physical work had been completed
in the plant.  The NRC currently is conducting a series of inspections to
determine, among other things, whether the plant has effective leadership and
corrective action and employee concerns programs. The Independent Corrective
Action Verification Program, an NRC-ordered independent review of the plant's
design and licensing bases, is expected to be completed in March 1998.

To date, PSNH's costs related to the Millstone 3 outage have not had a material
impact on the company's financial position or results of operations. Management
expects that, under its current planning assumptions, Millstone 3's outage-
related costs will continue to be immaterial to the company's results of
operations.

SEABROOK
PSNH is obligated to purchase North Atlantic Energy Corporation's (NAEC) 35.98-
percent share of the capacity and output generated by Seabrook 1(Seabrook) under
the Seabrook Power Contract for a period equal to the length of the NRC full-
power operating license for Seabrook (through 2026) whether or not Seabrook is
operating and without regard to the cost of alternative sources of power.  North
Atlantic Energy Service Corporation is the managing agent and operates Seabrook.

Seabrook operated at a capacity factor of 78.3 percent through December 1997,
compared to 96.8 percent for the same period in 1996. The lower 1997 capacity
factor is due primarily to the 50-day scheduled refueling and maintenance outage
which began on May 10, 1997, and an unplanned outage that began on December 5,
1997.  The unplanned outage occurred when the unit was shut down to repair leaks
in a three inch stainless steel pipe in the residual heat removal system.  The
pipe was replaced, but problems were subsequently discovered in the control
building air conditioning system.  Design changes were implemented and the plant
returned to service on January 16, 1998.

DECOMMISSIONING
CONNECTICUT YANKEE
PSNH has a 5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company  voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.

CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, PSNH's
share of these obligations was approximately $31 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that
PSNH will continue to be allowed to recover such FERC approved costs from their
customers.  Accordingly, PSNH has recognized its share of the estimated costs as
a regulatory asset, with a corresponding obligation, on its balance sheets.

MAINE YANKEE
PSNH has a 5 percent ownership interest in the Maine Yankee (MY) nuclear
generating facility.  On August 6, 1997, the Board of Directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to retire MY. On January 14,
1998, FERC released a draft order on the MYAPC application to amend its power
contracts with the owner/purchasers and revise its decommissioning and other
charges. FERC has accepted the proposed application for filing and made the
amendments and the proposed charges under the contracts effective on January
15, 1998, subject to refund after hearings.  At December 31, 1997, PSNH's
share of the estimated remaining obligation, including decommissioning amounted
to approximately $43 million.  Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including PSNH, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that PSNH will be allowed to recover these costs from its
customers.  Accordingly, PSNH has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.

MILLSTONE AND SEABROOK
PSNH's estimated cost to decommission its 2.85 percent share of Millstone 3 and
NAEC's 35.98 share of Seabrook is approximately $16 million and $170 million,
respectively, in year end 1997 dollars. These costs are being recognized over
the lives of the respective units with a portion currently being recovered
through rates.  Under the terms of the Rate Agreement, the company 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.  As of December 31,
1997, the market value of the contributions already made to the Millstone 3 and
Seabrook decommissioning trusts, including their investment returns, was
approximately $4 million and $26 million, respectively.

See the "Notes to Financial Statements," Note 5, for further information on
nuclear decommissioning, including PSNH's share of costs to decommission the
other regional nuclear generating units.

ENVIRONMENTAL MATTERS
PSNH is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of PSNH. At December 31, 1997, PSNH had recorded
an environmental reserve of approximately $5.6 million.  See the "Notes to
Financial Statements" Note 11C, for further information on environmental
matters.

YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the change of the
century occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not recognize it at all.  This inability to recognize or properly treat the year
2000 may cause NU systems to process critical financial and operational
information incorrectly. The company has assessed and continues to assess the
impact of the Year 2000 issue on its operating and reporting systems. The
assessment  of the nuclear operating systems is continuing and is expected to be
completed in the summer of 1998.

The NU system will utilize both internal and external resources to reprogram or
replace, and test the software for Year 2000 modifications.  The total estimated
remaining cost of the Year 2000 project is $37 million and is being funded
through operating cash flows.  This estimate does not include any costs for the
replacement or repair of equipment or devices that may be identified during the
assessment process.  The majority of these costs will be expensed as incurred
over the next two years.  To date, the NU system has incurred and expensed
approximately $4 million related to the assessment of, and preliminary efforts
in connection with, its Year 2000 project.

The costs of the project and the date on which the company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors.  However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans.  If the
NU system's remediation plan is not successful, there could be a significant
disruption of the NU system's operations.

RESULTS OF OPERATIONS

                                               Income Statement Variances
                                                  Increase/(Decrease)
                                                  Millions of Dollars
                               1997 over/(under) 1996   1996 over/(under) 1995
                                Amount       Percent          Amount    Percent


Operating revenues               $(2)           -  %          $130        13%

Fuel, purchased and net
  interchange power              (30)           (8)            100        39
Other operation                   42            13              13         4
Maintenance                       (7)          (16)              3         8
Other, net                        (7)          (92)              5        (a)
Interest on long-term debt        (6)          (11)            (19)      (25)
Other interest expense            (3)          (91)              3        (a)
Net income                        (5)           (5)             14        17

(a) Percent greater than 100



OPERATING REVENUES
Total operating revenues decreased in 1997 primarily due to lower fuel
recoveries, partially offset by higher retail revenues.  Fuel recoveries
decreased approximately $12 million, primarily due to the customer refund
ordered by the NHPUC. Retail revenues increased approximately $9 million,
primarily due to the June 1996 rate increase, partially offset by the December
1997 rate decrease and higher price discounts to retain customers.  Retail sales
were essentially unchanged.

Total operating revenues increased in 1996, primarily due to higher fuel
recoveries, regulatory decisions, and other retail revenues. Fuel recoveries
increased $112 million, primarily due to revenues resulting from the
intercompany allocation of energy costs to NU affiliated companies ($125
million) and higher base fuel revenues primarily as a result of the June 1996
and 1995 retail-rate increases, partially offset by lower FPPAC revenues as a
result of a customer refund ordered by the NHPUC. Revenues related to regulatory
decisions increased $8 million, primarily due to the retail-rate increases.
Other retail revenues increased $10 million primarily due to sales growth and
other revenue sources. Retail sales increased 0.4 percent ($2 million),
primarily due to economic growth in 1996, partially offset by milder weather in
1996.

FUEL EXPENSE
Fuel, purchased and net interchange power expense decreased in 1997, primarily
due to the timing in the recognition of fuel expenses under the FPPAC, partially
offset by higher purchased power costs.

Fuel, purchased and net interchange power expense increased in 1996, primarily
due to higher purchased power costs and the timing in the recognition of fuel
expenses under the FPPAC.

OTHER OPERATION AND MAINTENANCE EXPENSE
Other operation and maintenance expense increased in 1997 primarily due to
higher capacity charges under the Seabrook Power Contract as a result of the
scheduled May 1997 refueling and maintenance outage and the unplanned December
1997 outage ($23 million), higher capacity purchases from NHEC ($11 million),
higher capacity charges from MY ($4 million) and higher costs for PSNH's share
of Millstone 3 ($3 million), partially offset by lower fossil costs ($4 million)
and lower administration and sales costs ($3 million).

Other operation and maintenance expenses increased in 1996, primarily due to
higher storm costs, higher employee benefit costs, higher capacity charges under
the Seabrook Power Contracts and higher marketing costs.

OTHER, NET
Other, net decreased in 1997 and increased in 1996, primarily due to the
deferral in 1996 of interest expense ($5 million) associated with the FPPAC
refund.

INTEREST ON LONG-TERM DEBT
Interest on long-term debt decreased in 1997 and 1996, primarily due to the
repayment of the $172.5 million Series A first-mortgage bond in May 1996.

OTHER INTEREST EXPENSE
Other interest expense decreased in 1997 and increased in 1996, primarily due to
1996 interest expense ($5 million) associated with the FPPAC refund.


SELECTED FINANCIAL DATA (a)



For the Years Ended   Dec.31, 1997      Dec. 31, 1996         Dec. 31, 1995
                       (Restated)         (Restated)
                                     (Thousands of Dollars)

Operating Revenues...  $1,108,459        $1,110,169              $  979,971
Operating Income.....     144,024           155,758                 155,628
Net Income ..........      92,172            97,465                  83,255
Cash Dividends on
  Common Stock.......      85,000            52,000                  52,000


At                     Dec.31, 1997     Dec. 31, 1996          Dec. 31, 1995



Total Assets.........  $2,837,159        $2,851,212              $2,920,487
Long-Term Debt (b)...     686,485           686,485                 858,985
Preferred Stock
  Subject to Mandatory
  Redemption(b)......     100,000           125,000                 125,000
Obligations Under
  Seabrook Power
  Contracts and Other
  Capital Leases(b)..     921,813           914,617                 915,288





(a)  Reclassifications of prior data have been made to conform with
     the current presentation.
(b)  Includes portions due within one year.




     Dec. 31, 1994                 Dec. 31, 1993
                (Thousands of Dollars)

      $922,039                         $864,415

       152,086                          124,710

        77,444                           52,237

          -                                -


    Dec. 31,1994                  Dec. 31, 1993


     $2,845,967                      $2,774,511

        999,985                       1,093,895

        125,000                         125,000

        887,967                         856,559







STATISTICS

                                       Average
         Gross Electric                Annual
         Utility Plant                 Use Per
          December 31,      kWh      Residential      Electric
         (Thousands of     Sales      Customer       Customers    Employees
           Dollars)(a)   (Millions)     (kWh)         (Average)  (December 31)
                                                     

1997      $2,312,628       13,340       6,528        407,642        1,254
1996       2,382,009       13,601       6,567        407,082        1,279
1995       2,469,474       11,001       6,524(b)     406,077        1,325
1994       2,521,960       11,008       6,768        400,775        1,374
1993       2,590,644       11,146       6,817        397,277        1,426


STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)     (Restated)


                                                   Quarter Ended (c)
1997                  March 31         June 30           Sept.30        Dec. 31

Operating Revenues... $278,321         $257,098         $285,390       $287,650
Operating Income..... $ 44,776         $ 34,190         $ 32,166       $ 32,892
Net Income........... $ 32,295         $ 21,289         $ 18,900       $ 19,688



1996                  March 31           June 30         Sept.30        Dec. 31

Operating Revenues... $269,540         $261,897         $296,719       $282,013
Operating Income..... $ 44,865         $ 42,220         $ 46,864       $ 21,809
Net Income........... $ 28,742         $ 24,050         $ 30,576       $ 14,097





(a)   Includes reclassification of the unamortized acquisition costs to gross
      utility plant.
(b)   Effective January 1, 1996, the amounts shown reflect billed and
      unbilled sales.  1995 has been restated to reflect this change.
(c)   Reclassifications of prior data have been made to conform with
      the current presentation.