1997 Annual Report

                     Western Massachusetts Electric Company

                                      Index


Contents                                                               Page


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

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

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

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

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

Report of Independent Public Accountants............................    38

Management's Discussion and Analysis of Financial
  Condition and Results of Operations...............................    39

Selected Financial Data.............................................    49

Statements of Quarterly Financial Data..............................    49

Statistics..........................................................    50

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





                                 PART I.    FINANCIAL INFORMATION

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           
----------------------------------------------------------------------------------------
At December 31,                                                   1997          1996
----------------------------------------------------------------------------------------
                                                                (Thousands of Dollars)
<S>                                                             <C>           <C>
ASSETS
------
Utility Plant, at original cost:
  Electric (Note 1H).......................................  $  1,284,288   $ 1,257,097

     Less: Accumulated provision for depreciation..........       559,119       503,989
                                                             -------------  ------------
                                                                  725,169       753,108
  Construction work in progress............................        19,038        15,968
  Nuclear fuel, net........................................        30,907        30,296
                                                             -------------  ------------
      Total net utility plant..............................       775,114       799,372
                                                             -------------  ------------

Other Property and Investments:                              
  Nuclear decommissioning trusts, at market................       102,708        83,611
  Investments in regional nuclear generating                 
   companies, at equity....................................        15,741        15,448
  Other, at cost...........................................         4,900         4,367
                                                             -------------  ------------
                                                                  123,349       103,426
                                                             -------------  ------------
Current Assets:                                              
  Cash.....................................................           105            67
  Investments in securitizable assets (Note 10)............        25,280          -
  Receivables, less accumulated provision for                      
    uncollectible accounts of $50,000 in 1997
    and of $2,121,000 in 1996 (Note 10)....................         2,739        40,168
  Accounts receivable from affiliated companies............         3,933         3,525
  Taxes receivable.........................................        10,768         1,778
  Accrued utility revenues (Note 10).......................          -           12,394
  Fuel, materials and supplies, at average cost............         5,860         5,317
  Prepayments and other....................................        14,945        12,262
                                                             -------------  ------------
                                                                   63,630        75,511
                                                             -------------  ------------


                                                             
Deferred Charges:                                            
  Regulatory assets (Note 1H)..............................       211,377       210,852
  Unamortized debt expense.................................         2,695         1,866
  Other....................................................         2,963           888
                                                             -------------  ------------
                                                                  217,035       213,606
                                                             -------------  ------------


                                                             
      Total Assets.........................................  $  1,179,128   $ 1,191,915
                                                             =============  ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
                               




WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          
---------------------------------------------------------------------------------------
At December 31,                                                  1997          1996
---------------------------------------------------------------------------------------
                                                               (Thousands of Dollars)
<S>                                                            <C>           <C>
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:                                             
  Common stock--$25 par value--authorized and               
   outstanding 1,072,471 shares in 1997 and 1996..........  $     26,812   $    26,812
  Capital surplus, paid in................................       151,171       150,911
  Retained earnings.......................................        50,225        97,045
                                                            -------------  ------------
           Total common stockholder's equity..............       228,208       274,768
  Cumulative preferred stock--
    $100 par value-- authorized 1,000,000 shares;
    outstanding 200,000 shares in 1997 and 1996;
    $25 par value--authorized 3,600,000 shares;
    outstanding 840,000 shares in 1997 and 1996
  Preferred stock not subject to mandatory redemption.....        20,000        20,000
  Preferred stock subject to mandatory redemption.........        19,500        21,000
  Long-term debt..........................................       386,849       334,742
                                                            -------------  ------------
           Total capitalization...........................       654,557       650,510
                                                            -------------  ------------
Obligations Under Capital Leases (Note 8).................           217        29,269
                                                            -------------  ------------

Current Liabilities:                                                      
  Notes payable to banks..................................        15,000          -
  Notes payable to affiliated company.....................        14,350        47,400
  Long-term debt and preferred stock--current                             
   portion................................................        11,300        14,700
  Obligations under capital leases--current                               
   portion................................................        32,670         2,965
  Accounts payable........................................        30,571        26,698
  Accounts payable to affiliated companies................        21,209        20,256
  Accrued taxes...........................................           522         2,659
  Accrued interest........................................         3,318         5,643
  Nuclear compliance (Note 11B)...........................        13,800        11,800
  Other...................................................         2,446         4,754
                                                            -------------  ------------
                                                                 145,186       136,875
                                                            -------------  ------------
Deferred Credits:                                                         
  Accumulated deferred income taxes.......................       241,036       245,253
  Accumulated deferred investment tax credits.............        23,364        24,833
  Deferred contractual obligations (Note 2)...............        93,628        84,598
  Other...................................................        21,140        20,577
                                                            -------------  ------------
                                                                 379,168       375,261
                                                            -------------  ------------
Commitments and Contingencies (Note 11)
                                                            -------------  ------------
           Total Capitalization and Liabilities...........  $  1,179,128   $ 1,191,915
                                                            =============  ============
</TABLE>                                                                    
The accompanying notes are an integral part of these financial statements.
 



WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

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

<S>                                              <C>        <C>         <C>
Operating Revenues............................. $ 426,447  $ 421,337   $ 420,434
                                                ---------- ----------  ----------
Operating Expenses:                             
  Operation --                                  
     Fuel, purchased and net interchange power.   140,976    115,691      86,738
     Other.....................................   155,399    148,697     143,000
  Maintenance..................................    81,466     56,201      37,447
  Depreciation.................................    39,753     39,710      37,924
  Amortization of regulatory assets, net.......     6,428      9,170      19,562
  Federal and state income taxes (Note 7)......   (15,926)     5,995      14,060
  Taxes other than income taxes................    19,316     19,850      18,639
                                                ---------- ----------  ----------
        Total operating expenses...............   427,412    395,314     357,370
                                                ---------- ----------  ----------
Operating (Loss)/Income........................      (965)    26,023      63,064
                                                ---------- ----------  ----------
                                                
Other Income:                                   
  Equity in earnings of regional nuclear        
    generating companies.......................     1,524      1,800       1,771
  Other, net...................................    (1,106)     1,153       1,232
  Income taxes.................................     1,026      1,068         262
                                                ---------- ----------  ----------
        Other income, net......................     1,444      4,021       3,265
                                                ---------- ----------  ----------
        Income before interest charges.........       479     30,044      66,329
                                                ---------- ----------  ----------


Interest Charges:                                
  Interest on long-term debt...................    26,046     24,094      26,840
  Other interest...............................     3,109      2,028         356
                                                ---------- ----------  ----------
        Interest charges, net..................    29,155     26,122      27,196
                                                ---------- ----------  ----------


Net (Loss)/Income.............................. $ (28,676) $   3,922   $  39,133
                                                ========== ==========  ==========






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

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>                                                                               
--------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1997        1996        1995
--------------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                               <C>         <C>         <C>
Operating Activities:
  Net (Loss)/Income........................................... $  (28,676) $    3,922  $   39,133
  Adjustments to reconcile to net cash                         
   from operating activities:
    Depreciation..............................................     39,753      39,710      37,924
    Deferred income taxes and investment tax credits, net.....     (2,040)     (3,439)      3,418
    Deferred Millstone 3 return...............................       -           -          7,146
    Recoverable energy costs, net of amortization.............     (8,184)    (10,517)      1,285
    Amortization of nuclear refueling outage, net of deferrals      8,819       6,188      (8,857)
    Other sources of cash.....................................     27,804      21,248      32,266
    Other uses of cash........................................    (21,215)    (10,270)     (8,039)
  Changes in working capital:                                                
    Receivables and accrued utility revenues..................     29,415      (1,853)     (1,933)
    Fuel, materials and supplies..............................       (543)       (203)       (285)
    Accounts payable..........................................      4,826      20,875     (11,669)
    Sale of receivables and accrued utility revenues (Note 10)     20,000        -           -
    Investment in securitizable assets (Note 10)..............    (25,280)       -           -
    Accrued taxes.............................................     (2,137)       (805)     (3,474)
    Nuclear compliance, net (Note 11B)........................      2,000      11,800        -
    Other working capital (excludes cash).....................    (16,882)     (8,144)      1,256
                                                               ----------- ----------- -----------
Net cash flows from operating activities......................     27,660      68,512      88,171
                                                               ----------- ----------- -----------
Financing Activities:                                           
  Issuance of long-term debt..................................     60,000        -           -
  Net (decrease)/increase in short-term debt..................    (18,050)     23,350      24,050
  Reacquisitions and retirements of long-term debt............    (14,700)       -        (34,550)
  Reacquisitions and retirements of preferred stock...........       -        (36,500)    (15,675)
  Cash dividends on preferred stock...........................     (3,140)     (5,305)     (4,944)
  Cash dividends on common stock..............................    (15,004)    (16,494)    (30,223)
                                                               ----------- ----------- -----------
Net cash flows from/(used for) financing activities...........      9,106     (34,949)    (61,342)
                                                               ----------- ----------- -----------
Investment Activities:                                          
  Investment in plant:                                          
    Electric utility plant....................................    (26,249)    (23,468)    (27,084)
    Nuclear fuel..............................................         (8)        541          75
                                                               ----------- ----------- -----------
  Net cash flows used for investments in plant................    (26,257)    (22,927)    (27,009)
  NU System Money Pool........................................       -           -          8,750
  Investment in nuclear decommissioning trusts................     (9,645)     (9,794)     (8,503)
  Other investment activities, net............................       (826)       (977)         46
                                                               ----------- ----------- -----------
Net cash flows used for investments...........................    (36,728)    (33,698)    (26,716)
                                                               ----------- ----------- -----------
Net Increase/(Decrease) In Cash For The Period................         38        (135)        113
Cash - beginning of period....................................         67         202          89
                                                               ----------- ----------- -----------
Cash - end of period.......................................... $      105  $       67  $      202
                                                               =========== =========== ===========
Supplemental Cash Flow Information:                            
Cash paid/(refunded) during the year for:                      
  Interest, net of amounts capitalized........................ $   28,711  $   21,725  $   25,551
                                                               =========== =========== ===========

 Income taxes................................................  $   (1,121) $    7,816  $   14,385
                                                               =========== =========== ===========
Increase in obligations:                                       
  Niantic Bay Fuel Trust...................................... $      660  $      669  $    7,851
                                                               =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements. 
 
            
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED 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, 1995...............  $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 the 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

    Net loss for 1997....................                          (28,676)    (28,676)
    Cash dividends on preferred          
      stock..............................                           (3,140)     (3,140)
    Cash dividends on common stock.......                          (15,004)    (15,004)
    Capital stock expenses, net..........                  260                     260
                                           --------   ---------   ---------   ---------
Balance at December 31, 1997.............  $26,812    $151,171    $ 50,225    $228,208
                                           ========   =========   =========   =========


</TABLE>
(a)  The company has dividend restrictions imposed by its long-term debt 
     agreements.  At December 31, 1997, these restrictions totaled 
     approximately $21.5 million.


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



                                       
Western Massachusetts Electric Company and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   A.  ABOUT WESTERN MASSACHUSETTS ELECTRIC COMPANY
       Western Massachusetts Electric Company and subsidiary (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 NU system) and are wholly
       owned by Northeast Utilities (NU).

       The NU system furnishes franchised retail electric service in
       Connecticut, New Hampshire and western Massachusetts through CL&P, PSNH,
       WMECO and HWP.  The fifth wholly owned subsidiary, NAEC, sells all of
       its entitlement to the capacity and output of the Seabrook nuclear power
       plant (Seabrook) to PSNH. In addition to its franchised retail service,
       the NU system furnishes firm and other wholesale electric services to
       various municipalities and other utilities, and participates in limited
       retail access programs, providing off-system retail electric service.
       The NU system serves about 30 percent of New England's electric needs
       and is one of the 25 largest electric utility systems in the country as
       measured by revenues.

       Other wholly owned subsidiaries of NU provide support services for the
       NU system companies and, in some cases, for other New England utilities.
       Northeast Utilities Service Company (NUSCO) provides centralized
       accounting, administrative, information resources, engineering,
       financial, legal, operational, planning, purchasing and other services
       to the NU system companies. Northeast Nuclear Energy Company (NNECO)
       acts as agent for the NU system companies and other New England
       utilities in operating the Millstone nuclear generating facilities. In
       addition, CL&P and WMECO each have established a special purpose
       subsidiary whose business consists of the purchase and resale of
       receivables.  For information regarding WMECO's subsidiary, see Note 10, 
       "Sale of Customer Receivables and Accrued Utility Revenues."

   B.  PRESENTATION
       The consolidated financial statements of WMECO include the accounts of
       its wholly owned subsidiary.  Significant intercompany transactions have
       been eliminated in consolidation.

       The preparation of financial statements in conformity with generally
       accepted accounting principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and disclosure of contingent liabilities at the date of the financial
       statements and the reported amounts of revenues and expenses during the
       reporting period.  Actual results could differ from those estimates.

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

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

   C.  PUBLIC UTILITY REGULATION
       NU is registered with the Securities and Exchange Commission (SEC) as a
       holding company under the Public Utility Holding Company Act of 1935
       (1935 Act).  NU and its subsidiaries, including WMECO, are subject to
       the provisions of the 1935 Act. Arrangements among the NU system
       companies, outside agencies and other utilities covering inter-
       connections, interchange of electric power and sales of utility property
       are subject to regulation by the Federal Energy Regulatory Commission
       (FERC) and/or the SEC.  WMECO is subject to further regulation for
       rates, accounting, and other matters by the FERC and/or the applicable
       state regulatory commissions.

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

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

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

       See Note 10, "Sale of Customer Receivables and Accrued Utility
       Revenues," and Note 11C, "Commitments and Contingencies -- Environmental
       Matters," for information on other 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). WMECO's
       investments in the Yankee companies are accounted for on the equity
       basis due to WMECO's ability to exercise significant influence over
       their operating and financial policies.  The Yankee companies, with
       WMECO's ownership interests, are:


       Connecticut Yankee Atomic Power Company (CYAPC) .................   9.5%
       Yankee Atomic Electric Company (YAEC) ...........................   7.0
       Maine Yankee Atomic Power Company (MYAPC) .......................   3.0
       Vermont Yankee Nuclear Power Corporation (VYNPC) ................   2.5



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



                                                         (Thousands of Dollars)

       CYAPC .................................................      $10,552
       YAEC ..................................................        1,465
       MYAPC .................................................        2,370
       VYNPC .................................................        1,354

                                                                    $15,741


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

       The electricity produced by the Vermont Yankee nuclear generating
       facility (VY) is committed substantially on the basis of ownership
       interests and is billed pursuant to contractual agreements.  YAEC's,
       CYAPC's and MYAPC's nuclear power plants were shut down permanently on
       February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
       Under ownership agreements with the Yankee companies, WMECO may be asked
       to provide direct or indirect financial support for one or more of the
       companies.  For more information on the Yankee companies, see Note 2,
       "Nuclear Decommissioning," and Note 11F, "Commitments and Contingencies
       --Long-Term Contractual Arrangements."

       Millstone 1:  WMECO has a 19 percent joint-ownership interest in
       Millstone 1, a 660-megawatt (MW) nuclear generating unit.  As of
       December 31, 1997 and 1996, plant-in-service included approximately $91
       million and $90.2 million, respectively,  and the accumulated provision
       for depreciation included approximately $40.1 million and $37.2 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 Consolidated Statements of Income.

       Millstone 2:  WMECO has a 19 percent joint-ownership interest in
       Millstone 2, a 870-MW nuclear generating unit.  As of December 31, 1997
       and 1996, plant-in-service included approximately $162.4 million and
       $161.4 million, respectively, and the accumulated provision for
       depreciation included approximately $57.6 million and $51.7 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 Consolidated 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,
       1997 and 1996, plant-in-service included approximately $378.7 million
       and $377.7 million, respectively, and the accumulated provision for
       depreciation included approximately $110.1 million and $99.8 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 Consolidated Statements of Income.

       The three Millstone units are out of service.  NU hopes to return
       Millstone 3 to service in the early spring of 1998 and Millstone 2 three
       to four months after Millstone 3.  Millstone 1 has been placed in
       extended maintenance status.  Management is reviewing its options with
       respect to Millstone 1, including restart, early retirement and other
       options.  In a draft ruling issued in February 1998, the Connecticut
       Department of Public Utility Control (DPUC) determined that Millstone 1
       was no longer "used and useful" and ordered it removed from rate base.
       For more information regarding the Millstone units, see Note 2, "Nuclear
       Decommissioning," and 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
       1997 and 1996 and 3.1 percent in 1995.  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, 1997 and 1996, the accumulated provision
       for depreciation included approximately $3.2 million, respectively,
       accrued for the cost of removal, net of salvage for nonnuclear
       generation property.

   G.  REVENUES
       Other than revenues under fixed-rate agreements negotiated with certain
       wholesale, commercial and industrial 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. Regulatory commissions also have
       authority over the terms and conditions of nontraditional rate making
       arrangements.  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 consolidated
       financial statements conform to generally accepted accounting principles
       applicable to rate-regulated enterprises and reflect the effects of the
       ratemaking process in accordance with SFAS 71, "Accounting for the
       Effects of Certain Types of Regulation." Assuming a cost-of-service
       based regulatory structure, regulators may permit incurred costs,
       normally treated as expenses, to be deferred and recovered through
       future revenues. Through their actions, regulators also may reduce or
       eliminate the value of an asset, or create a liability.  If any portion
       of WMECO'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, WMECO would be required to
       write off related regulatory assets and liabilities unless there is a
       formal transition plan which provides for the recovery, through
       established rates, for the collection of approved stranded costs and to
       maintain the cost-of-service basis for the remaining regulated
       operations.  At the time of transition, WMECO would be required to
       determine any impairment to the carrying costs of deregulated plant and
       inventory assets.

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

       Electric utility industry restructuring within the state of
       Massachusetts will be effective March 1, 1998.  WMECO has submitted its
       proposed restructuring plan to the Massachusetts Department of
       Telecommunications and Energy (DTE), formerly the Massachusetts
       Department of Public Utilities.  If the DTE approves the plan in its
       current form, WMECO would discontinue the application of SFAS 71.
       However,  the restructuring legislation enacted by the state of
       Massachusetts specifically provides for future deferrals and the cost
       recovery of generation-related assets as contemplated under the plan.
       As such, WMECO is not expected to have to write off either its
       generation-related assets or related regulatory assets.  WMECO's
       generation-related regulatory assets were valued at approximately $188
       million at December 31, 1997.  The majority of WMECO's regulatory assets
       are related to its generation business.

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

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

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

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


       At December 31,                                      1997         1996
                                                         (Thousands of Dollars)

       Income taxes, net (Note 1I) .....................  $ 63,716     $ 71,519
       Unrecovered contractual obligations
         (Note 2) ......................................    93,628       84,598
       Recoverable energy costs (Note 1J) ..............    26,270       17,510
       Other ...........................................    27,763       37,225

                                                          $211,377     $210,852


   I.  INCOME TAXES
       The tax effect of temporary differences (differences between the periods
       in which transactions affect income in the financial statements and the
       periods in which they affect the determination of taxable income) is
       accounted for in accordance with the ratemaking treatment of the
       applicable regulatory commissions. See Note 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,                                     1997           1996

                                                         (Thousands of Dollars)

       Accelerated depreciation and
       other plant-related differences ................. $223,038     $218,389

       Regulatory assets - income tax gross up .........   30,175       29,457

       Other ...........................................  (12,177)      (2,593)


                                                         $241,036     $245,253



   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, 1997, WMECO's total D&D deferrals were approximately $11.3 million.

       WMECO has a fuel adjustment clause (FAC) which includes energy costs
       along with capacity and transmission charges and credits that result
       from short-term transactions with other utilities and from certain FERC-
       approved contracts among the NU system's operating companies.  The
       Massachusetts restructuring legislation will effectively eliminate the
       FAC, effective March 1, 1998.

       On August 20, 1997, WMECO filed with the DTE a joint motion for approval
       of a settlement agreement with the Massachusetts Attorney General which
       allowed WMECO to recover approximately $15.3 million of fuel costs for
       the period September 1997 through February 1998.  Under the current FAC
       rate, WMECO continues to defer significant costs for future recovery.

       At December 31, 1997, WMECO's net recoverable energy costs were
       approximately $26.3 million, which includes approximately $11.3 million
       of costs related to WMECO's share of the D&D assessment.

       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. The DOE is responsible for the
       selection and development of repositories for, and the disposal of,
       spent nuclear fuel and high-level radioactive waste.  Fees for nuclear
       fuel burned 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.
       Until such payment is made, the outstanding balance will continue to
       accrue interest at the three-month Treasury Bill Yield Rate.  At
       December 31, 1997, fees due to the DOE for the disposal of prior-period
       fuel were approximately $39.0 million, including interest costs of $23.4
       million.

       The DOE was originally scheduled to begin accepting delivery of spent
       fuel in 1998.  However, delays in identifying a permanent storage site
       have continually postponed plans for the DOE's long-term storage and
       disposal site.   Extended delays or a default by the DOE could lead to
       consideration of costly alternatives.  The company has primary
       responsibility for the interim storage of its spent nuclear fuel.
       Current capability to store spent fuel at Millstone 1 and 2 are
       estimated to be adequate until 2004.  Storage facilities for Millstone 3
       are expected to be adequate for the projected life of the unit.  Meeting
       spent fuel storage requirements beyond these periods could require new
       and separate storage facilities, the costs for which have not been
       determined.

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



2. NUCLEAR DECOMMISSIONING

   Millstone:  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. Current decommissioning studies 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 1997 dollars, is $91.7 million, $82.1
   million and $67.8 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 Consolidated
   Statements of Income. Nuclear decommissioning costs amounted to $6.2 million
   in 1997 and 1996 and $5.0 million in 1995.  Nuclear decommissioning, as a
   cost of removal, is included in the accumulated provision for depreciation
   on the Consolidated Balance Sheets.  At December 31, 1997 and 1996, the
   balance in the accumulated reserve for depreciation amounted to $102.7
   million and $83.6 million, respectively.

   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 approximately 5.5 percent.

   As of December 31, 1997, WMECO has collected, through rates, $59.7 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 depreciation. Unrealized gains and
   losses associated with the decommissioning trusts also impact the balance of
   the trust and the accumulated reserve for depreciation.

   Changes in requirements or technology, the timing of funding or dismantling,
   or adoption of a decommissioning method other than immediate dismantlement
   would change decommissioning cost estimates and the amounts required to be
   recovered.  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 WMECO.  Based on present
   estimates and assuming its nuclear units operate to the end of their
   respective license periods, WMECO expects that the decommissioning trusts
   will be substantially funded when the units are retired from service.

   Millstone 1 has been placed in extended status while management is reviewing
   its options with respect to the unit.  These include restart, early
   retirement and other options.  Relating to management's consideration of the
   option to immediately retire Millstone 1 are certain Connecticut state law
   issues which relate to WMECO as minority owner. In its four-year rate review
   proceeding, the DPUC noted that CL&P may not be able to obtain its remaining
   investment in Millstone 1 if it were to determine that the unit had been
   prematurely shut down due to management imprudence.  Additionally, there is
   a Connecticut statute which may limit CL&P's ability to collect future
   decommissioning charges related to Millstone 1 if Millstone 1 were to be
   terminated before the end of its expected life.

   At December 31, 1997, WMECO's net unrecovered Millstone 1 plant costs were
   $50.9 million and the remaining unrecovered decommissioning costs were
   approximately $44 million.

   Yankee Companies:  VYNPC owns and operates a nuclear generating unit with  a
   service life that is expected to end in 2012.  WMECO's ownership share of
   estimated costs, in year-end 1997 dollars, of decommissioning this unit is
   $12.6 million.

   On August 6, 1997, the board of directors of MYAPC voted unanimously to
   cease permanently the production of power at its nuclear generating facility
   (MY).  The NU system companies had relied on MY for approximately one
   percent of their capacity.  During November 1997, MYAPC filed an amendment
   to its power contracts clarifying the obligations of its purchasing
   utilities following the decision to cease power production.  During January
   1998, the FERC accepted the amendments and proposed rates, subject to
   refund.  At December 31, 1997, the remaining estimated obligation, including
   decommissioning, amounted to approximately $867.2 million, of which WMECO's
   share was approximately $26.0 million.

   On December 4, 1996, the board of directors of CYAPC voted unanimously to
   cease permanently the production of power at its nuclear generating plant
   (CY).  During 1996, the NU system companies had relied on CY for
   approximately three percent of their capacity.  During late December 1996,
   CYAPC filed an amendment to its power contracts clarifying the obligations
   of its purchasing utilities following the decision to cease power
   production.  On February 27, 1997, the FERC approved an order for hearing
   which, among other things, accepted CYAPC's contract amendment.  The new
   rates became effective March 1, 1997, subject to refund.  At December 31,
   1997, the remaining estimated obligation, including decommissioning,
   amounted to $619.9 million, of which WMECO's share was approximately $58.9
   million.

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

   Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
   shareholder-sponsor companies, including WMECO, are responsible for their
   proportionate share of the costs of the units, including decommissioning.
   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.

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

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 the DTE.  SEC authorization allowed WMECO, as of January 1, 1998, to
   incur short-term borrowings up to a maximum of $150 million. In addition,
   the charter of WMECO contains a provision which restricts the total amount
   of unsecured debt that it may borrow at any one time.  As of January 1,
   1998, this charter provision allowed WMECO to incur unsecured borrowings,
   whether short-term or long-term, up to a maximum of approximately $114
   million.

   Credit Agreements:  In May 1997, because of the potential for NU and CL&P to
   violate their various financial ratio tests, NU amended the three-year
   revolving credit agreement (Credit Agreement) with a group of 12 banks.
   Under the amended Credit Agreement, CL&P and WMECO are able to borrow,
   subject to the availability of first mortgage bond collateral, up to $313.75
   million and $150 million, respectively.  At December 31, 1997, CL&P and
   WMECO have issued first mortgage bonds to enable borrowings under this
   facility up to a maximum of $225 million and $90 million,  respectively.
   NU, which cannot issue first mortgage bonds, will be able to borrow up to
   $50 million if NU consolidated, CL&P and WMECO each meet certain interest
   coverage tests for two consecutive quarters.  In addition, CL&P and WMECO
   each must meet certain minimum quarterly financial ratios to access the
   Credit Agreement.  Both CL&P and WMECO satisfied these tests for the quarter
   ending December 31, 1997.  The overall limit for all of the borrowing system
   companies under the entire Credit Agreement is $313.75 million.  The
   companies are obligated to pay a facility fee of .50 percent per annum of
   each bank's total commitment under this Credit Agreement which will expire
   in November 1999.  At December 31, 1997 and 1996, there were $50 million and
   $27.5 million, respectively, in borrowings under this Credit Agreement.  Of
   these borrowings, $15 million were borrowed by WMECO in 1997 and none were
   borrowed by WMECO in 1996.

   In addition to the Credit Agreement, NU, CL&P, WMECO, HWP and The Rocky
   River Realty Company (RRR) have various revolving credit lines through
   separate bilateral credit agreements. Under this facility, four banks
   maintain commitments to the respective companies totaling $56.25 million.
   NU, CL&P and WMECO may borrow up to the aggregate $56.25 million, whereas
   HWP and RRR may borrow up to their SEC or board authorized short-term debt
   limit of $5 million and $22 million, respectively.  Under the terms of this
   facility, the companies are obligated to pay a facility fee of .15 percent
   per annum of each bank's total commitment.  These commitments will expire in
   December  1998.   At December 31, 1997 and 1996, there were no borrowings
   and $11.3 million in borrowings, respectively, under this facility.

   Under the credit facilities discussed above, WMECO may borrow funds on a
   short-term revolving basis under its respective agreements, using either
   fixed-rate loans or standby loans.  Fixed rates are set using competitive
   bidding. Standby loans are based upon several alternative variable rates.
   The weighted average annual interest rate on WMECO's notes payable to banks
   outstanding on December 31, 1997 was 6.95 percent. WMECO had no borrowings
   under these facilities at December 31, 1996.

   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, 1997 and 1996,
   WMECO had $14.4 million and $47.4 million, respectively, of borrowings
   outstanding from the Pool. The interest rate on borrowings from the Pool at
   December 31, 1997 and 1996 was 5.8 percent and 6.3 percent, respectively.

   Maturities of short-term debt obligations were for periods of three months
   or less.

   For further information on short-term debt, including the ability to access
   these agreements, 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
                         1997       Outstanding
                      Redemption    December 31,           December 31,
   Description         Price           1997          1997      1996      1995

                                                       (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

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

   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
                           1997      Outstanding
                         Redemption  December 31,          December 31,
   Description             Price*      1997         1997       1996        1995
                                                       (Thousands of Dollars)

   7.60% Series
     of 1987 ...........   $25.64    840,000       $21,000    $21,000    $24,000

   Less preferred stock to be
    redeemed within one
    year, net of reacquired
    stock ..............              60,000         1,500       -         1,500

   Total preferred stock
    subject to mandatory
    redemption .........                           $19,500    $21,000    $22,500



   *Redemption price reduces in future years.

   The minimum sinking-fund provisions of the 1987 Series subject to mandatory
   redemption at December 31, 1997, for the years 1998 through 2002 is $1.5
   million per year. 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,
                                                              1997      1996
                                                          (Thousands of Dollars)
     First Mortgage Bonds:

        5 3/4%         Series F, due 1997................. $    -      $ 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 3/8%         Series B, due 2001.................    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..........................   304,800    259,500

      Pollution Control Notes:
       Tax Exempt Variable Series A, due 2028.............    53,800     53,800
      Fees and interest due for spent
        fuel disposal costs (Note 1K).....................    39,045     37,055
      Less:  Amounts due within one year..................     9,800     14,700
      Unamortized premium and discounts, net..............      (996)      (913)
      Long-term debt, net................................. $ 386,849   $334,742


     Long-term debt maturities and cash sinking-fund requirements on debt
     outstanding at December 31, 1997 for the years 1998 through 2002 are
     approximately $9.8 million, $40 million, $60 million, $60 million and $85
     million, respectively.  In addition, there are annual one-percent sinking-
     and improvement-fund requirements, currently amounting to $1.5 million for
     1998 and 1999 and $900 thousand for 2000 through 2002.  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 WMECO 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 WMECO's utility plant is subject to the lien of its
     first mortgage bond indenture.  As of December 31, 1997 and 1996, WMECO 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 3.5 percent for 1997 and 3.3 percent for 1996.


7.   INCOME TAX EXPENSE

     The components of the federal and state income tax provisions
     (credited)/charged to operations are:


     For the Years Ended December 31,           1997        1996         1995
                                                    (Thousands of Dollars)
      Current income taxes:
        Federal............................  $(14,277)     $7,007      $ 7,419
        State..............................      (635)      1,358        2,961

         Total current....................    (14,912)      8,365       10,380

      Deferred income taxes, net:
        Federal............................      (652)     (1,805)       4,130
        State..............................        81        (165)       1,003

          Total deferred...................      (571)     (1,970)       5,133

      Investment tax credits, net..........    (1,469)     (1,468)      (1,715)

      Total income tax (credit)/
        expense............................  $(16,952)     $4,927      $13,798


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

      Income taxes charged to
        operating expenses.................  $(15,926)     $5,995      $14,060
      Other income taxes ..................    (1,026)     (1,068)        (262)

      Total income tax (credit)/
        expense............................  $(16,952)     $4,927      $13,798


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

     For the Years Ended December 31,           1997        1996          1995
                                                  (Thousands of Dollars)
     Depreciation, leased nuclear
       fuel, settlement credits,
       and disposal costs....................$ 1,407      $    32       $9,066
     Energy adjustment clause................  3,115        4,102       (1,549)
     Expenses associated with
       nuclear outages....................... (1,078)      (4,633)        -
     Demand side management..................    321        1,557       (1,184)
     Nuclear plant deferrals................. (3,431)      (2,258)       2,468
     Pension.................................    999          (57)        (482)
     Bond redemptions........................   (535)        (502)        (572)
     Other................................... (1,369)        (211)      (2,614)

     Deferred income taxes, net.............. $ (571)     $(1,970)      $5,133


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


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

Expected federal income tax at
  35 percent of pretax income for...... $(15,970)        $2,946        $18,526
Tax effect of differences:
  Depreciation.........................    1,352          2,280          2,173
  Amortization of regulatory assets....    1,916          1,029          1,665
  Investment tax credit amortization...   (1,469)        (1,468)        (1,715)
  State income taxes, net of
    federal benefit....................     (309)           776          2,577
  Adjustment for prior years' taxes....     (967)          -            (7,702)
  Dividends received reduction.........     (408)          (378)          (481)
  Other, net...........................   (1,097)          (258)        (1,245)

Total income tax (credit)/expense...... $(16,952)        $4,927        $13,798



8. LEASES

   WMECO and CL&P may finance up to $400 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 which is
   scheduled to expire July 31, 1998.  The NBFT capital lease agreement, which
   was amended in February 1998, requires CL&P and WMECO to secure their
   obligation to repay the NBFT with up to $90 million of first mortgage bonds.
   CL&P and WMECO will issue these bonds by May 1998.

   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, some of which may be
   capital leases, 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


     1997   ...................  $ 1,820,000    $5,968,000
     1996   ...................    3,598,000     6,410,000
     1995   ...................   12,553,000     6,398,000

   Interest included in capital lease rental payments was $1,820,000 in 1997,
   $1,858,000 in 1996, and $1,954,000 in 1995.

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

     Year                               Capital Leases        Operating Leases
                                                 (Thousands of Dollars)

     1998...........................       $32,700                 $ 3,700
     1999...........................            36                   3,400
     2000..........................             36                   3,100
     2001...........................            36                   2,800
     2002...........................            36                   2,500
     After 2002.....................            70                  18,600

     Future minimum lease
      payments.....................         32,914                 $34,100

     Less amount
       representing
       interest.....................            14

     Present value of
       future minimum
       lease payments...............       $32,900



9.   EMPLOYEE BENEFITS

     A.   PENSION BENEFITS

          The NU system's subsidiaries participate in a uniform noncontributory
          defined benefit retirement plan covering all regular NU system
          employees.  Benefits are based on years of service and the employees'
          highest eligible compensation during 60 consecutive months of
          employment.  WMECO's direct portion of the NU system's pension
          credit, part of which was credited to utility plant, approximated
          $(5.7) million in 1997, $(2.0) million in 1996 and $(2.7) million in
          1995. WMECO's pension (credits)/costs for 1997, 1996 and 1995 included
          approximately $(529) thousand, $1.0 million and $0.0 million,
          respectively, related to workforce reduction programs.

          Currently, WMECO 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 credit for WMECO are:

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

          Service cost.......................   $ 1,346    $ 2,932     $ 1,645
          Interest cost......................     7,858      7,786       7,757
          Return on plan assets..............   (31,874)   (22,174)    (29,798)
          Net amortization...................    16,944      9,458      17,669
                                         
          Net pension (credit)...............   $(5,726)   $(1,998)    $(2,727)

          For calculating pension cost, the following assumptions were used:

          For the Years Ended December 31,        1997       1996        1995


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

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


          At December 31,                              1997             1996
                                                      (Thousands of Dollars)
          Accumulated benefit obligation,
            including vested benefits at
            December 31, 1997 and 1996 of
            $(87,278,000) and $(85,094,000),
            respectively .......................    $( 93,555)       $( 91,170)

          Projected benefit obligation..........    $(109,536)       $(107,816)
          Market value of plan assets...........      181,028          157,863

          Market value in excess of
            projected benefit obligation........       71,492           50,047
          Unrecognized transition amount........       (1,727)          (1,963)
          Unrecognized prior service costs......        1,142            1,213
          Unrecognized net gain.................      (62,370)         (46,486)

          Prepaid pension asset ................     $  8,537         $  2,811


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


          At December 31,                                    1997         1996

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



     B.   POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

          The NU system's subsidiaries provide certain health care benefits,
          primarily medical and dental, and life insurance benefits through a
          benefit plan to retired employees (referred to as SFAS 106 benefits).
          These benefits are available for employees retiring from the 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 cost.  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 $2.8 million in 1997, $3.8 million in
          1996, and $4.4 million in 1995.  WMECO is funding SFAS 106
          postretirement costs through external trusts.  WMECO 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,       1997        1996        1995
                                                   (Thousands of Dollars)

          Service cost.......................   $  355    $    490     $   490
          Interest cost......................    2,011       2,236       2,544
          Return on plan assets..............   (2,088)       (883)       (718)
          Amortization of unrecognized
            transition obligation............    1,641       1,641       1,641
          Other amortization, net............      868         353         473
          Net health care and life
            insurance cost...................   $2,787      $3,837      $4,430

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


          For the Years Ended December 31,        1997        1996        1995


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


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



          At December 31,                                    1997        1996
                                                         (Thousands of Dollars)

          Accumulated postretirement benefit
          obligation of:

           Retirees.....................................   $(23,123)  $(24,614)
           Fully eligible active employees..............        (84)       (28)
           Active employees not eligible to retire......     (4,619)    (5,449)
          Total accumulated postretirement
            benefit obligation..........................    (27,826)   (30,091)

          Market value of plan assets...................     12,838     10,215

          Accumulated postretirement benefit
            obligation in excess of plan assets.........    (14,988)   (19,876)

          Unrecognized transition amount................     24,618     26,259

          Unrecognized net gain.........................     (9,630)    (6,765)

          Accrued postretirement benefit liability......    $  -       $  (382)


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



          At December 31,                                    1997      1996

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



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

          The effect of increasing the assumed health care cost trend rate by
          one percentage point in each year would increase the accumulated
          postretirement benefit obligation as of December 31, 1997, by $1.7
          million and the aggregate of the service and interest cost components
          of net periodic postretirement benefit cost for the year then ended by
          $131 thousand.  The trust holding the health plan assets is subject to
          federal income taxes at a 39.6 percent tax rate.

          WMECO currently is recovering SFAS 106 costs through rates.

10.  SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES

     During 1996, WMECO entered into an agreement to sell up to $40 million of
     undivided ownership interests in eligible customer receivables and accrued
     utility revenues (receivables).

     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.
     During May 1997, WMECO had restructured its sales agreement to comply with
     the conditions of SFAS 125 and account for transactions occurring under
     this program as a sale of assets.  WMECO established a special purpose,
     wholly owned subsidiary whose business consists of the purchase and resale
     of receivables.  For receivables sold, WMECO has retained collection
     responsibilities as agent for the purchaser under WMECO's agreement.  As
     collections reduce previously sold receivables, new receivables may be
     sold.  At December 31, 1997, approximately $20 million of receivables had
     been sold to a third-party purchaser by WMECO, through the use of its
     special purpose, wholly owned subsidiary, WMECO Receivables Corporation
     (WRC).  All receivables transferred to WRC are assets owned by WRC and are
     not available to pay WMECO's creditors.

     For WRC's sales agreement with the third-party purchaser, the receivables
     were sold with limited recourse.  WRC's sales agreement provides for a
     formula-based loss reserve in which additional receivables may be assigned
     to the third-party purchaser for costs such as bad debt. The third-party
     purchaser absorbs the excess amount in the event that actual loss
     experience exceeds the loss reserve.  At December 31, 1997 approximately
     $3.0 million of assets had been designated as collateral by WRC. This
     amount represents the formula-based amount of credit exposure at December
     31, 1997.  Historical losses for bad debt for WMECO have been substantially
     less.

     During December  1997, Moody's Investors Service downgraded the rating on
     WMECO's first mortgage bonds.  This downgrade brought WMECO's bond ratings
     to a level at which the sponsor of WMECO's accounts receivable program can
     take various actions, in its discretion, which would have the practical
     effect of limiting WMECO's ability to utilize the facility.  To date, the
     sponsor has not notified WMECO that it will elect to exercise those rights,
     and the program is functioning in its normal mode.  The WMECO accounts
     receivable program is terminable if WMECO's first mortgage bond credit
     ratings experience one more level of downgrade. CL&P's accounts receivable
     program could be terminated if its senior secured debt is downgraded two
     more steps from its current ratings.

     Concentrations of credit risk to the purchaser under WMECO's agreement with
     respect to the receivables are limited due to WMECO's diverse customer base
     within its service territory.

     For additional information on the accounts receivable program and WMECO's
     ability to utilize this program, see the MD&A.

11. COMMITMENTS AND CONTINGENCIES

    A.    RESTRUCTURING AND RATE MATTERS
          During November 1997, the state of  Massachusetts enacted a
          comprehensive electric utility industry restructuring bill
          (legislation).  On December 31, 1997, WMECO filed its restructuring
          plan with the DTE, as required by the legislation.  The WMECO
          restructuring plan describes the process by which WMECO will,
          beginning March 1, 1998, initiate a ten percent rate reduction for all
          customer rate classes and allow customers to choose their energy
          supplier. As part of the plan, the DTE authorized recovery of certain
          strandable above-market costs (strandable costs).  The legislation
          gives the DTE the authority to determine the amount of strandable
          costs that will be eligible for recovery by utilities.  Costs which
          will qualify as strandable costs and be eligible for recovery include,
          but are not limited to, certain above-market costs associated with
          generating facilities, costs associated with long-term commitments to
          purchase power at above-market prices from small power producers and
          nonutility generators, and regulatory assets and associated
          liabilities related to the generation portion of WMECO's business.

          Under the statute, if a distribution company claims that it is unable
          to meet a price reduction of ten percent initially and 15 percent by
          September 1, 1999, the distribution company may so state to the DTE
          and the DTE is provided with the authority to "explore all possible
          mechanisms and options within the limits of the constitution" to
          achieve the mandated rate reductions.  The statute indicates that
          allowing a substitute company to provide standard offer service is one
          option that can be considered by the DTE.

          The costs of transitioning to competition will be mitigated through
          several steps, including divesting WMECO's non-nuclear generating
          assets at an auction to be held as soon as June 1998, and
          securitization of approximately $500 million in strandable costs by
          September 30, 1998.  NU presently expects to participate, through a
          competitive affiliate, in the competitive bid process for WMECO's
          generation resources.  Any net proceeds in excess of book value
          received from the divestiture of these units will be used to mitigate
          strandable costs.  As required by the legislation, WMECO will continue
          to operate and maintain its transmission and local distribution
          network and deliver electricity to all customers.

          As noted above, the legislation has authorized Massachusetts utilities
          to finance a portion of the strandable costs through securitization,
          using rate reduction bonds.  A separate transition charge will be
          collected over the life of the bonds to recover principal, interest
          and issuance costs.

          WMECO's ability to recover its strandable costs will depend on several
          factors, which include, but are not limited to, continuous recovery of
          the costs over the transitional period supported by the legislation,
          the aggregate amount of strandable  costs which the company will be
          allowed to recover and the market price of electricity.  Management
          believes that the company will recover its strandable costs. However,
          a change in one or more of these factors could affect the recovery of
          strandable costs and may result in a loss to the company.

          FERC Rate Proceedings:  For information regarding the FERC rate
          proceedings for CYAPC and MYAPC, see Note 2, "Nuclear
          Decommissioning."

   B.     NUCLEAR PERFORMANCE

          Millstone:  The three Millstone units are managed by NNECO. Millstone
          1, 2 and 3 have been out of service since November 4, 1995, February
          21, 1996, and March 30, 1996, respectively, and are on the Nuclear
          Regulatory Commission's (NRC) watch list.  NU has restructured its
          nuclear organization and is currently implementing comprehensive plans
          to restart the units.

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

          In 1997, WMECO's share of nonfuel O&M costs expensed for Millstone
          totaled $106 million, including $14 million reserved for future
          restart costs.

          Budgeted nuclear spending levels at Millstone for 1998 will be
          reduced from 1997 levels, although they will be considerably higher
          than before the station was placed on the NRC's watch list.  The
          actual level of 1998 spending will depend on when the units return to
          operation and the cost of restoring them to service.  The total cost
          to restart the units cannot be precisely estimated at this time.
          Management will continue to evaluate the costs to be incurred in 1998
          to determine whether adjustments to the existing reserves are
          required.

          Management cannot predict when the NRC will allow any of the
          Millstone units to return to service and thus cannot precisely
          estimate the total replacement power costs WMECO will ultimately
          incur. Replacement power costs incurred by WMECO attributable to the
          Millstone outages averaged approximately $5 million per month during
          1997, and  for 1998 are projected to average approximately $2 million
          per month for Millstone 3, $2 million per month for Millstone 2 and
          $1 million per month for Millstone 1 while the plants remain out of
          service.  WMECO will continue to expense its replacement power costs
          in 1998.

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

          For information concerning the ability of WMECO to access its
          borrowing facilities, see the MD&A.

          Litigation:    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 of operation and maintenance pro-rata in accordance with
          their ownership shares.  This agreement also provides that CL&P and
          WMECO would be liable only for damages to the non-NU owners for a
          deliberate violation of the agreement pursuant to authorized corporate
          action.

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

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

          Environmental requirements could hinder the construction of new
          generating units, transmission and distribution lines, substations,
          and other facilities. Changing environmental requirements could also
          require extensive and costly modifications to 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 be estimated accurately.

          WMECO has recorded a liability based upon currently available
          information for what it believes are its estimated environmental
          remediation costs that it expects to incur for waste disposal sites.
          In most cases, additional future environmental cleanup costs are not
          reasonably estimable due to a number of factors, including the unknown
          magnitude of possible contamination, the appropriate remediation
          methods, the possible effects of future legislation or regulation and
          the possible effects of technological changes.  At December 31, 1997,
          the net liability recorded by WMECO for its estimated environmental
          remediation costs, excluding any possible insurance recoveries or
          recoveries from third parties, amounted to approximately $1.6 million,
          which management has determined to be the most probable  amount within
          the range of $1.6 million to $2.6 million.

          During 1997, WMECO adopted Statement of Position 96-1,
          "Environmental Remediation Liabilities" (SOP).  The principal
          objective of the SOP is to improve the manner in which existing
          authoritative accounting literature is applied by entities to specific
          situations of recognizing, measuring and disclosing environmental
          remediation liabilities.  The adoption of the SOP resulted in an
          increase of approximately $370 thousand to WMECO's environmental
          reserve in 1997.

          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.

      D.  NUCLEAR INSURANCE CONTINGENCIES
          Under certain circumstances, in the event of a nuclear incident at
          one of the nuclear facilities in the country covered by the federal
          government's third-party liability indemnification program, an owner
          of a nuclear unit could be assessed in proportion to its ownership
          interest in each of its nuclear units up to $75.5 million.  Payments
          of this assessment would be limited to $10.0 million in any one year
          per nuclear incident based upon the owner's pro rata ownership
          interest in each of its nuclear units.  In addition, the owner would
          be subject to an additional five percent or $3.8 million, in
          proportion to its ownership interests in each of its nuclear units,
          if the sum of all claims and costs from any one nuclear incident
          exceeds the maximum amount of financial protection. Based upon its
          ownership interests in Millstone 1, 2 and 3, WMECO's maximum
          liability, including any additional assessments, would be $39.8
          million per incident, of which payments would be limited to $5
          million per year.  In addition, through power purchase contracts
          with MYAPC, VYNPC, and CYAPC, WMECO would be responsible for up to
          an additional $11.9 million per incident, of which payments would be
          limited to $1.5 million 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 $2.7 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 WMECO with respect to losses arising
          during current policy years are approximately $2.2 million under the
          replacement power policies and $3.8 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 an industry
          basis for coverage of worker claims.  All participating reactor
          operators insured under this coverage are subject to retrospective
          assessments of $3 million per reactor.  The maximum potential
          assessment against  WMECO with respect to losses arising during the
          current policy period is approximately $2.2  million.  Effective
          January 1, 1998, a new worker policy was purchased which is not
          subject to retrospective assessments.

    E.    CONSTRUCTION PROGRAM
          The construction program is subject to periodic review and
          revision by management. WMECO currently forecasts construction
          expenditures of approximately $185 million for the years 1998-2002,
          including $27 million for 1998.  In addition, WMECO estimates that
          nuclear fuel requirements, including nuclear fuel financed through the
          NBFT, will be approximately $56.4 million for the years 1998-2002,
          including $8.4 million for 1998. See Note 8, "Leases" for additional
          information about the financing of nuclear fuel.

    F.    LONG-TERM CONTRACTUAL ARRANGEMENTS
          Yankee Companies:  The NU system companies rely on VY for
          approximately 1.7 percent of their capacity under long-term contracts.
          Under the terms of their agreements, the NU system companies pay their
          ownership (or entitlement) shares of costs, which include
          depreciation, O&M expenses, taxes, the estimated cost of
          decommissioning and a return on invested capital.  These costs are
          recorded as purchased power expense and are recovered through the
          companies' rates.  WMECO's total cost of purchases under contracts
          with VYNPC amounted to $3.9 million in 1997, $4.1 million in 1996 and
          1995.

          The other Yankee generating facilities, MY, CY and Yankee Rowe, were
          permanently shut down as of August 6, 1997, December 4, 1996 and
          February 26, 1992, respectively.  See Note 1E, "Summary of Significant
          Accounting Policies--Investments and Jointly Owned Electric Utility
          Plant," for further information on the Yankee companies, and Note 2,
          "Nuclear Decommissioning," regarding the related decommissioning
          obligations.

          Nonutility Generators:  WMECO has entered into various arrangements
          for the purchase of capacity and energy from nonutility generators
          (NUGs).  These arrangements have terms from 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 ending December 31, 1997, approximately 14 percent of NU system
          electricity requirements were met by NUGs. WMECO's total cost of
          purchases under these arrangements amounted to $31.2 million in 1997,
          $29.5 million in 1996, and $28.6 million in 1995. These costs may be
          deferred for eventual recovery through 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.


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

                                      1998      1999     2000     2001     2002
                                                   (Millions of Dollars)

       VYNPC .......................  $ 4.9    $ 4.9    $ 4.8    $ 5.2    $ 5.4
       NUGs ........................   35.1     36.8     39.5     41.6     43.8
       Hydro-Quebec ................    3.8      3.6      3.6      3.5      3.4


          For additional information regarding the recovery of purchased
          power costs, see Note 1J, "Summary of Significant Accounting Policies
          - Recoverable Energy Costs."

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 WMECO's nuclear decommissioning trust were adjusted to market by
     approximately $17.9 million as of December 31, 1997, and $8.4 million as of
     December 31, 1996, with a corresponding offset to the accumulated provision
     for depreciation.  The amounts adjusted in 1997 and 1996 represent
     cumulative gross unrealized holding gains. The cumulative gross unrealized
     holding losses were immaterial for both 1997 and 1996.

     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, 1997                                   Amount      Value
                                                         (Thousands of Dollars)
     Preferred stock not subject to
       mandatory redemption...........................    $ 20,000     $ 16,252

     Preferred stock subject to
      mandatory redemption............................      21,000       20,580

     Long-term debt - First Mortgage Bonds............     304,800      302,627

     Other long-term debt.............................      92,845       92,845


                                                          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


     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 consolidated balance sheets of Western
Massachusetts Electric Company (a Massachusetts corporation and a wholly owned
subsidiary of Northeast Utilities) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, common stockholder's
equity and cash flows for each of the three years in the period ended
December 31, 1997.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Massachusetts
Electric Company and subsidiary as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

                                        /s/ ARTHUR ANDERSEN LLP
                                            ARTHUR ANDERSEN LLP


Hartford, Connecticut
February 20, 1998


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
operations.  The company is a wholly-owned subsidiary of Northeast Utilities
(NU).  This discussion should be read in conjunction with the company's
consolidated financial statements and footnotes.

FINANCIAL CONDITION

OVERVIEW

The length of the ongoing outages at the three Millstone nuclear plants
(Millstone) and the high costs of the recovery efforts weakened WMECO's 1997 net
income, balance sheet and cash flows and will continue to have an adverse impact
on the company's financial condition until the units are returned to service.

WMECO had a net loss of approximately $29 million in 1997, compared to net
income of approximately $4 million in 1996.  The poorer financial results in
1997 were due primarily to the fact that all three Millstone units were off line
for the entire year in 1997 and spending associated with the recovery efforts
was significantly higher in 1997 than it was in 1996.  Millstone 3 operated for
nearly three months in 1996 and Millstone 2 for nearly two months.  As a result,
the cost of replacing power ordinarily generated by the Millstone units rose by
approximately $15 million in 1997.  The total operation and maintenance (O&M)
costs at Millstone were approximately $30 million higher in 1997.

The higher Millstone costs have caused WMECO to focus closely on maintaining
adequate liquidity and reducing non nuclear O&M costs.  In July 1997, WMECO
successfully sold $60 million of first mortgage bonds.  WMECO's access to $90
million of revolving credit lines was renegotiated in the first half of 1997.
Also helping to maintain liquidity was the renegotiation in early 1998 of a $100
million credit line used by Niantic Bay Fuel Trust (NBFT) to purchase nuclear
fuel for Millstone.  Additionally, non nuclear O&M expenses in 1997 were reduced
by about $5 million from 1996.  Tight cost controls will continue to be
essential in 1998 to WMECO's efforts to meet the financial covenants contained
in the $313.75 million revolving credit arrangement available to WMECO and The
Connecticut Light and Power Company (CL&P).

In 1998, management expects Millstone-related expenses to fall significantly,
assuming Millstone 3 and Millstone 2 are returned to service at dates close to
current estimates, although the O&M expenses at Millstone 3 and 2 will be
considerably higher than before the station was placed on the Nuclear Regulatory
Commission's (NRC's) watch list.  The actual level of 1998 nuclear spending at
Millstone will depend on when the units return to operation and the cost of
restoring them to service. The company hopes to restart Millstone 3, the newest
and largest unit at the site, in early spring of 1998 and Millstone 2 three to
four months after Millstone 3. The company cannot restart the Millstone units
until it receives formal approval from the NRC.  As part of an effort to reduce
spending in 1998, Millstone 1 has been placed in extended maintenance status.
Management will review its options with respect to Millstone 1 in 1998,
including restart, early retirement and other options.

Rate reductions to customers served by the company are likely to offset a
portion of the benefit of lower Millstone-related costs.  On March 1, 1998,
WMECO reduced retail rates by 10 percent in compliance with industry
restructuring legislation passed in November 1997 by the Massachusetts
Legislature.

The 1997 Massachusetts legislation allowed full retail choice on March 1, 1998.
WMECO expects to recover fully its stranded costs through a combination of
securitization and divestiture of its non-nuclear generating assets.


MILLSTONE
OUTAGES

WMECO has a 19-percent ownership interest in Millstone units 1 and 2 and a
12.24-percent ownership interest in Millstone unit 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 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 concern issues that
prompted the NRC to place the units on its watch list.  The actual date of the
return to service for each of the units is dependent upon the completion of
independent inspections, reviews by the NRC and a vote by the NRC Commissioners.

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

In 1997, WMECO's share of nonfuel O&M costs expensed for Millstone totaled
approximately $106 million, including $14 million reserved for future restart
costs.  The 1997 costs are net of $12 million of costs which were reserved in
1996.  In 1996, WMECO'S share of nonfuel O&M costs expensed for Millstone
totaled approximately $76 million, including $12 million reserved for future
restart costs. Management will continue to evaluate the costs to be incurred in
1998 to determine whether adjustments to the existing reserves are required.

Replacement power costs attributable to the Millstone outages totaled
approximately $56 million in 1997 compared to $41 million expensed in 1996.
These costs for 1998 are forecasted to average approximately $2 million per
month for Millstone 3, $2 million per month for Millstone 2 and $1 million per
month for Millstone 1 while the plants are out of service.

The company has been, and will continue to be, expensing all of the costs to
restart the units including replacement power and nonfuel O&M expenses.

NU and its subsidiaries are involved in several class action lawsuits and other
litigation in connection with their nuclear operations. See the "Notes to
Consolidated Financial Statements," Note 11B, for further information on this
litigation.


MILLSTONE 1

Management will  review its options with respect to Millstone 1 during 1998. The
issues that management will consider in evaluating its options include the costs
to restart the unit and the economic benefits of the unit's continued operation.

CAPACITY

During 1996 and continuing into 1997, WMECO took measures to improve its
capacity position, including obtaining additional generating capacity, improving
the availability of the company's generating units and improving the company
transmission capability. During 1997, WMECO spent approximately $10 million to
ensure availability of adequate generating  generating capacityin Connecticut,
of which $6 million was expensed.  During 1998 these costs are expected to be
approximately $11 million.(DO WE WANT TO SAY WHY 1998 IS SO MUCH LOIn 1998,
WMECO does not anticipate the need to take additional measures to ensure
adequate generating capacity.


LIQUIDITY AND CAPITAL RESOURCES

Cash provided from operations decreased approximately $41 million in 1997,
compared to 1996, primarily due to higher cash expenditures related to the
Millstone outages, and the pay down in 1997 of the 1996 year end accounts
payable balance.  The 1996 year end accounts payable balance was relatively high
due to costs related to a severe December storm and costs associated with the
Millstone outages that had been incurred but not yet paid by the end of 1996.
Net cash from financing activities increased approximately $44 million,
primarily due to the issuance of long-term debt in 1997 and lower reacquisitions
and retirements of long-term debt and preferred stock, partially offset by the
repayment of short-term debt.

WMECO established facilities in 1996 under which they may sell, from time to
time, up to $40 million, of its accounts receivable and accrued utility
revenues.  As of December 31, 1997, WMECO sold approximately $20 million of
receivables to third-party purchasers.

NU's, WMECO's and CL&P's three-year revolving credit agreement (Credit
Agreement) was amended in May 1997 (the Credit Agreement).  Under the Revolving
Credit Agreement, CL&P and WMECO are able to borrow up to approximately $225
million and $90 million, respectively, subject to a total borrowing limit of
$313.75 million for all three borrowers.  NU will be able to borrow up to $50
million when NU, CL&P and WMECO have each maintained a consolidated operating
income to consolidated interest expense ratio of at least 2.50 to 1 for two
consecutive fiscal quarters.  Currently, the companies cannot meet this
requirement.  At December 31, 1997, WMECO had $15 million outstanding under the
New Credit Agreement.

Each major subsidiary of NU finances its own needs.  Neither CL&P nor WMECO has
any financing agreements containing cross defaults based on financial defaults
by NU, Public Service Company of New Hampshire (PSNH) or North Atlantic Energy
Corporation (NAEC). Nevertheless, it is possible that investors will take
negative operating results or regulatory developments for one subsidiary of NU
into account when evaluating the other NU subsidiaries. That could, as a
practical matter and despite the contractual and legal separations among NU and
its subsidiaries, negatively affect the company's access to financial markets.

In December 1997 and January 1998, Moody's Investors Service (Moody's) and
Standard & Poor's (S&P), respectively, downgraded the senior secured debt of
CL&P, WMECO and NU, as well as the preferred stock of CL&P and WMECO. This was
the fourth time Moody's and S&P have downgraded CL&P and WMECO securities since
the Millstone units went on the NRC watch list in 1996. All of the NU system's
securities are rated below investment grade and remain under review for further
downgrade. Although WMECO does not have any plans to issue debt in the near
term, rating agency downgrades generally increase the future cost of borrowing
funds because lenders will want to be compensated for increased risk.
Additionally, this could also affect the terms and ability of the company to
extend existing agreements.

The downgrade by Moody's of WMECO's first mortgage bonds to Ba2 in December 1997
brought those ratings to a level at which the sponsor of WMECO's accounts
receivable program can take various actions, in its discretion, which would have
the practical effect of limiting WMECO's ability to utilize the facility.  The
WMECO accounts receivable program could be terminated if WMECO's first mortgage
bond credit ratings experience one more level of downgrade.

WMECO's ability to borrow under the financing arrangements is dependent on the
satisfaction of contractual borrowing conditions.  The financial covenants that
must be satisfied to permit WMECO to borrow under the New Credit Agreement are
particularly restrictive and become more restrictive throughout 1998. Spending
levels in 1998, particularly for the first half of the year while the Millstone
units are expected to be out of service, have been, and will be constrained to
levels intended to assure that the financial covenants in WMECO's Credit
Agreement are satisfied.  However, there is no assurance that these financial
covenants will be met as the system may encounter additional unexpected costs
from such areas as storms, reduced revenues from regulatory actions or the
effect of weather on sales levels.

If the return to service of Millstone 3 or Millstone 2 is delayed substantially
beyond the present restart estimates, if some borrowing facilities become
unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if the system encounters additional significant costs,
or any other significant deviations from management's current assumptions, the
currently available borrowing facilities could be insufficient to meet all of
WMECO's cash requirements. In those circumstances, management would take even
more stringent 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 WMECO's
credit and financial condition at that time.

RESTRUCTURING

On November 25, 1997, Massachusetts enacted a comprehensive electric utility
industry restructuring bill. The bill provides that each Massachusetts electric
company, including WMECO, will decrease its rates by 10 percent and allow all
its customers to choose their retail electric supplier on March 1, 1998. The
statute requires a further 5 percent rate reduction, adjusted for inflation, by
September 1, 1999.

In addition, the legislation provides, among other things, for: (i) recovery of
stranded costs through a "transition charge" to customers, subject to review by
the Department of Telecommunications and Energy (DTE), formerly the Department
of Public Utilities (DPU, collectively the DTE), (ii) a possible limitation on
WMECO's return on equity should its transition cost charge go above a certain
level, (iii) securitization of allowed strandable costs, and (iv) divestiture of
nonnuclear generation. WMECO hopes it will be able to complete securitization in
1998.

The statute also provides that an electric company must transfer or separate
ownership of generation, transmission and distribution facilities into
independent affiliates or functionally separate such facilities within 30
business days after federal approval.  Additionally, marketing companies formed
by an electric company are to be separate from the electric company and separate
from generation, transmission or distribution affiliates.

Under the statute, if a distribution company claims that it is unable to
meet a price reduction of 10% initially and 15% by September 1, 1999, the
distribution company may so state to the DTE and the DTE is provided with the
authority to "explore all possible mechanisms and options within the limits of
the constitution" to achieve the mandated rate reductions."  The statute
indicates that allowing a substitute company to provide standard offer service
is one option that can be considered by the DTE.

On December 31, 1997, WMECO filed its restructuring plan with the DTE
consistent with the Massachusetts restructuring legislation.  The plan sets out
the process by which WMECO, as of March 1, 1998, initiated a 10 percent rate
reduction for all customer rate classes and allowed customers to choose their
energy supplier. WMECO intends to mitigate its strandable costs through several
steps, including divesting WMECO's nonnuclear generating plants at an auction to
be held as soon as June 30, 1998, and securitization of  approximately $500
million of stranded costs.  NU intends to participate through a nonregulated
affiliate in the competitive bid process for WMECO's generation resources. Any
proceeds in excess of book value received from the divestiture of these units
will be used to mitigate stranded costs. As required by the legislation, WMECO
will continue to operate and maintain the transmission and local distribution
network and deliver electricity to all customers. On February 20, 1998, the DTE
issued an order approving, in all material respects, WMECO's restructuring plan
on an interim basis.  A final decision is expected in 1998.

Because WMECO is obligated to reduce rates on March 1, 1998, before the means of
financing for restructuring are completed, WMECO's cash flows and financial
condition will be negatively affected. These impacts would become significant if
there are material delays in, or significantly reduced proceeds from, the
divestiture of nonnuclear generation and securitization.

RATE MATTERS

In April, 1996, the DTE approved a settlement (the Agreement) that included the
continuation through February 1998 of a 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.

On August 20, 1997, WMECO filed with the DTE a joint motion for approval of a
settlement agreement with the Massachusetts Attorney General for a fuel
adjustment clause (FAC) which would allow for a lower rate to WMECO customers
for the billing months of September 1997 through February 1998. WMECO is not
recovering replacement power costs during this period and has indicated that it
would not seek recovery of any of replacement power costs associated with the
Millstone outages. WMECO has been expensing and will continue to expense these
costs. The Massachusetts restructuring legislation effectively eliminates the
FAC, effective March 1, 1998.

NUCLEAR DECOMMISSIONING

CONNECTICUT YANKEE

WMECO has a 9.5 percent ownership interest in the Connecticut Yankee nuclear
generating facility (CY or the plant). On December 4, 1996, the Board of
Directors of Connecticut Yankee Atomic Power Company  voted unanimously to cease
permanently the production of power at the plant. The decision to retire CY from
commercial operation was based on an economic analysis of the costs of operating
it compared to the costs of closing it and incurring replacement power costs
over the remaining period of the plant's operating license, which would have
expired in 2007. The economic analysis showed that closing the plant and
incurring replacement power costs produced substantial savings.

CY has undertaken a number of regulatory filings intended to implement the
decommissioning. In late December 1996, CY filed an amendment to its power
contracts with the FERC to clarify the obligations of its purchasing utilities
following the decision to cease power production. At December 31, 1997, WMECO's
share of these obligations was approximately $59 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that the
company 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.

MAINE YANKEE (MY)

WMECO has a 3 percent ownership interest in the Maine Yankee (MY) nuclear
generating facility.  On August 6, 1997, the Board of Directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to retire MY. On January 14,
1998, FERC released a draft order on the MYAPC application to amend its power
contracts with the owner/purchasers and revise its decommissioning and other
charges.  FERC has accepted the proposed application for filing and made the
amendments and the proposed charges under the contracts effective on January 15,
1998, subject to refund after hearings.  At December 31, 1997, WMECO'S share of
the estimated remaining obligation, including decommissioning, amounted to
approximately $26 million.  Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including WMECO, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that WMECO will be allowed to recover these costs from its
customers.  Accordingly, WMECO has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.

MILLSTONE

WMECO's estimated cost to decommission its share of the Millstone plants is
approximately $242 million in year end 1997 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, 1997, the market value of the
contributions already made to the decommissioning trusts, including their
investment returns, was approximately $103 million. See the "Notes to
Consolidated Financial Statements," Note 2, for further information on nuclear
decommissioning.

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, 1997, WMECO had
recorded an environmental reserve of approximately $1.4 million. See the "Notes
to Consolidated Financial Statements," Note 11C, for further information on
environmental matters.

YEAR 2000 ISSUE

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

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

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



RESULTS OF OPERATIONS


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


Operating revenues                $  5             1%        $  1       - %
Fuel, purchased and net
  interchange power                 25            22           29        33
Other operation                      7             5            6         4
Maintenance                         25            45           19        50
Amortization of regulatory
  assets, net                       (3)          (30)         (10)      (53)
Federal and state
  income taxes                     (22)           (a)          (9)      (64)
Other income, net                   (2)           (a)           -         -
Interest on long-term debt           2             8           (3)      (10)
Net income                         (33)           (a)         (35)      (90)
(a) Percentage greater than 100

OPERATING REVENUES

Total operating revenues increased in 1997, primarily due to higher transmission
and capacity revenues and higher retail revenues. Retail revenues were higher
due to lower price discounts to customers, partially offset by lower retail
sales.  Retail kilowatt-hour sales were 1 percent lower in 1997 primarily as a
result of mild winter weather.

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.

FUEL, PURCHASED AND NET INTERCHANGE POWER

Fuel, purchased and net interchange power expense increased in 1997, primarily
due to replacement power costs associated with the Millstone outages.

Fuel, purchased and net interchange power expense increased in 1996, primarily
due to higher replacement power associated with the Millstone outages, partially
offset by the timing of the recognition of costs under the company's fuel clause
and lower nuclear generation.


OTHER OPERATION AND MAINTENANCE

Other operation and maintenance expenses increased in 1997, primarily due to
higher costs associated with the Millstone restart effort ($30 million,
including a net increase of $2 million in reserves for future costs), higher
capacity charges from Maine Yankee ($2 million) and higher costs to ensure
adequate capacity ($6 million), partially offset by lower capacity charges from
Connecticut Yankee as a result of a property tax refund ($4 million) and lower
administrative and general expenses ($5 million) primarily due to lower pensions
and benefit costs.

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

AMORTIZATION OF REGULATORY ASSETS, NET

Amortization of regulatory assets, net decreased in 1997, primarily due to the
completion of the amortization of the Millstone 3 unuseful investment in 1996.

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

FEDERAL AND STATE INCOME TAXES

Federal and state income taxes decreased in 1997, primarily due to lower book
taxable income.

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

OTHER INCOME, NET

Other income, net decreased in 1997, primarily due to costs associated with the
accounts receivable facility.

INTEREST ON LONG-TERM DEBT

Interest on long-term debt increased in 1997 due to the issuance of additional
long-term debt. Interest on long-term debt decreased in 1996, primarily due to
lower average interest rates as a result of refinancing activities and lower
average 1996 debt levels.






<TABLE>
<CAPTION>


SELECTED FINANCIAL DATA (a)        1997        1996        1995        1994        1993
                                                       (Thousands of Dollars)

<S>                             <C>         <C>         <C>         <C>         <C>
Operating Revenues.........    $  426,447  $  421,337  $  420,434  $  421,477  $  415,055

Operating (Loss) Income....          (965)     26,023      63,064      70,940      60,348

Net (Loss) Income..........       (28,676)      3,922      39,133      49,457      40,594(b)

Cash Dividends on
  Common Stock.............        15,004      16,494      30,223      29,514      28,785

Total Assets...............     1,179,128   1,191,915   1,142,346   1,183,618   1,204,642

Long-Term Debt (c).........       396,649     349,442     347,470     379,969     393,232

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

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

Obligations Under
  Capital Leases(c)........        32,887      32,234      36,011      36,797      36,902


</TABLE>


(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)
1997                              March 31    June 30     Sept. 30      Dec. 31



Operating Revenues..............  $106,054    $104,130    $111,166     $105,097

Operating Income (Loss).........  $  3,865    $ (8,160)   $ (2,277)    $  5,607
                                             
Net Income (Loss)...............  $ (1,843)   $(14,858)   $ (9,455)    $ (2,520)


1996

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)


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)
     
1997      $1,334,233       4,300          7,121         195,324        507
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

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