1997 Annual Report

            The Connecticut Light and Power Company and Subsidiaries

                                     Index


Contents                                                                Page


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

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

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

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

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

Report of Independent Public Accountants..........................        41

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

Selected Financial Data...........................................        54

Statements of Quarterly Financial Data............................        54

Statistics........................................................        55

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






                                   PART I.  FINANCIAL INFORMATION

THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

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

Utility Plant, at original cost:
  Electric (Note 1H).......................................  $  6,411,018   $  6,283,736

     Less: Accumulated provision for depreciation..........     2,902,673      2,665,519
                                                             -------------  -------------
                                                                3,508,345      3,618,217
  Construction work in progress............................        93,692         95,873
  Nuclear fuel, net........................................       135,076        133,050
                                                             -------------  -------------
      Total net utility plant..............................     3,737,113      3,847,140
                                                             -------------  -------------

Other Property and Investments:                              
  Nuclear decommissioning trusts, at market................       369,162        296,960
  Investments in regional nuclear generating                 
   companies, at equity....................................        58,061         56,925
  Other, at cost...........................................        66,625         16,565
                                                             -------------  -------------
                                                                  493,848        370,450
                                                             -------------  -------------
Current Assets:                                              
  Cash.....................................................           459            404
  Notes receivable from affiliated companies...............          -           109,050
  Investments in securitizable assets (Note 10)............       205,625           -
  Receivables, less accumulated provision for  
    uncollectible accounts of $300,000 in 1997 
    and of $13,240,000 in 1996 (Note 10)...................        50,671        226,112
  Accounts receivable from affiliated companies............         3,150          3,481
  Taxes receivable.........................................        70,311         40,134
  Accrued utility revenues (Note 10).......................          -            78,451
  Fuel, materials and supplies, at average cost............        81,878         79,937
  Recoverable energy costs, net--current portion...........        28,073         25,436
  Prepayments and other....................................        79,632         63,344
                                                             -------------  -------------
                                                                  519,799        626,349
                                                             -------------  -------------
Deferred Charges:                                            
  Regulatory assets (Note 1H)..............................     1,292,818      1,370,781
  Unamortized debt expense.................................        19,286         17,033
  Other....................................................        18,359         12,283
                                                             -------------  -------------
                                                                1,330,463      1,400,097
                                                             -------------  -------------




      Total Assets.........................................  $  6,081,223   $  6,244,036
                                                             =============  =============
</TABLE>

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








THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------
At December 31,                                                  1997           1996
----------------------------------------------------------------------------------------
                                                                (Thousands of Dollars)
<S>                                                            <C>            <C>
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:                                             
  Common stock--$10 par value. Authorized                   
   24,500,000 shares; outstanding 12,222,930                
   shares in 1997 and 1996................................  $    122,229   $    122,229
  Capital surplus, paid in................................       641,333        639,657
  Retained earnings.......................................       385,823        551,410
                                                            -------------  -------------
           Total common stockholder's equity..............     1,149,385      1,313,296
  Cumulative preferred stock--
    $50 par value - authorized 9,000,000 shares;
    outstanding 5,424,000 shares in 1997 and 1996;
    $25 par value - authorized 8,000,000 shares;            
    outstanding no shares in 1997 and 1996
   Not subject to mandatory redemption....................       116,200        116,200
   Subject to mandatory redemption........................       151,250        155,000
  Long-term debt..........................................     2,023,316      1,834,405
                                                            -------------  -------------
           Total capitalization...........................     3,440,151      3,418,901
                                                            -------------  -------------
Minority Interest in Consolidated Subsidiary (Note 13)....       100,000        100,000
                                                            -------------  -------------
Obligations Under Capital Leases (Note 2).................        18,042        143,347
                                                            -------------  -------------
Current Liabilities:                                                      
  Notes payable to banks..................................        35,000           -
  Notes payable to affiliated company.....................        61,300           -
  Long-term debt and preferred stock--current                             
   portion................................................        23,761        204,116
  Obligations under capital leases--current                               
   portion................................................       140,076         12,361
  Accounts payable........................................       124,427        160,945
  Accounts payable to affiliated companies................        92,963         78,481
  Accrued taxes...........................................        33,017         28,707
  Accrued interest........................................        14,650         31,513
  Nuclear compliance (Note 11B)...........................        58,700         50,500
  Other...................................................        23,495         34,433
                                                            -------------  -------------
                                                                 607,389        601,056
                                                            -------------  -------------
Deferred Credits:                                           
  Accumulated deferred income taxes.......................     1,324,066      1,365,641
  Accumulated deferred investment tax credits.............       127,713        135,080
  Deferred contractual obligations (Note 3)...............       348,406        305,627
  Other...................................................       115,456        174,384
                                                            -------------  -------------
                                                               1,915,641      1,980,732
                                                            -------------  -------------
Commitments and Contingencies (Note 11)
           Total Capitalization and Liabilities...........  $  6,081,223   $  6,244,036
                                                            =============  =============
</TABLE>                                                                  

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






THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>


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

<S>                                                    <C>         <C>         <C>
Operating Revenues................................... $2,465,587  $2,397,460  $2,387,069
                                                      ----------- ----------- -----------
Operating Expenses:                                   
  Operation --                                        
     Fuel, purchased and net interchange power.......    977,543     831,079     608,600
     Other...........................................    734,620     778,174     614,382
  Maintenance........................................    355,772     300,005     192,607
  Depreciation.......................................    238,667     247,109     242,496
  Amortization of regulatory assets, net.............     61,648      57,432      54,217
  Federal and state income taxes (Note 8)............    (62,856)    (20,174)    178,346
  Taxes other than income taxes......................    172,592     174,062     172,395
                                                      ----------- ----------- -----------
        Total operating expenses.....................  2,477,986   2,367,687   2,063,043
                                                      ----------- ----------- -----------
Operating (Loss)/Income..............................    (12,399)     29,773     324,026
                                                      ----------- ----------- -----------
                                                      
Other Income:                                         
  Equity in earnings of regional nuclear              
    generating companies.............................      5,672       6,619       6,545
  Other, net.........................................     (1,856)     20,710      14,585
  Minority interest in income of subsidiary (Note 13)     (9,300)     (9,300)     (8,732)
  Income taxes.......................................      7,573         160      (2,978)
                                                      ----------- ----------- -----------
        Other income, net............................      2,089      18,189       9,420
                                                      ----------- ----------- -----------
        (Loss)/Income before interest charges........    (10,310)     47,962     333,446
                                                      ----------- ----------- -----------

Interest Charges:                                                             
  Interest on long-term debt.........................    132,127     127,198     124,350
  Other interest.....................................      1,940       1,001       3,880
                                                      ----------- ----------- -----------
        Interest charges, net........................    134,067     128,199     128,230
                                                      ----------- ----------- -----------

Net (Loss)/Income.................................... $ (144,377) $  (80,237) $  205,216
                                                      =========== =========== ===========



</TABLE>

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




THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1997       1996       1995
-----------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                             <C>        <C>        <C>
Operating Activities:                                            
  Net(Loss)/Income............................................ $(144,377) $ (80,237) $ 205,216
  Adjustments to reconcile to net cash                                      
   from operating activities:
    Depreciation..............................................   238,667    247,109    242,496
    Deferred income taxes and investment tax credits, net.....   (13,821)   (60,773)    49,520
    Deferred nuclear plants return, net of amortization.......      (281)     7,746     95,559
    Amortization of deferred demand-side-management costs, net    38,029     26,941       (937)
    Recoverable energy costs, net of amortization.............    (9,533)   (35,567)   (16,169)
    Amortization of deferred cogeneration costs, net..........    32,700     25,957    (55,341)
    Deferred nuclear refueling outage, net of amortization ...   (45,333)    45,643    (20,712)
    Other sources of cash.....................................    64,013     75,552     86,956
    Other uses of cash........................................   (50,136)   (23,862)   (53,745)
  Changes in working capital:                                  
    Receivables and accrued utility revenues..................   184,223    (22,378)   (33,032)
    Fuel, materials and supplies..............................    (1,941)   (11,455)    (4,479)
    Accounts payable..........................................   (22,036)    83,951      9,605
    Accrued taxes.............................................     4,310    (23,561)    25,855
    Sale of receivables and accrued utility revenues (Note 10)    70,000        -          -
    Investment in securitizable assets  (Note 10).............  (205,625)       -          -
    Nuclear compliance, net (Note 11B)........................     8,200     50,500        -
    Other working capital (excludes cash).....................   (74,266)    (5,385)    (1,869)
                                                               ---------- ---------- ----------
Net cash flows from operating activities......................    72,793    300,181    528,923
                                                               ---------- ---------- ----------


Financing Activities:
  Issuance of long-term debt..................................   200,000    222,000        -
  Issuance of Monthly Income
   Preferred Securities.......................................       -          -      100,000
  Net increase/(decrease) in short-term debt..................    96,300    (51,750)  (127,000)
  Reacquisitions and retirements of long-term debt............  (204,116)   (14,329)   (10,866)
  Reacquisitions and retirements of preferred stock...........       -          -     (125,000)
  Cash dividends on preferred stock...........................   (15,221)   (15,221)   (21,185)
  Cash dividends on common stock..............................    (5,989)  (138,608)  (164,154)
                                                               ---------- ---------- ----------
Net cash flows from/(used for) financing activities...........    70,974      2,092   (348,205)
                                                               ---------- ---------- ----------
Investment Activities:                                         
  Investment in plant:                                         
    Electric utility plant....................................  (155,550)  (140,086)  (131,858)
    Nuclear fuel..............................................      (702)       553     (1,543)
                                                               ---------- ---------- ----------
  Net cash flows used for investments in plant................  (156,252)  (139,533)  (133,401)
  Investment in NU system money pool..........................   109,050   (109,050)       -
  Investment in nuclear decommissioning trusts................   (45,314)   (50,998)   (47,826)
  Other investment activities, net............................   (51,196)    (2,625)       581
                                                               ---------- ---------- ----------
Net cash flows used for investments...........................  (143,712)  (302,206)  (180,646)
                                                               ---------- ---------- ----------
Net Increase In Cash For The Period...........................        55         67         72
Cash - beginning of period....................................       404        337        265
                                                               ---------- ---------- ----------

Cash - end of period.......................................... $     459  $     404  $     337
                                                               ========== ========== ==========
                                                               
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:                      
  Interest, net of amounts capitalized........................ $ 145,962  $ 114,458  $ 117,074
                                                               ========== ========== ==========
  Income taxes................................................ $ (22,338) $  77,790  $ 137,706
                                                               ========== ========== ==========
Increase in obligations:                                       
  Niantic Bay Fuel Trust and other capital leases............. $   2,815  $   2,855  $  33,537
                                                               ========== ========== ==========

</TABLE>                                                       

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





THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY


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


<S>                                     <C>        <C>        <C>         <C>
Balance at January 1, 1995..........   $122,229   $632,117   $ 765,724   $1,520,070


    Net income for 1995.............                           205,216      205,216
    Cash dividends on preferred     
      stock.........................                           (21,185)     (21,185)
    Cash dividends on common stock..                          (164,154)    (164,154)
    Loss on the retirement of
      preferred stock...............                              (125)        (125)
    Capital stock expenses, net.....                 5,864                    5,864
                                       ---------  ---------  ----------  -----------
Balance at December 31, 1995........    122,229    637,981     785,476    1,545,686
                                    

    Net loss for 1996...............                           (80,237)     (80,237)
    Cash dividends on preferred     
      stock.........................                           (15,221)     (15,221)
    Cash dividends on common stock..                          (138,608)    (138,608)
    Capital stock expenses, net.....                 1,676                    1,676
                                       ---------  ---------  ----------  -----------
Balance at December 31, 1996........    122,229    639,657     551,410    1,313,296


    Net loss for 1997...............                          (144,377)    (144,377)
    Cash dividends on preferred     
      stock.........................                           (15,221)     (15,221)
    Cash dividends on common stock..                            (5,989)      (5,989)
    Capital stock expenses, net.....                 1,676                    1,676
                                       ---------  ---------  ----------  -----------
Balance at December 31, 1997........   $122,229   $641,333   $ 385,823   $1,149,385
                                       =========  =========  ==========  ===========

</TABLE>


(a) The company has dividend restrictions imposed by its long-term debt 
    agreements.  At December 31, 1997, these restrictions totaled 
    approximately $540 million.


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





The Connecticut Light and Power Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STAATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

     B.  PRESENTATION
         The consolidated financial statements of CL&P include the accounts of
         all wholly owned subsidiaries. Significant intercompany transactions
         have been eliminated in consolidation.

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

         Certain reclassifications of prior years' data have been made to
         conform with the current year's presentation.
     
         All transactions among affiliated companies are on a recovery of cost
         basis which may include amounts representing a return on equity and are
         subject to approval by various federal and state regulatory agencies.
     

         For more information on significant subsidiaries of CL&P, see Note 10,
         "Sale of Customer Receivables and Accrued Utility Revenues," and Note
         13, "Minority Interest in Consolidated Subsidiary."

     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 CL&P, are
         subject to the provisions of the 1935 Act.  Arrangements among the NU
         system companies, outside agencies and other utilities covering
         interconnections, interchange of electric power and sales of utility
         property are subject to regulation by the Federal Energy Regulatory
         Commission (FERC) and/or the SEC.  CL&P is subject to further
         regulation for rates, accounting and other matters by the FERC and/or
         applicable state regulatory commissions.

         For information regarding proposed changes in the nature of industry
         regulation, see Note 1H, "Summary of Significant Accounting Policies -
         Regulatory Accounting and Assets," and Management's Discussion and
         Analysis of Financial Condition and Results of Operations (MD&A).

     D.  NEW ACCOUNTING STANDARDS
         The Financial Accounting Standards Board (FASB) issued  Statement of
         Financial Accounting Standards (SFAS), SFAS 129, "Disclosure of
         Information about Capital Structure," in February 1997. SFAS 129
         establishes standards for disclosing information about an entity's
         capital structure.  CL&P'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, CL&P has not had
         material transactions that would be required to be reported as
         comprehensive income.  SFAS 131 determines the standards for reporting
         and disclosing qualitative and quantitative information about a
         company's operating segments. This information includes segment profit
         or loss, certain segment revenue and expense items and segment assets
         and a reconciliation of these segment disclosures to corresponding
         amounts in the company's general purpose financial statements.  CL&P
         currently evaluates management performance using a cost-based budget
         and the information required by SFAS 131 is not available.  Therefore,
         these disclosure requirements are not applicable.  Management believes
         that the implementation of SFAS 130 and SFAS 131 will not have a
         material impact on CL&P's current disclosures.

         See Note 10, "Sale of Customer Receivables and Accrued Utility
         Revenues," and Note 11C, "Commitments and Contingencies - Environmental
         Matters," for information on other newly adopted accounting and
         reporting standards related to those specific areas.

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



         Connecticut Yankee Atomic Power Company(CYAPC) ................. 34.5%
         Yankee Atomic Electric Company (YAEC) .......................... 24.5
         Maine Yankee Atomic Power Company (MYAPC) ...................... 12.0
         Vermont Yankee Nuclear Power Corporation (VYNPC) ...............  9.5


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

         CL&P's investments in the Yankee companies at December 31, 1997 are:



                                                         (Thousands of Dollars)

         CYAPC .............................................    $38,358
         YAEC ..............................................      5,128
         MYAPC .............................................      9,449
         VYNPC .............................................      5,126

                                                                $58,061





         Each Yankee company owns a single nuclear generating unit. Under the
         terms of the contracts with the Yankee companies, the shareholders-
         sponsors are responsible for their proportionate share of the costs of
         each unit, including decommissioning.  The energy and capacity costs
         from VYNPC and nuclear decommissioning costs of the Yankee companies
         that have been shut down are billed as purchased power to CL&P.
    
         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, CL&P 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 3,
         "Nuclear Decommissioning," and Note 11F, "Commitments and Contingencies
         - Long-Term Contractual Arrangements."

         Millstone 1:  CL&P has an 81.0 percent joint ownership interest in
         Millstone 1, a 660-megawatt (MW) nuclear generating unit.  As of
         December 31, 1997 and 1996, plant-in-service included approximately
         $387.7 million and $384.5 million, respectively, and the accumulated
         provision for depreciation included approximately $172.0 million and
         $159.4 million, respectively, for CL&P's share of Millstone 1. CL&P's
         share of Millstone 1 expenses is included in the corresponding
         operating expenses on the accompanying Consolidated Statements of
         Income.

         Millstone 2:  CL&P has an  81.0 percent joint ownership interest in
         Millstone 2, an 870-MW nuclear generating unit. As of December 31, 1997
         and 1996, plant-in-service included approximately $694.7 million and
         $690.4 million, respectively, and the accumulated provision for
         depreciation included approximately $249.1 million and $224.1 million,
         respectively, for CL&P's share of Millstone 2.  CL&P's share of
         Millstone 2 expenses is included in the corresponding operating
         expenses on the accompanying Consolidated Statements of Income.

         Millstone 3:  CL&P has a 52.93 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 $1.9 billion
         each year and the accumulated provision for depreciation included
         approximately $552.7 million and $504.1 million, respectively, for
         CL&P's share of Millstone 3. CL&P's share of Millstone 3 expenses is
         included in the corresponding operating expenses on the accompanying
         Consolidated Statements of Income.

         The three Millstone units are out of service.  NU hopes to return
         Millstone 3 to service in the early spring of 1998 and Millstone 2
         three to four months after Millstone 3.  Millstone 1 has been placed in
         extended maintenance status.   Management is reviewing its options with
         respect to Millstone 1, including restart, early retirement and other
         options.   In a draft ruling issued in February 1998, the Connecticut
         Department of Public Utility Control (DPUC) determined that Millstone 1
         was no longer "used and useful" and ordered it removed from rate base.

         In 1996, one of the joint owners of Millstone 3, Vermont Electric
         Generation and Transmission Cooperative, Inc. (VEG&T), filed for
         bankruptcy.  The subsequent liquidation resulted in the offering of
         VEG&T's  0.035 percent share of Millstone 3 for sale to the joint
         owners of Millstone 3.  None of the non-NU joint owners accepted the
         offer.  During  1998, CL&P expects to make the necessary regulatory
         filings to acquire ownership of VEG&T's share of Millstone 3.

         For more information regarding the DPUC's action, see the MD&A. For
         more information regarding the Millstone units see Note 3, "Nuclear
         Decommissioning," and Note 11B, "Commitments and Contingencies -
         Nuclear Performance."

         Seabrook 1:  CL&P has a 4.06 percent joint ownership interest in
         Seabrook 1, a 1,148-MW nuclear generating unit.  As of December 31,
         1997 and 1996, plant-in-service included approximately $174.3 million
         and $173.7 million, respectively, and the accumulated provision for
         depreciation included approximately $33.9 million and $29.7 million,
         respectively, for CL&P's share of Seabrook 1.  CL&P's share of Seabrook
         1 expenses is included in the corresponding operating expenses on the
         accompanying Consolidated 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 agency.

         Except for major facilities, depreciation rates are applied to the
         average plant-in-service during the period.  Major facilities are
         depreciated from the time they are placed in service.  When plant is
         retired from service, the original cost of plant, including costs of
         removal, less salvage, is charged to the accumulated provision for
         depreciation.  The depreciation rates for the several classes of
         electric plant-in-service are equivalent to a composite rate of 3.8
         percent in 1997 and 4.0 percent in 1996 and 1995. See Note 3, "Nuclear
         Decommissioning," for information on nuclear decommissioning.

         CL&P's nonnuclear generating facilities have limited service lives.
         Plant may be retired in place or dismantled based upon expected future
         needs, the economics of the closure and environmental concerns.  The
         costs of closure and removal are incremental costs and, for financial
         reporting purposes, are accrued over the life of the asset as part of
         depreciation.  At December 31, 1997 and 1996, the accumulated provision
         for depreciation included approximately $45.8 million and $43.0
         million, respectively, accrued for the cost of removal, net of salvage
         for nonnuclear generation property.

     G.  REVENUES
         Other than revenues under fixed-rate agreements negotiated with certain
         wholesale, commercial and industrial customers 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, CL&P accrues an estimate for the amount of
         energy delivered but unbilled.

         For information on rate proceedings and their potential impact on CL&P,
         see the MD&A.

     H.  REGULATORY ACCOUNTING AND ASSETS
         The accounting policies of CL&P and the accompanying consolidated
         financial statements conform to generally accepted accounting
         principles applicable to rate-regulated enterprises and reflect
         the effects of the ratemaking process in accordance with SFAS 71,
         "Accounting for the Effects of Certain Types of Regulation." Assuming
         a cost-of-service based regulatory structure, regulators may permit
         incurred costs, normally treated as expenses, to be deferred and
         recovered through future revenues.  Through their actions, regulators
         also may reduce or eliminate the value of an asset, or create a
         liability.  If any portion of CL&P'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, CL&P 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, CL&P would be required to determine any
         impairment of the carrying costs of deregulated plant and inventory
         assets.

         Management anticipates that a restructuring program will be
         implemented within Connecticut during the next few years.  In a
         restructured environment, CL&P's generation business no longer will
         be rate regulated on a cost-of-service basis.  The majority of CL&P'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 Connecticut General Assembly is addressing a proposal for electric
         industry restructuring in the state of Connecticut during 1998.  As the
         terms and conditions to be contained within the restructuring plan
         cannot be determined at this time, management believes that its use of
         regulatory accounting remains appropriate.

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

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

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

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


         The components of CL&P's regulatory assets are as follows:

         At December 31,                                    1997         1996
                                                         (Thousands of Dollars)

         Income taxes, net (Note 1I) ................     $709,896   $  753,390
         Recoverable energy costs,
           net (Note 1J) ............................      104,796       97,900
         Deferred demand-side management
           costs (Note 1K) ..........................       52,100       90,129
         Cogeneration costs (Note 1L) ...............       33,505       66,205
         Unrecovered contractual
           obligations (Note 3) .....................      338,406      300,627
         Other ......................................       54,115       62,530


                                                        $1,292,818   $1,370,781



     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 8, "Income Tax Expense"
         for the components of income tax expense.

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


         At December 31,                                    1997         1996
                                                         (Thousands of Dollars)

         Accelerated depreciation and other
           plant-related differences ................   $1,056,690   $1,032,857
    
         Regulatory assets - income tax
           gross up .................................      304,276      313,420

         Net operating loss carryforwards ...........       (7,670)        -
  
         Other ......................................      (29,230)      19,364

                                                        $1,324,066   $1,365,641


         At December 31, 1997, CL&P had a state of Connecticut net operating
         loss carryforward of approximately $131 million which can be used
         against CL&P and its affiliates' combined Connecticut taxable income
         and which, if unused, expires in the year 2002.


     J.  RECOVERABLE ENERGY COSTS
         Under the Energy Policy Act of 1992 (Energy Act), CL&P 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.
         CL&P is currently recovering these costs through rates. As of December
         31, 1997, CL&P's total D&D deferrals were approximately $50.1 million.
      
         During 1997, CL&P implemented an energy adjustment clause (EAC) under
         which fuel prices above or below base-rate levels are charged or
         credited to customers.  The EAC replaced CL&P's fuel adjustment and
         generation utilization adjustment clauses and is designed to reconcile
         and adjust the difference between actual fuel costs and the fuel
         revenue collected through base rates on a six-month basis.

         For the period January 1, 1997 through June 30, 1997, CL&P agreed
         to a zero EAC rate.  For the period July 1, 1997 through December 31,
         1997, the DPUC approved an EAC rate through which CL&P recovered
         approximately $11.5 million of deferred fuel costs.  While this
         proceeding did not include provisions for the recovery of approximately
         $18 million of costs related to the early closing of CYAPC's nuclear
         generating unit, it did allow for the recovery of costs, subject to
         refund, related to the closure of MYAPC's nuclear generating unit.
         CL&P has appealed the DPUC's ruling related to CYAPC replacement power
         costs.

         During December 1997, the DPUC approved an EAC rate for the period
         January 1, 1998 through June 30, 1998.  During this period, CL&P will
         recover approximately $27.9 million of deferred fuel costs.
      
         At December 31, 1997, CL&P's net recoverable energy costs, excluding
         current net recoverable energy costs, were approximately $104.8
         million.

         For further information on recoverable energy costs, see the MD&A.

     K.  DEMAND-SIDE MANAGEMENT (DSM)
         CL&P's DSM costs are recovered in base rates through a Conservation
         Adjustment Mechanism.  CL&P is allowed to recover DSM costs in
         excess of costs reflected in base rates over periods ranging from
         approximately four to ten years.

         During April 1997, the DPUC approved CL&P's DSM budget of $36 million
         for 1997.  In October 1997, CL&P and other interested parties filed a
         stipulation with the DPUC requesting that the DPUC approve certain
         programs and establish a budget level of $32.7 million for 1998 and
         $28.8  million for 1999.  The $52.1 million of DSM costs on CL&P's
         books as of December 31, 1997, currently being collected, will be
         fully recovered by 2000.

     L.  COGENERATION COSTS
         Beginning on July 1, 1996, the deferred cogeneration balance of
         approximately $86 million is being amortized over a five year period.
         An additional $9 million of amortization was applied to the deferred
         balance in 1997, as required under a settlement agreement which CL&P
         reached with the DPUC.  CL&P continues to apply any savings associated
         with the renegotiation of a certain contract with a cogeneration
         facility to the deferred balance.  Under current expectations, CL&P
         expects complete amortization of the deferred balance by December 31,
         1998.  At December 31, 1997, CL&P's deferred cogeneration costs balance
         was approximately $33.5 million.

     M.  SPENT NUCLEAR FUEL DISPOSAL COSTS
         Under the Nuclear Waste Policy Act of 1982, CL&P must pay the United
         States Department of Energy (DOE) for the disposal of spent nuclear
         fuel and high-level radioactive waste. The DOE is responsible for the
         selection and development of repositories for, and the disposal of,
         spent nuclear fuel and high-level radioactive waste.  Fees for nuclear
         fuel burned on or after April 7, 1983, are billed currently to
         customers and paid to the DOE on a quarterly basis.  For nuclear fuel
         used to generate electricity prior to April 7, 1983 (prior-period
         fuel), payment must be made prior to the first delivery of spent fuel
         to the DOE.  Until such payment is made, the outstanding balance will
         continue to accrue interest at the three-month Treasury Bill Yield
         Rate.  At December 31, 1997, fees due to the DOE for the disposal of
         prior-period fuel were approximately $166.5 million, including interest
         costs of $99.9 million.

         The DOE was originally scheduled to begin accepting delivery of spent
         fuel in 1998.  However, delays in identifying a permanent storage site
         have continually postponed plans for the DOE's long-term storage and
         disposal site.   Extended delays or a default by the DOE could lead
         to consideration of costly alternatives.  The company has primary
         responsibility for the interim storage of its spent nuclear fuel.
         Current capability to store spent fuel at Millstone 1 and 2 are
         estimated to be adequate until 2004 and at Seabrook until 2010.
         Storage facilities for Millstone 3 are expected to be adequate
         for the projected life of the unit.  Meeting spent fuel storage
         requirements beyond these periods could require new and separate
         storage facilities, the costs for which have not been determined.

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

     N.  MARKET RISK-MANAGEMENT POLICIES
         CL&P utilizes market risk-management instruments, including swaps,
         collars, puts and calls, to hedge well-defined risks associated with
         changes in fuel prices. To qualify for hedge treatment, the underlying
         hedged item must expose CL&P to risks associated with market
         fluctuations and the market-risk management instrument used must be
         designated as a hedge and must reduce the company's exposure to market
         fluctuations throughout the period.

         Amounts receivable or payable under fuel-price management instruments
         are recognized in operating revenues when realized.  CL&P does not use
         market risk-management instruments for speculative purposes.  For
         further information, see Note 12, "Market Risk Management."

2.   LEASES

     CL&P and WMECO may finance up to $400 million of nuclear fuel for Millstone
     1 and 2 and their respective shares of the nuclear fuel for Millstone 3
     under the Niantic Bay Fuel Trust (NBFT) capital lease agreement which is
     scheduled to expire July 31, 1998.  The NBFT capital lease agreement, which
     was amended in February 1998, requires CL&P and WMECO to secure their
     obligation to repay the NBFT with up to $90 million of first mortgage
     bonds.  CL&P and WMECO will issue these bonds by May 1998.

     CL&P and WMECO make quarterly lease payments for the cost of nuclear fuel
     consumed in the reactors based on a units-of-production method at rates
     which reflect estimated kilowatt hours of energy provided plus financing
     costs associated with the fuel in the reactors.  Upon permanent discharge
     from the reactors, ownership of the nuclear fuel transfers to CL&P and
     WMECO.

     CL&P has also entered into lease agreements, some of which are capital
     leases, for the use of data processing and office equipment, vehicles, gas
     turbines, nuclear control room simulators and office space.  The provisions
     of these lease agreements generally provide for renewal options.  The
     following rental payments have been charged to expense:

          Year                Capital Leases      Operating Leases


          1997................  $10,457,000         $19,749,000
          1996................   17,993,000          22,032,000
          1995................   56,307,000          23,793,000


     Interest included in capital lease rental payments was $9,948,000 in 1997,
     $10,144,000 in 1996 and $10,587,000 in 1995.


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

          Year                Capital Leases      Operating Leases
                                     (Thousands of Dollars)

          1998................     $142,500           $  22,700
          1999................        2,900              21,300
          2000................        2,900              19,900
          2001................        2,900              14,400
          2002................        3,000               6,200
          After 2002..........       54,300              22,800


          Future minimum lease
            payments..........      208,500            $107,300



          Less amount
            representing
            interest..........       50,400


          Present value of
            future minimum
            lease payments....     $158,100



     Rocky River Reality Company (RRR) provides real estate support services,
     including the leasing of properties and facilities, used by NU system
     companies, including CL&P.  During 1997, RRR repurchased certain notes that
     were secured by real estate leases between RRR as lessor and NUSCO as
     lessee.  The repayment of these notes triggered the acceleration of rent
     and CL&P was subsequently billed by NUSCO and paid its proportionate share
     of the accelerated lease obligation.  At December 31, 1997, CL&P has
     recorded long-term prepaid rent of approximately $11.1 million.  This asset
     is being amortized on a straight line basis and will be fully amortized in
     2017.

3.   NUCLEAR DECOMMISSIONING

     Millstone and Seabrook:  CL&P's nuclear power plants have service lives
     that are expected to end during the years 2010 through 2026. Upon
     retirement, these units must be decommissioned.  Current decommissioning
     studies concluded that complete and immediate dismantlement at retirement
     continues to be the most viable and economic method of decommissioning
     the three Millstone units 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 CL&P's ownership share of
     Millstone 1 and 2, in year-end 1997 dollars, is $390.9 million and
     $350.2 million, respectively.  CL&P's ownership share of the estimated
     cost of decommissioning Millstone 3 and Seabrook 1 in year-end 1997
     dollars, is $294.0 million and $19.2 million, respectively. The Millstone
     units and Seabrook 1 decommissioning costs will be increased annually by
     their respective escalation rates.  Nuclear decommissioning costs are
     accrued over the expected service life of the units and are included in
     depreciation expense on the Consolidated Statements of Income. Nuclear
     decommissioning costs amounted to $37.8 million each year in 1997 and 1996
     and $30.5 million in 1995. Nuclear decommissioning, as a cost of removal,
     is included in the accumulated provision for depreciation on the
     Consolidated Balance Sheets.  At December 31, 1997 and 1996, the balance
     in the accumulated reserve for depreciation amounted to $407.3 million and
     $329.1 million, respectively.

     CL&P has established external decommissioning trusts through a trustee
     for its portion of the costs of decommissioning Millstone 1, 2 and 3.
     CL&P'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 the Millstone units 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.

     As of December 31, 1997, CL&P has collected through rates $277.9 million
     toward the future decommissioning costs of its share of the Millstone
     units, of which $240.3 million has been transferred to external
     decommissioning trusts.  As of December 31, 1997, CL&P has paid
     approximately $2.9 million into Seabrook 1's decommissioning financing
     fund.  Earnings on the decommissioning trusts and financing fund increase
     the decommissioning trust and the accumulated reserve for depreciation.
     Unrealized gains and losses associated with the decommissioning trusts
     and financing fund also impact the balance of the trusts 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.  CL&P 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 CL&P's rates. Based on present
     estimates and assuming its nuclear units operate to the end of their
     respective license periods, CL&P expects that the decommissioning trusts
     and financing fund will be substantially funded when the units are retired
     from service.

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

     At December 31, 1997, CL&P's net unrecovered Millstone 1 plant costs were
     $215.7 million and the remaining unrecovered decommissioning costs were
     approximately $198  million.

     Yankee Companies: VYNPC owns and operates a nuclear generating unit with a
     service life that is expected to end in 2012.  CL&P's ownership share of
     estimated costs, in year-end 1997 dollars, of decommissioning this unit is
     $48.0 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 CL&P's share was approximately $104.0 million.

     On December 4, 1996, the board of directors of CYAPC voted unanimously
     to cease permanently the production of power at its nuclear generating
     plant (CY).  During 1996, the NU system companies had relied on CY for
     approximately three percent of their capacity.  During late December 1996,
     CYAPC filed an amendment to its power contracts clarifying the obligations
     of its purchasing utilities following the decision to cease power
     production.  On February 27, 1997, the FERC approved an order for hearing
     which, among other things, accepted CYAPC's contract amendment.  The new
     rates became effective March 1, 1997, subject to refund.  At December 31,
     1997, the remaining estimated obligation, including decommissioning,
     amounted to $619.9 million, of which CL&P's share was approximately
     $213.8 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 CL&P's share
     was approximately $30.5 million.

     Under the terms of the contracts with MYAPC, CYAPC and YAEC, the
     shareholder-sponsor companies, including CL&P, are responsible for their
     proportionate share of the costs of the units, including decommissioning.
     Management expects that CL&P will continue to be allowed to recover these
     costs from its customers.  Accordingly, CL&P 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
     CL&P, 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 CL&P will continue to be allowed to recover
     decommissioning costs through rates.

4.   SHORT-TERM DEBT

     Limits: The amount of short-term borrowings that may be incurred by CL&P is
     subject to periodic approval by either the SEC under the 1935 Act or by the
     DPUC.  SEC authorization allowed CL&P, as of January 1, 1998, to incur
     total short-term borrowings up to a maximum of $375 million.

     Credit Agreements:  In May 1997, because of the potential for NU and CL&P
     to violate their various financial ratio tests, NU amended the three-year
     revolving credit agreement (Credit Agreement) with a group of 12 banks.
     Under the amended Credit Agreement, CL&P and WMECO are able to borrow,
     subject to the availability of first mortgage bond collateral, up to
     $313.75 million and $150 million, respectively.  At December 31, 1997, CL&P
     and WMECO have issued first mortgage bonds to enable borrowings under this
     facility up to a maximum of $225 million and $90 million,  respectively.
     NU, which cannot issue first mortgage bonds, will be able to borrow up to
     $50 million if NU consolidated, CL&P and WMECO each meet certain interest
     coverage tests for two consecutive quarters.  In addition, CL&P and WMECO
     each must meet certain minimum quarterly financial ratios to access the
     Credit Agreement.  Both CL&P and WMECO satisfied these tests for the
     quarter ending December 31, 1997.  The overall limit for all of the
     borrowing system companies under the entire Credit Agreement is $313.75
     million.  The companies are obligated to pay a facility fee of .50 percent
     per annum of each bank's total commitment under this Credit Agreement which
     will expire in November 1999.  At December 31, 1997 and 1996, there were
     $50 million and $27.5 million, respectively, in borrowings under this
     Credit Agreement.  Of these amounts, CL&P had $35 million borrowed in 1997
     and nothing borrowed in 1996.

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

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

     Money Pool:  Certain subsidiaries of NU, including CL&P, 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. Borrowings based on loans from NU
     parent, however, bear interest at NU parent's cost and must be repaid based
     upon the terms of NU parent's original borrowing. At December 31, 1997,
     CL&P had $61.3 million of borrowings outstanding from the Pool. At December
     31, 1996, CL&P had no borrowings outstanding from the Pool.  The interest
     rate on borrowings from the Pool on December 31, 1997 was 5.8 percent.

     Maturities of short-term debt obligations were for periods of three months
     or less.  For further information on short-term debt, including the ability
     to access these agreements, see the MD&A.


5.   PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION

     Details of preferred stock not subject to mandatory redemption are:

                        December 31,   Shares
                            1997     Outstanding
                         Redemption  December 31,          December 31,
Description                Price        1997       1997       996      1995
                                                      (Thousands of Dollars)

$1.90  Series of 1947.... $52.50      163,912   $  8,196   $  8,196  $  8,196
$2.00  Series of 1947....  54.00      336,088     16,804     16,804    16,804
$2.04  Series of 1949....  52.00      100,000      5,000      5,000     5,000
$2.06  Series E of 1954..  51.00      200,000     10,000     10,000    10,000
$2.09  Series F of 1955..  51.00      100,000      5,000      5,000     5,000
$2.20  Series of 1949....  52.50      200,000     10,000     10,000    10,000
$3.24  Series G of 1968..  51.84      300,000     15,000     15,000    15,000
 3.90% Series of 1949....  50.50      160,000      8,000      8,000     8,000
 4.50% Series of 1956....  50.75      104,000      5,200      5,200     5,200
 4.50% Series of 1963....  50.50      160,000      8,000      8,000     8,000
 4.96% Series of 1958....  50.50      100,000      5,000      5,000     5,000
 5.28% Series of 1967....  51.43      200,000     10,000     10,000    10,000 
 6.56% Series of 1968....  51.44      200,000     10,000     10,000    10,000

Total preferred stock
  not subject to
  mandatory redemption...                       $116,200   $116,200  $116,200


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

6.   PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION

     Details of preferred stock subject to mandatory redemption are:

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

7.23%  Series of 1992...  $52.41      1,500,000  $ 75,000   $ 75,000   $ 75,000
5.30%  Series of 1993...   51.00      1,600,000    80,000     80,000     80,000

                                                  155,000    155,000    155,000

Less preferred stock
  to be redeemed
  within one year.......                 75,000     3,750       -         -

Total preferred stock
  subject to mandatory
  redemption............                         $151,250   $155,000   $155,000


*Each of these series is subject to certain refunding limitations for the
 first five years after they were issued.  Redemption prices reduce in future
 years.

The following table details redemption and sinking fund activity for preferred
stock subject to mandatory redemption:

                                 Minimum
                                  Annual
                               Sinking-Fund              Shares Reacquired
Series                         Requirement           1997       1996      1995
                          (Thousand of Dollars)
9.00%  Series of 1989            $ -                  -          -    3,000,000
7.23%  Series of 1992  (1)        3,750               -          -         -
5.30%  Series of 1993  (2)       16,000               -          -         -


(1)  Sinking fund requirements commence September 1, 1998.
(2)  Sinking fund requirements commence October 1, 1999.

     The minimum sinking-fund provisions of the series subject to mandatory
     redemption, for the years 1998 through 2002, aggregate approximately $3.8
     million in 1998, and $19.8 million for 1999 through 2002.  There were no
     minimum sinking-fund provisions in 1997.  In case of default on sinking-
     fund payments, no payments may be made on any junior stock by way of
     dividends or otherwise (other than in shares of junior stock) so long as
     the default continues. If CL&P is in arrears in the payment of dividends
     on any outstanding shares of preferred stock, CL&P would be
     prohibited from redeeming or purchasing less than all of the preferred
     stock outstanding.  All or part of each of the series named above may be
     redeemed by CL&P at any time at established redemption prices plus
     accrued dividends to the date of redemption, subject to certain refunding
     limitations.

7.   LONG-TERM DEBT

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

                                                   1997         1996
                                                (Thousands of Dollars)
     First Mortgage Bonds:

     7 5/8%   Series UU   due 1997........... $     -       $  193,288
     6 1/2%   Series T    due 1998...........     20,000        20,000
     7 1/4%   Series VV   due 1999...........     99,000        99,000
     5 1/2%   Series A    due 1999...........    140,000       140,000
     5 3/4%   Series XX   due 2000...........    200,000       200,000      
     7 7/8%   Series A    due 2001...........    160,000       160,000
     7 3/4%   Series C    due 2002...........    200,000          -
     6 1/8%   Series B    due 2004...........    140,000       140,000
     7 3/8%   Series TT   due 2019...........     20,000        20,000
     7 1/2%   Series YY   due 2023...........    100,000       100,000
     8 1/2%   Series C    due 2024...........    115,000       115,000
     7 7/8%   Series D    due 2024...........    140,000       140,000      
     7 3/8%   Series ZZ   due 2025...........    125,000       125,000

              Total First Mortgage Bonds.....  1,459,000     1,452,288

     Pollution Control Notes:
       Variable rate, due 2016-2022..........     46,400        46,400
       Variable tax exempt, due 2028-2031....    377,500       377,500
     Fees and interest due for spent
       fuel disposal costs (Note 1M).........    166,458       157,968
     Other...................................         86        10,915
     Less amounts due within one year........     20,011       204,116
     Unamortized premium and discount, net...     (6,117)       (6,550)

       Long-term debt, net................... $2,023,316    $1,834,405



     Long-term debt and cash sinking-fund requirements on debt outstanding at
     December 31, 1997 for the years 1998 through 2002 are approximately $20.0
     million, $239.0 million, $200.0 million, $160.0 million and $200.0 million,
     respectively.  The one-percent sinking- and improvement-fund requirements
     for CL&P first mortgage bonds are no longer required, as of 1997, as
     determined by a majority of bondholders.

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

     Essentially all of CL&P's utility plant is subject to the lien of its
     first mortgage bond indenture.  As of December 31, 1997 and 1996, CL&P
     has secured $315.5 million of pollution control notes with second mortgage
     liens on Millstone 1, junior to the lien of its first mortgage bond
     indenture.  The average effective interest rate on the variable-rate
     pollution control notes ranged from 3.6 percent to 3.7 percent for 1997
     and from 3.4 percent to 3.6 percent for 1996.

     CL&P has $62 million of tax-exempt Pollution Control Revenue Bonds with a
     bond insurance and liquidity facility secured by First Mortgage Bonds.

8.   INCOME TAX EXPENSE

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


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

     Current income taxes:
       Federal...............................    $(53,339)   $ 30,650  $ 93,906
       State.................................      (3,270)      9,789    37,898
                                               
         Total current.......................     (56,609)     40,439   131,804


     Deferred income taxes, net:
       Federal...............................       5,862    (38,680)    52,075
       State.................................     (12,316)   (14,726)     5,085

         Total deferred......................      (6,454)   (53,406)    57,160
     Investment tax credits, net.............      (7,366)    (7,367)    (7,640)

         Total income tax
         (credit)/expense....................    $(70,429)  $(20,334)  $181,324



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

     Income taxes charged to
       operating expenses....................    $(62,856)  $(20,174)  $178,346
     Other income taxes......................      (7,573)      (160)     2,978

     Total income tax
     (credit)/expense........................    $(70,429)  $(20,334)  $181,324




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

     For the Years Ended December 31,                1997       1996      1995
                                                      (Thousands of Dollars)
     Depreciation, leased nuclear fuel,
       settlement credits and
       disposal costs........................    $  11,991   $  3,981   $44,278
     Energy adjustment clauses...............      (14,039)    (1,654)   23,302
     Demand-side management..................      (12,408)   (17,099)    1,310
     Nuclear plant deferrals.................       14,007    (18,861)   (8,055)
     Bond redemptions........................       (1,339)    (1,789)   (2,255)
     Contractual settlements.................        1,754      2,513    (9,496)
     Nuclear compliance reserves.............       (4,759)   (21,131)     -
     Pension accruals........................        6,524      2,944     5,382
     State net operating loss
       carryforwards.........................       (7,670)      -         -
     Other...................................         (515)    (2,310)    2,694

     Deferred income taxes, net..............     $ (6,454)  $(53,406)  $57,160



     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...........     $(75,182)  $(35,931) $135,289
     Tax effect of differences:
       State income taxes, net of
         federal benefit.....................       (9,516)    (3,209)   27,939
       Depreciation..........................       19,701     21,313    23,517
       Deferred nuclear plants return........          (30)      (444)   (1,639)
       Amortization of
         regulatory assets ..................        3,901      8,601    20,218
       Property tax..........................         -          -         (159)
       Investment tax credit
         amortization........................       (7,366)    (7,367)   (7,640)
       Adjustment for prior years'                
         taxes...............................          (10)      -      (10,442)
       Other, net............................       (1,927)    (3,297)   (5,759)

     Total income tax
       (credits)/expense.....................     $(70,429)  $(20,334) $181,324




9.   EMPLOYEE BENEFITS

     A.   PENSION BENEFITS

          The NU system's subsidiaries participate in a uniform noncontributory
          defined benefit retirement plan covering all regular NU system
          employees.  Benefits are based on years of service and the employees'
          highest eligible compensation during 60 consecutive months of
          employment.  CL&P's direct portion of the NU system's pension
          credit, part of which was credited to utility plant, approximated
          $22.5 million in 1997, $8.8 million in 1996 and $10.4 million in 1995.
          The company's pension (credit)/costs for 1997, 1996 and 1995 included
          approximately $(949) thousand, $2.8 million and $0.1 million,
          respectively, related to workforce reduction programs.

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

          The components of net pension credit for CL&P are:

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

          Service cost.......................     $  7,888   $ 11,896  $  7,543
          Interest cost......................       37,939     37,226    37,110
          Return on plan assets..............     (148,830)  (103,248) (138,582)
          Net amortization...................       80,507     45,300    83,516

          Net pension credit.................     $(22,496)  $ (8,826) $(10,413)



          For calculating pension cost, the following assumptions were used:

          For the Years Ended December 31,            1997      1996      1995


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



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



          At December 31,                                1997           1996
                                                        (Thousands of Dollars)
          Accumulated benefit obligation,
            including vested benefits at
            December 31, 1997 and 1996 of
            $(420,499,000) and $(405,340,000),
            respectively......................       $(451,802)      $(434,473)

          Projected benefit obligation........       $(531,564)      $(514,989)

          Market value of plan assets.........         846,366         736,448

          Market value in excess of projected
            benefit obligation................         314,802         221,459
          Unrecognized transition amount......          (6,445)         (7,365)
          Unrecognized prior service costs....           3,524           3,818
          Unrecognized net gain...............        (269,560)       (198,088)

          Prepaid pension asset...............       $  42,321       $  19,824


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



          At December 31,                                1997           1996


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


     B.  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

         The NU system's subsidiaries provide certain health care benefits,
         primarily medical and dental, and life insurance benefits through a
         benefit plan to retired employees (referred to as SFAS 106 benefits).
         These benefits are available for employees retiring from the 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. CL&P's direct portion of
         SFAS 106 costs, part of which were deferred or charged to utility
         plant, approximated $12.8 million in 1997, $17.9 million in 1996 and
         $20.7 million in 1995.

         During 1997 and 1996, CL&P funded SFAS 106 postretirement costs
         through external trusts. CL&P 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 ........................      $ 1,692   $ 2,270   $ 2,248
         Interest cost .......................        9,152    10,211    11,510
         Return on plan assets ...............       (7,755)   (2,904)   (1,015)
         Amortization of unrecognized
           transition obligation .............        7,344     7,344     7,344
         Other amortization, net .............        2,370       956       602

         Net health care and life
           insurance cost ....................      $12,803   $17,877   $20,689




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




         For the Years Ended December 31,             1997      1996      1995


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


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


         At December 31,                                 1997           1996
                                                       (Thousands of Dollars)
         Accumulated postretirement
           benefit obligation of:
          Retirees ...........................       $(102,282)     $(109,299)
          Fully eligible active employees ....            (219)          (165)
          Active employees not eligible
            to retire ........................         (24,075)       (27,913)
         Total accumulated postretirement
           benefit obligation ................        (126,576)      (137,377)

         Market value of plan assets .........          46,055         38,783

         Accumulated postretirement benefit
           obligation in excess of
           plan assets .......................         (80,521)       (98,594)

         Unrecognized transition amount ......         110,162        117,506

         Unrecognized net gain ...............         (29,641)       (18,912)


         Accrued postretirement benefit
           liability .........................        $   -         $    -



         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 $7.3
         million and the aggregate of the service and interest cost components
         of net periodic postretirement benefit cost for the year then ended by
         $563 thousand. The trust holding the health plan assets is subject to
         federal income taxes at a 39.6 percent tax rate.  CL&P currently is
         recovering SFAS 106 costs through rates.

10.  SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES

     During 1996, CL&P entered into an agreement to sell up to $200 million of
     undivided ownership interests in eligible customer receivables and accrued
     utility revenues (receivables).

     The FASB issued SFAS 125, "Accounting for Transfers and Servicing of
     Financial Assets and Extinguishments of Liabilities," in June 1996.  SFAS
     125 became effective on January 1, 1997, and establishes, in part, criteria
     for concluding whether a transfer of financial assets in exchange for
     consideration should be accounted for as a sale or as a secured borrowing.
     During October 1997, CL&P restructured its sales agreement to comply
     with the conditions of SFAS 125 and account for transactions occurring
     under this program as sales of assets.  CL&P has established a special
     purpose, wholly owned subsidiary whose business consists of the purchase
     and resale of receivables.  For receivables sold, CL&P has retained
     collection responsibilities as agent for the purchaser under CL&P's
     agreement.  As collections reduce previously sold receivables, new
     receivables may be sold.  At December 31, 1997, approximately $70 million
     of receivables had been sold to a third-party purchaser by CL&P through the
     use of CL&P's special purpose, wholly owned subsidiary, CL&P
     Receivables Corporation (CRC).  All receivables transferred to CRC are
     assets owned by CRC and are not available to pay CL&P's creditors.

     For CRC's sales agreement with its third-party purchaser, the receivables
     are sold with limited recourse.  CRC's sales agreement provides for a
     formula-based loss reserve in which additional receivables may be assigned
     to the third-party purchaser for costs such as bad debt.  The third-party
     purchaser absorbs the excess amount in the event that actual loss
     experience exceeds the loss reserve.  At December 31, 1997, approximately
     $7.2 million of assets had been designated as collateral by CRC.  This
     amount represents the formula-based amount of credit exposure at December
     31, 1997.  Historical losses for bad debt for CL&P have been substantially
     less.

     CL&P's accounts receivable program could be terminated if its senior
     secured debt is downgraded two more steps from its current ratings.

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

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

11.  COMMITMENTS AND CONTINGENCIES

     A.  RESTRUCTURING AND RATE MATTERS
         Although CL&P continues to operate under cost-of-service based
         regulation, legislative restructuring initiatives during 1997 and 1998
         in its jurisdiction has created some uncertainty with respect to future
         rates and the recovery of strandable investments and certain future
         costs such as purchase power obligations. Management is unable to
         predict the ultimate outcome of restructuring initiatives, however, it
         continues to believe that it is probable that CL&P will fully recover
         its prudently incurred costs, including regulatory assets and
         strandable investments based on the general nature of public utility
         cost-of-service regulation.

         For further information on restructuring, see Note 1H, "Summary of
         Significant Accounting Policies - Regulatory Accounting and Assets,"
         and the MD&A.

         The DPUC is required to review a utility's rates every four years if
         there had not been a rate proceeding during such period.  The DPUC has
         conducted such a review.  For information regarding this review and
         other rate matters, see the MD&A.

         For information regarding the FERC rate proceedings for CYAPC and
         MYAPC, see Note 3, "Nuclear Decommissioning."

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

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

         In 1997, CL&P's share of nonfuel O&M costs expensed for Millstone
         totaled $455 million, including $59 million reserved for future restart
         costs.

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

         Management cannot predict when the NRC will allow any of the Millstone
         units to return to service and thus cannot precisely estimate the total
         replacement power costs CL&P will ultimately incur. Replacement power
         costs incurred by CL&P attributable to the Millstone outages averaged
         approximately $23 million per month during 1997, and  for 1998 are
         projected to average approximately $7 million per month for Millstone
         3, $7 million per month for Millstone 2 and $5 million per month for
         Millstone 1 while the plants remain out of service.  CL&P will continue
         to expense its replacement power costs in 1998.

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

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

         Litigation:  CL&P and WMECO, through NNECO as agent, operate Millstone
         3 at cost, and without profit, under a sharing agreement that obligates
         them to utilize good utility operating practice and requires the joint
         owners to share the risk of employee negligence and other risks of
         operation and maintenance pro-rata in accordance with their ownership
         shares.  This agreement also provides that CL&P and WMECO would be
         liable only for damages to the non-NU owners for a deliberate violation
         of the agreement pursuant to authorized corporate action.
      
         On August 7, 1997, the non-NU owners of Millstone 3 filed demands for
         arbitration with CL&P and WMECO as well as lawsuits in Massachusetts
         Superior Court against NU and its current and former trustees.  The
         non-NU owners raise a number of contract, tort and statutory claims
         arising out of the operation of Millstone 3.  The arbitrations and
         lawsuits seek to recover compensatory damages, punitive damages, treble
         damages and attorneys' fees.  Owners representing approximately two-
         thirds of the non-NU interests in Millstone 3 claimed compensatory
         damages in excess of $200 million.  In addition, one of the lawsuits
         seeks to restrain NU from disposing of its shares of the stock of WMECO
         and HWP, pending the outcome of the lawsuit. Management cannot estimate
         the potential outcome of these suits but believes there is no legal
         basis for the claims and intends to defend against them vigorously.
         To date, no reserves have been established for this litigation.  At
         December 31, 1997, the NU system's costs related to this litigation
         were estimated to be approximately $100 million for incremental O&M
         costs and approximately $100 million for replacement power costs.
         These costs are likely to increase as long as Millstone 3 remains out
         of service.
   
         The Connecticut Municipal Electric Energy Cooperative (CMEEC) and CL&P
         have been negotiating since May 1996 over issues related to the
         operation of  Millstone 1 and 2.   CMEEC has failed to make payments on
         its accrued obligations since October 1996, claiming that CL&P
         materially breached its contractual obligations.  CL&P has denied the
         allegations and requested payment.  The matter has gone to arbitration
         which has been scheduled for July 1998.

         CL&P has filed an application with the Connecticut Superior Court in
         Hartford requesting the court to grant interim relief to CL&P.  CL&P
         has asked the court to enforce the contract provisions by ordering
         CMEEC to pay the outstanding obligations under the contract
         (approximately $25 million) and to continue making payments
         (approximately $1.8 million per month) during the arbitration
         process.
     
         On December 9, 1997, the Superior Court judge issued a decision denying
         CL&P's request for an interim payment order.  Management cannot predict
         the outcome of this litigation and has taken steps to assert its legal
         rights.  CL&P has requested reargument, in order to present evidence,
         and has requested that the Connecticut Superior Court vacate its order.
         CL&P is prepared to appeal to a higher court, if necessary, after the
         reargument.

     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 CL&P's existing
         generating units and transmission and distribution systems, and could
         raise operating costs significantly.  As a result, CL&P 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 byproducts and wastes.  CL&P 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.

         CL&P 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 CL&P for its estimated environmental
         remediation costs, excluding any possible insurance recoveries or
         recoveries from third parties, amounted to approximately $6.4 million,
         which management has determined to be the most probable amount within
         the range of $6.4 million to $16.4 million.

         During 1997, CL&P 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 $395 thousand to CL&P's environmental reserve in 1997.
      
         CL&P 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 CL&P's financial position or future results
         of operations.

     D.  NUCLEAR INSURANCE CONTINGENCIES
         Under certain circumstances, in the event of a nuclear incident at
         one of the nuclear facilities in the country covered by the federal
         government's third-party liability indemnification program, an owner
         of a nuclear unit could be assessed in proportion to its ownership
         interest in each of its nuclear units up to $75.5 million.  Payments
         of this assessment would be limited to $10.0 million in any one year
         per nuclear incident based upon the owner's pro rata ownership interest
         in each of its nuclear units.  In addition, the owner would be subject
         to an additional five percent or $3.8 million, in proportion to its
         ownership interests in each of its nuclear units, if the sum of all
         claims and costs from any one nuclear incident exceeds the maximum
         amount of financial protection. Based upon its ownership interests in
         Millstone 1, 2 and 3 and in Seabrook 1, CL&P's maximum liability,
         including any additional assessments, would be $173.6 million per
         incident, of which payments would be limited to $21.9 million per year.
         In addition, through power purchase contracts with MYAPC, VYNPC, and
         CYAPC, CL&P would be responsible for up to an additional $44.4 million
         per incident, of which payments would be limited to $5.6 million per
         year.

         Insurance has been purchased to cover the primary cost of repair,
         replacement or decontamination of utility property resulting from
         insured occurrences.  CL&P is subject to retroactive assessments if
         losses exceed the accumulated funds available to the insurer.  The
         maximum potential assessment against CL&P with respect to losses
         arising during the current policy year is approximately $11.5 million
         under the primary property insurance program.

         Insurance has been purchased to cover certain extra costs incurred in
         obtaining replacement power during prolonged accidental outages and the
         excess cost of repair, replacement or decontamination or premature
         decommissioning of utility property resulting from insured occurrences.
         CL&P is subject to retroactive assessments if losses exceed the
         accumulated funds available to the insurer.  The maximum potential
         assessments against CL&P with respect to losses arising during current
         policy years are approximately $9.5 million under the replacement power
         policies and $15.6 million under the excess property damage,
         decontamination and decommissioning policies. The cost of a nuclear
         incident could exceed available insurance proceeds.

         Insurance has been purchased aggregating $200 million on an industry
         basis for coverage of worker claims.  All participating reactor
         operators insured under this coverage are subject to retrospective
         assessments of $3 million per reactor.  The maximum potential
         assessment against CL&P with respect to losses arising during the
         current policy period is approximately $8.9 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.  CL&P currently forecasts construction expenditures of
         approximately $1.3 billion for the years 1998-2002, including $164.9
         million for 1998. In addition, CL&P estimates that nuclear fuel
         requirements, including nuclear fuel financed through the NBFT, will be
         approximately $247.7 million for the years 1998-2002, including $37.6
         million for 1998.  See Note 2, "Leases," for additional information
         about the financing of nuclear fuel.

     F.  LONG-TERM CONTRACTUAL ARRANGEMENTS
         Yankee Companies:  CL&P, WMECO and PSNH 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 company's rates.  CL&P's total cost of
         purchases under contracts with VYNPC amounted to $14.1 million in 1997,
         $14.8 million in 1996 and $14.7 million in 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 further information on the Yankee companies, and Note 3,
         "Nuclear Decommissioning," regarding the related decommissioning
         obligations.

         Nonutility Generators:  CL&P has entered into various arrangements for
         the purchase of capacity and energy from nonutility generators (NUGs).
         These arrangements have terms from 10 to 30 years, currently expiring
         in the years 2001 through 2028, and require CL&P to purchase energy at
         specified prices or formula rates.  For the 12-month period ending
         December 31, 1997, approximately 14 percent of NU system electricity
         requirements was met by NUGs. CL&P's total cost of purchases under
         these arrangements amounted to $283.2 million in 1997, $279.5 million
         in 1996 and $282.2 million in 1995.   These costs may be deferred for
         eventual recovery through rates.

         Hydro-Quebec:  Along with other New England utilities, CL&P, PSNH,
         WMECO and HWP have entered into agreements to support transmission and
         terminal facilities to import electricity from the Hydro-Quebec system
         in Canada.  CL&P 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 CL&P's
         significant long-term contractual arrangements are as follows:
    

                                1998      1999     2000     2001     2002
                                 (Millions of Dollars)

     VYNPC .............      $ 16.8    $ 16.9   $ 16.2   $ 17.7   $ 18.4
     NUGs  .............       281.0     291.5    290.9    295.5    299.6
     Hydro-Quebec ......        18.5      17.9     17.6     17.1     16.7


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

12.  MARKET RISK MANAGEMENT

     CL&P uses swap, collar, put and call instruments with financial
     institutions to hedge against some of the fuel price risk created by
     long-term negotiated energy contracts and nuclear replacement power
     generation and fuel purchases.  These agreements minimize exposure
     associated with rising fuel prices by managing a portion of CL&P's cost
     of fuel for these negotiated energy contracts and nuclear replacement
     power generation and fuel purchases.  As of December 31, 1997, CL&P had
     outstanding agreements with a total notional value of approximately $327
     million, and a negative mark-to-market position of approximately $21
     million.

     The terms of the agreements require CL&P to post cash collateral with its
     counterparties in the event of negative mark-to-market positions and 
     lowered credit ratings.  The amount of the collateral is to be returned to
     CL&P when the mark-to-market position becomes positive, when CL&P meets 
     specified credit ratings or when an agreement ends and all open positions
     are properly settled.  At December 31, 1997, cash collateral in the amount
     of $15.4 million was posted under these terms, which is included in other,
     at cost, on the accompanying Consolidated Balance Sheets.

     These agreements have been made with various financial institutions, each
     of which is rated "A1" or better by Moody's rating group.  CL&P will be
     exposed to credit risk on its fuel price management instruments if the
     counterparties fail to perform their obligations. However, management
     anticipates that the counterparties will be able to fully satisfy their
     obligations under the agreements.

13.  MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY

     CL&P Capital LP (CL&P LP, a subsidiary of CL&P) had previously issued $100
     million of cumulative 9.3 percent Monthly Income Preferred Securities
     (MIPS), Series A.  CL&P has the sole ownership interest in CL&P LP, as a
     general partner, and is the guarantor of the MIPS securities.  Subsequent
     to the MIPS issuance, CL&P LP loaned the proceeds of the MIPS issuance,
     along with CL&P's $3.1 million capital contribution, back to CL&P in the
     form of an unsecured debenture. CL&P consolidates CL&P LP for financial
     reporting purposes.  Upon consolidation, the unsecured debenture is
     eliminated and the MIPS securities are accounted for as minority interests.

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

     SFAS 115, "Accounting for Certain Investments in Debt and Equity
     Securities," requires investments in debt and equity securities to be
     presented at fair value.  As a result of this requirement, the investments
     held in CL&P's nuclear decommissioning trusts were adjusted to market by
     approximately $49.2 million as of December 31, 1997, and $22.3 million
     as of December 31, 1996, with corresponding offsets to the accumulated
     provision for depreciation. The amounts adjusted in 1997 and 1996 represent
     cumulative gross unrealized holding gains.  The cumulative gross unrealized
     holding losses were immaterial for both 1997 and 1996.

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


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

     Preferred stock not subject
       to mandatory redemption................        $  116,200   $   62,889

     Preferred stock subject to
       mandatory redemption...................           155,000      135,600

     Long-term debt -
       First Mortgage Bonds...................         1,459,000    1,435,772

       Other long-term debt...................           590,443      590,443

     MIPS.....................................           100,000      100,760



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


     Preferred stock not subject
       to mandatory redemption................        $  116,200   $  111,845

     Preferred stock subject to
       mandatory redemption...................           155,000      120,900

     Long-term debt -
       First Mortgage Bonds...................         1,452,288    1,410,665

       Other long-term debt...................           592,783      592,783

   MIPS ......................................           100,000      108,520



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






To the Board of Directors
   of The Connecticut Light and Power Company:

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

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Connecticut Light
and Power Company and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.




                                   /s/ ARTHUR ANDERSEN LLP
                                       ARTHUR ANDERSEN LLP




Hartford, Connecticut
February 20, 1998





THE CONNECTICUT LIGHT AND POWER COMPANY


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



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

FINANCIAL CONDITION

OVERVIEW

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

CL&P had a net loss of approximately $144 million in 1997, compared to a net
loss of approximately $80 million in 1996.  The poorer financial results in 1997
were due primarily to the fact that all three Millstone units were off line for
the entire year in 1997 and spending associated with the recovery efforts was
significantly higher in 1997 than it was in 1996.  Millstone 3 operated for
nearly three months in 1996 and Millstone 2 for nearly two months.  As a result,
the cost of replacing power ordinarily generated by the Millstone units rose by
approximately $65 million in 1997.  The total operation and maintenance (O&M)
costs at Millstone were approximately $133 million higher in 1997.

The higher Millstone costs have caused CL&P to focus closely on maintaining
adequate liquidity and reducing nonnuclear O&M costs.  In June 1997, CL&P
successfully sold $200 million in first mortgage bonds.   CL&P's access to $225
million of revolving credit lines was renegotiated in the first half of 1997.
Also helping to maintain liquidity was the renegotiation in early 1998 of a $100
million credit line used by Niantic Bay Fuel Trust (NBFT) to purchase nuclear
fuel for Millstone.  Additionally, nonnuclear O&M expenses in 1997 were reduced
by about $30 million from 1996.  Tight cost controls will continue to be
essential in 1998 to CL&P's efforts to meet the financial covenants contained in
the $313.75 million revolving credit arrangement available to CL&P and Western
Massachusetts Electric Company (WMECO).

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

Rate reductions to customers served by CL&P are likely to offset a portion of
the benefit of lower Millstone-related costs. On March 1, 1998, CL&P's rates
were reduced by approximately 1.4 percent to reflect the removal of Millstone 1
from rates, and additional non cash reductions were made to revenue requirements
as a result of an interim rate order issued by the Connecticut Department of
Public Utility Control (DPUC).  A pending CL&P rate case may result in
additional rate adjustments later in 1998.  CL&P's revenues could be further
reduced if substantial delays in restarting Millstone 3 and Millstone 2 result
in a DPUC decision to remove those units from rates.

In addition to focusing on maintaining liquidity, management also must attend to
industry restructuring efforts in Connecticut. Restructuring legislation is
being considered in the Connecticut legislative session that began in February
1998.

In 1997, CL&P experienced modest economic growth in its retail sales that was
offset by the effects of mild winter weather.  In 1998, management expects that
the Connecticut economy will continue to experience modest growth.


MILLSTONE
OUTAGES

CL&P has an 81-percent ownership interest in Millstone units 1 and 2 and a
52.93-percent ownership interest in Millstone unit 3. Millstone 1, 2 and 3 have
been out of service since November 4, 1995, February 21, 1996, and March 30,
1996, respectively.

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

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

In 1997, CL&P's share of nonfuel O&M costs expensed for Millstone totaled
approximately $455 million, including $59 million reserved for future restart
costs.  The 1997 costs are net of $50 million of costs which were reserved in
1996.  In 1996, the CL&P's share of nonfuel O&M costs expensed for Millstone
totaled approximately $322 million, including $50 million reserved for future
restart costs. Management will continue to evaluate the costs to be incurred in
1998 to determine whether adjustments to the existing reserves are required.

CL&P's portion of replacement power costs attributable to the Millstone outages
totaled approximately $281 million in 1997 compared to $216 million expensed in
1996.  These costs for 1998 are forecasted to average approximately $7 million
per month for Millstone 3, $7 million per month for Millstone 2 and $5 million
per month for Millstone 1 while the plants are out of service.

CL&P has been, and will continue to be, expensing all of the costs to restart
the units including replacement power and nonfuel O&M expenses.  See "Rate
Matters" for issues related to the recovery of Millstone 1 costs.

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

MILLSTONE 1

Management will  review its options with respect to Millstone 1 during 1998. The
issues that management will consider in evaluating its options include the costs
to restart the unit, the economic benefits of the unit's continued operation and
certain Connecticut state law issues.  In the CL&P four year rate review
proceeding, (discussed in detail under "Rate Matters"), the DPUC noted that CL&P
may not be able to recover its remaining investment in Millstone 1 if the DPUC
were to determine that the unit had been prematurely shut down due to management
imprudence.  Additionally, there is a Connecticut statute which may limit CL&P's
ability to collect decommissioning charges in the future if Millstone 1 were to
be prematurely retired.

CL&P's net unrecovered Millstone 1 plant cost and the unrecovered
decommissioning costs at December 31, 1997, were approximately $216 million and
$198 million, respectively.

CAPACITY

During 1996 and continuing into 1997, CL&P took measures to improve its capacity
position, including obtaining additional generating capacity, improving the
availability of CL&P's generating units and improving its transmission
capability. During 1997, CL&P spent approximately $48 million to ensure
availability of adequate generating capacity in Connecticut, of
which $35 million was expensed.  In 1998, CL&P does not anticipate the need 
to take additional measures to ensure adequate generating capacity.

CL&P could incur up to an additional $50 million in 1998 for incremental
capacity purchases to meet NEPOOL requirements as a result of the Millstone
outages.


LIQUIDITY AND CAPITAL RESOURCES

Cash provided from operations decreased approximately $227 million in 1997,
compared to 1996, primarily due to higher cash expenditures related to the
Millstone outages, and the pay down in 1997 of the 1996 year end accounts
payable balance.  The 1996 year end accounts payable balance was relatively high
due to costs related to a severe December storm and costs associated with the
Millstone outages that had been incurred but not yet paid by the end of 1996.
Net cash from financing activities increased approximately $69 million,
primarily due to an increase in short-term borrowings and lower cash dividends
on common shares, partially offset by higher long-term debt retirements. Cash
used for investments decreased approximately $158 million, primarily due to
lower investments in the NU system Money Pool, partially offset by higher
capital expenditures and an increase in special deposits.

CL&P established facilities in 1996 under which it may sell, from time to time,
up to $200 million of its accounts receivable and accrued utility revenues.  As
of December 31, 1997, CL&P sold approximately $70 million of receivables to
third-party purchasers.

NU's, CL&P's and WMECO's three-year revolving credit agreement (Credit
Agreement) was amended in May 1997 (the Credit Agreement).  Under the
Credit Agreement, CL&P and WMECO are able to borrow up to approximately $225
million and $90 million, respectively, subject to a total borrowing limit of
$313.75 million for all three borrowers.  NU will be able to borrow up to $50
million when NU, CL&P and WMECO have each maintained a consolidated operating
income to consolidated interest expense ratio of at least 2.50 to 1 for two
consecutive fiscal quarters.  Currently, the companies cannot meet this
requirement.  At December 31, 1997, CL&P had $35 million outstanding under the
Credit Agreement.

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

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

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

If the return to service of Millstone 3 or Millstone 2 is delayed substantially
beyond the present restart estimates, if some borrowing facilities become
unavailable because of difficulties in meeting borrowing conditions or
renegotiating extensions, if the system encounters additional significant costs,
or any other significant deviations from management's current assumptions, the
currently available borrowing facilities could be insufficient to meet all of
CL&P's cash requirements. In those circumstances, management would take even
more stringent actions to reduce costs and cash outflows and would attempt to
take other actions to obtain additional sources of funds. The availability of
these funds would be dependent upon the general market conditions and CL&P's
credit and financial condition at that time.

RESTRUCTURING

CL&P continues to operate under cost-of-service based regulation, however,
future rates and the recovery of strandable costs are issues that
are being considered as part of broad restructuring legislation in the
current Connecticut legislative session. Strandable costs are expenditures or
commitments that have been made to meet public service obligations with the
expectation that they would be recovered from customers in the future.  CL&P
has had exposure to strandable costs for its investments in high-cost nuclear
generating plants, state-mandated purchased power obligations and significant
regulatory assets.  The company's exposure to strandable investments and
purchased power obligations exceeds its shareholder's equity. CL&P's financial
strength and resulting ability to compete in a restructured environment will be
negatively affected if the company is unable to recover its past investments and
commitments.  Even if the company is given the opportunity to recover a large
portion of its strandable costs, earnings prospects in a restructured
environment will be affected in ways which cannot be estimated at this time.

The company is seeking to mitigate the impacts of restructuring by proposing
stable, lower rates, while pursuing customer choice options and full recovery
of its strandable costs.  The company's strategy to recover strandable costs
includes efforts to promote state legislation that will authorize the issuance
of rate reduction bonds that would refinance these investments and which would
be repaid through non-bypassable charges to customers.  Management is unable
to predict the ultimate outcome of these initiatives which will be subject to
regulatory and legislative approvals.  Management believes it is entitled to
full recovery of its prudently incurred costs, including regulatory assets and
other strandable costs.  See the "Notes to Consolidated Financial Statements,"
Note 1H, for the potential accounting impacts of restructuring.

RATE MATTERS

In July 1996, the DPUC approved a rate settlement agreement with CL&P (the
Settlement).  Under the Settlement, CL&P froze base rates until at least
December 31, 1997, and agreed to accelerate the amortization of regulatory
assets during the period that the rate freeze remains in effect. The Settlement
provided that CL&P's target return on equity (ROE) would be 10.7 percent but
did not alter CL&P's allowed ROE of 11.7 percent.  If CL&P's actual ROE for
a calendar year exceeds 10.7 percent after the target regulatory asset
amortization ($68 million in 1997) and after adjustment for any incremental
NRC billings and any rate disallowances for nuclear operations, then CL&P shall
retain two-thirds of any surplus and use the remaining one-third to provide a
reduction in bills.  CL&P's actual ROE, as adjusted, fell below the target ROE
for 1996 and 1997 and, therefore, the accelerated amortization of regulatory
assets was reduced to the minimum amounts allowed under the Settlement ($73
million in 1996 and $54 million in 1997). For each full year that the rate
freeze remains in effect, CL&P agreed to amortize an additional $44 million
of regulatory assets.

On July 30, 1997, the DPUC issued a decision in its prudence review of nuclear
cost recovery issues disallowing CL&P's recovery of all of the replacement power
costs associated with the ongoing outages at Millstone.  CL&P has expensed, and
will continue to expense, replacement power costs for the Millstone outages as
they are incurred.

The DPUC is required to review a utility's rates every four years if there has
not been a rate proceeding during such period.  In 1997, the DPUC conducted such
a review of CL&P's rates, including an analysis of the possibility of removing
one or more of the Millstone nuclear units from CL&P's rate base. On December
31, 1997, the DPUC issued its ruling in this matter. The decision did not effect
a change in CL&P's rates, but set forth findings and conclusions that could be
used to do so in additional proceedings.  The most significant conclusion was
that Millstone 1 should be removed from CL&P's rate base, which would cause an
annual revenue reduction of approximately $30.5 million.  The decision stated
that the DPUC would open an interim rate case immediately to remove Millstone 1
from CL&P's rates and simultaneously to remove an additional $110.5 million of
other expenses from rates related to perceived overearnings. On February 25,
1998, the DPUC issued a decision reducing CL&P's rates by approximately 1.4
percent to reflect the removal of Millstone 1 from rates.  This reduction
reflects the removal from rates of O&M, depreciation and investment return
related to Millstone 1, net of replacement power costs.  In addition, the
decision requires CL&P to accelerate the amortization of regulatory assets
by $110.5 million, which includes the $44 million from the 1996 Settlement.
The interim rate reduction became effective on March 1, 1998.

CL&P also was directed to file a full rate case on June 1, 1998, to address
potential overearnings amounting to an additional $150 million in 1998.   The
effective date of any rate order will be September 28, 1998. In addition, the
DPUC has scheduled hearings for April 1, 1998 to determine the status of
Millstone 3 and Millstone 2. If the units are not operating by that date, the
DPUC will consider their removal from rates. A similar restart status hearing
is anticipated for June 1, 1998.

The DPUC also will consider CL&P's analyses of the economic benefits of the
continued operation of  Millstone 1 and 2 in the context of CL&P's next
integrated resource planning proceeding, which begins in April 1998.

NUCLEAR DECOMMISSIONING

CONNECTICUT YANKEE

CL&P has a 34.5 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, CL&P's
share of these obligations was approximately $214 million, including the cost of
decommissioning and the recovery of existing assets. Management expects that the
company will continue to be allowed to recover such FERC approved costs from its
customers.  Accordingly, CL&P has recognized its share of the estimated costs as
a regulatory asset, with a corresponding obligation, on its balance sheets.

MAINE YANKEE

CL&P has a 12 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, CL&P's share of
the estimated remaining obligation, including decommissioning, amounted to
approximately $104 million.  Under the terms of the contracts with MYAPC, the
shareholders' sponsor companies, including CL&P, are responsible for their
proportionate share of the costs of the unit, including decommissioning.
Management expects that CL&P will be allowed to recover these costs from it's
customers.  Accordingly, CL&P has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.

MILLSTONE AND SEABROOK

CL&P's estimated cost to decommission its shares of the Millstone plants and
Seabrook is approximately $1.1 billion 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. As of December 31, 1997, CL&P's share of the
market value of the contributions already made to the decommissioning trusts,
including their investment returns, was approximately $369 million.

See the "Notes to Consolidated Financial Statements," Note 3, for further
information on nuclear decommissioning, including the CL&P's share of costs to
decommission the other regional nuclear generating units.

ENVIRONMENTAL MATTERS

CL&P 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 CL&P. At December 31, 1997, CL&P  had recorded
an environmental reserve of approximately $6.4 million. See the "Notes to
Consolidated Financial Statements," Note 11C, for further information on
environmental matters.

YEAR 2000 ISSUE

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

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

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

RISK-MANAGEMENT INSTRUMENTS

The following discussion about the company's risk-management activities includes
forward-looking statements that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.

This analysis presents the hypothetical loss in earnings related to the fuel
price and interest rate market risks not covered by the risk-management
instruments at December 31, 1997.  The company uses swaps, collars, puts, and
calls to manage the market risk exposures associated with changes in fuel prices
and variable interest rates. The company does not use these risk-management
instruments for speculative purposes.  For more information on CL&P's use of
risk management instruments, see the "Notes to Consolidated Financial
Statements," Notes 12.

In the generation of electricity, the most significant variable cost component
is the cost of fuel.  Typically, most of CL&P's fuel purchases are protected by
a regulatory fuel price adjustment clause. However, for a specific, well-defined
volume of fuel that is excluded from the fuel price adjustment clause
(unprotected volume), CL&P employs fuel price risk-management instruments to
protect itself against the risk of rising fuel prices, thereby limiting fuel
costs and protecting its profit margins. These risks are created by the sale of
long-term, fixed-price electricity contracts to wholesale customers and the
purchase or generation of replacement power related to the ongoing Millstone
nuclear outages.

At December 31, 1997, CL&P had outstanding agreements with a total notional
value of approximately $327 million.  The settlement amounts associated with the
instruments reduced fuel expense by approximately $7.8 million.

CL&P has had experience using various fuel price risk-management instruments
since 1994, most of which have been in the form of fuel price swaps.  At
December 31, 1997 approximately 30 percent of the unprotected volume was covered
by fuel price risk-management instrument (hedge ratio) for 1997. This
effectively fixed or bounded the fuel cost and thus eliminated the market price
risk for this covered volume of fuel. At December 31, 1997, the company had a
hedge ratio of 44 percent for 1998.

At December 31, 1997, the 56 percent uncovered volume of fuel for 1998, as a
result of not being hedged, is subject to changes in actual market prices.
Therefore, assuming a hypothetical 10 percent increase in the average 1997 price
of fuel in 1998, the result would be a negative pre-tax impact on earnings of
approximately $12.4 million.

This analysis is based on the broad assumption that the entire uncovered volume
of fuel remains constant and will be purchased on the spot market. This 
assumption is subject to change as the uncovered volume of fuel likely will
change during the next year.  Other assumptions used in this analysis, 
projections of the fuel mix, the amount of long-term sales contracts or
the projected Millstone restart dates, also are subject to change.


RESULTS OF OPERATIONS

                                         Income Statement Variances
                                            (Millions of Dollars)

                                1997 over/(under) 1996   1996 over/(under) 1995


                                 Amount       Percent      Amount      Percent


Operating revenues                $ 68           3%         $ 10         - %
Fuel, purchased and net
  interchange power                146           18          222         37
Other operation                    (44)          (6)         164         27
Maintenance                         56           19          107         56
Amortization of regulatory                                         
  assets, net                        4            7            3          6
Federal and state income
  taxes                            (50)          (a)        (202)        (a)
Other income, net                  (23)          (a)           6         42
Net income                         (64)         (80)        (285)        (a)

(a) Percentage greater than 100

OPERATING REVENUES

Total operating revenues increased in 1997, primarily due to higher fuel
recoveries and higher conservation recoveries. Fuel recoveries increased $33
million, primarily due to a higher fuel adjustment clause rate in 1997.
Conservation recoveries increased by $17 million primarily due to a 1996 reserve
for over-recoveries of demand-side management costs. Retail kilowatt hour sales
were essentially unchanged in 1997.

Total operating revenues increased in 1996, primarily due to higher retail sales
and regulatory decisions, partially offset by lower fuel recoveries and lower
wholesale revenues. Retail sales increased 1.8 percent ($29 million) primarily
due to modest economic growth in 1996. Regulatory decisions increased revenues
by $15 million primarily due to the mid-1995 retail rate increase, partially
offset by 1996 reserves for over-recoveries of demand-side management costs.
Fuel recoveries decreased $24 million primarily due to lower average fossil fuel
prices. Wholesale revenues decreased $18 million primarily due to higher
recognition in 1995 of lump-sum payments for the termination of a long-term
contract and capacity sales contracts that expired in 1995.

FUEL, PURCHASED AND NET INTERCHANGE POWER

Fuel, purchased and net interchange power expense increased in 1997, primarily
due to replacement power costs associated with the Millstone outages and the
expensing in 1997 of replacement power costs incurred in 1996.

Fuel, purchased and net interchange power expense increased in 1996, primarily
due to replacement power due to the nuclear outages and the 1996 write-off of
the generation utilization adjustment clause (GUAC) balances under the
Settlement, partially offset by lower nuclear generation and the timing of the
recognition of costs under the company's fuel clauses.

OTHER OPERATION AND MAINTENANCE

Other operation and maintenance expenses increased in 1997, primarily due to
higher costs associated with the Millstone restart effort ($133 million,
including a net increase of $9 million in reserves for future costs) and higher
charges from Maine Yankee ($9 million), partially offset by lower recognition of
nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement
($72 million), lower capacity charges from Connecticut Yankee as a result of a
property tax refund ($27 million), lower administrative and general expenses
($23 million) primarily due to lower pensions and benefit costs and lower storm
expenses.

Other operation and maintenance expenses increased in 1996, primarily due to
higher costs associated with the Millstone restart effort ($143 million,
including $50 million of reserves for future costs) and 1996 costs to ensure
adequate generating capacity ($39 million). In addition, 1996 costs reflect
higher storm and reliability expenditures, higher recognition of conservation
expenses and higher marketing costs.

AMORTIZATION OF REGULATORY ASSETS, NET
Amortization of regulatory assets, net increased in 1997, primarily due to the
completion of cogeneration deferrals in 1996 and increased amortization in 1997,
partially offset by the completion of CL&P's Seabrook amortization in 1996.

Amortization of regulatory assets, net increased in 1996, primarily due to lower
cogeneration deferrals and the accelerated amortization of regulatory assets as
a result of the Settlement, partially offset by the completion of the Millstone
3 phase-in amortization in 1995.

FEDERAL AND STATE INCOME TAXES

Federal and state income taxes decreased in 1997 and 1996, primarily due to
lower book taxable income.

OTHER INCOME, NET

Other income, net decreased in 1997, primarily due to costs associated with the
accounts receivable facility, nonutility marketing and advertising costs and
lower miscellaneous income.

Other income, net increased in 1996, primarily due to higher income on temporary
cash investments in 1996.





SELECTED FINANCIAL DATA(a)


                       1997        1996        1995        1994        1993
                                      (Thousands of Dollars)

Operating Revenues.$2,465,587  $2,397,460  $2,387,069  $2,328,052  $2,366,050

Operating (Loss)
  /Income..........   (12,399)     29,773     324,026     286,948     241,655

Net(Loss)/Income...  (144,377)    (80,237)    205,216     198,288     191,449(b)

Cash Dividends on
  Common Stock.....     5,989     138,608     164,154     159,388     160,365

Total Assets....... 6,081,223   6,244,036   6,045,631   6,217,457   6,397,405

Long-Term Debt (c). 2,043,327   2,038,521   1,822,018   1,823,690   2,057,280

Preferred Stock
  Not Subject to
  Mandatory 
  Redemption.......   116,200     116,200     116,200     166,200     166,200

Preferred Stock
  Subject to
  Mandatory
  Redemption(c)....   155,000     155,000     155,000     230,000     230,000

Obligations Under
  Capital Leases(c)   158,118     155,708     172,264     175,969     177,418



STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
                                           Quarter Ended(a)
1997                  March 31     June 30     September 30    December 31
                                   (Thousands of Dollars)

Operating Revenues    $624,908    $ 574,841     $ 627,712     $  638,126

Operating Income/
  (Loss)              $ 23,148    $ (33,587)    $ (15,552)    $   13,592

Net Loss              $ (6,431)   $ (64,089)    $ (50,077)    $  (23,780)


1996

Operating Revenues    $659,355    $ 542,999     $ 599,505     $  595,601

Operating Income/
  (Loss)              $ 59,977    $  15,197     $     593     $  (45,994)

Net Income/(Loss)     $ 32,851    $(10,700)     $ (26,938)    $  (75,450)



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

(b)      Includes the cumulative effect of change in accounting for municipal
         property tax expense, which increased earnings for common shares by
         $47.7 million.

(c)      Includes portion due within one year.





STATISTICS


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


1997     $6,639,786       26,766          8,526       1,103,309      2,163
1996      6,512,659       26,043          8,639       1,099,340      2,194
1995      6,389,190       26,366          8,506(a)    1,094,527      2,270
1994      6,327,967       26,975          8,775       1,086,400      2,587
1993      6,214,401       26,107          8,519       1,078,925      2,676


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