1998 Annual Report

           Western Massachusetts Electric Company and Subsidiary

                                Index


Contents                                                            Page

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

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

Consolidated Statements of Comprehensive 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........................     36

Management's Discussion and Analysis of Financial
  Condition and Results of Operations...........................     37

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

Statements of Quarterly Financial Data (Unaudited)..............     45

Statistics (Unaudited)..........................................     46

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,                                                  1998          1997
---------------------------------------------------------------------------------------
                                                               (Thousands of Dollars)
<S>                                                            <C>           <C>
ASSETS
------
Utility Plant, at original cost:
  Electric................................................  $  1,221,257   $ 1,284,288

     Less: Accumulated provision for depreciation.........       517,401       559,119
                                                            -------------  ------------
                                                                 703,856       725,169
  Construction work in progress...........................        14,858        19,038
  Nuclear fuel, net.......................................        19,931        30,907
                                                            -------------  ------------
      Total net utility plant.............................       738,645       775,114
                                                            -------------  ------------

Other Property and Investments:                             
  Nuclear decommissioning trusts, at market...............       125,598       102,708
  Investments in regional nuclear generating                
   companies, at equity...................................        15,440        15,741
  Other, at cost..........................................         7,322         4,900
                                                            -------------  ------------
                                                                 148,360       123,349
                                                            -------------  ------------
Current Assets:                                             
  Cash....................................................           106           105
  Investments in securitizable assets.....................        21,865        25,280
  Receivables, less accumulated provision for               
    uncollectible accounts of $50,000 in 1998 and 1997....           862         2,739
  Accounts receivable from affiliated companies...........         4,188         3,933
  Taxes receivable........................................        14,255        10,768
  Fuel, materials and supplies, at average cost...........         5,053         5,860
  Recoverable energy costs, net--current portion..........         1,924          -
  Prepayments and other...................................        23,996        14,945
                                                            -------------  ------------
                                                                  72,249        63,630
                                                            -------------  ------------
Deferred Charges:                                           
  Regulatory assets (Note 1G).............................       322,435       211,377
  Unamortized debt expense................................         2,298         2,695
  Other...................................................         3,695         2,963
                                                            -------------  ------------
                                                                 328,428       217,035
                                                            -------------  ------------



      Total Assets........................................  $  1,287,682   $ 1,179,128
                                                            =============  ============




</TABLE>
See accompanying notes to consolidated financial statements.








WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------
AT DECEMBER 31,                                                  1998          1997
---------------------------------------------------------------------------------------
                                                               (Thousands of Dollars)
<S>                                                            <C>           <C>
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:                                             
  Common stock--$25 par value.                              
   Authorized and outstanding 1,072,471 shares............  $     26,812   $    26,812
  Capital surplus, paid in................................       151,431       151,171
  Retained earnings.......................................        46,003        58,608
  Accumulated other comprehensive income..................           150          -
                                                            -------------  ------------
           Total common stockholder's equity..............       224,396       236,591
  Preferred stock not subject to mandatory redemption.....        20,000        20,000
  Preferred stock subject to mandatory redemption.........        18,000        19,500
  Long-term debt..........................................       349,314       386,849
                                                            -------------  ------------
           Total capitalization...........................       611,710       662,940
                                                            -------------  ------------
Obligations Under Capital Leases..........................        12,129           217
                                                            -------------  ------------
Current Liabilities:                                                      
  Notes payable to banks..................................        20,000        15,000
  Notes payable to affiliated companies...................        30,900        14,350
  Long-term debt and preferred stock--current                             
   portion................................................        41,500        11,300
  Obligations under capital leases--current                               
   portion................................................        21,964        32,670
  Accounts payable........................................        17,952        30,571
  Accounts payable to affiliated companies................        12,866        21,209
  Accrued taxes...........................................         1,264           522
  Accrued interest........................................         8,030         3,318
  Other...................................................         6,831         2,446
                                                            -------------  ------------
                                                                 161,307       131,386
                                                            -------------  ------------
Deferred Credits:                                                         
  Accumulated deferred income taxes.......................       248,985       246,453
  Accumulated deferred investment tax credits.............        21,895        23,364
  Decommissioning obligation--Millstone 1 (Note 2)........       131,500          -
  Deferred contractual obligations........................        74,534        93,628
  Other...................................................        25,622        21,140
                                                            -------------  ------------
                                                                 502,536       384,585
                                                            -------------  ------------
Commitments and Contingencies (Note 11)


           Total Capitalization and Liabilities...........  $  1,287,682   $ 1,179,128
                                                            =============  ============




</TABLE>
See accompanying notes to consolidated financial statements.







WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>


--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,                   1998       1997       1996
--------------------------------------------------------------------------------
                                                      (Thousands of Dollars)

<S>                                               <C>       <C>        <C>
Operating Revenues............................. $ 393,322  $426,447   $421,337
                                                ---------- ---------  ---------
Operating Expenses:                             
  Operation --                                  
     Fuel, purchased and net interchange power.   113,148   140,976    115,691
     Other.....................................   134,916   153,399    136,897
  Maintenance..................................    56,622    81,466     56,201
  Depreciation.................................    40,901    39,753     39,710
  Amortization of regulatory assets............     6,016     6,428      9,170
  Federal and state income taxes...............     2,109   (15,142)    10,628
  Taxes other than income taxes................    19,756    19,316     19,850
                                                ---------- ---------  ---------
        Total operating expenses...............   373,468   426,196    388,147
                                                ---------- ---------  ---------
Operating Income...............................    19,854       251     33,190
                                                ---------- ---------  ---------
                                                
Other Income:                                   
  Equity in earnings of regional nuclear        
    generating companies.......................     1,699     1,524      1,800
  Other, net...................................    (1,905)   (1,106)     1,153
  Income taxes.................................     2,198     1,026      1,068
                                                ---------- ---------  ---------
        Other income, net......................     1,992     1,444      4,021
                                                ---------- ---------  ---------
        Income before interest charges.........    21,846     1,695     37,211
                                                ---------- ---------  ---------


Interest Charges:                                
  Interest on long-term debt...................    28,027    26,046     24,094
  Other interest...............................     3,398     3,109      2,028
                                                ---------- ---------  ---------
        Interest charges, net..................    31,425    29,155     26,122
                                                ---------- ---------  ---------


Net (Loss)/Income.............................. $  (9,579) $(27,460)  $ 11,089
                                                ========== =========  =========




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Net (Loss)/Income.............................. $  (9,579) $(27,460)  $ 11,089
                                                ---------- ---------  ---------
Other comprehensive income, net of tax:
Unrealized gains on securities.................       183      -          -
Minimum pension liability adjustments..........       (33)     -          -
                                                ---------- ---------  ---------
   Other comprehensive income, net of tax......       150      -          -
                                                ---------- ---------  ---------
Comprehensive (Loss)/Income.................... $  (9,429) $(27,460)  $ 11,089
                                                ========== =========  =========

</TABLE>
See accompanying notes to consolidated financial statements.






WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>                                                                               
--------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1998        1997        1996
--------------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                               <C>         <C>         <C>
Operating Activities:
  Net (Loss)/Income........................................... $   (9,579) $  (27,460) $   11,089
  Adjustments to reconcile to net cash                         
   from operating activities:
    Depreciation..............................................     40,901      39,753      39,710
    Deferred income taxes and investment tax credits, net.....      7,405      (1,256)      1,194
    Amortization of regulatory assets - income taxes..........      2,657       5,452       2,917
    Amortization of other regulatory assets...................      3,359         976       6,253
    Other sources of cash.....................................     14,395      22,011       7,749
    Other uses of cash........................................    (11,809)    (21,215)    (10,270)
  Changes in working capital:                                                
    Receivables and accrued utility revenues..................      1,622      29,415      (1,853)
    Fuel, materials and supplies..............................        807        (543)       (203)
    Accounts payable..........................................    (20,962)      4,826      20,875
    Sale of receivables and accrued utility revenues, net.....       -         20,000        -
    Investment in securitizable assets........................      3,415     (25,280)       -
    Accrued taxes.............................................        742      (2,137)       (805)
    Other working capital (excludes cash).....................     (3,441)    (16,882)     (8,144)
                                                               ----------- ----------- -----------
Net cash flows from operating activities......................     29,512      27,660      68,512
                                                               ----------- ----------- -----------
Financing Activities:                                                        
  Issuance of long-term debt..................................       -         60,000        -
  Net increase/(decrease) in short-term debt..................     21,550     (18,050)     23,350
  Reacquisitions and retirements of long-term debt............     (9,800)    (14,700)       -
  Reacquisitions and retirements of preferred stock...........     (1,500)       -        (36,500)
  Cash dividends on preferred stock...........................     (3,026)     (3,140)     (5,305)
  Cash dividends on common stock..............................          -     (15,004)    (16,494)
                                                               ----------- ----------- -----------
Net cash flows from/(used for) financing activities...........      7,224       9,106     (34,949)
                                                               ----------- ----------- -----------
Investment Activities:                                          
  Investment in plant:                                          
    Electric utility plant....................................    (19,895)    (26,249)    (23,468)
    Nuclear fuel..............................................     (1,801)         (8)        541
                                                               ----------- ----------- -----------
      Net cash flows used for investments in plant............    (21,696)    (26,257)    (22,927)

  Investment in nuclear decommissioning trusts................    (12,918)     (9,645)     (9,794)
  Other investment activities, net............................     (2,121)       (826)       (977)
                                                               ----------- ----------- -----------
Net cash flows used for investments...........................    (36,735)    (36,728)    (33,698)
                                                               ----------- ----------- -----------
Net Increase/(Decrease) In Cash For The Period................          1          38        (135)
Cash - beginning of period....................................        105          67         202
                                                               ----------- ----------- -----------
Cash - end of period.......................................... $      106  $      105  $       67
                                                               =========== =========== ===========
Supplemental Cash Flow Information:                            
Cash paid/(refunded) during the year for:                      
  Interest, net of amounts capitalized........................ $   22,902  $   28,711  $   21,725
                                                               =========== =========== ===========
  Income taxes................................................ $   (2,624) $   (1,121) $    7,816
                                                               =========== =========== ===========
Increase in obligations:                                       
  Niantic Bay Fuel Trust...................................... $      962  $      660  $      669
                                                               =========== =========== ===========

</TABLE>
See accompanying notes to consolidated financial statements.





WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                Accumulated
                                                       Capital     Retained        Other
                                            Common     Surplus,    Earnings    Comprehensive
                                             Stock     Paid In       (a)          Income         Total
--------------------------------------------------------------------------------------------------------
                                                      (Thousands of Dollars)
<S>                                         <C>        <C>         <C>                  <C>     <C>
Balance at January 1, 1996...............  $26,812    $150,182    $115,296    $         -      $292,290

    Net income for 1996..................                           11,089                       11,089
    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     104,212              -       281,935
                                         
    Net income for 1997..................                          (27,460)                     (27,460)
    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      58,608              -       236,591

    Net loss for 1998....................                           (9,579)                      (9,579)
    Cash dividends on preferred          
      stock..............................                           (3,026)                      (3,026)
    Capital stock expenses, net..........                  260                                      260
    Other comprehensive income...........                                               150         150
                                           --------   ---------   ---------    -------------   ---------
Balance at December 31, 1998.............  $26,812    $151,431    $ 46,003    $         150    $224,396
                                           ========   =========   =========    =============   =========


</TABLE>
(a)  The company has dividend restrictions imposed by its long-term debt
     agreements.  At December 31, 1998, these restrictions totaled approximately
     $33.8 million.


See accompanying 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 and WMECO.  NAEC sells all of its entitlement to the capacity
        and output of the Seabrook nuclear power plant (Seabrook) to PSNH 
        under two life-of-unit, full cost recovery contracts. HWP is engaged
        in the production and distribution of electric power.  The NU system
        also 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 in excess of 30 percent of New England's electric needs
        and is one of the 24 largest electric utility systems in the country as
        measured by revenues.

        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.

        Several wholly owned subsidiaries of NU provide support services for
        the NU system companies and, in some cases, for other New England
        utilities.  Northeast Utilities Service Company (NUSCO) provides
        centralized accounting, administrative, information resources,
        engineering, financial, legal, operational, planning, purchasing and
        other services to the NU system companies. Northeast Nuclear Energy
        Company (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.

        During the first quarter of 1999, NU established three new 
        subsidiaries: NU Enterprises, Inc., Northeast Generation Company and
        Northeast Generation Services Company.  Directly or through multiple
        subsidiaries, these entities will engage in a variety of energy-
        related activities, including the acquisition and management of non-
        nuclear generating plants.

    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.  New Accounting Standards
        The Financial Accounting Standards Board (FASB) issued Statement of
        Financial Accounting Standards (SFAS) 132, "Employers' Disclosures
        About Pensions and Other Postretirement Benefits," in 1998.  SFAS 132
        revises employers' disclosures about pension and other postretirement
        benefit plans but it does not change the measurement or recognition
        of those plans.  See Note 9, "Pension Benefits and Postretirement
        Benefits Other Than Pensions," for further information on WMECO's
        pension and postretirement benefits disclosures.

        During June 1997, the FASB issued SFAS 131, "Disclosures about
        Segments of an Enterprise and Related Information."  SFAS 131
        determines the standards for reporting and disclosing qualitative and
        quantitative information about a company's operating segments. More
        specifically, it requires financial information to be disclosed for
        segments whose operating results are received by the chief operating
        officer for decisions on resource allocation.  It also requires
        related disclosures about products and services, geographic areas and
        major customers. WMECO currently evaluates management performance
        using a cost-based budget, and the information required by SFAS 131
        is not available.

        As a result of the changes WMECO and the industry are undergoing, the
        company will implement business segment reporting in 1999.  This
        reporting will provide management with revenue and expense information
        at the business segment level. Management has identified significant
        segments to include transmission, distribution, generation-related and
        energy marketing.

    D.  Investments and Jointly Owned Electric Utility Plant
        Regional Nuclear Generating Companies:  WMECO owns common stock of
        four regional nuclear generating companies (Yankee companies) which
        are accounted for on the equity basis due to WMECO's ability to
        exercise significant influence over their operating and financial
        policies.  WMECO's equity investments and ownership interests in the
        Yankee companies at December 31, 1998 are:

                                                                              
        (Thousands of Dollars, except for percentages)
        
        Connecticut Yankee Atomic
          Power Company (CYAPC)..................   $ 9,974         9.5%
        Yankee Atomic Electric 
          Company (YAEC).........................     1,395         7.0
        Maine Yankee Atomic Power 
          Company (MYAPC)........................     2,629         3.0
        Vermont Yankee Nuclear 
          Power Corporation (VYNPC)..............     1,442         2.5
                                                    $15,440

                
        Each Yankee company owns a single nuclear generating unit. 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.  For additional information on the Yankee companies,
        see Note 2, "Nuclear Decommissioning and Plant Closure Costs."

        Millstone:  WMECO has 19 percent joint-ownership interest in
        Millstone 1, a 660-megawatt (MW) nuclear generating unit and
        Millstone 2, a 870-MW nuclear generating unit. WMECO has a 12.24
        percent joint-ownership interest in Millstone 3, a 1,154-MW nuclear
        generating unit.  During the third quarter of 1998, management
        decided to retire Millstone 1 and prepare for final decommissioning.
        For further information on the Millstone 1 closure, see Note 2,
        "Nuclear Decommissioning and Plant Closure Costs," and Management's
        Discussion and Analysis (MD&A).  For further information on Millstone
        2 and 3, see Note 2, "Nuclear Decommissioning and Plant Closure
        Costs," Note 11C, "Commitments and Contingencies - Nuclear
        Performance," and the MD&A.



        Plant-in-service and the accumulated provision for depreciation for
        WMECO's share of the three Millstone units are as follows:

                                                                At December 31,
        (Millions of Dollars)                                   1998       1997

        Plant-in-service
        Millstone 1......................................       $  -     $ 91.0
        Millstone 2......................................        177.5    162.4
        Millstone 3......................................        379.2    378.7
        Accumulated provision for depreciation
        Millstone 1......................................       $  -     $ 40.1
        Millstone 2......................................         70.4     57.6
        Millstone 3......................................        121.1    110.1

        WMECO's share of Millstone expenses are included in operating
        expenses on the accompanying Consolidated Statements of Income.

    E.  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 costs of closure and removal of non-nuclear facilities are
        accrued over the life of the plant as a component of depreciation.
        The depreciation rates for the several classes of electric
        plant-in-service are equivalent to a composite rate of 2.9 percent
        in 998 and 3.2 percent in 1997 and 1996. See Note 2, "Nuclear
        Decommissioning and Plant Closure Costs," for information on nuclear
        plant decommissioning.

        At December 31, 1998 and 1997, the accumulated provision for
        depreciation included approximately $3.2 million accrued for the cost
        of removal, net of salvage, for non-nuclear generation property.
        WMECO is currently in the process of selling its non-nuclear
        generation.  See 11A, "Commitment and Contingencies - Restructuring"
        for further information.

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

    G.  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 WMECO was no longer subject to the provisions of SFAS
        71, the company would be required to write-off all of its related
        regulatory assets and liabilities unless there is a formal transition
        plan which provides for the recovery, through established rates, for
        the collection of these costs through a portion of the business which
        would remain regulated on a cost of service basis. At the time of
        transition, WMECO would also be required to determine any impairment
        to the carrying costs of deregulated plant and inventory assets.

        Electric utility industry restructuring in Massachusetts was
        effective March 1, 1998, however, management continues to believe the
        application of SFAS 71 remains appropriate at this time.  Once
        WMECO's restructuring plan  has been formally approved by the
        Massachusetts Department of Telecommunications and Energy (DTE) and
        management can determine the impacts of restructuring, WMECO's
        generation business will no longer be rate regulated on a cost-of-
        service basis.  The majority of WMECO's regulatory assets are
        generation-related. Management expects that WMECO's transmission and
        distribution business will continue to be rate-regulated on a cost-
        of-service basis and the restructuring plan will allow for the
        recovery of regulatory assets through this portion of the business.

        For further information on WMECO's regulatory environment and the
        potential impacts of restructuring, see Note 11A, "Commitments and
        Contingencies-Restructuring," and the MD&A.



        Based on a current evaluation of the various factors and conditions
        that are expected to impact future cost recovery, management
        continues to believe it is probable that WMECO will recover its
        investments in long-lived assets, including regulatory assets. The
        components of WMECO's regulatory assets are as follows:

                                                                               
        At December 31,                             1998               1997    
                                                     (Thousands of Dollars)

        Income taxes, net (Note 1H)............   $57,079          $ 63,716
        Unrecovered contractual obligations
          (Note 1J)............................    74,534            93,628
        Recoverable energy costs (Note 1I).....    18,980            26,270
        Millstone 1 (Note 1K)..................   133,653              -
        Standard service offer deferral
          (Note 1L)............................    13,271              -
        Other..................................    24,918            27,763
                                                 $322,435          $211,377


    H.  Income Taxes
        The tax effect of temporary differences (differences between the
        periods in which transactions affect income in the financial
        statements and the periods in which they affect the determination of
        taxable income) is accounted for in accordance with the 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, that give
        rise to the accumulated deferred tax obligation is as follows:
                                                                               
        At December 31,                             1998               1997
                                                     (Thousands of Dollars)

        Accelerated depreciation and
        other plant-related differences........  $228,059          $223,038

        Regulatory assets - income tax gross up    29,286            30,175

        Other..................................    (8,360)           (6,760)

                                                 $248,985          $246,453


    I.  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, 1998, WMECO's total D&D deferrals were approximately
        $10.5 million.

        Prior to March 1, 1998, WMECO had in place a comprehensive fuel
        adjustment clause which allowed for the collection or refund of fuel
        price differences between the cost of fuel and the amounts collected.
        Management expects the deferred fuel balance will be collected as
        part of the restructuring proceeding.

    J.  Unrecovered Contractual Obligations
        Under the terms of contracts with MYAPC, CYAPC and YAEC, the
        shareholder-sponsor companies, including WMECO, are responsible for
        their proportionate share of the remaining costs of the units,
        including decommissioning.  As management expects that WMECO will be
        allowed to recover these costs from its customers, WMECO has recorded
        regulatory assets, with corresponding obligations, on its balance
        sheets.  For further information, see Note 2, "Nuclear
        Decommissioning and Plant Closure Costs."

    K.  Millstone 1
        The Millstone 1 regulatory asset includes the recoverable portion of
        the undepreciated plant and related balances of approximately $60.8
        million, and the regulatory asset associated with the decommissioning
        and closure obligation of $72.8 million.  See Note 2, "Nuclear
        Decommissioning and Plant Closure Costs," for further information.

    L.  Standard Service Offer Deferral
        For the period March 1, 1998 through December 31, 1998, WMECO has
        recorded a standard service offer deferral regulatory asset
        representing a portion of the costs of providing energy in excess of
        the standard offer rate as allowed by the restructuring legislation.
        Management expects WMECO will be allowed to recover these costs
        under the restructuring plan.
        
2.  NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS

    Millstone 2 and 3:  WMECO's operating nuclear power plants have service
    lives that are expected to end during the years 2015 through 2025.  Upon
    retirement, these units must be decommissioned. Current decommissioning
    studies conclude that complete and immediate dismantlement at retirement
    continues to be the most viable and economic method of decommissioning
    the 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 2 and 3, in year-end 1998 dollars, is $75.5 million and $68.5
    million, respectively. Millstone 2 and 3 decommissioning costs will be
    increased annually by their respective escalation rates. Nuclear
    decommissioning costs are accrued over the expected service lives of the
    units and are included in depreciation expense on the Consolidated
    Statements of Income. Nuclear decommissioning costs for these units
    amounted to $3.7 million in 1998, 1997 and 1996, respectively.  Nuclear
    decommissioning, as a cost of removal, is included in the accumulated
    provision for depreciation on the Consolidated Balance Sheets.  At
    December 31, 1998 and 1997, the decommissioning balance in the
    accumulated provision for depreciation amounted to $35.5 million and
    $31.9 million, respectively.

    WMECO has established external decommissioning trusts for its portion of
    the costs of decommissioning Millstone 2 and 3.  Funding of the estimated
    decommissioning costs for these units assumes levelized collections and
    after-tax earnings on the decommissioning funds of approximately 5.5
    percent.

    As of December 31, 1998, WMECO has collected a total of $35.5 million
    through rates toward the future decommissioning costs of its share of
    Millstone 2 and 3, all of which has been transferred to the 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.  The fair value of the amounts in
    the external decommissioning trusts was $66.9 million at December 31, 1998.

    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 the 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:  WMECO's share of the total estimated decommissioning costs
    for Millstone 1, which have been updated to reflect the early shutdown of
    the unit, are approximately $131.5 million as of December 31, 1998.  The
    company has recorded the decommissioning  and closure obligation as a
    liability.  Nuclear decommissioning costs for Millstone 1 were $2.5 million
    in 1998, 1997 and 1996, respectively.

    WMECO will seek recovery of unrecovered Millstone 1 balances of
    approximately $60.8 million and decommissioning related costs of
    approximately $63.3 million as part of its restructuring regulatory
    proceedings.  Based upon the restructuring law in Massachusetts,
    management believes it is probable that WMECO will be allowed the
    recovery of these costs and has recorded a regulatory asset.

    WMECO uses external trusts to fund its estimated Millstone 1
    decommissioning costs.  As of December 31, 1998, WMECO had collected a
    total of $30.3 million through rates toward the future decommissioning
    costs of its share of Millstone 1, all of which has been transferred to
    external decommissioning trusts.  At December 31, 1998, the fair market
    value of the balance in the external trusts was approximately $58.7 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 1998 dollars, of decommissioning this
    unit is $13.2 million.

    At December 31, 1998, the remaining estimated obligation, including
    decommissioning, for the Yankee company nuclear generating facilities
    which have been shut down were:

                                                    Total         WMECO's
    (Thousands of Dollars)                        Obligation      Share

    Maine Yankee.............................      $715,065       $21,452
    Connecticut Yankee.......................      $498,557       $47,363
    Yankee Atomic............................      $ 81,699       $ 5,719

    For further information on the Yankee companies, see Note 11B,
    "Commitments and Contingencies - Rate Matters."

    For information on proposed changes to the accounting for
    decommissioning, see the MD&A.

3.  SHORT-TERM DEBT

    Limits: The amount of short-term 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, 1999, to
    incur short-term borrowings up to a maximum of $150 million. In addition,
    the charter of WMECO contains a preferred stock provision restricting the
    amount of unsecured debt that the company may incur.  As of December 31,
    1998, this charter permits WMECO to incur an additional $96 million of
    unsecured debt.

    Credit Agreements:  NU, CL&P and WMECO are parties to a $313.75 million
    revolving credit agreement (Credit Agreement). Under the Credit Agreement
    amended on September 11, 1998, 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, 1998, CL&P and
    WMECO have issued first mortgage bonds to enable borrowings under this
    facility up to a maximum of $225 million and $80 million,  respectively.
    NU, which cannot issue first mortgage bonds, would 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.  This requirement
    for NU has not been met.  In addition, CL&P and WMECO each must meet
    certain minimum quarterly financial ratios to access the Credit
    Agreement.  CL&P is currently in the process of obtaining a waiver of
    the equity financial ratio requirement for the quarter ended December 31,
    1998.  WMECO satisfied these requirements for the quarter ending December
    31, 1998.  In connection with obtaining the waiver for the equity test,
    NU's participation in the Credit Agreement will be terminated.  The
    overall limit for all of the NU system companies under the entire Credit
    Agreement is $313.75 million.  The NU system companies are obligated to
    pay a facility fee of .50 percent per annum of each bank's total
    commitment under the Credit Agreement which will expire in November 1999.
    At December 31, 1998 and 1997, there were $30 million and $50 million,
    respectively, in borrowings under this Credit Agreement.  Of these
    borrowings, $20 million was borrowed by WMECO in 1998 and $15 million was
    borrowed by WMECO in 1997.

    Under the credit facility discussed above, WMECO may borrow funds on a
    short-term revolving basis under its agreement, using either fixed-rate
    loans or standby loans.  Fixed rates are set using competitive bidding.
    Standby loans are based upon several alternative variable rates. The
    weighted average annual interest rate on WMECO's notes payable to banks
    outstanding on December 31, 1998 and 1997 was 6.53 percent and 6.95
    percent, respectively.

    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 NU system, and reduces
    outside short-term borrowings.  NUSCO administers the Pool as agent for
    the member companies.  Short-term borrowing needs of the member companies
    are first met with available funds of other member companies, including
    funds borrowed by NU parent.  NU parent may lend to the Pool but may not
    borrow.  Funds may be withdrawn from or repaid to the Pool at any time
    without prior notice.  Investing and borrowing subsidiaries receive or
    pay interest based on the average daily Federal Funds rate.  Borrowings
    based on loans from NU parent, however, bear interest at NU parent's cost
    and must be repaid based upon the terms of NU parent's original
    borrowing.  At December 31, 1998 and 1997, WMECO had $30.9 million and
    $14.4 million, respectively, of borrowings outstanding from the Pool. The
    interest rate on borrowings from the Pool at December 31, 1998 and 1997,
    was 5.8 percent each year.

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

    For further information on WMECO's short-term debt, see the MD&A.


4.  PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION

    Details of preferred stock not subject to mandatory redemptions are:

                      December 31,      Shares
                         1998         Outstanding
                       Redemption     December 31,         December 31,
    Description          Price           1998         1998     1997     1996
                                                      (Thousands of Dollars)

    7.72% Series B
      of 1971.......    $103.51         200,000     $20,000  $20,000  $20,000

    All or any part of the outstanding 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
                          1998        Outstanding
                       Redemption     December 31,         December 31,        
    Description          Price*           1998        1998     1997     1996
                                                      (Thousands of Dollars)
    7.60% Series 
      of 1987.......    $25.51          780,000     $19,500  $21,000  $21,000
        
    Less preferred stock to be
      redeemed within one
      year, net of reacquired
      stock.........                     60,000      1,500     1,500     -   
    Total...........                               $18,000   $19,500  $21,000

    *Redemption price reduces in future years.

    The minimum sinking-fund provisions of the 1987 Series subject to
    mandatory redemption at December 31, 1998, for the years 1999 through
    2003 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,
                                                        1998            1997
                                                       (Thousands of Dollars)
    First mortgage bonds:
  
     6 3/4% Series G, due 1998..................      $   -        $   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        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                                              295,000       304,800

    Pollution control notes:
     Tax Exempt 1993 A Series, 5.85% due 2028...        53,800        53,800
    Fees and interest due for spent 
     fuel disposal costs (Note 11E).............        41,355        39,045
    Less:  Amounts due within one year..........        40,000         9,800
    Unamortized premium and discount, net.......          (841)         (996)
    Long-term debt, net.........................      $349,314      $386,849

    On October 1, 1998, the variable interest rate on WMECO's $53.8 million
    principal amount PCRB, 1993 A Series, due September 1, 2028, was fixed at
    a rate of 5.85 percent per annum.

    Long-term debt maturities and cash sinking-fund requirements on debt
    outstanding at December 31, 1998 for the years 1999 through 2002 are
    approximately $40 million, $60 million, $60 million, and $85 million,
    respectively.  There are no long-term debt maturities or cash sinking-
    fund requirements for 2003. In addition, there are annual one-percent
    sinking- and improvement-fund requirements, currently amounting to $1.5
    million for 1999 and 2000, $900 thousand for 2001 and 2002 and no
    requirement for 2003.  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, 1998 and 1997, 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 3.2 percent for 1998 and 3.5 percent for 1997.


7.  INCOME TAX EXPENSE

    The components of the federal and state income tax provisions were
    charged as follows:


    For the Years Ended December 31,             1998         1997        1996
                                                     (Thousands of Dollars)
    Current income taxes:
      Federal............................      $(7,412)    $(14,277)    $7,007
      State..............................          (82)        (635)     1,358
        Total current....................       (7,494)     (14,912)     8,365

    Deferred income taxes, net:
      Federal............................        6,535            3      2,054 
      State..............................        2,339          210        609
        Total deferred...................        8,874          213      2,663

    Investment tax credits, net..........       (1,469)      (1,469)    (1,468)
    Total income tax (credit)/ 
      expense............................      $   (89)    $(16,168)    $9,560

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

    Income taxes charged to
      operating expenses.................      $  2,109    $(15,142)   $10,628
    Other income taxes...................        (2,198)     (1,026)    (1,068)

    Total income tax (credit)/
      expense............................      $    (89)   $(16,168)   $ 9,560

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


    For the Years Ended December 31,             1998         1997       1996  
                                                    (Thousands of Dollars)
    Depreciation, leased nuclear
      fuel, settlement credits,
      and disposal costs.................      $  5,808    $ 1,407     $    32
    Energy adjustment clause.............         3,389      3,115       4,102
    Demand side management...............        (1,192)       321       1,557
    Nuclear plant deferrals..............          (897)    (3,431)     (2,258)
    Pension..............................           950        999         (57)
    Bond redemptions.....................          (500)      (535)       (502)
    Other................................         1,316     (1,663)       (211)
    Deferred income taxes, net...........       $ 8,874     $  213     $ 2,663



    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,             1998         1997       1996
                                                    (Thousands of Dollars)

    Expected federal income tax at
      35 percent of pretax income for.....       $(3,384)   $(15,270)   $7,076
    Tax effect of differences:
      Depreciation........................         1,765         630     1,499
      Amortization of regulatory assets...           938       1,916     1,029
      Investment tax credit amortization..        (1,469)     (1,469)   (1,468)
      Nondeductible penalties.............           599         (19)       89
      State income taxes, net of
        federal benefit...................         1,052        (225)    1,279
      Adjustment for prior years' taxes...           692        (967)     -   
      Dividends received reduction........          (666)       (408)     (378)
      Other, net..........................           384        (356)      434
    Total income tax (credit)/expense.....       $   (89)   $(16,168)   $9,560

8.  LEASES

    WMECO finances its share of the nuclear fuel for Millstone 2 and Millstone 3
    under the Niantic Bay Fuel Trust (NBFT) capital lease agreement.  This lease
    agreement has an expiration date of June 1, 2040.  On June 5, 1998, the NBFT
    issued $180 million Series G intermediate term notes (ITNs) through a
    private placement offering. The five-year notes mature on June 5, 2003
    and will bear interest at a rate of 8.59 percent per annum, payable
    semiannually.  At December 31, 1998, WMECO's capital lease obligation to
    the NBFT was approximately $33.9 million.

    The permanent shutdown of Millstone 1 in July 1998 afforded the NBFT ITN
    holders the right to seek repurchase of a pro rata share of their notes
    based upon the stipulated loss value of Millstone 1 fuel compared to the
    stipulated loss value of all fuel then under the NBFT.  This amount was
    approximately $80 million.  The shutdown also obligates WMECO to pay such
    amount to the NBFT under the NBFT lease whether or not any ITN holders
    request repurchase. WMECO is seeking consents from the ITN holders to
    amend this lease provision so that they will not be obligated to make
    this payment, but instead will issue an additional $80 million of
    collateral first mortgage bonds in mid-1999.

    WMECO makes 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.  WMECO's current portion
    of the NBFT lease obligation at December 31, 1998 was approximately $21.9
    million, including approximately $15.2 million reclassified to current as
    a result of the shutdown of Millstone 1.  Future minimum lease payments
    under the nuclear fuel capital lease for the remaining portion of the
    obligation cannot be reasonably estimated on an annual basis due to
    variations in the usage of nuclear fuel.

    WMECO also has entered into nonfuel 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.  Future minimum lease payments for nonfuel capital leases as of
    December 31, 1998, were approximately $36 thousand each year for 1999
    through 2003.  Future minimum rental payments, excluding executory costs
    such as property taxes, state use taxes, insurance and maintenance under
    long-term noncancelable operating leases, as of December 31, 1998, are:


    Year                           (Thousands of Dollars)
   
    1999.........................        $ 3,902
    2000.........................          3,594
    2001.........................          3,217
    2002.........................          2,785
    2003.........................          2,233
    After 2003...................         15,460
                                         $31,191

    The following rental payments have been charged to expense:

    Year                             Capital Leases    Operating Leases

    1998.........................     $4,137,000          $5,790,000 
    1997.........................      1,820,000           5,968,000
    1996.........................      3,598,000           6,410,000

    Interest included in capital lease rental payments was $2,796,000 in
    1998, $1,820,000 in 1997, and $1,858,000 in 1996.

9.  PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

    The NU system subsidiaries participate in a uniform non-contributory
    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 $7.4 million in 1998, $5.7
    million in 1997, and $2.0 million in 1996.

    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.

    The NU system subsidiaries also provide certain health care benefits,
    primarily medical and dental, and life insurance benefits through a
    benefit plan to retired employees.  These benefits are available for
    employees retiring from the company who have met specified service
    requirements.  For current employees and certain retirees, the total
    benefit is limited to two times the 1993 per-retiree health care cost.
    These costs are charged to expense over the future estimated work life of
    the employee. WMECO is funding postretirement costs through external
    trusts. WMECO is funding, on an annual basis, amounts that have been
    rate-recovered and which are also tax deductible under the Internal
    Revenue Code.

    Pension and trust assets are invested primarily in domestic and
    international equity securities and bonds.

    The following table represents the plans' beginning benefit obligation
    balance reconciled to the ending benefit obligation balance, beginning
    fair value of plan assets balance reconciled to the ending fair value of
    plan assets balance and the respective funds' funded status reconciled to
    the Consolidated Balance Sheets:



    The components of net cost are:

                                                 At December 31, 
                                                             Postretirement
                                      Pension Benefits           Benefits
                                      1998        1997        1998      1997
    (Thousands of Dollars)

    Change in benefit
     obligation
    Benefit obligation at 
     beginning of year............ $(109,536)  $(107,816)  $(27,826)  $(30,091)
    Service cost..................    (2,192)     (1,876)      (460)      (355)
    Interest Cost.................    (7,914)     (7,858)    (2,074)    (2,011)
    Transfers.....................    (3,044)        820       -          -   
    Actuarial (loss)/gain.........    (3,751)     (1,224)    (2,415)     2,028
    Benefits paid.................     7,700       7,889      2,661      2,603
    Curtailments and settlements..      -            529       -          -   
    Benefit obligation at 
      end of year................. $(118,737)  $(109,536)  $(30,114)  $(27,826)

    Change in plan assets
    Fair value of plan assets at
      beginning of year...........  $181,028    $157,863   $ 12,838   $ 10,215
    Actual return on  plan assets.    25,229      31,874      1,588      2,058
    Employer contribution.........      -           -         2,870      3,168
    Benefits paid.................    (7,700)     (7,889)    (2,661)    (2,603)
    Transfers.....................     3,044        (820)      -          -   
    Fair value of plan assets
      at end of year..............  $201,601    $181,028   $ 14,635   $ 12,838
    Funded status at 
      December 31.................  $ 82,864    $ 71,492   $(15,479)  $(14,988)
    Unrecognized transition
      amount......................    (1,492)     (1,727)    22,977     24,618
    Unrecognized prior service
      cost........................     1,070       1,142       -          -   
    Unrecognized net gain.........   (66,542)    (62,370)    (7,498)    (9,630)
    Prepaid benefit cost..........   $15,900    $  8,537   $   -      $   -   



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

                                                 At December 31, 
                                                              Postretirement
                                      Pension Benefits           Benefits
                                      1998        1997        1998      1997
                                     
    Discount rate.................    7.00%       7.25%       7.00%     7.25%   
    Compensation/
      progression rate............    4.25%       4.25%       4.25%     4.25%
    Health care cost
      trend rate (a)..............     N/A         N/A        5.22%     5.76%

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

    The components of net periodic benefit cost are: 

    For the Years Ended December 31, 
                                  Pension Benefits       Postretirement Benefits
                               1998      1997     1996    1998    1997     1996
    (Thousands of Dollars)

    Service cost............$  2,192  $  1,876  $ 1,979  $  460  $  355  $  490
    Interest cost...........   7,914     7,858    7,786   2,074   2,011   2,236
    Expected return on plan
      assets................ (14,754)  (12,746) (11,216)   (935)   (736)   (330)
    Amortization of
      unrecognized transition
      (asset)/obligation....    (235)     (235)    (235)  1,641   1,641   1,641
    Amortization of prior
      service cost..........      72        72       72    -       -       -
    Amortization of actuarial
      gain..................  (2,551)   (2,022)  (1,337)   -       -       -   
    Other amortization, net.    -         -        -       (370)   (484)   (200)
    Curtailments and
      settlements...........    -         (529)     953    -       -       - 
  
    Net periodic benefit
      (credit)/cost.........$ (7,362) $ (5,726) $(1,998) $2,870  $2,787  $3,837


    For calculating pension and postretirement benefit costs, the following
    assumptions were used:

                                      For the Years Ended December 31, 
                                  Pension Benefits       Postretirement Benefits
                               1998     1997     1996    1998     1997    1996

    Discount rate..........    7.25%    7.75%    7.50%   7.25%    7.75%    7.50%
    Expected long-term
      rate of return.......    9.50%    9.25%    8.75%    N/A      N/A      N/A
    Compensation/
      progression rate.....    4.25%    4.75%    4.75%   4.25%    4.75%    4.75%
    Long-term rate 
      of return-
      Health assets
      net of tax...........     N/A      N/A      N/A    7.75%    7.50%    5.25%
    Life assets............     N/A      N/A      N/A    9.50%    9.25%    8.75%

    Assumed health care cost trend rates have a significant effect on the
    amounts reported for the health care plans.  The effect of changing the
    assumed health care cost trend rate by one percentage point in each year
    would have the following effects:

                                       One Percentage    One Percentage
    (Thousands of Dollars)             Point Increase    Point Decrease

    Effect on  total service
      and interest cost
      components..................        $  130            $  (131)
    Effect on post-
      retirement benefit
      obligation..................         1,740             (1,698)

    The trust holding the health plan assets is subject to federal income
    taxes at a 39.6 percent tax rate.

10. SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES

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

    WMECO has established a special purpose, wholly owned subsidiary, WMECO
    Receivables Corporation (WRC), whose business consists of the purchase
    and resale of receivables.  For receivables sold, WMECO has retained
    collection responsibilities as agent for the purchaser under its
    agreement. As collections reduce previously sold receivables, new
    receivables may be sold.  At December 31, 1998, approximately $20 million
    of receivables had been sold to a third-party purchaser by WMECO. All
    receivables sold to WRC are not available to pay WMECO's creditors.

    The receivables are sold to a third-party purchaser with limited
    recourse. The 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, 1998 approximately $2.9 million was the
    formula-based amount of credit exposure and has been reserved as
    collateral by WRC.  Historical losses for bad debt for WMECO have been
    substantially less.

    As a result of prior period downgrades on WMECO's first mortgage bonds,
    the current bond rating is at a level where the sponsor of WMECO's
    accounts receivable program could take various actions at 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.

    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.

11. COMMITMENTS AND CONTINGENCIES

    A. Restructuring
       Electric utility industry restructuring in Massachusetts became
       effective March 1, 1998.  As required by the legislation enacted in
       November 1997, WMECO will continue to operate and maintain its
       transmission and local distribution network and deliver electricity
       to all customers. The restructuring legislation specifically
       provides for the cost recovery of generation-related assets. The
       legislation gives the DTE the authority to determine the amount of
       stranded costs that will be eligible for recovery by utilities.
       Costs which will qualify as stranded 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 (NUGs), and
       regulatory assets and associated liabilities related to the
       generation portion of WMECO's business.

       Effective March 1, 1998, WMECO's restructuring plan has been filed
       with the DTE and includes a 10 percent rate reduction, divestiture
       of generation assets, securitization of approximately $500 million
       of stranded costs and customer choice of supplier.   The DTE has
       not approved WMECO's plan yet and rates are being charged under an
       interim order.  A final decision is expected in mid-1999.

       On January 22, 1999, WMECO signed an agreement to sell 290-MW of
       fossil and hydroelectric generation assets to Consolidated Edison
       Energy, Inc. of New York for $47 million.  The sale price is
       approximately 3.8 times greater than the assets' 1997 book value of
       $12.5 million. WMECO did not offer its 19 percent share of the
       Northfield Mountain pumped storage generating facility and
       associated hydroelectric facilities.  WMECO's book value in
       Northfield Mountain was $13.0 million at December 31, 1998.  This
       asset will be auctioned in conjunction with CL&P's fossil/hydro
       auction to take place before 2000.  The net proceeds in excess of
       book value received from the actual divestiture of these units will
       be used to mitigate stranded costs.

       Based upon the legislation and regulatory proceedings to date,
       management continues to believe that the company will recover its
       prudently incurred costs, including regulatory assets and
       generation-related investments. However, a change in one or more of
       these factors could affect the recovery of stranded costs and may
       result in a loss to the company.

    B. Rate Matters
       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 a refund. On January 18, 1999, MYAPC filed with the FERC
       Administrative Law Judge (ALJ) an Offer of Settlement which if
       accepted by the FERC, will resolve all the issues in the FERC
       decommissioning rate case proceeding.  The settlement provides,
       among other things, the following:  (1) MYAPC will collect $33.6
       million annually to pay for decommissioning and spent fuel; (2) its
       return on equity will be set at 6.5 percent; (3) MYAPC is permitted
       full recovery of all unamortized investment in MY, including fuel,
       and (4) an incentive budget for decommissioning is set at $436.3
       million.

       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 accepted CYAPC's contract amendment.  The new rates
       became effective March 1, 1997, subject to a refund.

       On August 31, 1998, the FERC ALJ released an initial decision
       regarding the December 1996 filing.  The decision contained
       provisions which would allow for the recovery, through rates, of
       the balance of WMECO's net unamortized investment in CYAPC, which
       was approximately $10 million as of December 31, 1998. The decision
       also called for the disallowance of the recovery of a portion of
       the return on the CY investment.  The ALJ's decision also stated
       that decommissioning collections should continue to be based on the
       previously approved estimate of $309.1 million (in 1992 dollars),
       with an inflation adjustment of 3.8 percent per year, until a new,
       more reliable estimate has been prepared and tested.

       During October 1998, CYAPC, CL&P, PSNH and WMECO filed briefs on
       exceptions to the ALJ decision.  If the initial ALJ decision is
       upheld, CYAPC could be required to write-off a portion of the
       regulatory asset associated with the plant closing.

       If upheld, CYAPC's management has estimated the effect of the ALJ
       decision on CYAPC's earnings would be approximately $37.5 million
       of which WMECO's share would be approximately $3.6 million.
       WMECO's management cannot predict the ultimate outcome of the
       hearing at this time, however, management believes that the
       associated regulatory assets are probable of recovery.

    C. Nuclear Performance
       Millstone:  The three Millstone units are managed by NNECO. All
       three units were placed on the NRC watch list on January 29, 1996.
       The units cannot be restarted without appropriate NRC approvals.
       Millstone 3 has received these approvals and resumed operation in
       July 1998.  Restart efforts continue for Millstone 2 and it is
       expected to be ready to restart in the spring of 1999. WMECO's
       estimated replacement power costs are approximately $1 million per
       month while  Millstone 2 remains out of service.  In July 1998,
       CL&P and WMECO decided to retire Millstone 1 and prepare for final
       decommissioning.

       Litigation: Certain of the non-NU joint owners of Millstone 3 have
       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 related to the company's operation of Millstone 3.
       The arbitrations and lawsuits seek to recover compensatory damages
       in excess of $200 million, together with punitive damages, treble
       damages and attorneys' fees. 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.
        
    D. 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 also may 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 the estimated environmental remediation costs that
       it expects to incur.  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, 1998, the
       liability recorded by WMECO for its estimated environmental
       remediation costs, not considering any possible recoveries from
       third parties, amounted to approximately $1.9 million, within a
       range of $1.9 million to $3.1 million.

       WMECO has received proceeds from several  insurance carriers for
       the settlement with certain insurance companies of all past,
       present and future environmental matters.  As a result of these
       settlements, WMECO will retain the risk loss, in part, for some
       environmental remediation costs.

       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.

    E. 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, 1998,
       fees due to the DOE for the disposal of prior period fuel were
       approximately $41.1 million, including interest costs of $25.5
       million.
 
       The DOE originally was 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. Adequate storage capacity exists to accommodate
       all spent nuclear fuel at Millstone 1.  With the addition of new
       storage racks, storage facilities for Millstone 3 are expected to
       be adequate for the projected life of the unit. With the
       implementation of currently planned modifications, the storage
       facilities for Millstone 2 are expected to be adequate to
       accommodate a full-core discharge from the reactor until 2005.
       Fuel consolidation, which has been licensed for Millstone 2, could
       provide adequate storage capability for its projected life.
       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. 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.  The 1997 ruling
       by the appeals court said, however, that the 1982 federal law could
       not require the DOE to accept waste when it did not have a suitable
       storage facility.  The court directed the plaintiffs to pursue
       relief under the terms of their contracts with the DOE.  Based on
       this ruling, since the DOE did not take the spent nuclear fuel as
       scheduled, it may have to pay contract damages.

       In May 1998, the same court denied petitions from 60 states and
       state agencies, collectively, and 41 utilities, including the
       company, asking the court to compel the DOE to submit a program,
       beginning immediately, for disposing of spent nuclear fuel. The
       petitions were filed after the DOE defaulted on its January 31,
       1998 obligation to begin accepting the fuel.  The court directed
       the company and other plaintiffs to pursue relief under the terms
       of their contracts with the DOE.

       In a petition filed in August 1998, the court's May 1998 decision
       was appealed to the U.S. Supreme Court.  In November 1998, the
       Supreme Court declined to review the lower court ruling that said
       utilities should go to court and seek monetary damages from the
       DOE.  The ultimate outcome of this legal proceeding is uncertain at
       this time.

    F. 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, WMECO could be assessed in proportion to its ownership
       interest in each of its nuclear units up to $83.9 million.
       WMECO's payments of this assessment would be limited to, in
       proportion to its ownership interest in each of its nuclear
       units, $10.0 million in any one year per nuclear incident.  In
       addition, if the sum of all claims and costs from any one nuclear
       incident exceeds the maximum amount of financial protection,
       WMECO would be subject to an additional 5 percent, or $4.2
       million, in proportion to its ownership interests in each of its
       nuclear units.  Based upon its ownership interests in Millstone
       1, 2 and 3, WMECO's maximum liability, including any additional
       assessments, would be $44.3 million per incident, of which
       payments would be limited to $5.0 million per year.  In addition,
       through power purchase contracts with VYNPC, WMECO would be
       responsible for up to an additional $2.2 million per incident, of
       which payments would be limited to $0.3 million per year.

       The NRC approved CYAPC's and MYAPC's requests for withdrawal from
       participation in the secondary financial protection program,
       effective November 19, 1998, and January 17, 1999, respectively,
       due to their permanently shutdown and defueled status.  Therefore,
       neither CYAPC, MYAPC, nor their sponsor companies have any future
       obligations for potential assessments.

       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 $2.2
       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 $1.0 million
       under the replacement power policies and $2.3 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.

    G. Construction Program
       The construction program is subject to periodic review and revision
       by management. WMECO currently forecasts construction expenditures
       of approximately $167.8 million for the years 1999-2003, including
       $33.5 million for 1999.  In addition, WMECO estimates that nuclear
       fuel requirements, including nuclear fuel financed through the
       NBFT, will be approximately $35.5 million for the years 1999-2003,
       including $5.8 million for 1999. See Note 8, "Leases" for additional
       information about the financing of nuclear fuel.

    H. Long-Term Contractual Arrangements
       Yankee Companies:  The NU system companies rely on VY for approximately
       1.4 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, operation
       and maintenance 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 $4.4 
       million in 1998, $3.9 million in 1997 and $4.1 million in 1996.  WMECO
       may also be asked to provide direct or indirect financial support from
       one or more of the Yankee companies, including VYNPC.

       NUGs:  WMECO has entered into arrangements for the purchase of
       capacity and energy from two NUGs.  These arrangements have terms
       from 15 to 25 years, currently expiring in the years 2008 through
       2013, and require WMECO to purchase energy at specified prices or
       formula rates.  For the 12-month period ending December 31, 1998,
       approximately 13 percent of NU system electricity requirements were
       met by NUGs. WMECO's total cost of purchases under these arrangements
       amounted to $29.9 million in 1998, $31.2 million in 1997 and $29.5
       million in 1996.

       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:


                                         1999    2000    2001    2002    2003  
                                                (Millions of Dollars)

       VYNPC.........................    $ 4.7   $ 4.3   $ 4.7   $ 4.8   $ 4.5
       NUGs..........................     31.1    32.2    33.1    33.9    34.9
       Hydro-Quebec..................      3.7     3.6     3.5     3.4     3.3
                                                                               

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:

    Supplemental Executive Retirement Plan investments:  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 having a
    cost basis of $52,000 held for the benefit of the Supplemental Executive
    Retirement Plan were recorded on the Consolidated Balance Sheets at their
    fair market value at December 31, 1998 of $352,000.

    Nuclear decommissioning trusts:  The investments held in WMECO's nuclear
    decommissioning trusts were adjusted to market by approximately $27.8
    million as of December 31, 1998 and $17.9 million as of December 31,
    1997, with corresponding offsets to the accumulated provision for
    depreciation.  The amounts adjusted in 1998 and 1997 represent cumulative
    net unrealized gains. The cumulative gross unrealized holding losses were
    immaterial for both 1998 and 1997.

    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, 1998                             Amount         Value
                                                    (Thousands of Dollars)

    Preferred stock not subject to
      mandatory redemption...................       $ 20,000      $ 19,800
        
    Preferred stock subject to
      mandatory redemption...................         19,500        19,796

    Long-term debt - first mortgage bonds....        295,000       297,162

    Other long-term debt.....................         95,155        95,419


                                                    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
   

13. OTHER COMPREHENSIVE INCOME

    During 1998, WMECO adopted SFAS 130, "Reporting Comprehensive Income,"
    which established standards for reporting and displaying comprehensive
    income and its components in a financial statement that is displayed
    with the same prominence as other financial statements.  During 1997 and
    1996, WMECO had no material other comprehensive income items.


    The accumulated balance for each other comprehensive income item is as
    follows:

                                                       Current
                                        December 31,   Period     December 31,
                                           1997        Change         1998
    (Thousands of Dollars)
 
    Unrealized gains on
      securities....................      $  -          $183          $183
    Minimum pension
      liability adjustment..........         -           (33)          (33)   
    Accumulated other
      comprehensive income..........      $  -          $150          $150


    The changes in the components of other comprehensive income are reported
    on the Consolidated Statements of Comprehensive Income net of the following
    income tax effects:

                                           1998         1997          1996
    (Thousands of Dollars)

    Unrealized gains 
      on securities.................      $(117)        $ -           $ -     

    Minimum pension
      liability adjustment..........         21           -             - 
    Other comprehensive
      income........................      $ (96)        $ -           $ - 




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,
1998 and 1997, and the related consolidated statements of income,
comprehensive income, common stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1998.  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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years 
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.




                                              /s/ ARTHUR ANDERSEN LLP
                                                  ARTHUR ANDERSEN LLP


Hartford, Connecticut
February 23, 1999






Western Massachusetts Electric Company and Subsidiary

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


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

FINANCIAL CONDITION

Overview

WMECO's financial results improved in 1998 despite a reduction in retail
rates.  The improved results are a result of the successful restart of the
Millstone 3 nuclear power plant, significant progress toward the restart of
Millstone 2 and significant reductions in operating expenses.

WMECO had a net loss of approximately $10 million in 1998, compared to a net
loss of approximately $28 million in 1997. Improved results in 1998 were
primarily due to a $43 million reduction in nonfuel operation and maintenance
costs and a $28 million reduction in fuel and purchased power expense,
partially offset by a reduction in operating revenues.

Total revenues fell 8 percent to $393  million in 1998 from $426 million in
1997.  The fall in revenues occurred despite a 1.3 percent increase in retail
kilowatt-hour sales for the year.  The revenue reduction primarily resulted
from a 10 percent retail rate decrease required by Massachusetts
restructuring legislation.

WMECO's ability to improve its financial performance in 1999 will depend
primarily on its success in bringing Millstone 2 back on line, and further
reducing its operating costs to help offset continued downward pressure on
retail revenues. WMECO's financial performance will be affected by the
carryover of 1998 rate reductions, plus another 5 percent rate reduction,
adjusted for inflation, that is scheduled to take effect September 1, 1999.

WMECO is in the process of auctioning  approximately 560 megawatts (MW) of
fossil and hydroelectric generating capacity.  Management also hopes in 1999
to begin the process of securitizing stranded costs, a means of monetizing
the company's regulatory assets and certain other stranded costs. WMECO
intends to use most of the proceeds from asset sales and securitization to
repay outstanding debt and preferred securities.

Restructuring

In November 1997, Massachusetts enacted comprehensive electric utility
industry restructuring legislation.  As required by that legislation, WMECO
instituted  a 10 percent rate reduction in 1998 and continues to work with
the Massachusetts Department of Telecommunications and Energy (DTE) on
implementing WMECO's restructuring plan. In September 1999, WMECO must
institute another 5 percent rate reduction, adjusted for inflation.

In January 1999, WMECO announced the sale of approximately 290 MW of
fossil/hydro generating capacity to Consolidated Edison Energy, Inc. for $47
million.  The sale price is approximately 3.8 times greater than the assets'
1997 book value of $12.5 million.   WMECO hopes to close on that transaction
in midsummer and expects to use the majority of the proceeds to repay
outstanding debt.  The sale of these assets and future asset sales will be
used to reduce WMECO's stranded costs. WMECO will auction another 270 MW of
pumped storage and conventional hydroelectric plant later in 1999. WMECO has
notified the DTE that it will also seek to auction its ownership in the
Millstone units.  WMECO expects to seek approval to securitize up to $500
million in stranded costs.
     
Following the sale of its generating assets, WMECO will continue to operate
and maintain the transmission and local distribution network and deliver
electricity to its customers.

Millstone Nuclear Units

WMECO has a 19 percent ownership interest in Millstone 2 and a 12.24 percent
ownership interest in Millstone 3. In 1998, Millstone-related costs fell
significantly as Millstone 3 returned to service and Millstone 1 began to
prepare for decommissioning.
     
After a 27-month outage, Millstone 3 received Nuclear Regulatory Commission
(NRC) permission to restart in June 1998 and reached full power in July.  The
unit achieved a capacity factor of approximately 70 percent in 1998 following
its return to service.  WMECO's share of the operation, maintenance and
replacement power costs associated with Millstone 3 totaled approximately $28
million in 1998, down from $52 million in 1997.  The unit remains on the
NRC's watch list  with a Category 2 designation, which means that it will
continue to be subject to heightened NRC oversight.  A refueling and
maintenance outage is scheduled to begin in May  1999.
    
Millstone 2 remains on the NRC watch list with a Category 3 designation,
meaning that NRC commissioners must formally vote to allow restart.  Key
steps before restart include final verification that the unit is in
conformance with its design and licensing basis; that management processes
support safe and conservative operations; and that the employees are
effective at identifying and correcting deficiencies at the unit.  Millstone
2 is on schedule for a spring 1999 restart following final NRC review and
approval. Millstone 2's return to service will reduce WMECO's fuel and
purchased-power expense by approximately $1 million a month and significantly
reduce O&M which totaled $42 million in 1998.

Liquidity

WMECO converted a total of  $53.8 million variable-rate tax exempt debt to
fixed-rate tax exempt debt carrying an interest rate of 5.85 percent.
Niantic Bay Fuel Trust (NBFT), which finances CL&P's and WMECO's nuclear fuel
at Millstone, refinanced maturing notes and bank lines through the issuance
of $180 million of five-year 8.59 percent notes.

Net cash flows from operations totaled approximately $30 million in 1998, up
from $28 million in 1997.  Approximately $37 million of net cash flow was
used for investment activities, including construction expenditures and
investments in nuclear decommissioning trusts, essentially unchanged from
1997. Approximately $7 million of net cash flows was from financing
activities, compared with $9 million in 1997. Short-term debt increased by
$22 million while long-term debt and preferred stock levels were reduced by
$11 million in 1998.  In 1997, debt levels increased a net of $27 million.
Approximately $3 million was used to pay preferred dividends in 1998,
compared with $18 million in preferred and common dividends in 1997.

The return to service of Millstone 3 and resulting reduction in costs
stabilized the NU system's credit ratings in mid-1998 after repeated
downgrades in 1996 and 1997.  Moody's Investors Service, which had downgraded
CL&P, WMECO, and NU debt in April 1998, upgraded those same ratings in July
1998 and established a "positive" outlook.  Also in July, Standard & Poor's
(S&P) removed the NU system from "CreditWatch--negative" for the first time in
more than two years.  In September 1998, S&P upgraded CL&P, WMECO and PSNH
first mortgage bonds.
   
Key covenants on a $313.75 million revolving credit line primarily serving
CL&P and WMECO were adjusted in the fall. The $313.75 million revolving
credit line will expire on November 21, 1999.  As of  February 23, 1999,
WMECO had $60 million outstanding under that line. WMECO paid off a $40
million bond issue that matured on March 1, 1999.

WMECO has arranged financing agreements through the sale of its accounts
receivables. WMECO can finance up to $40 million through this facility. As of
December 31, 1998, WMECO had financed $20 million through its accounts
receivable line.

The permanent shutdown of Millstone 1 in July 1998 could require CL&P and
WMECO to immediately repay the NBFT approximately $80 million of capital
lease obligations.  The companies are seeking consents from the note holders
to amend the lease so that they will not be obligated to make this payment.
As consideration for the note holders' consent, the companies intend to issue
an additional $80 million of first mortgage bonds in mid-1999.

Nuclear Decommissioning

Millstone 1

WMECO has a 19 percent ownership interest in Millstone 1.  Based on a
continued unit operation study filed with the Connecticut Department of
Public Utility Control (DPUC) in July 1998, management decided to retire
Millstone 1 and begin decommissioning activities.  Subsequently, Millstone 1
was removed from the NRC's watch list.
        
WMECO's share of the total estimated decommissioning costs for Millstone 1,
which have been updated to reflect the early shutdown of the unit, are
approximately $131.5 million in December 1998 dollars. WMECO uses external
trusts to fund the decommissioning costs.  At December 31, 1998, WMECO had
unrecovered plant and related assets for Millstone 1 of $60.8 million and
unrecovered decommissioning obligation of $72.8 million.  These amounts have
been recorded as a regulatory asset, while decommissioning and closure
obligations have been recorded as a liability.  Management expects the DTE to
decide on the recovery of WMECO's share of Millstone 1 investment and
decommissioning liability as part of the ongoing restructuring docket.

Yankee Companies

WMECO has a 9.5 percent ownership interest in the Connecticut Yankee Atomic
Power Company (CYAPC), a 7.0 percent ownership interest in Yankee Atomic
Electric Company (YAEC), a 3.0 percent ownership interest in Maine Yankee
Atomic Power Company (MYAPC) and a 2.5 percent ownership interest in Vermont
Yankee Nuclear Power Corporation (VYNPC).  The nuclear plants owned by YAEC,
CYAPC and MYAPC were shut down permanently on February 26, 1992, December 4,
1996, and August 6, 1997, respectively.

At December 31, 1998, WMECO's share of its estimated remaining contract
obligations, including decommissioning, amounted to approximately $74.6
million: $47.4 million for CYAPC, $21.5 million for MYAPC and $5.7 million
for YAEC.  Under the terms of the contracts with the Yankee companies, WMECO
is responsible for its proportionate share of the costs of the units
including decommissioning.  Management expects to recover these costs from
customers.  Accordingly, WMECO has recognized these costs as regulatory
assets, with corresponding obligations on its balance sheet.

WMECO has exposure for its investment in CYAPC as a result of an initial
decision at the Federal Energy Regulatory Commission (FERC).  Additionally,
in January 1999, MYAPC filed an offer of settlement which, if accepted by the
FERC, will resolve all the issues in the FERC decommissioning rate case
proceeding.  Management cannot predict the ultimate outcome of the FERC
proceedings at this time, but believes that the associated regulatory assets
are probable of recovery.  For further  information on Yankee companies see
"Notes to Consolidated Financial Statements," Note 11B.

WMECO's share of estimated costs of decommissioning the nuclear plant owned
by VYNPC is approximately $13.2 million in year-end 1998 dollars.

Millstone 2 and 3

WMECO's estimated cost to decommission its shares of Millstone 2 and
Millstone 3 is approximately $144.0 million in year-end 1998 dollars. These
costs are being recognized over the lives of the respective units with a
portion currently being recovered through rates.  As of December 31, 1998,
the market value of the contributions already made to the decommissioning
trusts, including their investment returns, was approximately $66.9 million.
See the "Notes to Consolidated Financial Statements," Note 2, for further
information on nuclear decommissioning.

Year 2000 Issues

The NU system has established an action plan by which identified processes
must be completed by certain dates in order to ensure its operating systems,
including nuclear systems, and reporting systems are able to properly
recognize the year 2000.  This action plan has three phases: the inventory
phase, the detailed assessment phase and the remediation phase. The inventory
phase, which has been completed, identified operating and reporting systems
which may need to be fixed. The detailed assessment phase, which has been
completed, determined exactly what needed to be done in order to ensure that
the systems identified during the inventory phase are able to recognize
properly and process the year 2000. The final phase is the remediation phase.
By the end of this phase, mission critical systems   (systems that are
related to safety, keeping the lights on, regulatory requirements, and other
systems that could have a significant financial impact) will be year 2000
ready; that is, these systems will perform their business functions properly
in the year 2000.  This phase includes making modifications, testing and
validating changes and verifying that the year 2000 issues have been resolved.

Although the identification and detailed assessment phases are complete,
newly identified items, such as new software purchases, are added to the
inventory as they are identified and are subject to detailed assessment and,
if needed, remediation.  NU system purchasing policies require newly
purchased software and devices to be year 2000 compliant. None of these newly
identified items are expected to materially impact completion of the
remediation phase.

The NU system has identified and inventoried 2,497 computer systems
(software) and over 24,000 devices (hardware) broken down into 3,450 device
types containing date-sensitive computer chips.  As of December 31, 1998, 73
percent of the software systems and 81 percent of  the hardware were year
2000 ready.

The remaining items are in various stages of modification or testing.
Management anticipates the remediation phase for mission critical systems to
be completed by mid-1999.

In addition, the NU system has been contacting its key suppliers and business
partners to determine their ability to manage the year 2000 problem
successfully. The NU system is adjusting its inventories, working with
suppliers to provide backup inventories, and changing suppliers as needed to
provide for an adequate supply of materials needed to conduct business into
the year 2000.

The NU system also has worked actively with the Independent System Operator
(ISO) New England, the operator of the New England power grid, and with the
North American Electric Reliability Council to provide for the year 2000
readiness of the New England power grid.

The NU system has utilized both internal and external resources to identify,
assess, test and reprogram or replace the computer systems for year 2000
readiness.  The current projected total cost of the Year 2000 Program to the
NU system is $30 million. The total estimated remaining cost is $18 million,
which is being funded through operating cash flows. The majority of these
costs will be expensed as incurred in 1999. Since 1996, the NU system has
incurred and expensed approximately $12 million related to Year 2000
readiness efforts. Total expenditures related to the year 2000 are not
expected to have a material effect on the operations or financial condition
of the NU system.

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 plans or
those of third parties are not successful, there could be a significant
disruption of the NU system's operations.   The most likely worst case
scenario is a limited number of localized interruptions to electric service
which can be restored within a few hours.  As a precautionary measure, the NU
system is formulating contingency plans that will evaluate alternatives that
could be implemented if our remediation efforts are not successful. The
contingency plans are being developed by enhancing existing emergency
operating procedures to include year 2000 issues.  In addition, the NU system
plans to have staff available to respond to any year 2000 situations that
might arise. The contingency plan is expected to be available by July 30,
1999.

The NU system is committed to assuring that adequate resources are available
in order to implement any changes necessary for its nuclear and other
operations to be compatible with the new millennium.

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, 1998, WMECO had
recorded an environmental reserve of approximately $1.9 million. See the
"Notes to Consolidated Financial Statements," Note 11D, for further
information on environmental matters.


RESULTS OF OPERATIONS


                                     Income Statement Variances
                                         Millions of Dollars

                           1998 over/(under) 1997   1997 over/(under) 1996

                             Amount      Percent      Amount      Percent

Operating revenues          $  (33)        (8)%        $  5          1 %
Fuel, purchased and net
  interchange power            (28)       (20)           25         22
Other operation                (18)       (12)           17         12
Maintenance                    (25)       (30)           25         45
Amortization of regulatory
  assets, net                    -          -            (3)       (30)
Federal and state
  income taxes                  16        (99)          (26)        (a)
Net income                      18        (65)          (39)        (a)

(a) Percentage greater than 100.



Operating Revenues

Total operating revenues decreased in 1998, primarily due to a 10 percent
retail rate decrease in 1998, partially offset by higher retail sales. Retail
kilowatt-hour sales were 1.3 percent higher than 1997.

Total operating revenues increased in 1997, primarily due to higher
transmission and capacity revenues, partially offset by lower retail sales.
Retail kilowatt-hour sales were 1.0 percent lower in 1997 as a result of mild
winter weather.

Fuel, Purchased and Net Interchange Power

Fuel, purchased and net interchange power expense decreased in 1998,
primarily due to lower replacement power costs as a result of the return to
service of Millstone 3.

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

Other Operation and Maintenance

Other operation and maintenance expense decreased in 1998, primarily due to
lower costs at the Millstone units ($30 million), lower capacity charges from
CYAPC and MYAPC ($10 million) and the recognition of environmental insurance
proceeds ($2 million).

Other operation and maintenance expense increased in 1997, primarily due to
higher costs associated with the Millstone restart effort ($40 million),
higher capacity charges from MYAPC ($2 million) and higher costs to ensure
adequate capacity ($6 million), partially offset by lower capacity charges
from CYAPC as a result of a property tax refund ($4 million) and lower
administrative and general expenses primarily due to lower pensions and
benefit costs ($5 million).

Amortization of Regulatory Assets, Net

The change in amortization of regulatory assets, net in 1998 was not
significant.

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

Federal and State Income Taxes

Federal and state income taxes increased in 1998, primarily due to higher
book taxable income.

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




Western Massachusetts Electric Company And Subsidiary
        
SELECTED FINANCIAL DATA (a)

                          1998        1997        1996        1995        1994
                                        (Thousands of Dollars)

Operating Revenues....$  393,322  $  426,447  $  421,337  $  420,434  $  421,477

Operating Income/
  (Loss)..............    19,854         251      33,190      63,064      70,940

Net (Loss)/Income.....    (9,579)    (27,460)     11,089      39,133      49,457
Cash Dividends on
  Common Stock........      -         15,004      16,494      30,223      29,514

Total Assets.......... 1,287,682   1,179,128   1,191,915   1,142,346   1,183,618

Long-Term Debt (b)....   389,314     396,649     349,442     347,470     379,969

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

Preferred Stock Subject
  to Mandatory
  Redemption(b).......    19,500      21,000      21,000      24,000      24,675

Obligations Under
  Capital Leases(b)...    34,093      32,887      32,234      36,011      36,797

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

(b) Includes portion due within one year.


 
STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)

                                             Quarter Ended (a)

  1998                        March 31     June 30       Sept. 30      Dec. 31 

Operating Revenues.........   $107,189     $ 90,649      $93,839       $101,645

Operating Income...........   $  7,838     $  6,614      $ 4,301       $  1,101

Net Income/(Loss)..........   $  1,367     $   (738)     $(3,546)      $ (6,662)


  1997

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

Operating Income/(Loss)....   $    675     $ (4,794)    $  1,875       $  2,495

Net Loss...................   $ (5,033)    $(11,492)    $ (5,303)      $ (5,632)



Western Massachusetts Electric Company and Subsidiary

STATISTICS (Unaudited)


        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)
        
1998    $1,256,046         4,091         6,979          196,339         533
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

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