1996 Annual Report

                     Western Massachusetts Electric Company

                                      Index


Contents                                                                   Page


Balance Sheets..........................................................     2-3

Statements of Income....................................................       4

Statements of Cash Flows................................................       5

Statements of Common Stockholder's Equity...............................       6

Notes to Financial Statements...........................................       7

Report of Independent Public Accountants................................      33

Management's Discussion and Analysis of Financial
  Condition and Results of Operations...................................      34

Selected Financial Data.................................................      45

Statements of Quarterly Financial Data..................................      45

Statistics..............................................................      46






WESTERN MASSACHUSETTS ELECTRIC COMPANY

BALANCE SHEETS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
At December 31,                                                  1996          1995
---------------------------------------------------------------------------------------
                                                                (Thousands of Dollars)
<S>                                                            <C>           <C>
ASSETS
------
Utility Plant, at original cost:
  Electric................................................  $  1,257,097   $ 1,234,738

     Less: Accumulated provision for                        
            depreciation (Note 1F)........................       503,989       462,872
                                                            -------------  ------------
                                                                 753,108       771,866
  Construction work in progress...........................        15,968        18,957
  Nuclear fuel, net.........................................      30,296        31,574
                                                            -------------  ------------
      Total net utility plant...............................     799,372       822,397
                                                            -------------  ------------
                                                            
Other Property and Investments:                             
  Nuclear decommissioning trusts, at market...............        83,611        69,903
  Investments in regional nuclear generating                
   companies, at equity (Note 1E).........................        15,448        14,820
  Other, at cost..........................................         4,367         4,018
                                                            -------------  ------------
                                                                 103,426        88,741
                                                            -------------  ------------
Current Assets:                                             
  Cash....................................................            67           202
  Receivables, less accumulated provision for               
    uncollectible accounts of $2,121,000 in 1996
    and $2,230,000 in 1995................................        40,168        42,164
  Accounts receivable from affiliated companies...........         3,525           951
  Accrued utility revenues................................        12,394        11,119
  Fuel, materials, and supplies, at average cost..........         5,317         5,114
  Prepayments and other...................................        12,262         9,176
                                                            -------------  ------------
                                                                  73,733        68,726
                                                            -------------  ------------
                                                            
Deferred Charges:                                           
  Regulatory assets (Note 1H).............................       210,852       160,986
  Unamortized debt expense................................         1,866         1,496
  Other...................................................           888          -
                                                            -------------  ------------
                                                                 213,606       162,482
                                                            -------------  ------------

                                                            



      Total Assets........................................  $  1,190,137   $ 1,142,346
                                                            =============  ============

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





WESTERN MASSACHUSETTS ELECTRIC COMPANY

BALANCE SHEETS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
At December 31,                                                  1996          1995
---------------------------------------------------------------------------------------
                                                                (Thousands of Dollars)
<S>                                                            <C>           <C>
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:                                             
  Common stock,$25 par value--authorized and                
     outstanding 1,072,471 shares in 1996 and 1995........  $     26,812   $    26,812
  Capital surplus, paid in................................       150,911       150,182
  Retained earnings.......................................        97,045       115,296
                                                            -------------  ------------
           Total common stockholder's equity..............       274,768       292,290
  Cumulative preferred stock--
    $100 par value--authorized 1,000,000 shares;
    outstanding 200,000 shares in 1996 and 1995;
    $25 par value--authorized 3,600,000 shares;
    outstanding 840,000 shares in 1996
    2,300,000 shares in 1995
  Preferred stock not subject to mandatory redemption.....        20,000        53,500
  Preferred stock subject to mandatory redemption.........        21,000        22,500
  Long-term debt..........................................       334,742       347,470
                                                            -------------  ------------
           Total capitalization...........................       650,510       715,760
                                                            -------------  ------------
Obligations Under Capital Leases (Note 8).................        29,269        20,855
                                                            -------------  ------------
Current Liabilities:                                                      
  Notes payable to affiliated company.....................        47,400        24,050
  Long-term debt and preferred stock--current                             
   portion................................................        14,700         1,500
  Obligations under capital leases--current                               
   portion................................................         2,965        15,156
  Accounts payable........................................        26,698        14,475
  Accounts payable to affiliated companies................        20,256        11,604
  Accrued taxes...........................................           881         1,686
  Accrued interest........................................         5,643         5,670
  Nuclear compliance (Note 11B)...........................        11,800          -
  Other...................................................         4,754         7,768
                                                            -------------  ------------
                                                                 135,097        81,909
                                                            -------------  ------------
Deferred Credits:                                                         
  Accumulated deferred income taxes (Note 1I).............       245,253       259,595
  Accumulated deferred investment tax credits               
   (Note 7)<F7>...........................................        24,833        26,302
  Deferred contractual obligations (Note 11F).............        84,598        18,814
  Other...................................................        20,577        19,111
                                                            -------------  ------------
                                                                 375,261       323,822
                                                            -------------  ------------
Commitments and Contingencies (Note 11)
                                                            -------------  ------------
           Total Capitalization and Liabilities...........  $  1,190,137   $ 1,142,346
                                                            =============  ============
</TABLE>
The accompanying notes are an integral part of these financial statements.




WESTERN MASSACHUSETTS ELECTRIC COMPANY

STATEMENTS OF INCOME

<TABLE>
<CAPTION>


------------------------------------------------------------------------------
For the Years Ended December 31,                   1996      1995       1994
------------------------------------------------------------------------------
                                                     (Thousands of Dollars)

<S>                                              <C>       <C>        <C>
Operating Revenues............................. $421,337  $420,434   $421,477
                                                --------- ---------  ---------
Operating Expenses:                             
  Operation --                                  
     Fuel, purchased and net interchange power.  115,664    86,738     67,365
     Other.....................................  148,724   143,000    130,683
  Maintenance..................................   56,201    37,447     35,430
  Depreciation.................................   39,710    37,924     36,885
  Amortization of regulatory assets............    9,170    19,562     29,118
  Federal and state income taxes (Note 7)......    5,995    14,060     32,653
  Taxes other than income taxes................   19,850    18,639     18,403
                                                --------- ---------  ---------
        Total operating expenses...............  395,314   357,370    350,537
                                                --------- ---------  ---------
Operating Income...............................   26,023    63,064     70,940
                                                --------- ---------  ---------
                                                
Other Income:                                   
  Equity in earnings of regional nuclear        
    generating companies.......................    1,800     1,771      2,031
  Other, net...................................    1,153     1,232      3,687
  Income taxes.................................    1,068       262        (71)
                                                --------- ---------  ---------
        Other income, net......................    4,021     3,265      5,647
                                                --------- ---------  ---------
        Income before interest charges.........   30,044    66,329     76,587
                                                --------- ---------  ---------


Interest Charges:                                
  Interest on long-term debt...................   24,094    26,840     27,678
  Other interest...............................    2,028       356       (548)
                                                --------- ---------  ---------
        Interest charges, net..................   26,122    27,196     27,130
                                                --------- ---------  ---------


Net Income..................................... $  3,922  $ 39,133   $ 49,457
                                                ========= =========  =========






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

 




WESTERN MASSACHUSETTS ELECTRIC COMPANY

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>                                                                               
--------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1996        1995        1994
--------------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                               <C>         <C>        <C>
Operating Activities:
  Net Income.................................................. $    3,922  $   39,133  $   49,457
  Adjustments to reconcile to net cash                         
   from operating activities:
    Depreciation..............................................     39,710      37,924      36,885
    Deferred income taxes and investment tax credits, net.....     (3,439)      3,418      10,256
    Deferred Millstone 3 return...............................       -          7,146      13,427
    Recoverable energy costs, net of amortization.............    (10,517)      1,285      (8,622)
    Nuclear compliance, net (Note 11B)........................     11,800        -           -
    Deferred nuclear refueling outage, net of amortization....      6,188      (8,857)     (1,016)
    Other sources of cash.....................................     21,248      32,266      28,569
    Other uses of cash........................................    (10,270)     (8,039)    (23,701)
  Changes in working capital:                                                
    Receivables and accrued utility revenues..................     (1,853)     (1,933)      6,470
    Fuel, materials and supplies..............................       (203)       (285)      2,228
    Accounts payable..........................................     20,875     (11,669)      8,239
    Accrued taxes.............................................       (805)     (3,474)     (1,862)
    Other working capital (excludes cash).....................     (8,144)      1,256      (2,991)
                                                               ----------- ----------- -----------
Net cash flows from operating activities......................     68,512      88,171     117,339
                                                               ----------- ----------- -----------
Financing Activities:                                           
  Issuance of long-term debt..................................       -           -         90,000
  Net increase (decrease) in short-term debt..................     23,350      24,050      (6,000)
  Reacquisitions and retirements of long-term debt............       -        (34,550)   (104,169)
  Reacquisitions and retirements of preferred stock...........    (36,500)    (15,675)     (7,325)
  Cash dividends on preferred stock...........................     (5,305)     (4,944)     (5,897)
  Cash dividends on common stock..............................    (16,494)    (30,223)    (29,514)
                                                               ----------- ----------- -----------
Net cash flows used for financing activities..................    (34,949)    (61,342)    (62,905)
                                                               ----------- ----------- -----------
Investment Activities:                                          
  Investment in plant:                                          
    Electric utility plant....................................    (23,468)    (27,084)    (32,680)
    Nuclear fuel..............................................        541          75      (4,928)
                                                               ----------- ----------- -----------
  Net cash flows used for investments in plant................    (22,927)    (27,009)    (37,608)
  NU System Money Pool........................................       -          8,750      (8,750)
  Investment in nuclear decommissioning trusts................     (9,794)     (8,503)     (7,761)
  Other investment activities, net............................       (977)         46        (395)
                                                               ----------- ----------- -----------
Net cash flows used for investments...........................    (33,698)    (26,716)    (54,514)
                                                               ----------- ----------- -----------
Net Increase (Decrease) In Cash For The Period................       (135)        113         (80)
Cash - beginning of period....................................        202          89         169
                                                               ----------- ----------- -----------
Cash - end of period.......................................... $       67  $      202  $       89
                                                               =========== =========== ===========
Supplemental Cash Flow Information:                            
Cash paid during the year for:                                 
  Interest, net of amounts capitalized........................ $   21,725  $   25,551  $   25,174
                                                               =========== =========== ===========
  Income taxes................................................ $    7,816  $   14,385  $   30,040
                                                               =========== =========== ===========

Increase in obligations:                                       
  Niantic Bay Fuel Trust...................................... $      669  $    7,851  $   12,237
                                                               =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.




WESTERN MASSACHUSETTS ELECTRIC COMPANY

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                       Capital     Retained
                                            Common     Surplus,    Earnings 
                                             Stock     Paid In       (a)        Total
---------------------------------------------------------------------------------------
                                                      (Thousands of Dollars)

<S>                                         <C>        <C>         <C>         <C>
Balance at January 1, 1994...............  $26,812    $149,319    $ 97,627    $273,758

    Net income for 1994..................                           49,457      49,457
    Cash dividends on preferred          
      stock..............................                           (5,897)     (5,897)
    Cash dividends on common stock.......                          (29,514)    (29,514)
    Loss on the retirement of preferred
      stock..............................                              (87)        (87)
    Capital stock expenses, net..........                  364                     364
                                           --------   ---------   ---------   ---------
Balance at December 31, 1994.............   26,812     149,683     111,586     288,081
                                         
    Net income for 1995..................                           39,133      39,133
    Cash dividends on preferred          
      stock..............................                           (4,944)     (4,944)
    Cash dividends on common stock.......                          (30,223)    (30,223)
    Loss on the retirement of preferred
      stock..............................                             (256)       (256)
    Capital stock expenses, net..........                  499                     499
                                           --------   ---------   ---------   ---------
Balance at December 31, 1995.............   26,812     150,182     115,296     292,290

    Net income for 1996..................                            3,922       3,922
    Cash dividends on preferred          
      stock..............................                           (5,305)     (5,305)
    Cash dividends on common stock.......                          (16,494)    (16,494)
    Loss on retirement of preferred 
      stock..............................                             (374)       (374)
    Capital stock expenses, net..........                  729                     729
                                           --------   ---------   ---------   ---------
Balance at December 31, 1996.............  $26,812    $150,911    $ 97,045    $274,768
                                           ========   =========   =========   =========
</TABLE>
(a)  The company has dividend restrictions imposed by its long-term debt 
     agreements.  At December 31, 1996, these restrictions totaled 
     approximately $21.5 million.


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





Western Massachusetts Electric Company
NOTES TO FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A.  ABOUT WESTERN MASSACHUSETTS ELECTRIC COMPANY
       Western Massachusetts Electric Company (WMECO or the company), The
       Connecticut Light and Power Company (CL&P), Holyoke Water Power Company
       (HWP), Public Service Company of New Hampshire (PSNH), and North
       Atlantic Energy Corporation (NAEC) are the operating subsidiaries
       comprising the Northeast Utilities system (the system) and are wholly
       owned by Northeast Utilities (NU).

       The system furnishes retail electric service in Connecticut, New
       Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP.
       The fifth subsidiary, NAEC, sells all of its capacity to PSNH.  In
       addition to its retail service, the system furnishes firm and other
       wholesale electric services to various municipalities and other
       utilities.  The system serves about 30 percent of New England's 
       electric needs and is one of the 20 largest electric utility systems 
       in the country as measured by revenues.

       Other wholly owned subsidiaries of NU provide support services for the
       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 system companies.  Northeast Nuclear Energy Company 
       (NNECO) acts as an agent for system companies 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), and it and its subsidiaries, including the company, are
       subject to the provisions of the 1935 Act.  Arrangements among the
       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.  The company is subject to further regulation for
       rates, accounting, and other matters by the FERC and/or the
       Massachusetts Department of Public Utilities (DPU).

     D.NEW ACCOUNTING STANDARDS
       The Financial Accounting Standards Board (FASB) has issued Statement of
       Financial Accounting Standards (SFAS) 121, "Accounting for the
       Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
       Of," which established accounting standards for evaluating and recording
       asset impairment.  The company adopted SFAS 121 as of January 1, 1996.
       See Note 1H, "Summary of Significant Accounting Policies - Regulatory
       Accounting and Assets" for further information on the regulatory impacts
       of the company's adoption of SFAS 121.  See Note 10, "Sale of Customer
       Receivables," and Note 11C, "Commitments and Contingencies-Environmental
       Matters," for information on newly issued accounting and reporting
       standards related to those specific areas.

     E.INVESTMENTS AND JOINTLY OWNED ELECTRIC UTILITY PLANT
       Regional Nuclear Generating Companies:  WMECO owns common stock of four
       regional nuclear generating companies (Yankee companies).  The Yankee
       companies, with the company's ownership interests, are:




       Connecticut Yankee Atomic Power Company (a) (CY) ................  9.5%
       Yankee Atomic Electric Company (a) (YAEC) .......................  7.0
       Maine Yankee Atomic Power Company (MY) ..........................  3.0
       Vermont Yankee Nuclear Power Corporation (VY) ...................  2.5


         (a) YAEC's and CY's nuclear power plants were shutdown permanently on
            February 26, 1992 and December 4, 1996, respectively.

       WMECO's investments in the Yankee companies are accounted for on the
       equity basis due to the company's ability to exercise significant
       influence over their operating and financial policies.


       WMECO's investments in the Yankee companies at December 31, 1996 are:



                                                       (Thousands of Dollars)

       Connecticut Yankee Atomic Power Company  ..............      $10,165
       Yankee Atomic Electric Company ........................        1,673
       Maine Yankee Atomic Power Company  ....................        2,247
       Vermont Yankee Nuclear Power Corporation ..............        1,363

                                                                    $15,448


       The electricity produced by MY and VY is committed substantially on the
       basis of ownership interests and is billed pursuant to contractual
       agreements.  Under ownership agreements with the Yankee companies, WMECO
       may be asked to provide direct or indirect financial support for one or
       more of the companies. For more information on these agreements, see
       Note 11F, "Commitments and Contingencies - Long-Term Contractual
       Arrangements." For more information on the Yankee companies, see Note 2,
       "Nuclear Decommissioning" and Note 11B, "Commitments and Contingencies -
       Nuclear Performance."

       Millstone 1:  WMECO has a 19 percent joint-ownership interest in
       Millstone 1, a 660-megawatt (MW) nuclear generating unit.  As of
       December 31, 1996 and 1995, plant-in-service included approximately
       $90.2 million and $87.4 million, respectively,  and the accumulated
       provision for depreciation included approximately $37.2 million and
       $34.5 million, respectively, for WMECO's share of Millstone 1.  WMECO's
       share of Millstone 1 expenses is included in the corresponding 
       operating expenses on the accompanying Statements of Income.

       Millstone 2:  WMECO has a 19 percent joint-ownership interest in
       Millstone 2, an 870-MW nuclear generating unit.  As of December 31, 1996
       and 1995, plant-in-service included approximately $161.4 million and
       $160.0 million, respectively, and the accumulated provision for
       depreciation included approximately $51.7 million and $45.8 million,
       respectively, for WMECO's share of Millstone 2.  WMECO's share of
       Millstone 2 expenses is included in the corresponding operating expenses
       on the accompanying Statements of Income.

       Millstone 3:  WMECO has a 12.24 percent joint-ownership interest in
       Millstone 3, a 1,154-MW nuclear generating unit.  As of December 31,
       1996 and 1995, plant-in-service included approximately $377.7 million
       and the accumulated provision for depreciation included approximately
       $99.8 million and $90.6 million, respectively, for WMECO's share of
       Millstone 3.  WMECO's share of Millstone 3 expenses is included in the
       corresponding operating expenses on the accompanying Statements of
       Income.

       For more information regarding the Millstone units, see Note 11B,
       "Commitments and Contingencies - Nuclear Performance."

     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 agency.  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 3.2 percent in 1996, 3.1 percent
       in 1995 and 1994. See Note 2, "Nuclear Decommissioning," for information
       on nuclear plant decommissioning.

       WMECO's nonnuclear 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, 1996, the accumulated provision for
       depreciation included approximately $3.2 million 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, 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. At the end of each accounting
       period, WMECO accrues an estimate for the amount of energy delivered but
       unbilled.

     H.REGULATORY ACCOUNTING AND ASSETS
       The accounting policies of WMECO 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 may also reduce or
       eliminate the value of an asset, or create a liability.  If any portion
       of the company'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, the company would be required
       to write off related regulatory assets and liabilities.  The company
       continues to believe that its use of regulatory accounting remains
       appropriate.


       SFAS 121 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 the revaluation is less than the book
       value of the asset, an impairment loss would be charged to earnings.
       The implementation of SFAS 121 did not have a material impact on the
       company's financial position or results of operations as of December 31,
       1996.  Management continues to believe that it is probable that the
       company will recover its investments in long-lived assets through future
       revenues.  This conclusion may change in the future as competitive
       factors influence wholesale and retail pricing in electric utility
       industry or if the cost-of-service based regulatory structure were to
       change.

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


       At December 31,                                 1996           1995
                                                      (Thousands of Dollars)

       Income taxes, net (Note 1I) ................  $ 71,519       $ 87,829
       Unrecovered contractual obligations
         (Note 2) .................................    84,598         18,814
       Amortizable property investment -
         Millstone 3 ..............................      -             5,600
       Recoverable energy costs (Note 1J) .........    17,510          4,974
       Other ......................................    37,225         43,769


                                                     $210,852       $160,986


       For more information on the company's regulatory environment and the
       potential impacts of restructuring, see Note 11A, "Commitments and
       Contingencies-Restructuring," and Management's Discussion and Analysis
       of Financial Condition and Results of Operations (MD&A).

     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.  The adoption of SFAS 109,
       "Accounting for Income Taxes," in 1993 increased the company's net
       deferred tax obligation.  As it is probable that the increase in
       deferred tax liabilities will be recovered from customers through rates,
       WMECO established a regulatory asset.  See Note 7, "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, which give rise
       to the accumulated deferred tax obligation is as follows:


       At December 31,                                    1996         1995
                                                        (Thousands of Dollars)

       Accelerated depreciation and
       other plant-related differences ............     $218,389      $222,520

       Regulatory assets - income tax gross up ....       29,457        34,540

       Other ......................................       (2,593)        2,535


                                                        $245,253      $259,595


     J.RECOVERABLE ENERGY COSTS
       Under the Energy Policy Act of 1992 (Energy Act), WMECO 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.
       WMECO is currently recovering these costs through rates.  As of December
       31, 1996, the company's total D&D deferrals were approximately $11
       million.

       For additional information regarding recoverable energy costs see the
       MD&A.

     K.SPENT NUCLEAR FUEL DISPOSAL COSTS
       Under the Nuclear Waste Policy Act of 1982, WMECO must pay the United
       States Department of Energy (DOE) for the disposal of spent nuclear fuel
       and high-level radioactive waste.  Fees for nuclear fuel burned on or
       after April 7, 1983 are billed currently to customers and paid to the
       DOE on a quarterly basis.  For nuclear fuel used to generate electricity
       prior to April 7, 1983 (prior-period fuel), payment must be made prior
       to the first delivery of spent fuel to the DOE.  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.  The
       DOE's current estimate for an available site is 2010.

       Until such payment is made, the outstanding balance will continue to
       accrue interest at the three-month Treasury Bill Yield Rate.  At
       December 31, 1996, fees due to the DOE for the disposal of prior-period
       fuel were approximately $37.1 million, including interest costs of $21.5
       million.  As of December 31, 1996, all fees had been collected through
       rates.
2.   NUCLEAR DECOMMISSIONING

   WMECO's nuclear power plants have service lives that are expected to end
   during the years 2010 through 2025.  Upon retirement, these units must be
   decommissioned.  The company's 1996 decommissioning study concluded that
   complete and immediate dismantlement at retirement continues to be the most
   viable and economic method of decommissioning the three Millstone units.
   Decommissioning studies are reviewed and updated periodically to reflect
   changes in decommissioning requirements, costs, technology and inflation.

   The estimated cost of decommissioning WMECO's ownership share of
   Millstone 1, 2, and 3, in year-end 1996 dollars, is $74.1 million, $65.5
   million, and $56.6 million, respectively. The Millstone units
   decommissioning costs will be increased annually by their respective
   escalation rates. Nuclear decommissioning costs are accrued over the
   expected service life of the units and are included in depreciation expense
   on the Statements of Income.  Nuclear decommissioning costs amounted to $6.2
   million in 1996, $5.0 million in 1995, and $4.8 million in 1994.  Nuclear
   decommissioning, as a cost of removal, is included in the accumulated
   provision for depreciation on the Balance Sheets.  At December 31, 1996, the
   balance in the accumulated reserve for decommissioning amounted to $83.6
   million.

   WMECO has established external decommissioning trusts through a trustee for
   its portion of the costs of decommissioning Millstone 1, 2, and 3.  Funding
   of the estimated decommissioning costs assumes levelized collections for the
   Millstone units and after-tax earnings on the Millstone decommissioning
   funds of 5.8 percent.  As of December 31, 1996, WMECO has collected, through
   rates, $53.5 million toward the future decommissioning costs of its share of
   the Millstone units, all of which has been transferred to external
   decommissioning trusts. Earnings on the decommissioning trusts increase the
   decommissioning trust balance and the accumulated reserve for
   decommissioning.  Unrealized gains and losses associated with the
   decommissioning trusts and financing fund also impact the balance of the
   trusts and the accumulated reserve for decommissioning.

   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.  WMECO 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 the company.  Based on present
   estimates and assuming its nuclear units operate to the end of their
   respective license periods, the company expects that the decommissioning
   trusts will be substantially funded when the units are retired from service.

   MY and VY: Each Yankee company owns a single nuclear generating unit.  MY
   and VY have service lives that are expected to end in 2008 and 2012,
   respectively.   The estimated cost, in year-end 1996 dollars, of
   decommissioning WMECO's ownership share of units owned and operated by MY
   and VY is $11.1 million and $9.1 million, respectively.  Under the terms of
   the contracts with the Yankee companies, the shareholder-sponsors are
   responsible for their proportionate share of the operating costs of each
   unit, including decommissioning.  The nuclear decommissioning costs of the
   Yankee companies are included as part of the cost of power purchased by
   WMECO.

   CY and YAEC:  On December 4, 1996, the board of directors of CY voted
   unanimously to cease permanently the production of power at its nuclear
   plant. The system companies relied on CY for approximately 3 percent of
   their capacity.

   CY has undertaken a number of regulatory filings intended to implement the
   decommissioning and the recovery of remaining assets of CY.  During late
   December, 1996, CY filed an amendment to its power contracts to clarify the
   obligations of its purchasing utilities following the decision to cease
   power production.  At December 31, 1996, the estimated obligation, including
   decommissioning amounted to $762.8 million of which the company's share was
   approximately $72.5 million.


   YAEC is in the process of decommissioning its nuclear facility.  At December
   31, 1996, the estimated remaining costs, including decommissioning, amounted
   to $173.3 million of which the company's share was approximately $12.1
   million.

   Management expects that WMECO will continue to be allowed to recover these
   costs from its customers.  Accordingly, WMECO has recognized these costs as
   regulatory assets, with corresponding obligations, on its Balance Sheets.

   Proposed Accounting:  The staff of the SEC has questioned certain of the
   current accounting practices of the electric utility industry, including the
   company, regarding the recognition, measurement and classification of
   decommissioning costs for nuclear generating units in the financial
   statements.  In response to these questions, FASB agreed to review the
   accounting for removal costs, including decommissioning, and issued a
   proposed statement entitled "Accounting for Liabilities  Related to Closure
   or Removal of Long-Lived Assets," in February, 1996.  If current electric
   utility industry accounting practices for decommissioning are changed in
   accordance with the proposed statement:  (1) annual provisions for
   decommissioning could increase; (2) the estimated cost for decommissioning
   could be recorded as a liability with an offset to plant rather than as part
   of accumulated depreciation, and (3) trust fund income from the external
   decommissioning trusts could be reported as investment income rather than as
   a reduction to decommissioning expense.


3. SHORT-TERM DEBT

   Limits: The amount of short-term debt borrowings that may be incurred by
   WMECO is subject to periodic approval by either the SEC under the 1935 Act
   or by its state regulator.  In addition, the charter of WMECO contains
   provisions restricting the amount of short-term debt borrowings.  Under the
   SEC and/or charter restrictions, WMECO was authorized, as of January 1,
   1997, to incur short-term borrowings up to a maximum of $150 million.

   Credit Agreements:  In November, 1996, NU entered into a three-year
   revolving credit agreement (New Credit Agreement) with a group of 12 banks.
   Under the terms of the New Credit Agreement, NU, CL&P and WMECO will be able
   to borrow up to $150 million, $313.75 million, and $150 million,
   respectively.  The overall limit for all of the borrowing system companies
   under the entire New Credit Agreement is $313.75 million.  WMECO is
   obligated to pay a facility fee of .30 percent per annum of each bank's
   total commitment under the new credit facility which will expire November
   21, 1999.  At December 31, 1996, there were $27.5 million in borrowings
   under this agreement, all of which were borrowed by other system companies.

   Access to the New  Credit Agreement is contingent upon certain financial
   tests being met.  NU is currently renegotiating these restrictions so that
   the financial impacts of the current nuclear outages do not impact the
   ability to access these facilities.  Through February 21, 1997, CL&P and
   WMECO have satisfied all financial covenants required under their respective
   borrowing facilities, but NU needed and obtained a limited waiver of an
   interest coverage covenant that had to be satisfied for NU to borrow under
   the New Credit Agreement.  NU, CL&P and WMECO are currently maintaining
   their access to the New Credit Agreement under an interim written
   arrangement, under which NU agreed not to borrow more than $27.5 million
   against the facility.

   In addition to the New Credit Agreement, NU, CL&P, WMECO, HWP, NNECO and The
   Rocky River Realty Company (RRR) have various revolving credit lines through
   separate bilateral credit agreements.  Under the remaining three-year
   portion of the facility, four banks maintain commitments to the respective
   system companies totaling $56.25 million.  NU, CL&P and WMECO may borrow up
   to the aggregate $56.25 million, whereas HWP, NNECO and RRR may borrow up to
   their short-term debt limit of $5 million, $50 million, and $22 million,
   respectively.  Under the terms of the agreement, the system companies are
   obligated to pay a facility fee of .15 percent per annum of each bank's
   total commitment under the three-year portion of the facility.  These
   commitments will expire December 3, 1998.  At December 31, 1996 and 1995,
   there were $11.3 million and $42.5 million in borrowings, respectively,
   under the facility all of which had been borrowed by other system companies.

   Under both credit facilities above, the company may borrow funds on a short-
   term revolving basis under the remaining portion of 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.

   Maturities of WMECO's short-term debt obligations are for periods of three
   months or less.

   Money Pool:  Certain subsidiaries of NU, including WMECO, 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, 1996 and 1995,
   WMECO had $47.4 million and $24.1 million, respectively, of borrowings
   outstanding from the Pool. The interest rate on borrowings from the Pool at
   December 31, 1996 and 1995 was 6.3 percent and 4.7 percent, respectively.

   For further information on short-term debt see the MD&A.

4. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION

   Details of preferred stock not subject to mandatory redemptions are:

                     December 31,    Shares
                        1996       Outstanding
                     Redemption    December 31,        December 31,
   Description          Price         1996        1996     1995     1994
                                                  (Thousands of Dollars)

   7.72% Series B
     of 1971 ........ $103.51       200,000    $20,000   $20,000  $20,000
   1988 Adjustable
     Rate DARTS .......  -             -          -       33,500   48,500

   Total preferred
     stock not subject
     to mandatory
      redemption .....                         $20,000   $53,500  $68,500



   All or any part of each outstanding series of preferred stock may be
   redeemed by the company at any time at established redemption prices plus
   accrued dividends to the date of redemption.


5. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION

   Details of preferred stock subject to mandatory redemption are:

                         December 31     Shares
                            1996       Outstanding
                         Redemption    December 31,         December 31,
   Description             Price*         1996        1996     1995      1994
                                                       (Thousands of Dollars)

   7.60% Series
     of 1987 ...........   $25.76       840,000     $21,000   $24,000  $24,675

   Less preferred stock to be
    redeemed within one
    year, net of reacquired
    stock ..............                               -        1,500      675

    Total preferred stock
    subject to mandatory
    redemption .........                            $21,000   $22,500  $24,000



   *Redemption price reduces in future years.

   The minimum sinking-fund provisions of the 1987 Series subject to mandatory
   redemption at  December 31, 1996, for the years 1997 through 2001, are $0 in
   1997 and $1.5 million per year for 1998 through 2001.  In case of default on
   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 the company is in arrears in the payment of dividends
   on any outstanding shares of preferred stock, the company would be
   prohibited from redemption or purchase of less than all of the preferred
   stock outstanding.  All or part of the 7.60% Series of 1987 may be redeemed
   by the company at any time at an established redemption price plus accrued
   dividends to the date of redemption subject to certain refunding
   limitations.


6.   LONG-TERM DEBT

     Details of long-term debt outstanding are:
                                                         December 31,
                                                       1996      1995
                                                   (Thousands of Dollars)
     First Mortgage Bonds:

        5 3/4%         Series F, due 1997.........    $ 14,700   $ 14,700
        6 3/4%         Series G, due 1998.........       9,800      9,800
        6 1/4%         Series X, due 1999.........      40,000     40,000
        6 7/8%         Series W, due 2000.........      60,000     60,000
        7 3/4%         Series V, due 2002.........      85,000     85,000
        7 3/4%         Series Y, due 2024.........      50,000     50,000
                                                   
      Total First Mortgage Bonds...................    259,500    259,500

      Pollution Control Notes:
       Tax Exempt Series A, due 2028...............     53,800     53,800
      Fees and interest due for spent
        fuel disposal costs (Note 1K)..............     37,055     35,180
      Less:  Amounts due within one year...........     14,700       -
      Unamortized premium and discount, net........       (913)    (1,010)
      Long-term debt, net..........................   $334,742   $347,470

     Long-term debt maturities and cash sinking-fund requirements on debt
     outstanding at December 31, 1996 for the years 1997 through 2001 are
     approximately $14.7 million, $9.8 million, $40 million, $60 million, and 
     $0 million, respectively.  In addition, there are annual one-percent 
     sinking-and improvement-fund requirements, currently amounting to $2.6 
     million for 1997, $2.4 million for 1998 and 1999, $2.0 million for 2000, 
     and $1.4 million for 2001. Such sinking- and improvement-fund requirements 
     may be satisfied by the deposit of cash or bonds by certification of 
     property additions.

     All or any part of each outstanding series of first mortgage bonds may be
     redeemed by the company at any time at established redemption prices plus
     accrued interest to the date of redemption, except certain series which 
     are subject to certain refunding limitations during their respective 
     initial five-year redemption periods.

     Essentially all of the company's utility plant is subject to the lien of
     its first mortgage bond indenture.  As of December 31, 1996 and 1995, the
     company has secured $53.8 million of pollution control notes with second
     mortgage liens on Millstone 1, junior to the liens of its first mortgage
     bond indenture.  The average effective interest rate on the variable-rate
     pollution control notes was 3.3 percent for 1996 and 3.7 percent for 1995.


7.   INCOME TAX EXPENSE

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


     For the Years Ended December 31,         1996       1995         1994
                                               (Thousands of Dollars)
      Current income taxes:
        Federal............................ $7,007     $ 7,419      $18,358
        State..............................  1,358       2,961        4,110

          Total current....................  8,365      10,380       22,468

      Deferred income taxes, net:
        Federal............................ (1,805)      4,130        9,697
        State..............................   (165)      1,003        2,267

           Total deferred...................(1,970)      5,133       11,964


      Investment tax credits, net.......... (1,468)     (1,715)      (1,708)

      Total income tax expense............. $4,927     $13,798      $32,724


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

      Income taxes charged to
        operating expenses................. $5,995     $14,060      $32,653
      Other income taxes .................. (1,068)       (262)          71


      Total income tax expense............. $4,927     $13,798      $32,724


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


     For the Years Ended December 31,        1996        1995        1994
                                                      (Thousands of Dollars)

     Depreciation, leased nuclear
       fuel, settlement credits,
       and disposal costs..............   $    32       $9,066     $  7,016
     Energy adjustment clause..........     4,102       (1,549)       3,598
     Expenses associated with
       nuclear outages.................    (4,633)        -            -
     Demand side management............     1,557       (1,184)         466
     Nuclear plant deferrals...........    (2,258)       2,468       (1,802)
     Bond redemptions..................      (502)        (572)       1,535
     Other.............................      (268)      (3,096)       1,151

     Deferred income taxes, net.......    $(1,970)      $5,133      $11,964


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,        1996           1995           1994
                                             (Thousands of Dollars)

Expected federal income tax at
  35 percent of pretax income for....  $2,946        $18,526        $28,763
Tax effect of differences:
  Depreciation.......................   2,280          2,173          1,740
  Amortization of regulatory assets..   1,029          1,665          3,347
  Investment tax credit amortization.  (1,468)        (1,715)        (1,708)
  State income taxes, net of
    federal benefit..................     776          2,577          4,144
  Adjustment for prior years' taxes..    -            (7,702)          (825)
  Dividends received reduction.......    (378)          (481)          (520)
  Other, net.........................    (258)        (1,245)        (2,217)

Total income tax expense............   $4,927        $13,798        $32,724


8. LEASES

   WMECO and CL&P finance up to $450 million of nuclear fuel for Millstone 1
   and 2 and their respective shares of the nuclear fuel for Millstone 3 under
   the Niantic Bay Fuel Trust (NBFT) capital lease agreement.  WMECO and CL&P
   make quarterly lease payments for the cost of nuclear fuel consumed in the
   reactors, based on a units-of-production method at rates which reflect
   estimated kilowatt-hours of energy provided, plus financing costs associated
   with the fuel in the reactors.  Upon permanent discharge from the reactors,
   ownership of the nuclear fuel transfers to WMECO and CL&P.

   WMECO has also entered into lease agreements for the use of data processing
   and office equipment, vehicles, nuclear control room simulators 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


     1996   .....................$ 3,598,000    $6,410,000
     1995   ......................12,553,000     6,398,000
     1994   ......................13,594,000     6,485,000


   Interest included in capital lease rental payments was $1,858,000 in 1996,
   $1,954,000 in 1995, and $1,845,000 in 1994.

   Substantially all of the capital lease rental payments were made pursuant to
   the nuclear fuel lease agreement.  Future minimum lease payments under the
   nuclear fuel capital lease cannot be reasonably estimated on an annual basis
   due to variations in the usage of nuclear fuel.

   Future minimum rental payments, excluding annual nuclear fuel lease payments
   and executory costs such as property taxes, state use taxes, insurance, and
   maintenance, under long-term noncancelable leases, as of December 31, 1996
   are:

   Year                             Operating Leases
                                 (Thousands of Dollars)

   1997  ................................$ 4,500
   1998  ................................  3,500
   1999  ................................  3,200
   2000  ................................  3,000
   2001  ................................  2,700
   After 2001 ........................... 24,500

   Future minimum lease payments ....... $41,400


       It is possible that certain operating lease payments related to NUSCO
       leases will be accelerated from future years into 1997.  See Note 11G,
       "The Rocky River Realty Company - Obligations" for additional
       information.

9.   EMPLOYEE BENEFITS

     A.   PENSION BENEFITS

          The company participates in a uniform noncontributory defined benefit
          retirement plan covering all regular system employees.  Benefits are
          based on years of service and the employees' highest eligible
          compensation during 60 consecutive months of employment.  The
          company's direct portion of the system's pension income, part of 
          which was charged to utility plant, approximated $2.0 million in 
          1996, $2.7 million in 1995 and $1.0 million in 1994. The company's 
          pension costs for 1996, 1995 and 1994 included approximately $1.0 
          million, $0 million, and $0.8 million, respectively, related to 
          workforce reduction programs.

          Currently, the company 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 WMECO are:

          For the Years Ended December 31,        1996       1995       1994
                                              (Thousand of Dollars)

          Service cost.......................   $ 2,932    $ 1,645     $ 2,720
          Interest cost......................     7,786      7,757       7,655
          Return on plan assets..............   (22,174)   (29,798)        221
          Net amortization...................     9,458     17,669     (11,635)

          Net pension income.................   $(1,998)   $(2,727)    $(1,039)


          For calculating pension cost, the following assumptions were used:


          For the Years Ended December 31,        1996      1995      1994


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



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


          At December 31,                              1996           1995
                                                      (Thousands of Dollars)
          Accumulated benefit obligation,
            including vested benefits at
            December 31, 1996 and 1995 of
            $85,094,000 and $84,943,000,
            respectively .......................     $ 91,170         $ 90,154



          Projected benefit obligation..........     $107,816         $107,527
          Market value of plan assets...........      157,863          143,632

          Market value in excess of
            projected benefit obligation........       50,047           36,105
          Unrecognized transition amount........       (1,963)          (2,198)
          Unrecognized prior service costs......        1,213             (525)
          Unrecognized net gain.................      (46,486)         (32,570)

          Prepaid pension asset ................     $  2,811         $    812


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


          At December 31,                              1996         1995


          Discount rate............................    7.75%        7.50%
          Compensation/progression rate............    4.75         4.75


     B.   POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

          The company provides 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 company 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 costs.  The SFAS 106 obligation has been
          calculated based on this assumption.  WMECO's direct portion of SFAS
          106 benefits, part of which were deferred or charged to utility 
          plant, approximated $3.8 million in 1996, $4.4 million in 1995, and
          $5.0 million in 1994.

          During 1994, the company began funding SFAS 106 postretirement costs
          through external trusts. The company 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 costs are:


          For the Years Ended December 31,       1996       1995         1994
                                                   (Thousands of Dollars)

          Service cost.......................   $  490    $    490     $   519
          Interest cost......................    2,236       2,544       2,703
          Return on plan assets..............     (883)       (718)         19
          Amortization of unrecognized
            transition obligation............    1,641       1,641       1,641
          Other amortization, net............      353         473          76

          Net health care and life
            insurance costs..................   $3,837      $4,430      $4,958


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


          For the Years Ended December 31,       1996        1995       1994

          Discount rate......................    7.50%       8.00%      7.75%

          Long-term rate of return -
            Health assets, net of tax........    5.25        5.00       5.00
            Life assets......................    8.75        8.50       8.50


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


          At December 31,                                   1996        1995
                                                        (Thousands of Dollars)

          Accumulated postretirement benefit obligation of:

           Retirees......................................  $24,614     $28,787
           Fully eligible active employees........... ...       28          28
           Active employees not eligible to retire.......    5,449       5,847

          Total accumulated postretirement
            benefit obligation...........................   30,091      34,662


          Market value of plan assets....................   10,215       5,339


          Accumulated postretirement benefit
            obligation in excess of plan assets..........  (19,876)    (29,323)

          Unrecognized transition amount.................   26,259      27,901

          Unrecognized net gain..........................   (6,765)     (1,399)


          Accrued postretirement benefit liability.......  $  (382)    $(2,821)


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



          At December 31,                                    1996         1995


          Discount rate..................................    7.75%        7.50%
          Health care cost trend rate (a)................    7.23         8.40


            (a) The annual growth in per capita cost of covered health care
             benefits was assumed to decrease to 4.91 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, 1996, by $1.8
          million and the aggregate of the service and interest cost components
          of net periodic postretirement benefit cost for the year then ended 
          by $0.2 million.  The trust holding the health plan assets is subject
          to federal income taxes at a 39.6 percent tax rate.

          WMECO is currently recovering SFAS 106 costs.

10. SALE OF CUSTOMER RECEIVABLES

     WMECO has entered into an agreement to sell up to $40 million of eligible
     customer billed and unbilled accounts receivable.  The eligible receivables
     are sold with limited recourse.  The agreement was entered into during
     September, 1996 and will expire in five years.  The company has retained
     collection responsibilities for receivables which have been sold under the
     agreement.  As collections reduce previously sold undivided interests, new
     receivables would routinely be sold. The agreements provide for a loss
     reserve determined by a formula which reflects credit exposure.  As of
     February 21, 1997, WMECO has sold approximately $15 million of their
     accounts receivable under this agreement.

     The FASB issued SFAS 125, "Accounting for Transfers and Servicing of
     Financial Assets and Extinguishments of Liabilities," in June, 1996. SFAS
     125 became effective on January 1, 1997, and establishes, in part, 
     criteria for concluding whether a transfer of financial assets in exchange
     for consideration should be accounted for as a sale or as a secured 
     borrowing.

     WMECO is in the process of restructuring its receivable program to comply
     with the requirements of SFAS 125.  Management believes that the adoption
     of SFAS 125 will not have a material impact on the company's financial
     position or results of operations.

11. COMMITMENTS AND CONTINGENCIES

    A.    RESTRUCTURING
          Although WMECO continues to operate under cost-of-service based
          regulation, various restructuring initiatives in its jurisdiction 
          have created uncertainty with respect to future rates and the 
          recovery of strandable investments and certain future costs such  
          as purchase power obligations. Strandable investments are regulatory
          assets or other assets that would not be economical in a competitive 
          environment.  Management is unable to predict the ultimate outcome of
          restructuring initiatives; however, it believes that it is entitled 
          to full recovery of its prudently incurred costs, including 
          regulatory assets and strandable investments based on the general 
          nature of public utility cost of service regulation. For further 
          information on restructuring, see the MD&A.

     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 Nuclear
          Regulatory Commission's (NRC) watch list.  The company has
          restructured its nuclear organization and is currently implementing
          comprehensive plans to restart the units.

          According to the plans, each unit's recovery team will be working
          towards restart of its respective unit on a parallel basis with the
          other two units.  Based upon management's current plans, it is
          estimated that one of the units will be ready for restart in the 
          third quarter of 1997 with the other two units being ready for 
          restart during the fourth quarter of 1997 and the first quarter of 
          1998, respectively.

          The NRC has also issued two orders affecting the Millstone units on
          the subjects of independent corrective action verification and
          employee concerns.  Independent third parties have been retained by
          NNECO and are awaiting NRC approval.

          Prior to and following notification to the NRC that the units are
          ready to resume operations, the NRC staff will conduct extensive
          reviews and inspections and, prior to such notification, independent
          corrective action, verification teams will also inspect each unit.
          The units will not be allowed to restart without an affirmative vote
          of the NRC commissioners following completion of these reviews and
          inspections.  Management cannot estimate when the NRC will allow any
          of the units to restart, but hopes to have at least one unit 
          operating in the second half of 1997.

          The company is currently incurring substantial costs, including
          replacement power costs, while the three Millstone units are not
          operating.  Management does not expect to recover a substantial
          portion of these costs. WMECO expensed approximately $33 million of
          incremental nonfuel nuclear operation and maintenance costs (O&M) in
          1996, including a reserve of $12 million against 1997 expenditures.
          Management estimates WMECO will expense approximately $73 million of
          nonfuel nuclear O&M costs in 1997.

          As discussed above, management cannot predict when the NRC will allow
          any of the Millstone units to return to service and thus cannot
          estimate the total replacement power costs WMECO will ultimately
          incur. Replacement power costs for WMECO are expected to average
          approximately $5 million per month during 1997 while all three
          Millstone units remain out of service. Management believes the system
          has sufficient resources to fund the restoration of the Millstone
          units to service under its present timetable.

          MY:  The system companies rely on MY for approximately two percent of
          their capacity.  The MY nuclear generating plant has been limited to
          operating at 90 percent of capacity since early 1996, pending the
          resolution of issues related to investigations initiated by the NRC,
          and on December 6, 1996, was taken off line to resolve cable-
          separation and associated issues. The NRC has notified MY that the 
          NRC staff has placed the MY plant on its watch list. Returning the 
          plant to service will require NRC approval. Management cannot predict
          when MY's plant will be allowed to return to service and expects 
          there will be substantial costs associated with the NRC's actions 
          that cannot be accurately estimated at this time.

          Potential Litigation:  The non-NU owners of Millstone 3 have been
          paying their share of the monthly costs for Millstone 3 since the 
          unit went out of service in March, 1996, but have reserved their 
          rights to contest whether the NU system companies have any 
          responsibility for the additional costs the non-NU owners have borne
          as a result of the current outage.  No formal claims have been made,
          but management believes that it is possible that some or all of the 
          non-NU owners will assert liability on the part of the NU system.  
          CL&P and WMECO, through NNECO as  agent, operate Millstone 3 at cost,
          and without profit, under a Sharing Agreement that obligates them to 
          utilize good utility operating practice and requires the joint owners
          to share the risk of employee negligence and other risks pro rata in 
          accordance with their ownership shares.  The Sharing Agreement 
          provides that CL&P and WMECO would only be liable for damages to the 
          non-NU owners for a deliberate breach of the Sharing Agreement. At 
          December 31, 1996, the costs related to this potential litigation were
          estimated to be $2.5 million for incremental O&M costs and to be 
          between $8 and $10 million for replacement power costs.  These costs 
          are likely to increase as long as Millstone 3 remains out of service. 
          NU will vigorously contest such suits if they are brought.

    C.    ENVIRONMENTAL MATTERS
          WMECO 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. WMECO has an active
          environmental auditing and training program and believes that it is 
          in substantial compliance with current environmental laws and
          regulations.

          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 WMECO's existing
          generating units, and transmission and distribution systems, and 
          could raise operating costs significantly.  As a result, WMECO 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.  WMECO 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 accurately be estimated.

               WMECO has recorded a liability based upon currently available
          information for what it believes are its estimated environmental
          remediation costs 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, 1996, the liability
          recorded by WMECO for its estimated environmental remediation costs,
          excluding any possible insurance recoveries or recoveries from third
          parties, amounted to approximately $1.4 million, which management has
          determined to be the most probable  amount within the range of $1.4
          million to $5.9 million.

               WMECO 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 WMECO's financial position or future
          results of operations.

          On October 10, 1996, the American Institute of Certified Public
          Accountants issued 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 SOP became effective January 1, 1997.  The company
          believes the adoption of this SOP will not have a material impact on
          the company's financial position or results of operations.

   D.     NUCLEAR INSURANCE CONTINGENCIES
          Under certain circumstances, in the event of a nuclear incident at one
          of the nuclear facilities covered by the federal government's third-
          party liability indemnification program, the company could be
          assessed, in proportion to its ownership interest in each nuclear unit
          up to $75.5 million not to exceed $10 million per nuclear unit in any
          one year. Based on its ownership interest in Millstone 1, 2, and 3,
          WMECO's maximum liability including any additional potential
          assessments, would be $39.8 million per incident.  In addition,
          through power purchase contracts with MY, VY and CY, WMECO would be
          responsible for up to an additional $11.9 million per incident.
          Payments for WMECO's ownership interest in nuclear generating
          facilities would be limited to a maximum of $6.5 million per incident
          per year.

          Insurance has been purchased to cover the primary cost of repair,
          replacement or decontamination of utility property resulting from
          insured occurrences.  WMECO is subject to retroactive assessments if
          losses exceed the accumulated funds available to the insurer.  The
          maximum potential assessment against WMECO with respect to losses
          arising during the current policy year is approximately $2.5 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.  WMECO is subject to retroactive assessments if losses
          exceed the accumulated funds available to the insurer.  The maximum
          potential assessments against the company with respect to losses
          arising during current policy years are approximately $2.0 million
          under the replacement power policies and $4.9 million under the excess
          property damage, decontamination and decommissioning policies.  The
          cost of a nuclear incident could exceed available insurance proceeds.

          Insurance has been purchased aggregating $200 million on a industry
          basis for coverage of worker claims.  All participating reactor
          operators insured under this coverage are subject to retrospective
          assessments of $3.0 million per reactor.  The maximum potential
          assessment against  WMECO with respect to losses arising during the
          current policy period is approximately $2.2  million.

    E.    CONSTRUCTION PROGRAM
          The construction program is subject to periodic review and
          revision by management. WMECO currently forecasts construction
          expenditures of approximately $169 million for the years 1997-2001,
          including $37 million for 1997.  In addition, the company estimates
          that nuclear fuel requirements, including nuclear fuel financed
          through the NBFT, will be approximately $54.1 million for the years
          1997-2001, including $2.4 million for 1997.  See Note 8, "Leases" for
          additional information about the financing of nuclear fuel.

    F.    LONG-TERM CONTRACTUAL ARRANGEMENTS
          
          Yankee Companies:  WMECO along with CL&P and PSNH, relies on MY and VY
          for approximately three percent of their capacity under long-term
          contracts.  Under the terms of their agreements, the 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 recovered through the
          company's rates.  WMECO's total cost of purchases under these
          contracts with the Yankee companies excluding YAEC, amounted to $28.3
          million in 1996, $28.9 million in 1995, and $28.8 million in 1994.
          See Note 1E, "Summary of Significant Accounting Policies-Investments
          and Jointly Owned Electric Utility Plant, " and Note 2, "Nuclear
          Decommissioning" for more information on the Yankee companies.

          Nonutility Generators (NUG):  WMECO, along with CL&P and PSNH, has
          entered into various arrangements for the purchase of capacity and
          energy from NUGs.  These arrangements have terms form 15 to 25 years,
          currently expiring in the years 2008 through 2013, and requires WMECO
          to purchase energy at specified prices or formula rates.  For the 12
          months ended December 31, 1996, approximately 13 percent of system
          electricity requirements were met by NUGs. WMECO's total cost of
          purchases under these arrangements amounted to $29.5 million in 1996,
          $28.6 million in 1995, and $27.5 million in 1994.  These costs are
          eventually recovered through the company's rates.

          Hydro-Quebec:  Along with other New England utilities, WMECO, CL&P,
          PSNH and HWP have entered into agreements to support transmission and
          terminal facilities to import electricity from the Hydro-Quebec system
          in Canada.  WMECO 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.

          The estimated annual costs of the WMECO's significant long-term
          contractual arrangements are as follows:


                                     1997      1998     1999    2000     2001
                                             (Millions of Dollars)

       MY and VY ..................  $10.4    $ 8.9    $10.5    $10.4   $ 9.5
       Nonutility generators ......   33.0     35.0     37.0     39.0    42.0
       Hydro-Quebec ...............    3.9      3.8      3.7      3.6     3.5




     G.   THE ROCKY RIVER REALTY COMPANY - OBLIGATIONS
          RRR provides real estate support services which includes the leasing
          of property and facilities used by system companies. RRR is the
          obligor under financing arrangements for certain system facilities.
          Under those financing arrangements, the holders of notes for $38.4
          million would be entitled to request that RRR repurchase the notes if
          any major subsidiary of NU (as defined by the notes) has debt ratings
          below investment grade as of any year-end during the term of the
          financing.  The notes are secured by real estate leases between RRR as
          lessor and NUSCO as lessee.  The leases provide for the acceleration
          of rent equal to RRR's note obligations if RRR is unable to repay the
          obligation.  The operating companies, primarily CL&P, WMECO and PSNH
          may be billed by NUSCO for their proportionate share of the
          accelerated lease obligations if the rateholders request repurchase of
          the notes.  NU has guaranteed the notes.

          Based on the terms of the notes, PSNH and NAEC will be defined as
          major subsidiaries of NU, effective as of the end of 1996, and both
          PSNH's and NAEC's debt ratings were below investment grade.
          Accordingly, under the terms of the RRR financing arrangements, the
          holders may elect to require RRR to repurchase the notes at par.  If
          the noteholders make such an election, RRR has the option to refinance
          the notes with an institutional investor.  However, it is possible
          that RRR may be required to repurchase the notes. As of February 21,
          1997, the holders had not made such an election. RRR plans to engage
          in discussions with the noteholders regarding this issue and
          management does not expect the resolution to have a material impact on
          its financial condition.

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.  As a result of this requirement, the investments
     held in the company's nuclear decommissioning trust were adjusted to market
     by approximately $8.4 million as of December 31, 1996 and by approximately
     $4.5 million as of December 31, 1995, with a corresponding offset to the
     accumulated provision for depreciation.  The amounts adjusted in 1996 and
     1995 represent cumulative gross unrealized holding gains. The cumulative
     gross unrealized holding losses were immaterial for both 1996 and 1995.

     Preferred stock and long-term debt:  The fair value of WMECO'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 amount of WMECO's financial instruments and the estimated fair
     values are as follows:


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

     Preferred stock not subject to
       mandatory redemption.........................     $ 20,000     $ 15,200

     Preferred stock subject to
      mandatory redemption..........................       21,000       18,404

     Long-term debt - First Mortgage Bonds..........      259,500      260,440

     Other long-term debt...........................       90,855       90,855


                                                          Carrying       Fair
     At December 31, 1995                                  Amount       Value
                                                         (Thousands of Dollars)

     Preferred stock not subject to
      mandatory redemption..................... ....      $ 53,500    $ 53,700

     Preferred stock subject to
      mandatory redemption..........................        24,000      25,085

     Long-term debt - First Mortgage Bonds..........       259,500     265,280

     Other long-term debt...........................        88,980      88,980


     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 Western Massachusetts Electric Company:

We have audited the accompanying balance sheets of Western
Massachusetts Electric Company (a Massachusetts corporation and a
wholly owned subsidiary of Northeast Utilities) as of December 31,
1996 and 1995, and the related statements of income, common
stockholder's equity, and cash flows for each of the three years in
the period ended December 31, 1996.  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 Western
Massachusetts Electric Company as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.


                                        /s/ ARTHUR ANDERSEN LLP
                                            ARTHUR ANDERSEN LLP


Hartford, Connecticut
February 21, 1997



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


This section contains management's assessment of WMECO's (the company) financial
condition and the principal factors having an impact on the results of opera-
tions. 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

EARNINGS OVERVIEW
WMECO faced an extremely difficult year in 1996 as a result of the prolonged
outages at the three Millstone units (Millstone). These outages resulted in
significantly increased expenditures for replacement power and work undertaken
at Millstone, which had a significant negative impact on WMECO's 1996 earnings.
In 1997, while all three units are out of service, WMECO expects to operate on a
roughly break-even basis. The combination of higher expenditures and the
uncertainty surrounding when the units will return to service made it necessary
to ensure that access to adequate cash levels would be available for the
duration of the outages. Management took various actions during 1996 to address
NU's nuclear program and liquidity issues, however, 1997 will continue to be a
serious challenge in these areas.

WMECO faces future uncertainty with the rapidly moving trend toward industry
restructuring. While restructuring had little direct impact on 1996 financial
results, it creates an environment of significant uncertainty and financial risk
for the coming years. As discussed in further detail in "Restructuring," the
financial treatment that strandable investments will be accorded will impact
WMECO's ability to compete in a restructured environment.

Net income was approximately $4 million in 1996, compared to $39 million in
1995. WMECO's 1996 net income was significantly lower primarily due to the
ongoing outages at Millstone which totaled approximately $74 million and reduced
WMECO's earnings by approximately $43 million. These costs included replacement
power, higher 1996 Millstone operation and maintenance costs and a reserve
recognized in 1996 for 1997 expenditures to return the Millstone units to
service. These decreases were partially offset by higher retail sales and lower
regulatory asset amortization.

Retail kilowatt-hour sales increased by 2.7 percent in 1996 as a result of
modest economic growth. In 1997, management expects that the Massachusetts
economy will continue to experience modest economic growth.


MILLSTONE

OUTAGES
WMECO has an 19 percent ownership interest in Millstone 1 and 2 and a 12.24
percent ownership interest in Millstone 3. Millstone 1, 2 and 3 have been out of
service since November 4, 1995, February 21, 1996, and March 30, 1996,
respectively.

Subsequent to its January 31, 1996, announcement that Millstone had been placed
on its watch list, the Nuclear Regulatory Commission (NRC) has 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. Upon successful completion of these reviews, the NRC must approve the
restart of each unit through a formal commission vote.

Management took several key steps toward improving NU's nuclear program during
1996 and will continue to place a high priority on its recovery in 1997. The NU
Board of Trustees formed a committee in April, 1996, to provide high-level
oversight of the safety and effectiveness of NU's nuclear operations, progress
toward resolving open NRC issues and progress in resolving employee, community
and customer concerns. In September, 1996, Bruce D. Kenyon was appointed
President and Chief Executive Officer of Northeast Nuclear Energy Company
(NNECO), a wholly-owned subsidiary of NU that operates Millstone, and retired
Admiral David M. Goebel was selected to serve as Vice President for Nuclear
Oversight. In early 1997, Neil S. Carns was selected to serve as Senior Vice
President and Chief Nuclear Officer to oversee Millstone operations. Shortly
after his arrival, Mr. Kenyon unveiled a reorganization of NU's nuclear
organization that includes executives loaned from unaffiliated utility
companies. The new organization is intended to establish direct accountability
for performance at each of the nuclear units that the NU system operates and
includes a recovery team for each Millstone unit.

Under the new nuclear organization, each unit's recovery team will be working
toward restart of its respective unit simultaneously with the other two units.
Management estimates that one of the units will be ready for NNECO to request
the NRC's approval for restart in the third quarter of 1997, with the second and
third units ready in the fourth quarter of 1997 and the first quarter of 1998,
respectively. Subsequent to NNECO's request to restart any of the units, the NRC
will require a period of time to assess the results of the reviews performed by
the NRC and the independent third-party teams. Management cannot estimate when
the NRC will allow any of the units to restart, however, it hopes to have at
least one unit operating in the second half of 1997. A period of time will be
required subsequent to restart for each unit to return to operating at full
power.

Higher costs related to the Millstone outages will continue throughout 1997.
Monthly replacement power costs for WMECO are projected to average approximately
$5 million in 1997, while all three Millstone units remain out of service.
Replacement power costs for the Millstone units expensed in 1996 were $41
million, which was a substantial portion of the total 1996 replacement power
costs. WMECO will continue to expense its replacement power costs in 1997.
Nonfuel operation and maintenance costs for WMECO's share of Millstone to be
expensed in 1997 are estimated to be $73 million. A total of $76 million was
expensed in 1996 for nonfuel operation and maintenance costs for Millstone,
including $21 million for incremental costs related to the outages and $12
million reserved for future costs. Nonfuel operation and maintenance costs have
been, and will continue to be, absorbed through WMECO's current rates.

Although WMECO is not precluded from seeking rate recoveries in the future,
management has committed not to seek rate recovery for the portion of these
costs attributable to failure to meet industry standards in operating Millstone.
In light of that commitment, WMECO will not seek rate recovery for a substantial
portion of these costs. Management does not currently intend to request any such
recoveries until after the Millstone units begin returning to service;
therefore, it is unlikely that any additional revenues from any permitted
recovery of these costs will be available to contribute to funding the recovery
efforts while the units are out of service.

Under its present planning assumptions, management believes WMECO has sufficient
funds to restore the Millstone units to service and purchase replacement power.
See "Rate Matters" for further information on the recovery of outage-related
costs. See "Liquidity and Capital Resources" for further information regarding
WMECO's liquidity.

As a result of the nuclear situation, a number of civil lawsuits and criminal
investigations have been initiated, including shareholder litigation. In
addition, there is the potential for claims by the non-NU owners of Millstone 3
for the costs associated with the current outage. To date, no reserves have been
established for existing or potential litigation. See the "Notes to Financial
Statements" Note 11B, for further information on litigation.

CAPACITY
During 1996 and continuing into 1997, the NU system companies have taken
measures to improve their capacity position, including obtaining additional
generating capacity, improving the availability of NU's generating units and
improving the NU system's transmission capability.

Assuming normal weather conditions and generating unit availability, management
expects that the NU system will have sufficient capacity to meet peak load
demands even if Millstone is not operational at any time through the summer of
1997. If there are high levels of unplanned outages at other units in New
England, or if any of the system's transmission lines used to import power from
other states are unavailable, at times of peak load demand, WMECO and the other
New England utilities may have to resort to operating procedures designed to
reduce customer demand. Uncertainties associated with having sufficient capacity
through the summer of 1997 include: a Seabrook refueling outage scheduled for 49
days beginning on May 10, 1997; the availability of Maine Yankee, which was put
on the NRC's watch list in January, 1997, and is currently not expected to
return to service earlier than late summer 1997; and the timing of the repairs
to the Long Island Cable which is capable of providing as much as 300 megawatts
of transmission capability.

See the "Notes to Financial Statements" Note 11B, for further information on
Maine Yankee.


LIQUIDITY AND CAPITAL RESOURCES
During 1996, WMECO took various actions to ensure that it will have access to
adequate cash resources, at reasonable cost. WMECO established a facility under
which it may sell up to $40 million of its billed and unbilled accounts
receivable. As of February 21, 1997, $15 million had been sold using this
facility. Additionally, NU, The Connecticut Light and Power Company (CL&P) and
WMECO entered into a new $313 million three-year revolving credit agreement (the
New Credit Agreement). Under the New Credit Agreement, NU has a contractual
short-term borrowing limit of $150 million, CL&P has a limit of $313 million and
WMECO has a limit of $150 million. The overall limit for all borrowers is $313
million.

Management believes that the borrowing facilities that are currently in place
provide the system companies with adequate access to the funds needed to bring
Millstone back to service if the units begin operating close to the currently
envisioned schedules, and if the other assumptions on which management has based
its planning do not change substantially.

Some of the borrowing facilities contain financial covenants that must be
satisfied before borrowings can be made and for outstanding borrowings to remain
outstanding. Through February 21, 1997, CL&P and WMECO have satisfied all
financial covenants required under their respective borrowing facilities, but NU
needed and obtained a limited waiver of an interest coverage covenant that had
to be satisfied for NU to borrow under the New Credit Agreement.

NU, CL&P and WMECO are currently maintaining their access to the New Credit
Agreement under a written arrangement, which expires March 28, 1997, unless
extended by mutual consent, under which NU agreed not to borrow more than $27
million against the facility for a period of time. In addition, NU agreed to
enter into an interim written arrangement whereby NU, CL&P and WMECO will seek
regulatory approval for certain amendments in order to maintain access to the
New Credit Agreement through its maturity date. It is anticipated that these
amendments will include (i) CL&P and WMECO providing lenders first mortgage
bonds as collateral for specified periods and subject to specified terms for
releasing the collateral, (ii) revised financial covenants that are consistent
with NU's, CL&P's and WMECO's current financial forecasts and (iii) an upfront
payment to the lenders in order to maintain commitments under the New Credit
Agreement.

The holders of $38 million of notes issued by NU's real estate company (Rocky
River Realty Company or RRR) are entitled to require that RRR purchase the notes
because, as of December 31, 1996, Public Service Company of New Hampshire and
North Atlantic Energy Corporation were rated below investment grade; these notes
are guaranteed by NU. NU is currently engaged in discussions with the
noteholders regarding this issue. See the "Notes to Financial Statements" Note
11G, for further information on these notes.

During 1996, Standard & Poor's Ratings Group (S&P) and Moody's Investors Service
(Moody's) downgraded all non-New Hampshire NU system securities at least once,
and in some cases twice, as a direct result of the Millstone outages. As of
December 31, 1996, the CL&P and WMECO first mortgage bonds were the only
securities on the NU system rated at investment grade. S&P and Moody's are
reviewing all NU system securities for further downgrades. These actions will
adversely affect the availability and cost of funds for the NU system companies.

Cash provided from operations decreased by approximately $20 million in 1996,
primarily due to higher cash operating costs related to the nuclear outages,
partially offset by higher retail sales and lower interest charges. Cash flows
from operations were also impacted by a sharp increase in the level of accounts
payable caused principally by costs related to a severe December storm and costs
associated with the Millstone outages that had not been paid by year end. Net
cash used for financing activities decreased by approximately $26 million in
1996, primarily due to lower reacquisitions and retirements of long-term debt
and lower cash dividend payments on common shares, partially offset by higher
reacquisitions and retirements of preferred stock. Cash used for investments
increased by approximately $7 million in 1996, primarily due to lower loan
repayments from other companies under the NU system Money Pool, partially offset
by lower construction expenditures in 1996.

If the return to service of one or more of the Millstone units is delayed
substantially, or if the needed waivers or modifications discussed above are not
forthcoming on reasonable terms, or if some borrowing facilities become
unavailable because of difficulties in meeting borrowing conditions, or if the
system encounters additional significant costs or other significant deviations
from management's current assumptions, the currently available borrowing
facilities could be insufficient to meet all of the system's cash requirements.
In those circumstances, management would take actions to reduce costs and cash
outflows and would attempt to take other actions to obtain additional sources of
funds. The availability of these funds would be dependent upon the general
market conditions and the NU system's credit and financial condition at the
time.

See the "Notes to Financial Statements" Notes 11E, 6 and 11F, for information on
construction, long-term debt funding and long-term contractual requirements.

RESTRUCTURING
The movement toward electric industry restructuring continues to gain momentum
nationally as well as within Massachusetts. Factors that are driving the move
toward restructuring, in the Northeast in particular, include legislative and
regulatory actions and relatively high electricity prices. These actions will
impact the way that WMECO has historically conducted its business. Although
WMECO continues to operate under cost-of-service based regulation, various
restructuring initiatives in Massachusetts have created uncertainty with respect
to future rates and the recovery of strandable investments. Strandable
investments are regulatory assets or other assets that would not be economical
in a competitive environment. WMECO has exposure to strandable investments based
on its investment in high-priced nuclear generating plants, state mandated
purchased power arrangements that are priced above the market and significant
regulatory assets that represent costs deferred by state regulators for future
recovery. WMECO's exposure to strandable investments and purchased power
obligations exceeds its shareholder's equity. WMECO's ability to compete in a
restructured environment would be negatively affected unless WMECO was able to
recover substantially all of these past investments and commitments.

In December, 1996, the Massachusetts Department of Public Utilities (DPU) issued
its Model Rules on Restructuring (Model Rules) that set forth the framework for
full customer choice of energy suppliers beginning January 1, 1998, and proposed
legislation to support the DPU's framework. After January 1, 1998, the DPU has
stated that it will no longer set rates for competitive suppliers of generation.
The DPU also reiterated its concern for the maintenance of the current level of
overall system reliability by stating that it will continue to regulate
distribution companies. In March, 1997, WMECO filed "unbundled" bills (separate
charges on bills for generation, transmission, distribution and access) with the
DPU, as required by the Model Rules.

The Model Rules require a number of statutory changes be enacted in order to
implement the rules. Additionally, the Massachusetts General Court has
established a legislative task force to review restructuring during the 1997
legislative session. The Massachusetts legislature has given no formal
indication as to whether it will enact the statutory changes requested by the
DPU. It is unclear at this time how the DPU will proceed if the requested
statutory changes are not enacted.

While the DPU's Model Rules indicate that utilities will have a reasonable
opportunity to recover strandable investments, the criteria to be used in this
process will likely be subject to review in a rate proceeding. Management
believes that it is entitled to full recovery of its prudently incurred costs,
including regulatory assets and other strandable investments, based on the
general nature of public utility industry cost-of-service based regulation.

POTENTIAL ACCOUNTING IMPACTS
WMECO follows accounting principles in accordance with Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation," which allows the economic effects of rate regulation to be
reflected. Under these principles, regulators may permit incurred costs for
certain events or transactions, which would be treated as expenses by
nonregulated enterprises, to be deferred as regulatory assets and recovered
through revenues at a later date.

If future competition or regulatory actions cause any portion of its operations
to no longer be subject to SFAS 71, WMECO would no longer be able to recognize
regulatory assets and liabilities for that portion of its business unless those
costs would be recoverable by a portion of the business remaining on cost-of-
service based regulation. Under its current regulatory environment, management
believes that WMECO's use of SFAS 71 remains appropriate.

If events create uncertainty about the recoverability of any of WMECO's
remaining long-lived assets, WMECO would be required to determine the fair value
of its long-lived assets, including regulatory assets, in accordance with SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The implementation of SFAS 121 did not have a
material impact on the company's financial position or results of operations as
of December 31, 1996. Management believes that it is probable that WMECO will
recover its investments in long-lived assets through future revenues. This
conclusion may change in the future as competitive factors influence wholesale
and retail pricing in the electric utility industry or if the cost-of-service
based regulatory structure were to change.

See the "Notes to Financial Statements" Note 1H, for further information on
regulatory accounting.

COMPETITION
In addition to legislative and regulatory actions, competition in the electric
utility industry continues to grow at a rapid pace as a result of technological
advances; relatively high electricity prices in certain regions of the country,
including New England; surplus generating capacity; and the increased
availability of natural gas. Competitive forces in the electric utility industry
have already caused some customers to choose alternative energy suppliers or
relocate outside of WMECO's service territory. In response, WMECO is preparing
for a competitive environment by expanding previously established programs and
developing new ways to fortify its relationships with existing customers and
attract new customers, both within and outside its service territory.

During 1996, WMECO continued to negotiate long-term power supply arrangements
with certain large commercial and industrial retail customers who require an
incentive to locate or expand their operations within WMECO's service territory,
are considering leaving or reducing operations in the service territory, are
facing short-term financial problems, or are considering generating their own
electricity. Approximately 17 percent of WMECO's commercial and industrial
retail revenues were under negotiated rate agreements at the end of 1996. In
1996, these negotiated rate reductions amounted to approximately $6 million,
down slightly from $7 million in 1995. These activities are expected to continue
in 1997.

During 1996, the NU system devoted significantly more resources to its Retail
Marketing Organization, whose primary mission is to provide value added energy
solutions to customers. Training was emphasized for its 170 new employees, the
majority of whom are account executives charged with developing tailored
solutions for NU's customers and positioning NU as a valuable partner for the
future. The ability of these account executives to obtain an intimate
understanding of customers' needs and concerns and provide value added energy
solutions will play a key role in the NU system's ability to effectively compete
in the future.

NU subsidiaries competed actively in two pilot retail access programs that were
initiated in New England in 1996. In a pilot covering four Massachusetts
communities outside of WMECO's jurisdiction, NU attained approximately 60
percent of the total energy market share and 70 percent of the commercial energy
market share. In addition to exposing NU to a competitive environment, these
pilots have enabled NU to develop relationships with customers outside of its
service territory and to secure energy contracts with major commercial
customers.

Revenue erosion from traditional retail electric sales may be significant after
restructuring. While margins on retail electric sales are likely to be thin,
utilities can compete successfully if they are allowed to recover their
strandable investments. During 1997 and beyond, NU will continue to participate
in state sanctioned retail access programs; invest in new unregulated
businesses; develop new energy-related products and services; and pursue
strategic alliances with companies in various energy-related fields, including
fuel supply and management, power quality, energy efficiency and load management
services. Strategic alliances will allow NU to enter markets that provide access
to new product lines and technologies that complement NU's current products and
services.

RATE MATTERS
In April, 1996, the DPU approved a settlement (the Agreement) that included the
continuation through February, 1998, of the 2.4 percent rate reduction
instituted in June, 1994. Additionally, the Agreement terminated certain pending
and potential reviews of WMECO's generating plant performance and accelerated
its amortization of  strandable generation assets by approximately $6 million in
1996 and $10 million in 1997. The Agreement did not have a material impact on
earnings for 1996.

In February, 1997, the DPU approved a joint settlement proposed by WMECO and the
Massachusetts Attorney General that provides for a continuation of WMECO's
August, 1996, fuel adjustment charge (FAC) through August, 1997, and stipulates
that WMECO will not seek carrying charges on any deferred fuel costs not
currently recovered as a result of maintaining the prior FAC rate. In accepting
this settlement, the DPU deferred any inquiry into WMECO's replacement power
costs related to the Millstone outages.  Management does not expect to seek
recovery of a substantial portion of these costs.

NUCLEAR DECOMMISSIONING
WMECO has a 9.5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the CY Board of
Directors 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 expires 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 Federal Energy Regulatory Commission (FERC) to clarify the
obligations of its purchasing utilities following the decision to cease power
production. At December 31, 1996, WMECO's share of these obligations was
approximately $73 million, including the cost of decommissioning and the
recovery of existing assets. Management expects that WMECO will continue to be
allowed to recover such FERC-approved costs from its customers. Accordingly,
WMECO has recognized its share of the estimated costs as a regulatory asset,
with a corresponding obligation, on its Balance Sheets.

WMECO's estimated cost to decommission its shares of Millstone 1, 2 and 3 is
approximately $196 million in year end 1996 dollars. These costs are being
recognized over the lives of the respective units with a portion being currently
recovered through rates. As of December 31, 1996, the market value of the
contributions already made to the decommissioning trusts, including their
investment returns, was approximately $84 million.

See the "Notes to Financial Statements" Note 2, for further information on
nuclear decommissioning, including WMECO's share of costs to decommission the
regional nuclear generating units.

ENVIRONMENTAL MATTERS
WMECO 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 WMECO. At December 31, 1996, WMECO had
recorded an environmental reserve of approximately $1 million, the most probable
amount as required by SFAS 5, "Accounting for Contingencies."

See the "Notes to Financial Statements" Note 11C, for further information on
environmental matters.


RESULTS OF OPERATIONS

                              Income Statement Variances
                                 (Millions of Dollars)

                       1996 over/(under) 1995   1995 over/(under) 1994
                         Amount     Percent       Amount     Percent


Operating revenues        $ 1          -%          $(1)         -%

Fuel, purchased and net
 interchange power         29         33            19         29
Other operation             6          4            12          9
Maintenance                19         50             2          6
Amortization of
  regulatory assets,
  net                     (10)       (53)          (10)       (33)
Federal and state
  income taxes             (9)       (64)          (19)       (58)

Other, net                 -          -             (2)       (67)
Interest on long-
  term debt                (3)       (10)           (1)        (3)

Net income                (35)       (90)          (10)       (21)


(a)  Percentage greater than 100

                                                                  
OPERATING REVENUES
Total operating revenues increased in 1996, primarily due to higher retail
sales, partially offset by lower fuel and conservation recoveries. Retail
kilowatt-hour sales increased 2.7 percent ($9 million) primarily due to modest
economic growth in 1996. Fuel recoveries decreased $6 million, primarily due to
the timing of the recovery of costs under the company's fuel clause.
Conservation recoveries decreased approximately $6 million primarily due to
lower demand side management costs.

Total operating revenues decreased in 1995, primarily due to regulatory
decisions and lower other revenues, partially offset by higher fuel recoveries.
Revenues related to regulatory decisions decreased $2 million, primarily due to
the effects of the June 1994 retail rate reduction, partially offset by higher
demand side management costs. Other revenues include higher price discounts to
customers in 1995. Fuel recoveries increased $7 million, primarily due to higher
energy costs, partially offset by lower interchange revenues.

FUEL, PURCHASED AND NET INTERCHANGE POWER
Fuel, purchased and net interchange power expense increased in 1996, primarily
due to higher replacement power costs due to the nuclear outages, partially
offset by the timing of the recognition of costs under the company's fuel clause
and lower nuclear generation.

Fuel, purchased and net interchange power expense increased in 1995, primarily
due to a one-time benefit in May, 1994, from a rate case settlement agreement
and higher energy costs in 1995 as a result of the extended Millstone 2 outage.

OTHER OPERATION AND MAINTENANCE
Other operation and maintenance expenses increased in 1996, primarily due to
higher costs associated with the Millstone outages ($33 million, including $12
million reserved for future costs), partially offset by lower costs for demand
side management programs and a 1995 work stoppage.

Other operation and maintenance expenses increased in 1995, primarily due to
higher capacity charges from the regional nuclear units primarily due to Maine
Yankee, which was in an extended refueling outage throughout 1995; higher
benefit costs; higher demand side management programs; higher 1995 storm costs;
higher costs associated with a work stoppage; and higher outside services
employed, partially offset by lower reserves for excess/obsolete inventory and
lower maintenance costs at the company's fossil units.

AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net decreased in 1996, primarily due to the
completion of the amortization of the Millstone 3 phase-in in 1995 and unuseful
investment in June, 1996, partially offset by higher amortization as a result of
the 1996 rate settlement.

Amortization of regulatory assets, net decreased in 1995, primarily due to the
completion of the company's amortization of Millstone 3 phase-in costs in June,
1995.

FEDERAL AND STATE INCOME TAXES
Federal and state income taxes decreased in 1996, primarily due to lower 1996
book taxable income, partially offset by 1995 tax benefits from a favorable tax
ruling and the expiration of the 1991 federal statute of limitations.

Federal and state income taxes decreased in 1995, primarily due to tax benefits
from a favorable tax ruling, the expiration of the 1991 federal statute of
limitations and lower book taxable income.

OTHER, NET
Although the change in 1996 was not significant, other, net decreased in 1995,
primarily because of lower deferred return due to the completion of the
Millstone 3 phase-in in 1995.

INTEREST ON LONG-TERM DEBT
Interest on long-term debt decreased in 1996, primarily due to lower average
interest rates.  The change in 1995 was not significant.



Western Massachusetts Electric Company


SELECTED FINANCIAL DATA (a)
                           1996        1995      1994         1993       1992
                                         (Thousands of Dollars)

Operating Revenues.... $  421,337  $  420,434 $  421,477  $  415,055 $  410,720

Operating Income.......    26,023      63,064     70,940      60,348     60,563

Net Income.............     3,922      39,133     49,457      40,594(b)  37,022

Cash Dividends on
  Common Stock.........    16,494      30,223     29,514      28,785     29,536

Total Assets........... 1,190,137   1,142,346  1,183,618   1,204,642  1,130,684

Long-Term Debt (c).....   349,442     347,470    379,969     393,232    392,976

Preferred Stock Not
  Subject to Mandatory
  Redemption...........    20,000      53,500     68,500      73,500     73,500

Preferred Stock Subject
  to Mandatory
  Redemption(c).........   21,000      24,000     24,675      27,000     28,500

Obligations Under
  Capital Leases(c).....   32,234      36,011     36,797      36,902     41,509


(a) Reclassifications of prior data have been made to conform with the current
presentation.

(b)Includes the cumulative effect of change in accounting for municipal 
   property tax expense, which increased earnings for common shares by 
   $3.9 million.

(c) Includes portion due within one year.



STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)

                                                   Quarter Ended (a)


1996                          March 31     June 30        Sept. 30    Dec. 31



Operating Revenues.......     $114,797    $102,602       $ 99,866    $104,072

Operating Income (Loss)..     $ 13,692    $  9,377       $  4,327    $ (1,373)

Net Income (Loss)........     $  8,109    $  4,016       $   (396)   $ (7,807)


1995

Operating Revenues.......     $106,684    $100,593       $107,960    $105,197

Operating Income.........     $ 18,085    $  8,977       $ 19,799    $ 16,203

Net Income...............     $ 12,076    $  3,289       $ 14,141    $  9,627



STATISTICS


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

1996       $1,303,361        4,626          7,335           194,705       497
1995        1,285,269        4,846          7,105*          193,964       527
1994        1,271,513        4,978          7,433           193,187       617
1993        1,242,927        4,715          7,351           192,542       657
1992        1,214,386        4,155          7,433           191,920       739


*Effective January 1, 1996, the amounts shown reflect billed and unbilled
 sales.  1995 has been restated to reflect this change.