1997 Annual Report

                    Public Service Company of New Hampshire

                                     Index


Contents                                                                Page


Balance Sheets..........................................................  2

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

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

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

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

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

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

Selected Financial Data................................................. 50

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

Statements of Quarterly Financial Data.................................. 52

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






                                   PART I.  FINANCIAL INFORMATION

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS

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

Utility Plant, at cost:
  Electric (Note 1H, Note 2)..............................   $  1,898,319   $  1,877,955

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





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

</TABLE>

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









PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS

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

Capitalization:                                              
  Common stock--$1 par value.                                
   Authorized and outstanding 1,000 shares................   $          1   $          1
  Capital surplus, paid in................................        423,713        423,058
  Retained earnings.......................................        170,188        174,691
                                                             -------------  -------------
           Total common stockholder's equity..............        593,902        597,750
  Preferred stock subject to mandatory redemption.........         75,000        100,000
  Long-term debt..........................................        516,485        686,485
                                                             -------------  -------------
           Total capitalization...........................      1,185,387      1,384,235
                                                             -------------  -------------

Obligations Under Seabrook Power Contracts
 and Other Capital Leases (Note 2 and Note 3).............        799,450        871,707
                                                             -------------  -------------
Current Liabilities:                                                       
  Long-term debt and preferred stock--current portion.....        195,000         25,000
  Obligations under Seabrook Power Contracts and other                     
   capital leases--current portion........................        122,363         42,910
  Accounts payable........................................         21,231         37,675
  Accounts payable to affiliated companies................         32,677         31,130
  Accrued taxes...........................................         69,445             81
  Accrued interest........................................          7,197          7,992
  Accrued pension benefits................................         46,061         44,790
  Other...................................................          9,917         37,516
                                                             -------------  -------------
                                                                  503,891        227,094
                                                             -------------  -------------
Deferred Credits:                                            
  Accumulated deferred income taxes.......................        204,219        258,317
  Accumulated deferred investment tax credits.............          3,972          4,511
  Deferred contractual obligations (Note 4)...............         83,042         50,271
  Deferred revenue from affiliated company................         32,472         33,284
  Other...................................................         24,726         21,793
                                                             -------------  -------------
                                                                  348,431        368,176
                                                             -------------  -------------





Commitments and Contingencies (Note 10)


                                                             -------------  -------------
           Total Capitalization and Liabilities...........   $  2,837,159   $  2,851,212
                                                             =============  =============
                                                                           
</TABLE>                                                                   

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






PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

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

<S>                                                  <C>         <C>          <C>
Operating Revenues................................. $1,108,459  $1,110,169  $ 979,971
                                                    ----------- ----------- ----------
Operating Expenses:                                 
  Operation --                                      
     Fuel, purchased and net interchange power.....    326,745     356,679    257,008
     Other.........................................    367,963     327,237    313,604
  Maintenance......................................     38,320      45,728     42,244
  Depreciation.....................................     44,377      42,983     44,337
  Amortization of regulatory assets, net...........     56,557      56,884     55,547
  Federal and state income taxes (Note 9)..........     86,600      80,340     69,817
  Taxes other than income taxes....................     43,623      45,123     41,786
                                                    ----------- ----------- ----------
        Total operating expenses...................    964,185     954,974    824,343
                                                    ----------- ----------- ----------
Operating Income...................................    144,274     155,195    155,628
                                                    ----------- ----------- ----------
                                                    
Other Income:                                      
  Equity in earnings of regional nuclear            
    generating companies and subsidary company.....      1,373       2,075      1,645
  Other, net.......................................        698       8,075      3,162
  Income taxes.....................................     (2,391)     (7,723)      (770)
                                                    ----------- ----------- ----------
        Other (loss)/income, net...................       (320)      2,427      4,037
                                                    ----------- ----------- ----------
        Income before interest charges.............    143,954     157,622    159,665
                                                    ----------- ----------- ----------

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

                                                     
Net Income......................................... $   92,422  $   96,902  $  83,255
                                                    =========== =========== ==========





</TABLE>

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





PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1997        1996        1995
--------------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                              <C>         <C>         <C>
Operating Activities:                                          
  Net Income.................................................. $   92,422  $   96,902  $   83,255
  Adjustments to reconcile to net cash                         
   from operating activities:                                  
    Depreciation..............................................     44,377      42,983      44,337
    Deferred income taxes and investment tax credits, net.....     21,795      94,646      69,986
    Recoverable energy costs, net of amortization.............    (12,336)     31,663     (15,266)
    Amortization of acquisition costs.........................     56,557      56,884      55,547
    Deferred Seabrook capital costs (Note 1K).................     (8,376)       -           -
    Other sources of cash.....................................     51,054      65,922      15,973
    Other uses of cash........................................    (67,590)    (51,188)       -
  Changes in working capital:                                  
    Receivables and accrued utility revenues..................      9,407     (36,907)    (10,506)
    Fuel, materials and supplies..............................      4,691      (3,135)     (4,264)
    Accounts payable..........................................    (14,897)     (7,714)      2,375
    Accrued taxes.............................................     69,364        (717)     (3,506)
    Other working capital (excludes cash).....................    (13,765)    (12,659)         16
                                                               ----------- ----------- -----------
Net cash flows from operating activities......................    232,703     276,680     237,947
                                                               ----------- ----------- -----------
                                                               

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

Increase in obligations:                                       
  Seabrook Power Contracts and other capital leases........... $    6,197  $       93  $   28,028
                                                               =========== =========== ===========




</TABLE>

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






PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY


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

<S>                                              <C>   <C>         <C>         <C>
Balance at January 1, 1995...............  $     1    $421,784    $125,034    $546,819
    Net income for 1995..................                           83,255      83,255
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Cash dividends on common stock.......                          (52,000)    (52,000)
    Capital stock expenses, net..........                  601                     601
                                           --------   ---------   ---------   ---------
Balance at December 31, 1995.............        1     422,385     143,039     565,425
    Net income for 1996..................                           96,902      96,902
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Cash dividends on common stock.......                          (52,000)    (52,000)
    Capital stock expenses, net..........                  673                     673
                                           --------   ---------   ---------   ---------
Balance at December 31, 1996.............        1     423,058     174,691     597,750
    Net income for 1997..................                           92,422      92,422
    Cash dividends on preferred stock....                          (11,925)    (11,925)
    Cash dividends on common stock.......                          (85,000)    (85,000)
    Capital stock expenses, net..........                  655                     655
                                           --------   ---------   ---------   ---------
Balance at December 31, 1997.............  $     1    $423,713    $170,188    $593,902
                                           ========   =========   =========   =========





</TABLE>

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







Public Service Company of New Hampshire

NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

         The NU system furnishes franchised retail electric service in
         Connecticut, New Hampshire, and western Massachusetts through CL&P,
         PSNH, WMECO, and HWP.  A fifth subsidiary, NAEC, sells all of its
         entitlement to the capacity and output of the Seabrook nuclear
         generating unit (Seabrook, a 1,148-megawatt (MW) nuclear generating
         unit) to PSNH under two long-term contracts (the Seabrook Power
         Contracts).  In addition to its franchised retail service, the NU
         system furnishes firm and other wholesale electric services to various
         municipalities and other utilities, and participates in limited retail
         access programs, providing off-system retail electric service.  The NU
         system serves about 30 percent of New England's electric needs and is
         one of the 25 largest electric utility systems in the country as
         measured by revenues.

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

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

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

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

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

         For information regarding proposed changes in the nature of industry
         regulation, see Note 10A, "Commitments and Contingencies -
         Restructuring and Rate Matters."

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

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

         See Note 10C, "Commitments and Contingencies-Environmental Matters,"
         for information on other newly issued accounting and reporting
         standards related to this area.


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



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


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



                                                         (Thousands of Dollars)

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

                                                                 $13,153





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

         The electricity produced by the Vermont Yankee nuclear generating
         facility (VY) is committed substantially on the basis of ownership
         interests and is billed pursuant to contractual agreements.  YAEC's,
         CYAPC's and MYAPC's nuclear power plants were shut down permanently on
         February 26, 1992, December 4, 1996, and August 6, 1997, respectively.
         Under ownership agreements with the Yankee companies, PSNH may be asked
         to provide direct or indirect financial support for one or more of the
         companies.  For more information on the Yankee companies, see Note 4,
         "Nuclear Decommissioning," and Note 10F, "Commitments and Contingencies
         - Long-Term Contractual Arrangements."

         Millstone 3:  PSNH has a 2.85 percent joint ownership interest in
         Millstone 3, a 1,154-MW nuclear generating unit. As of December 31,
         1997 and 1996, plant-in-service included approximately $118.7 million
         and the accumulated provision for depreciation included approximately
         $32.3 million and $29.4 million, respectively, for PSNH's share of
         Millstone 3.  PSNH's share of Millstone 3 expenses is included in the
         corresponding operating expenses on the accompanying Statements of
         Income.  The Millstone 3 unit is out of service.  NU hopes to return
         Millstone 3 to service in early spring of 1998.  For more information
         on the Millstone 3 unit, see Note 10B, "Commitments and Contingencies -
         Nuclear Performance."

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

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

         Except for major facilities, depreciation rates are applied to the
         average plant-in-service during the period. Major facilities are
         depreciated from the time they are placed in service.  When plant is
         retired from service, the original cost of plant, including costs of
         removal, less salvage, is charged to the accumulated provision for
         depreciation.  The depreciation rates for the several classes of
         electric plant-in-service are equivalent to a composite rate of 3.7
         percent in 1997 and 1996, and 3.8 percent in 1995.  See Note 4,
         "Nuclear Decommissioning," for information on nuclear plant
         decommissioning.

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


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

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

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

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

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

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

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

         For more information on PSNH's regulatory environment and the
         potential impacts of restructuring, see Note 10A, "Commitments
         and Contingencies - Restructuring and Rate Matters," and the MD&A.

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

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


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


         At December 31,                            1997        1996

                                                 (Thousands of Dollars)


         Recoverable energy costs, net
           (Note 1K) .........................    $191,686    $211,236
         Income taxes, net (Note 1I) .........     128,244     151,431
         Unrecovered contractual
           obligations (Note 4) ..............      83,042      50,271

         Deferred costs, nuclear
           plants (Note 2) ...................     281,856     269,233
         Seabrook deferral (Note 1K) .........       8,376         -
         Other ...............................       2,214       2,333

                                                  $695,418    $684,504



     I.  INCOME TAXES
         The tax effect of temporary differences (differences between the
         periods in which transactions affect income in the financial statements
         and the periods in which they affect the determination of taxable
         income) is accounted for in accordance with the ratemaking treatment
         of the applicable regulatory commissions.  See Note 9, "Income Tax
         Expense" for the components of income tax expense.

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

         At December 31,                            1997        1996

                                                 (Thousands of Dollars)

         Accelerated depreciation and
           other plant-related differences ...    $103,985    $225,263
         Net operating loss (NOL)
           carryforwards .....................     (94,822)    (94,149)
         Regulatory assets - income tax
           gross up ..........................      49,101      68,652
         Other ...............................     145,955      58,551

                                                  $204,219    $258,317




         At December 31, 1997, PSNH had a NOL carryforward of approximately
         $293 million, that can be used against PSNH's federal taxable income
         and which, if unused, expires between the years 2000 and 2006. PSNH
         also had Investment Tax Credit (ITC) carryforwards of $40 million which
         if unused, expires between the years 1998 and 2004.  For a portion of
         the carryforward amounts indicated above, the reorganization of PSNH
         under Chapter 11 of the United States Bankruptcy Code limits the annual
         amount of NOL and ITC carryforwards that may be used.  Approximately
         $31 million of the NOL and $9 million of the ITC carryforwards are
         subject to this limitation.
         See Note 10A, "Commitments and Contingencies - Restructuring and Rate
         Matters," for the possible impacts on PSNH from the NHPUC's decision
         related to industry restructuring.

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

     K.  RECOVERABLE ENERGY COSTS
         Under the Energy Policy Act of 1992 (Energy Act), PSNH is assessed
         for its proportionate share of the costs of decontaminating and
         decommissioning uranium enrichment plants owned by the United States
         Department of Energy (D&D assessment).  The Energy Act requires that
         regulators treat D&D assessments as a reasonable and necessary current
         cost of fuel, to be fully recovered in rates like any other fuel cost.
         PSNH is currently recovering these costs through rates.  As of December
         31, 1997, PSNH's total D&D deferrals were approximately $300 thousand.

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

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

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

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

         See Note 10A, "Commitments and Contingencies - Restructuring and
         Rate Matters" for the possible impacts on PSNH of the NHPUC's
         decision related to industry restructuring.

     L.  SPENT NUCLEAR FUEL DISPOSAL COSTS

         Under the Nuclear Waste Policy Act of 1982, PSNH must pay the United
         States Department of Energy (DOE) for the disposal of spent nuclear
         fuel and high-level radioactive waste.  The DOE is responsible for the
         selection and development of repositories for, and the disposal of,
         spent nuclear fuel and high-level radioactive waste.  Fees are billed
         currently to customers and paid to the DOE on a quarterly basis.

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

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

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

2.   SEABROOK POWER CONTRACTS

     PSNH and NAEC have entered into two power contracts that obligate PSNH to
     purchase NAEC's 35.98 percent ownership of the capacity and output of
     Seabrook for the term of Seabrook's Nuclear Regulatory Commission (NRC)
     operating license.  Under these power contracts, PSNH is obligated to pay
     NAEC's cost of service during this period, regardless of whether Seabrook 1
     is operating.  NAEC's cost of service includes all of its Seabrook-related
     costs, including operation and maintenance (O&M) expenses, fuel expense,
     income and property tax expense, depreciation expense, certain overhead and
     other costs and a return on its allowed investment.

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

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

     If Seabrook 1 is shut down prior to the expiration of the NRC operating
     license, PSNH will be unconditionally required to pay NAEC termination
     costs for 39 years, less the period during which Seabrook 1 has operated.
     These termination costs will reimburse NAEC for its share of Seabrook 1
     shut-down and decommissioning costs, and will pay NAEC a return of and on
     any undepreciated balance of its initial investment over the remaining term
     of the power contracts, and the return of and on any capital additions to
     the plant made after the Acquisition Date over a period of five years after
     shut down (net of any tax benefits to NAEC attributable the cancellation).

     Contract payments charged to operating expenses are approximately:

        Year                                               Contract Payments

                                                         (Thousands of Dollars)

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

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

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

                                                         (Thousands of Dollars)


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

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

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


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



     See Note 10A, "Commitments and Contingencies - Restructuring and Rate
     Matters" for the possible impacts the NHPUC's restructuring decision may
     have on the Seabrook Power Contracts.


3.   LEASES

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

     Year                                 Capital Leases      Operating Leases


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

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

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

     Year                                 Capital Leases      Operating Leases

                                                  (Thousands of Dollars)

     1998...........................          $1,500             $ 6,100
     1999...........................           1,200               5,300
     2000...........................           1,000               4,700
     2001...........................           1,000               4,200
     2002...........................             100               2,200
     After 2002 ....................             500               5,100

     Future minimum lease
       payments ....................           5,300             $27,600



     Less amount representing
      interest .....................             600


     Present value of future
       minimum lease payments ......          $4,700


4.   NUCLEAR DECOMMISSIONING

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

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

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

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

     Changes in requirements or technology, the timing of funding or
     dismantling, or adoption of a decommissioning method other than immediate
     dismantlement would change decommissioning cost estimates and the amounts
     required to be recovered.  PSNH attempts to recover sufficient amounts
     through its allowed rates to cover its expected decommissioning costs.
     Only the portion of currently estimated total decommissioning costs that
     has been accepted by regulatory agencies is reflected in rates of PSNH.
     Based on present estimates and assuming its nuclear units operate to
     the end of their respective licensing periods, PSNH expects that the
     decommissioning trust and financing fund will be substantially funded
     when the units are retired from service.

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

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

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

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

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

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

5.   SHORT-TERM DEBT

     The amount of short-term borrowings that may be incurred by PSNH is subject
     to periodic approval by the SEC under the 1935 Act or by the NHPUC.
     Effective May 1997, PSNH was authorized under a waiver from the NHPUC, to
     incur short-term borrowings up to a maximum of $125 million.
  
     PSNH has a $125 million revolving credit agreement that will expire in
     April 1999.  The revolving credit agreement is with a group of 16 banks.
     PSNH is obligated to pay a facility fee of .50 percent per annum on the
     commitment of $125 million.  At December 31, 1997 and 1996, there were no
     borrowings under the facility.

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

     Money Pool:  Certain subsidiaries of NU, including PSNH, are members of the
     Northeast Utilities System Money Pool (Pool).  The Pool provides a more
     efficient use of the cash resources of the system, and reduces outside
     short-term borrowings.  NUSCO administers the Pool as agent for the member
     companies.  Short-term borrowing needs of the member companies are first
     met with available funds of other member companies, including funds
     borrowed by NU parent.  NU parent may lend to the Pool but may not borrow.
     Funds may be withdrawn from or repaid to the Pool at any time without prior
     notice. Investing and borrowing subsidiaries receive or pay interest based
     on the average daily Federal Funds rate.  However, borrowings based on
     loans from NU parent bear interest at NU parent's cost and must be repaid
     based upon the terms of NU parent's original borrowing. At December 31,
     1997 and 1996, PSNH had no outstanding borrowings from the Pool.

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

6.   EMPLOYEE BENEFITS

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

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

         The components of net pension cost for PSNH are:

         For the Years Ended December 31,           1997      1996      1995

                                                     (Thousands of Dollars)

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

         Net pension cost.......................  $ 1,271   $ 6,184   $ 2,337




         For calculating pension cost, the following assumptions were
         used:

         For the Years Ended December 31,           1997      1996      1995


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


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

         At December 31,                                1997           1996
                                                       (Thousands of Dollars)

         Accumulated benefit obligation,
           including vested benefits at
           December 31, 1997 and 1996 of
           $(140,089,000) and $(131,624,000),
           respectively.........................     $(152,709)     $(143,377)

         Projected benefit obligation ..........      (187,968)      (179,192)
         Market value of plan assets ...........       195,612        173,035
         Market value in excess of (less than)
           projected benefit obligation ........         7,644         (6,157)
         Unrecognized transition amount ........         4,003          4,337
         Unrecognized prior service costs ......         7,597          8,135
         Unrecognized net gain .................       (65,305)       (51,105)

         Accrued pension liability .............      $(46,061)     $ (44,790)


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

         For the Years Ended December 31,               1997           1996


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


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

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


         The components of health care and life insurance cost are:


         For the Years Ended December 31,           1997      1996      1995

                                                     (Thousands of Dollars)

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

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




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


         For the Years Ended December 31,           1997      1996      1995

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




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

         At December 31,                            1997               1996
                                                     (Thousands of Dollars)
         Accumulated postretirement benefit
           obligation of:
            Retirees ...........................  $(36,790)         $(38,245)
            Fully eligible active
              employees ........................       (31)              (22)
            Active employees not
              eligible to retire ...............    (9,788)           (9,696)


         Total accumulated post-
           retirement benefit
           obligation ..........................   (46,609)          (47,963)

         Market value of plan assets ...........    22,908            17,882
         Accumulated postretirement
           benefit obligation in
           excess of plan assets ...............   (23,701)          (30,081)
         Unrecognized transition
           amount ..............................    44,108            47,049
         Unrecognized net gain .................   (20,407)          (17,139)

         Accrued postretirement benefit
           liability ...........................  $  -              $   (171)




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


         At December 31,                            1997               1996


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


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

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

         PSNH currently is recovering SFAS 106 costs through rates.

7.   PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION

     Details of preferred stock subject to mandatory redemption are:

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

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

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


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




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


8.   LONG-TERM DEBT

     Details of long-term debt outstanding are:
                                                        At December 31,

                                                    1997              1996
                                                   (Thousands of Dollars)
     First Mortgage Bonds:
      9.17%     Series B, due 1998..............  $170,000          $170,000

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

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

     Less:  Amounts due within one year ........   170,000             -

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



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

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

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

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

9.   INCOME TAX EXPENSE

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


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

     Current income taxes:
       Federal .................................  $67,148   $(4,978)  $(1,166)
       State ...................................       48    (1,605)    1,767

         Total current .........................   67,196    (6,583)      601


     Deferred income taxes, net:
       Federal .................................   21,118    94,922    72,147
       State ...................................    1,217       272    (1,606)

         Total deferred  .......................   22,335    95,194    70,541

     Investment tax credits, net ...............     (540)     (548)     (555)

     Total income tax expense ..................  $88,991   $88,063   $70,587


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

     Income taxes charged to operating
      expenses .................................  $86,600   $80,340   $69,817
     Other income taxes ........................    2,391     7,723       770

     Total income tax expense ..................  $88,991   $88,063   $70,587




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


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

     Depreciation ..............................  $(1,937)  $(1,055)  $ 1,294
     Deferred tax asset associated
       with NOL ................................     -       96,756    57,543
     Energy adjustment clauses .................   16,839   (10,716)    5,098
     Amortization of regulatory
       settlement ..............................   11,501    11,501    11,501
     Other .....................................   (4,068)   (1,292)   (4,895)
  
     Deferred income taxes, net ................  $22,335   $95,194   $70,541



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

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

     Expected federal income tax at
       35 percent of pretax income .............  $63,495   $64,616   $53,845
     Tax effect of differences:
       Depreciation ............................    1,890     1,896     1,868
       Amortization of acquisition costs .......   31,298    31,410    31,522
       Seabrook intercompany loss ..............   (4,616)   (7,504)  (13,048)
       Investment tax credit amortization ......     (540)     (548)     (555)
       State income taxes, net of
         federal benefit .......................    1,095      (867)      105
       Other, net ..............................   (3,631)     (940)   (3,150)

     Total income tax expense ..................  $88,991   $88,063   $70,587


10.  COMMITMENTS AND CONTINGENCIES

     A.  RESTRUCTURING AND RATE MATTERS

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

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

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

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

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

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

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

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

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

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

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

         For information regarding the FERC rate proceedings for CYAPC and
         MYAPC, see Note 4, "Nuclear Decommissioning."

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

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

         In 1997, NU's share of nonfuel O&M costs expensed for Millstone totaled
         $566 million, including $73 million reserved for future restart costs.
         PSNH's share of nonfuel O&M costs was approximately $5 million.

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

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

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

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

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

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

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

         During 1997, PSNH adopted Statement of Position 96-1, "Environmental
         Remediation Liabilities" (SOP). The principal objective of the SOP
         is to improve the manner in which existing authoritative accounting
         literature is applied by entities to specific situations of
         recognizing, measuring and disclosing environmental remediation
         liabilities.  The adoption of the SOP resulted in an increase of
         approximately $400 thousand to PSNH's environmental reserve in 1997.
              
         PSNH cannot estimate the potential liability for future claims,
         including environmental remediation costs, that may be brought against
         it.  However, considering known facts, existing laws, and regulatory
         practices, management does not believe the matters disclosed above will
         have a material effect on PSNH's financial position or future results
         of operations.

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

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

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

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

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

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

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

         Nonutility Generators (NUGs):  PSNH has requirements under various
         arrangements for the purchase of capacity and energy from NUGs. These
         arrangements have terms from 20 to 30 years, currently expiring in
         the years 1998 through 2023, and require PSNH to purchase energy at
         specified prices or formula rates.  For the 12 months ending December
         31, 1997, approximately 14 percent of the NU system electricity
         requirements were met by NUGs. PSNH's total cost of purchases under
         these arrangements amounted to $133.1 million in 1997, $132.6 million
         in 1996, and $124.0 million in 1995.  These costs may be deferred for
         eventual recovery through rates.  For additional information, see Note
         1K, "Summary of Significant Accounting Policies-Recoverable Energy
         Costs."

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

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

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

                                            1998    1999    2000    2001    2002
                                                    (Millions of Dollars)

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


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


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

         At the time PSNH transferred the deferred return to NAEC, it realized,
         for income tax purposes, a gain that is deferred under the consolidated
         income tax rules.  Beginning December 1, 1997, this gain is being
         restored for income tax purposes, as the deferred return of $50.9
         million, and the associated income taxes of $32.9 million, are being
         collected by NAEC through the Seabrook Power Contracts.  As NAEC
         recovers the $32.9 million in years eight through ten of the Rate
         Agreement, it will be obligated to make these corresponding payments
         to PSNH.

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

         For further information related to the phase-in of the Seabrook power
         plant, see Note 2, "Seabrook Power Contracts."
     
         See Note 10A, "Commitments and Contingencies - Restructuring and Rate
         Matters" for the possible impacts of the NHPUC's decision related to
         industry restructuring on this intercompany transaction between PSNH
         and NAEC.

11.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value
     of each of the following financial instruments:

     Cash and nuclear decommissioning trusts:  The carrying amounts approximate
     fair value.

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


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



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

     Preferred stock subject to
       mandatory redemption.....................    $100,000        $ 99,000

     Long-term debt - First Mortgage Bonds......    $170,000        $170,425

     Other long-term debt.......................    $516,485        $537,599



                                                    Carrying         Fair
     At December 31, 1996                            Amount          Value

                                                    (Thousands of Dollars)

     Preferred stock subject to
       mandatory redemption.....................    $125,000       $125,000

     Long-term debt - First Mortgage Bonds......     170,000        175,729

     Other long-term debt.......................     516,485        523,536


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





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



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

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

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

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern.  As discussed in Note 10A, on
February 28, 1997 the State of New Hampshire Public Utilities Commission
(the NHPUC) issued an order outlining its final plan to restructure the
electric utility industry.  The final plan announced a departure from cost-
based rate making, which, if implemented, would require the company to
discontinue the application of Financial Accounting Standard No. 71,
"Accounting for the Effects of Certain Types of Regulation," (FAS 71).
The implementation of the final plan, including the effect of the
discontinuation of FAS 71, would result in after tax write-off of over
$400 million.  Such a write-off would cause the company to be in technical
default under financial covenants imposed by lenders, which, would, if not
waived or renegotiated, give rise to the rights of lenders to accelerate
the repayment of approximately $686 million of the company's indebtedness
and approximately $495 million of an affiliated company's indebtedness.
These conditions raise substantial doubt about the company's ability to
continue as a going concern.  The financial statements referred to above
do not include any adjustments that might result from the outcome of this
uncertainty.





                                        /s/ ARTHUR ANDERSEN LLP
                                            ARTHUR ANDERSEN LLP







                    PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

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


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


FINANCIAL CONDITION

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

Retail kilowatt-hour sales were essentially unchanged in 1997.

A significant issue facing PSNH in 1998 is the industry restructuring efforts in
New Hampshire.  A temporary restraining order issued by a U.S. District Court is
currently blocking the New Hampshire Public Utilities Commission (NHPUC) from
implementing a February 1997 restructuring order that would have resulted in a
write-off by PSNH of more than $400 million. Management hopes to negotiate an
alternative restructuring proposal in 1998 that will produce significant PSNH
rate reductions and allow retail customers to choose their electric suppliers,
but still give PSNH and North Atlantic Energy Corporation (NAEC) an opportunity
to maintain an adequate financial condition and earn fair returns on their
investments.

RESTRUCTURING
In February, 1997, the NHPUC issued orders to restructure the state's electric
utility industry and set interim stranded cost charges for PSNH.  In the orders,
the NHPUC announced a departure from cost-based ratemaking and adopted a market-
priced approach to stranded cost recovery.  PSNH, NU, NAEC and Northeast
Utilities Service Company (NUSCO) filed for a temporary restraining order,
preliminary and permanent injunctive relief and a declaratory judgment in the
United States District Court of New Hampshire.  The case subsequently was
transferred to the United States District Court of Rhode Island (District Court)
where a temporary restraining order was granted, staying, indefinitely, the
enforcement of the NHPUC's restructuring orders as they affected PSNH.  Certain
appeals to the preliminary ruling have been denied and proceedings in the
District Court are expected to resume.

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

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

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

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

See the "Notes to Financial Statements," Note 10A, for the potential accounting
impacts of restructuring.

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

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

On February 10, 1998, the NHPUC ordered an FPPAC rate for the period December 1,
1997 through May 31, 1998, which increased customer bills by approximately 6
percent.  Prior to this increase, the FPPAC rate had been a credit to reflect 
a customer refund ordered by the NHPUC beginning in June 1996.  This rate
continues to defer recovery of a substantial portion of costs for the future.
In addition, recovery of the Seabrook deferred return (approximately $127
million annually) is scheduled to begin in June 1998.  On March 13, 1998, PSNH
filed a proposed change to its rates, effective June 1, 1998.  Public hearings
on the proposed rate change are scheduled to take place in May 1998.

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

See the "Notes to Financial Statements," Note 1K, for further information on
the FPPAC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See the "Notes to Financial Statements," Note 4, for further information on
nuclear decommissioning, including PSNH's share of costs to decommission the
other regional nuclear generating units.

ENVIRONMENTAL MATTERS
PSNH is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territory. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of PSNH. At December 31, 1997, PSNH had recorded
an environmental reserve of approximately $5.6 million.  See the "Notes to
Financial Statements" Note 10C, for further information on environmental
matters.

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

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

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


RESULTS OF OPERATIONS

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


                                    Amount      Percent      Amount      Percent


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

Fuel, purchased and net
  interchange power                  (30)         (8)          100         39
Other operation                       41          12            14          4
Maintenance                           (7)        (16)            3          8
Other, net                            (7)        (92)            5         (a)
Interest on long-term debt            (6)        (11)          (19)       (25)
Other interest expense                (3)        (91)            3         (a)

Net income                            (4)         (5)           14         16

(a) Percent greater than 100



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

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

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

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

OTHER OPERATION AND MAINTENANCE EXPENSE
Other operation and maintenance expense increased in 1997 primarily due to
higher capacity charges under the Seabrook Power Contract as a result of the
scheduled May 1997 refueling and maintenance outage and the unplanned December
1997 outage ($23 million), higher capacity purchases from NHEC ($11 million),
higher capacity charges from MY ($4 million) and higher costs for PSNH's share
of Millstone 3 ($2 million), partially offset by lower fossil costs ($4 million)
and lower administration and sales costs ($3 million).

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

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

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

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





Public Service Company of New Hampshire


SELECTED FINANCIAL DATA (a)



                           Jan. 1, 1997       Jan. 1, 1996       Jan. 1, 1995
                                to                 to                 to
For the Periods            Dec. 31, 1997      Dec. 31, 1996      Dec. 31, 1995


                                          (Thousands of Dollars)

Operating Revenues........    $1,108,459         $1,110,169         $  979,971

Operating Income..........       144,274            155,195            155,628

Net Income ...............        92,422             96,902             83,255

Cash Dividends on
  Common Stock............        85,000             52,000             52,000


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



Total Assets..............    $2,837,159         $2,851,212         $2,920,487

Long-Term Debt (b)........       686,485            686,485            858,985

Preferred Stock
  Subject to Mandatory
  Redemption(b)...........       100,000            125,000            125,000

Obligations Under
  Seabrook Power
  Contracts and Other
  Capital Leases(b).......       921,813            914,617            915,288




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





Public Service Company of New Hampshire


SELECTED FINANCIAL DATA


                           Jan. 1, 1994              Jan. 1, 1993
                                to                        to
For the Periods            Dec. 31, 1994             Dec. 31, 1993


                                   (Thousands of Dollars)

Operating Revenues........      $922,039                  $864,415

Operating Income..........       152,086                   124,710

Net Income ...............        77,444                    52,237


Cash Dividends on
  Common Stock............          -                         -


At                         Dec. 31, 1994              Dec. 31, 1993

                                   (Thousands of Dollars)

Total Assets..............    $2,845,967                 $2,774,511
                            
Long-Term Debt (b)........       999,985                  1,093,895

Preferred Stock
  Subject to Mandatory
  Redemption(b)...........       125,000                    125,000

Obligations Under
  Seabrook Power
  Contracts and Other
  Capital Leases(b).......       887,967                    856,559




Public Service Company of New Hampshire



STATISTICS

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


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


STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)

                                                   Quarter Ended (b)

1997                       March 31        June 30       Sept.30        Dec. 31


Operating Revenues.......  $278,321       $257,098      $285,390       $287,650


Operating Income.........  $ 45,010       $ 34,062      $ 32,322       $ 32,880


Net Income...............  $ 32,529       $ 21,161      $ 19,056       $ 19,676




1996                       March 31         June 30       Sept.30       Dec. 31


Operating Revenues.......  $269,540        $261,897      $296,719      $282,013


Operating Income.........  $ 44,668        $ 42,156      $ 46,934      $ 21,437


Net Income...............  $ 28,545        $ 23,986      $ 30,646      $ 13,725



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