EXHIBIT 13.4 

                               1995 Annual Report

                    Public Service Company of New Hampshire

                                     Index


Contents                                                        Page
--------                                                        ----


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

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

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

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

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

Report of Independent Public Accountants....................      25

Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................      26

Selected Financial Data.....................................      32

Statistics..................................................      34

Statements of Quarterly Financial Data......................      34

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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
At December 31,                                                  1995         1994
-------------------------------------------------------------------------------------
                                                              (Thousands of Dollars)
<S>                                                           <C>          <C>
ASSETS
------

Utility Plant, at cost:
  Electric................................................   $2,109,590   $2,038,625

     Less: Accumulated provision for depreciation.........      513,244      474,129
                                                             -----------  -----------
                                                              1,596,346    1,564,496
  Unamortized acquisition costs (Note 1H)<F1H>............      588,910      678,974
  Construction work in progress...........................       15,975       17,781
  Nuclear fuel, net.......................................        1,585        2,248
                                                             -----------  -----------
      Total net utility plant.............................    2,202,816    2,263,499
                                                             -----------  -----------

Other Property and Investments:                              
  Nuclear decommissioning trusts, at market...............        2,436        1,815
  Investments in regional nuclear generating                 
   companies and subsidiary company, at equity............       19,300       19,551
  Other, at cost..........................................          764          394
                                                             -----------  -----------
                                                                 22,500       21,760
                                                             -----------  -----------
Current Assets:                                              
  Cash....................................................          456          322
  Notes receivable from affiliated companies..............       19,100       35,000
  Receivables, less accumulated provision for                
    uncollectible accounts of $1,582,000 in 1995
    and of $2,015,000 in 1994.............................       91,535       76,173
  Accounts receivable from affiliated companies...........        1,486        3,779
  Accrued utility revenues................................       33,984       36,547
  Fuel, materials, and supplies, at average cost..........       41,717       37,453
  Prepayments and other...................................       11,196       20,829
                                                             -----------  -----------
                                                                199,474      210,103
                                                             -----------  -----------

Deferred Charges:                                            
  Regulatory assets (Note 1G)<F1G>........................      434,001      292,531
  Deferred receivable from affiliated company.............       33,284       33,284
  Unamortized debt expense................................       14,165       17,064
  Other...................................................        3,396        7,726
                                                             -----------  -----------
                                                                484,846      350,605
                                                             -----------  -----------



      Total Assets........................................   $2,909,636   $2,845,967
                                                             ===========  ===========

</TABLE>

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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
At December 31,                                                   1995         1994
--------------------------------------------------------------------------------------
                                                               (Thousands of Dollars)
<S>                                                            <C>          <C>
CAPITALIZATION AND LIABILITIES
------------------------------

Capitalization:                                               
  Common stock, $1 par value--authorized                      
   and outstanding 1,000 shares in 1995 and 1994...........   $        1   $        1
  Capital surplus, paid in.................................      422,385      421,784
  Retained earnings........................................      143,039      125,034
                                                              -----------  -----------
           Total common stockholder's equity...............      565,425      546,819
  Cumulative preferred stock subject to mandatory
     redemption--
      $25 par value--authorized 25,000,000 shares;
        outstanding 5,000,000 shares in 1995 and 1994......      125,000      125,000
  Long-term debt...........................................      686,485      905,985
                                                              -----------  -----------
           Total capitalization............................    1,376,910    1,577,804
                                                              -----------  -----------

Obligations Under Seabrook Power Contracts
 and Other Capital Leases..................................      874,292      849,776
                                                              -----------  -----------
Current Liabilities:                                                      
  Long-term debt--current portion..........................      172,500       94,000
  Obligations under Seabrook Power Contracts and other                    
   capital leases--current portion.........................       40,996       38,191
  Accounts payable.........................................       39,012       45,984
  Accounts payable to affiliated companies.................       26,656       17,309
  Accrued taxes............................................          798        4,304
  Accrued interest.........................................        9,648       10,496
  Accrued pension benefits.................................       38,606       36,269
  Other....................................................       19,077       20,350
                                                              -----------  -----------
                                                                 347,293      266,903
                                                              -----------  -----------
Deferred Credits:                                             
  Accumulated deferred income taxes (Note 1J)<F1J>.........      229,057       62,080
  Accumulated deferred investment tax credits..............        5,060        5,614
  Deferred contractual obligation..........................       18,814       28,572
  Deferred revenue from affiliated company.................       33,284       33,284
  Other....................................................       24,926       21,934
                                                              -----------  -----------
                                                                 311,141      151,484
                                                              -----------  -----------


Commitments and Contingencies (Note 10)<F10>


           Total Capitalization and Liabilities............   $2,909,636   $2,845,967
                                                              ===========  ===========

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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
For the Years Ended December 31,                    1995       1994       1993
---------------------------------------------------------------------------------
                                                        (Thousands of Dollars)

<S>                                                <C>        <C>        <C>
Operating Revenues.............................. $ 979,590  $ 922,039  $ 864,415
                                                 ---------- ---------- ----------
Operating Expenses:                              
  Operation --                                   
     Fuel, purchased and net interchange power..   257,008    222,801    208,023
     Other......................................   313,390    303,271    301,534
  Maintenance...................................    42,244     43,725     35,427
  Depreciation..................................    44,337     38,703     38,580
  Amortization of regulatory assets, net........    55,547     55,319     67,379
  Federal and state income taxes (Note 8)<F8>...    69,758     68,088     54,087
  Taxes other than income taxes.................    41,786     38,046     34,675
                                                 ---------- ---------- ----------
        Total operating expenses................   824,070    769,953    739,705
                                                 ---------- ---------- ----------
Operating Income................................   155,520    152,086    124,710
                                                 ---------- ---------- ----------
                                                 
Other Income:                                   
  Equity in earnings of regional nuclear         
   generating companies and subsidiary company..     1,645      2,079      1,777
  Other, net....................................     3,329        629        635
  Income taxes..................................      (829)      (546)     3,868
                                                 ---------- ---------- ----------
        Other income, net.......................     4,145      2,162      6,280
                                                 ---------- ---------- ----------
        Income before interest charges..........   159,665    154,248    130,990
                                                 ---------- ---------- ----------

Interest Charges:                                
  Interest on long-term debt....................    76,320     76,410     77,842
  Other interest................................        90        394        911
                                                 ---------- ---------- ----------
        Interest charges, net...................    76,410     76,804     78,753
                                                 ---------- ---------- ----------

Net Income...................................... $  83,255  $  77,444  $  52,237
                                                 ========== ========== ==========
                                                
</TABLE>
The accompanying notes are an integral part of these financial statements.


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                   1995        1994        1993
--------------------------------------------------------------------------------------------------
                                                                      (Thousands of Dollars)
<S>                                                              <C>         <C>         <C>
Operating Activities:                                          
  Net Income.................................................. $   83,255  $   77,444  $   52,237
  Adjustments to reconcile to net cash                         
   from operating activities:                                  
    Depreciation..............................................     44,337      38,703      38,580
    Deferred income taxes and investment tax credits, net.....     69,986      67,047      50,027
    Recoverable energy costs, net of amortization.............    (15,266)    (81,206)    (39,654)
    Amortization of acquisition costs.........................     55,547      55,319      67,379
    Other sources of cash.....................................     15,973       3,213      30,001
    Other uses of cash........................................       -         (4,456)     (4,394)
  Changes in working capital:                                  
    Receivables and accrued utility revenues..................    (10,506)     (3,205)     (3,161)
    Fuel, materials, and supplies.............................     (4,264)      3,734       3,936
    Accounts payable..........................................      2,375      18,598      (2,894)
    Accrued taxes.............................................     (3,506)      4,182      (1,602)
    Other working capital (excludes cash).....................         16         742      (2,224)
                                                               ----------- ----------- -----------
Net cash flows from operating activities......................    237,947     180,115     188,231
                                                               ----------- ----------- -----------
                                                               
Financing Activities:                                          
  Issuance of long-term debt..................................       -           -         44,800
  Net decrease in short-term debt.............................       -         (2,500)    (41,000)
  Reacquisitions and retirements of long-term debt............   (141,000)    (94,000)   (138,800)
  Cash dividends on preferred stock...........................    (13,250)    (13,250)    (13,250)
  Cash dividends on common stock..............................    (52,000)       -           -
                                                               ----------- ----------- -----------
Net cash flows used for financing activities..................   (206,250)   (109,750)   (148,250)
                                                               ----------- ----------- -----------
                                                               
Investment Activities:                                         
  Investment in plant:                                         
    Electric utility plant....................................    (46,672)    (39,721)    (35,360)
    Nuclear fuel..............................................       (184)     (1,249)       (614)
                                                               ----------- ----------- -----------
  Net cash flows used for investments in plant................    (46,856)    (40,970)    (35,974)
  NU System Money Pool........................................     15,900     (35,000)      -
  Other investment activities, net............................       (607)        (68)       (340)
                                                               ----------- ----------- -----------
Net cash flows used for investments...........................    (31,563)    (76,038)    (36,314)
                                                               ----------- ----------- -----------
Net Increase (Decrease) in Cash For The Period................        134      (5,673)      3,667
Cash - beginning of period....................................        322       5,995       2,328
                                                               ----------- ----------- -----------
Cash - end of period.......................................... $      456  $      322  $    5,995
                                                               =========== =========== ===========
Supplemental Cash Flow Information:                            
Cash paid during the year for:                                 
  Interest, net of amounts capitalized........................ $   74,543  $   74,507  $   75,609
                                                               =========== =========== ===========
  Income taxes................................................ $    1,369  $      167  $    2,390
                                                               =========== =========== ===========
Increase in obligations:                                       
  Seabrook Power Contracts and other capital leases........... $   28,028  $   53,266  $   89,492
                                                               =========== =========== ===========

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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY


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

<S>                                              <C>   <C>         <C>         <C>
Balance at January 1, 1993...............  $     1    $420,762    $ 21,853    $442,616
    Net income for 1993..................                           52,237      52,237
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Capital stock expenses, net..........                  483                     483
                                           --------   ---------   ---------   ---------
Balance at December 31, 1993.............        1     421,245      60,840     482,086
    Net income for 1994..................                           77,444      77,444
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Capital stock expenses, net..........                  539                     539
                                           --------   ---------   ---------   ---------
Balance at December 31, 1994.............        1     421,784     125,034     546,819
    Net income for 1995..................                           83,255      83,255
    Cash dividends on preferred stock....                          (13,250)    (13,250)
    Cash dividends on common stock.......                          (52,000)    (52,000)
    Capital stock expenses, net..........                  601                     601
                                           --------   ---------   ---------   ---------
Balance at December 31, 1995.............  $     1    $422,385    $143,039    $565,425
                                           ========   =========   =========   =========





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



Public Service Company of New Hampshire
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

       Other wholly owned subsidiaries of NU provide substantial support
       services to the system.  Northeast Utilities Service Company (NUSCO)
       supplies centralized accounting, administrative, data processing,
       engineering, financial, legal, operational, planning, purchasing, and
       other services to the system companies.  North Atlantic Energy Service
       Corporation acts as agent for CL&P and NAEC in operating the Seabrook 1
       nuclear facility.  Northeast Nuclear Energy Company (NNECO) acts as
       agent for the system companies in operating the Millstone nuclear
       generating facilities.

       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.

       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.

   B.  FUTURE ACCOUNTING STANDARD
       The Financial Accounting Standards Board (FASB) issued Statement of
       Financial Accounting Standards (SFAS) 121, Accounting for the Impairment
       of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in
       March 1995.  SFAS 121 became effective January 1, 1996, and establishes
       accounting standards for evaluating and recording asset impairment.
       SFAS 121 requires the evaluation of long-lived assets for impairment
       when certain events occur or conditions exist that indicate the carrying
       amounts of assets may not be recoverable.  Refer to Note 1G, "Regulatory
       Accounting," for further information on the regulatory impacts of the
       company's adoption of SFAS 121.

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


       Connecticut Yankee Atomic Power Company (CY) ........    5.0%
       Yankee Atomic Electric Company (YAEC) ...............    7.0
       Maine Yankee Atomic Power Company (MY) ..............    5.0
       Vermont Yankee Nuclear Power Corporation (VY) .......    4.0


       PSNH'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.  The electricity
       produced by the facilities that are operating is committed substantially
       on the basis of ownership interests and is billed pursuant to
       contractual agreements.  Under ownership agreements with the Yankee
       companies, PSNH may be asked to provide direct or indirect financial
       support for one or more of the companies.  For more information on these
       agreements, see Note 10E, "Commitments and Contingencies - Long-term
       Contractual Arrangements."

       YAEC's nuclear power plant was shut down permanently on February 26,
       1992.  For more information on the Yankee companies, see Note 4,
       "Nuclear Decommissioning."

       Millstone 3:  PSNH has a 2.85 percent joint-ownership interest in
       Millstone 3, a 1,154-megawatt (MW) nuclear generating unit.  As of
       December 31, 1995 and 1994, plant-in-service included approximately
       $118.6 million and $118.3 million, respectively, and the accumulated
       provision for depreciation included approximately $26.5 million and
       $24.2 million, respectively, for PSNH's share of Millstone 3.  PSNH's
       share of Millstone 3 expenses is included in the corresponding operating
       expenses on the accompanying Statements of Income.

       Wyman Unit 4:  PSNH has a 3.14 percent ownership-interest in Wyman
       Unit 4 (Wyman), a 632-MW oil-fired generating unit.  At December 31,
       1995 and 1994, plant-in-service included approximately $6.0 million and
       the accumulated provision for depreciation included approximately $3.5
       million and $3.3 million, respectively, for PSNH's share of Wyman.
       PSNH's share of Wyman expenses is included in the corresponding
       operating expenses on the accompanying Statements of Income.

   D.  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 New Hampshire Public Utilities Commission (NHPUC).
       Except for major facilities, depreciation factors 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 for the year ended December 31, 1995 and 3.6 percent for the
       years ended December 31, 1994 and 1993.  See Note 4, "Nuclear
       Decommissioning," for information on nuclear plant decommissioning.

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

   F.  REVENUES
       Other than recovery under fixed-rate agreements negotiated with certain
       wholesale, industrial, and commercial customers, utility revenues are
       based on authorized rates applied to each customer's use of electricity.
       In general, rates can be changed only through a formal proceeding
       before the appropriate regulatory commission.  At the end of each
       accounting period, PSNH accrues an estimate for the amount of energy
       delivered but unbilled.

   G.  REGULATORY ACCOUNTING
       The accounting policies of PSNH and the accompanying financial
       statements conform to generally accepted accounting principles
       applicable to rate-regulated enterprises and reflect the effects of the
       ratemaking process in accordance with SFAS 71, Accounting for the
       Effects of Certain Types of Regulation. Assuming a cost-of-service based
       regulatory structure, regulators may permit incurred costs, normally
       treated as expenses, to be deferred and recovered in future revenues.
       Through their actions, regulators may also reduce or eliminate the value
       of an asset, or create a liability.  If any portion of the company's
       operations were no longer subject to the provisions of SFAS 71, as a
       result of a change in the cost-of-service based regulatory structure or
       the effects of competition, the company would be required to write off
       related regulatory assets and liabilities.  The company would also be
       required to determine any impairment to other assets and write down
       these assets to fair value.  Based on current regulation and recent
       regulatory decisions and initiatives relating to competition in the
       system's markets, the company believes that its use of regulatory
       accounting remains appropriate.

       SFAS 121 requires that any assets, including regulatory assets, which
       are no longer probable of recovery through future revenues, be revalued
       based on estimated future cash flows.  If the revaluation is less than
       the book value of the asset, an impairment loss would be charged to
       earnings.  As noted above, based on the current regulatory environment
       in the company's service area, it is not expected that SFAS 121 will
       have material impact on the company's financial position or results of
       operations upon adoption.  This conclusion may change in the future as
       competitive factors influence wholesale and retail pricing in the
       electric utility industry or if the cost-of-service based regulatory
       structure were to change.  For further information on the company's
       regulatory environment, refer to Management's Discussion and Analysis of
       Financial Condition and Results of Operations (MD&A).

       The components of regulatory assets are as follows:


       At December 31,                              1995       1994
       ---------------------------------------------------------------
                                               (Thousands of Dollars)

       Recoverable energy costs (Note 1I) ...     $220,093   $194,994
       Income taxes, net (Note 1J) ..........      192,690     66,466
       Unrecovered contractual obligation (Note 4)  18,814     28,572
       Other ................................        2,404      2,499
                                                ---------- ----------
                                                  $434,001   $292,531
                                                  ========   ========

   H.  UNAMORTIZED ACQUISITION COSTS
       The unamortized acquisition costs represent the aggregate value placed
       by the 1989 rate agreement with the state of New Hampshire (Rate
       Agreement) on PSNH's assets in excess of the net book value of PSNH's
       non-Seabrook assets plus the $700-million value assigned to Seabrook by
       the Rate Agreement, as part of the bankruptcy resolution, on June 5,
       1992 (Acquisition Date).  The Rate Agreement provides for the recovery,
       through rates, with a return, of the amortization of the unamortized
       acquisition costs.  The Rate Agreement provides that $425 million of the
       unamortized acquisition costs be amortized over the first seven years
       after PSNH's May 16, 1991 reorganization from bankruptcy (Reorganization
       Date), with the remaining amount to be amortized over the 20-year period
       after the Reorganization Date.  As of December 31, 1995, approximately
       $411.8 million of acquisition costs have been collected through rates.

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

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

       The costs associated with purchases from certain nonutility generators
       (NUGs) over the level assumed in the Rate Agreement are deferred and
       recovered through the FPPAC.  PSNH has been renegotiating the rate
       orders mandating the purchase of high-cost NUG power.  The NHPUC has
       approved an amendment to the Rate Agreement allowing settlement
       agreements to be implemented with two wood-fired NUGs.  In 1994, the two
       NUGs that were settled gave up their rights to sell their output to PSNH
       in exchange for lump-sum cash payments totaling approximately $40
       million.  The deferred buyout  payments are included as part of PSNH's
       recoverable energy costs.  During the Rate  Agreement's fixed-rate
       period, all of the savings from the buyout will be used to reduce PSNH's
       recoverable energy costs.  At the end of the fixed-rate period, 50
       percent of the savings will be used to reduce the recoverable energy
       costs, with the remainder reducing current rates.  PSNH has also reached
       tentative agreements with the six remaining wood-fired NUGs.  These
       agreements are subject to NHPUC approval.

       At December 31, 1995, PSNH's net recoverable energy costs were
       approximately $220 million, including purchased power deferrals of
       $185.6 million and the NUGs deferred buyout payments of $34.2 million.

   J.  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 income subject to tax)
       is accounted for in accordance with the ratemaking treatment of the
       applicable regulatory commissions.  The adoption of SFAS 109, Accounting
       for Income Taxes, in 1993 increased the company's deferred tax asset for
       net operating losses (NOLs) previously not recognized.  As the potential
       benefit is being given to customers through rates, PSNH established an
       associated regulatory liability.  The adoption of SFAS 109 also
       increased deferred tax liabilities and as it is probable that the
       increase in deferred tax liabilities will be recovered from customers
       through rates, PSNH established a regulatory asset.

       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:
       <TABLE>
       <CAPTION>
       At December 31,                                                    1995         1994
       --------------------------------------------------------------------------------------
                                                                        (Thousands of Dollars)
       <S>                                                              <C>          <C>
       Accelerated depreciation and other plant-related differences... $ 231,126   $   81,732
       NOL carryforwards ............................................   (191,873)    (247,440)
       Regulatory assets - income tax gross up ......................     85,192       33,837
       Other ........................................................    104,612      193,951
                                                                       ----------  ----------
                                                                       $ 229,057   $   62,080
                                                                       =========   ==========
       </TABLE>
       
       At December 31, 1995, PSNH had a NOL carryforward of approximately $572
       million, to be used against PSNH's federal taxable income, and to expire
       between the years 2000 and 2006.  PSNH also had Investment Tax Credit
       (ITC) carryforwards of $52 million, which expire between the years 1996
       and 2004.  For a portion of the carryforward amounts indicated above,
       the reorganization of PSNH under Chapter 11 of the United States
       Bankruptcy Code limits the annual amount of NOL and ITC carryforwards
       that may be used.  Approximately $95 million of the NOL and $21 million
       of the ITC carryforwards are subject to this limitation.

   K.  DERIVATIVE FINANCIAL INSTRUMENTS
       PSNH utilizes an interest-rate cap to manage well-defined interest-rate
       risk.  The premium paid for the purchased interest-rate-cap agreement is
       amortized to interest expense over the term of the cap. Unamortized
       premiums are included in deferred charges.  Amounts receivable under the
       cap agreement are accrued and offset against interest expense.  Any
       material unrealized gains or losses on the interest-rate cap will be
       deferred until realized.  For further information on derivatives, see
       Note 11, "Derivative Financial Instruments."

2. SEABROOK POWER CONTRACTS

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

   PSNH has included its right to buy power from NAEC on its Balance Sheets as
   part of utility plant with a corresponding obligation.  At December 31,
   1995, this right was valued at approximately $910.8 million.

   The contracts established the value of the initial investment in Seabrook
   (initial investment) at $700 million. As of December 31, 1995, the portion
   of the initial investment on which NAEC is entitled to earn a cash return
   was 85 percent.  The initial investment will be fully phased into NAEC's
   rate base as of May 1, 1996. From the Acquisition Date through December 31,
   1995, NAEC recorded $162.4 million of deferred return on the excluded
   portion of its investment in Seabrook 1.  The deferred return on the
   excluded portion of NAEC's investment in Seabrook 1 will be recovered from
   PSNH with carrying charges beginning December 1, 1997, and will be fully
   recovered by May 2001.  NAEC is depreciating its initial investment over the
   term of Seabrook 1's operating license (39 years), and any subsequent plant
   additions are depreciated on a straight-line basis over the remaining term
   of the power contracts at the time the subsequent additions are placed in
   service.

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


   Contract payments charged to operating expenses are approximately:

       Year                                       Contract Payments
       ----                                       -----------------
                                                (Thousands of Dollars)

       1995 .......................                  $154,000
       1994 .......................                   143,000
       1993 .......................                   123,000

   Interest included in the contract payments was $51 million in 1995, $43
   million in 1994, and $33 million in 1993.

   Future minimum payments, excluding executory costs, such as property taxes,
   state use taxes, insurance, and maintenance, under the terms of the
   contracts, as of December 31, 1995, are approximately:

       Year                                     Seabrook Power Contracts
       ----                                     ------------------------
                                                 (Thousands of Dollars)


       1996 ........................               $     79,900
       1997 ........................                     86,000
       1998 ........................                    143,800
       1999 ........................                    142,100
       2000 ........................                    140,300
       After 2000 ..................                  1,195,800
                                                     ----------
         
       Future minimum payments .....                  1,787,900

       Less amount representing interest                877,100
                                                    -----------
          
       Present value of Seabrook Power
         Contracts .................                $   910,800
                                                    ===========

3. LEASES

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

       Year                             Capital Leases      Operating Leases
       ----                             --------------      ----------------

       1995 ........................      $1,103,000          $5,291,000
       1994 ........................       1,061,000           4,255,000
       1993 ........................     701,000               6,197,000

   Interest included in capital leases was $351,000 in 1995, $394,000 in 1994,
   and $403,000 in 1993.

   Future minimum rental payments, excluding executory costs, such as property
   taxes, state use taxes, insurance, and maintenance, under long-term
   noncancellable leases, as of December 31, 1995, are:

       Year                                Capital Leases      Operating Leases
       ----                                --------------      ----------------
                                                   (Thousands of Dollars)

       1996 ........................           $1,100                $7,200
       1997 ........................            1,100                 6,100
       1998 ........................            1,000                 4,800
       1999 ........................              700                 4,100
       2000 ........................              500                 3,600
       After 2000 ..................            1,200                11,500
                                              -------              --------
       Future minimum lease payments           $5,600               $37,300
                                                                    =======

       Less amount representing interest        1,100
                                                -----
 
       Present value of future minimum lease
         payments ..................           $4,500
                                               ======

4. NUCLEAR DECOMMISSIONING

   Millstone 3 and Seabrook 1 have service lives that are expected to end
   during the years 2025 and 2026, respectively.  Upon retirement, these units
   must be decommissioned.  A 1992 decommissioning study concluded that
   complete and immediate dismantlement at retirement continues to be the most
   viable and economic method of decommissioning Millstone 3.  A 1994 Seabrook
   decommissioning study confirmed that complete and immediate dismantlement at
   retirement is the most viable and economic method of decommissioning
   Seabrook 1.  Decommissioning studies are reviewed and updated periodically
   to reflect  changes in decommissioning requirements, costs, technology, and
   inflation.

   The estimated cost of decommissioning PSNH's 2.85 percent ownership share of
   Millstone 3 and NAEC's 35.98 percent share of Seabrook 1, in year-end 1995
   dollars, is $12.5 million and $152.5 million, respectively.  These estimated
   costs assume levelized collections for Millstone 3 and escalated collections
   for Seabrook 1, and after-tax earnings on the Millstone and Seabrook
   decommissioning funds of 6.5 percent and 6.1 percent, respectively.
   Millstone 3 and Seabrook 1 decommissioning costs will be increased annually
   by their respective escalation rates.  PSNH's Millstone 3 decommissioning
   costs are accrued over the expected service life of the unit and are
   included in depreciation expense on its Statements of Income.  Nuclear
   decommissioning related to PSNH's share of Millstone 3 amounted to $0.3
   million in 1995, 1994, and 1993.  Nuclear decommissioning, as a cost of
   removal, is included in the accumulated provision for depreciation on PSNH's
   Balance Sheets.   At December 31, 1995, the balance in the accumulated
   reserve for decommissioning amounted to $2.4 million. See "Nuclear
   Decommissioning" in the MD&A for a discussion of changes being considered by
   the FASB related to accounting for closure and removal of long-lived assets
   (including nuclear decommissioning).

   PSNH makes payments to an independent decommissioning trust for its portion
   of the costs of decommissioning Millstone 3.  Under the terms of the Rate
   Agreement, PSNH is obligated to pay NAEC's share of Seabrook 1's
   decommissioning costs, even if the unit is shut down prior to the expiration
   of its operating license.  Accordingly, NAEC bills PSNH directly for its
   share of the costs of decommissioning Seabrook 1.  PSNH records its Seabrook
   decommissioning costs as a component of purchased power expense on its
   Statements of Income.  Under the Rate Agreement, PSNH's Seabrook
   decommissioning costs are recovered through base rates.
  
   As of December 31, 1995, PSNH collected through rates approximately $1.8
   million toward the future decommissioning costs of its share of Millstone 3,
   which has been transferred to the external decommissioning trust.  Earnings
   on the decommissioning trust increase the decommissioning trust balance and
   the accumulated reserve for decommissioning. Unrealized gains and losses
   associated with the decommissioning trust also impact the balance of the
   trust and the accumulated reserve for decommissioning.

   As of December 31, 1995, NAEC (including payments made prior to the
   Acquisition Date by PSNH) has paid approximately $13.1 million, into
   Seabrook 1's decommissioning financing fund.

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

   PSNH, along with other New England utilities, has equity investments in the
   four Yankee companies.  Each Yankee company owns a single nuclear generating
   unit with service lives that are expected to end during the years 2007
   through 2012.  PSNH's ownership share of estimated costs, in year-end 1995
   dollars, of decommissioning the units owned and operated by CY, MY, and VY
   is $19.3 million, $17.7 million, and $13.9 million, respectively.  Under the
   terms of the contracts with the Yankee companies, the shareholders-sponsors
   are responsible for their proportionate share of the operating costs of each
   unit, including decommissioning.  The nuclear decommissioning costs of the
   Yankee companies are included as part of the cost of power purchased by
   PSNH.

   YAEC is in the process of dismantling its nuclear facility.  Accelerated
   decommissioning of that unit has been delayed because of litigation over the
   NRC's approval of YAEC's decommissioning plan.  Effective November 1995,
   YAEC began billing its sponsors, including PSNH, amounts based on a revised
   estimate approved by the FERC that assumes decommissioning of the plant by
   the year 2000.  This revised decommissioning estimate was based on access to
   the Barnwell, South Carolina low-level radioactive waste facility, changes
   in assumptions about earnings in decommissioning trust investments, and
   changes in other decommissioning cost assumptions.  At December 31, 1995,
   the estimated remaining costs, including decommissioning, amounted to $268.8
   million, of which PSNH's share  was approximately $18.8 million.  Management
   expects that PSNH will continue to be allowed to recover such FERC-approved
   costs from its customers.  Accordingly, PSNH has recognized these costs as a
   regulatory asset, with corresponding obligations, on its Balance Sheets.

5. SHORT-TERM DEBT

   PSNH has credit lines totaling $125 million available through a revolving-
   credit agreement with a group of 19 banks.  PSNH may borrow funds on a
   short-term revolving basis using either fixed-rate or standby loans.  Fixed
   rates are set using competitive bidding.  Standby loan rates are based upon
   several alternative variable rates.  PSNH is obligated to pay a facility fee
   of 0.25 percent per annum on the total commitment.  At December 31, 1995 and
   1994, there were no borrowings under the agreement.  These credit lines will
   expire in May 1996.  PSNH is in the process of negotiating an increase and
   extension to the revolving credit agreement.

   Certain subsidiaries of NU, including PSNH, are members of the Northeast
   Utilities System Money Pool (Pool).  The Pool provides a more efficient use
   of the cash resources of the system, and reduces outside short-term
   borrowings.  NUSCO administers the Pool as agent for the member companies.
   Short-term borrowing needs of the member companies are first met with
   available funds of other member companies, including funds borrowed by NU
   parent.  NU parent may lend to the Pool but may not borrow.  Funds may be
   withdrawn from or repaid to the Pool at any time without prior notice.
   Investing and borrowing subsidiaries receive or pay interest based on the
   average daily Federal Funds rate.  However, borrowings based on loans from
   NU parent bear interest at NU parent's cost and must be repaid based upon
   the terms of NU parent's original borrowing. At December 31, 1995 and 1994,
   PSNH had no outstanding borrowings from the Pool.

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

   The amount of short-term borrowings that may be incurred by PSNH is subject
   to periodic approval by the SEC under the 1935 Act.  Under the SEC
   restrictions, PSNH was authorized, as of January 1, 1995 to incur short-term
   borrowings up to a maximum of $175 million.  PSNH is seeking approval from
   the NHPUC to increase its short-term debt limit to $225 million.

6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION

   Details of preferred stock subject to mandatory redemption are:

                          Shares Outstanding          December 31,
                                               ----------------------------
   Description            December 31, 1995    1995       1994       1993
   ------------------------------------------------------------------------
                                                 (Thousands of Dollars)

   10.60% Series A of 1991    5,000,000      $125,000   $125,000   $125,000
                                             ========   ========   ========

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

7. LONG-TERM DEBT

   Details of long-term debt outstanding are:
                                                          December 31,
                                                          ------------
                                                        1995        1994
   -----------------------------------------------------------------------
                                                     (Thousands of Dollars)
   First Mortgage Bonds:
    8 7/8%  Series A, due 1996............           $172,500     $172,500
    9.17%   Series B, due 1998............            170,000      170,000
                                                     --------    ---------
            Total First Mortgage Bonds....            342,500      342,500

   Term Loan/Notes:
   Variable Rate due 1996 ..............                 -         141,000

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

   Less:  Amounts due within one year ..              172,500       94,000
                                                   ----------    ---------
             Long-term debt, net .......             $686,485     $905,985
                                                     ========     ========


   Long-term debt maturities and cash sinking-fund requirements on debt
   outstanding at December 31, 1995 for the years 1996 through 2000 are
   approximately $172.5 million for 1996, $0 for 1997, $170 million for 1998,
   and $0 for 1999 and 2000.  Also, there are annual renewal and replacement
   fund requirements equal to 2.25 percent of the average of net depreciable
   property owned by PSNH at the reorganization date, plus cumulative gross
   property additions thereafter.  PSNH expects to meet these future fund
   requirements by certifying property additions.  Any deficiency would need to
   be satisfied by the deposit of cash or bonds.

   Essentially, all utility plant of PSNH is subject to the lien of its first
   mortgage bond indenture.  PSNH's Revolving Credit Facility is secured by a
   second lien, junior to the lien of its first mortgage bond indenture, on all
   PSNH property located in New Hampshire.  At December 31, 1995 and 1994,
   there were no borrowings under the Revolving Credit Facility.

   Concurrent with the issuance of PSNH's Series A and B First Mortgage Bonds,
   PSNH entered into financing arrangements with the Industrial Development
   Authority of the state of New Hampshire (IDA).  Pursuant to these
   arrangements, the IDA originally issued seven series of Pollution Control
   Revenue Bonds (PCRBs), and loaned the proceeds to PSNH.  In 1992 and 1993,
   the Business Finance Authority, formerly the IDA, issued $75 million and
   $44.8 million, respectively, of tax-exempt PCRBs to replace outstanding
   taxable PCRBs of the same amount.  At December 31, 1995 and 1994, $516.5
   million of PCRBs were outstanding.  The average effective interest rates on
   the variable-rate pollution control notes ranged from 3.9 percent to 6.1
   percent for 1995, and 2.9 percent to 4.3 percent for 1994.  PSNH's
   obligation to repay each series of PCRBs is secured by a series of First
   Mortgage Bonds that were issued under its indenture.  Each such series of
   First Mortgage Bonds contains terms and provisions with respect to maturity,
   principal payment, interest rate, and redemption that correspond to those of
   the applicable series of PCRBs.  For financial reporting purposes, these
   bonds would not be considered outstanding unless PSNH fails to meet its
   obligations under the PCRBs.

   The Series A and B First Mortgage Bonds are not redeemable prior to their
   maturity except in limited circumstances.  The PCRBs, except for Series D
   and E, are redeemable on or after May 1, 2001, at the option of the company
   with accrued interest and at specified premiums.  Under current interest
   rate elections by PSNH, the Series D and E PCRBs are redeemable, at par plus
   accrued interest at the end of each interest-rate period.  Future interest-
   rate elections by PSNH could significantly defer or eliminate the
   availability of optional redemptions by PSNH, and could affect costs as
   well.

8. INCOME TAX EXPENSE

   The components of federal and state income tax provisions are:

   For the Years Ended December 31,              1995       1994       1993
   -------------------------------------------------------------------------
                                                   (Thousands of Dollars)

   Current income taxes:
     Federal ............................      $(1,166)  $    368   $   (937)
     State ..............................        1,767      1,219      1,183
                                               -------   --------   --------
       Total current ....................          601      1,587        246
                                               -------   --------   --------

   Deferred income taxes, net:
     Federal ............................       72,147     63,941     47,407
     State ..............................       (1,606)     3,666      3,131
                                                -------  --------   --------
       Total deferred  ..................       70,541     67,607     50,538
                                                          
   Investment tax credits, net ..........         (555)      (560)      (565)
                                             ---------  ---------  ---------
   Total income tax expense .............      $70,587    $68,634    $50,219
                                               =======    =======    =======

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

   Income taxes charged to operating expenses  $69,758    $68,088    $54,087
   Other income taxes ...................          829        546     (3,868)
                                              --------   --------   --------
   Total income tax expense .............      $70,587    $68,634    $50,219
                                               =======    =======    =======

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

   For the Years Ended December 31,              1995       1994       1993
   --------------------------------------------------------------------------
                                                  (Thousands of Dollars)

   Depreciation .........................     $  1,294    $ 2,701    $ 4,549
   Deferred tax asset associated with NOL       57,543     23,611     25,438
   Energy adjustment clauses ............        5,098     30,954     15,155
   Amortization of regulatory settlement        11,501     11,501      7,667
   Other ................................       (4,895)    (1,160)    (2,271)
                                              --------   --------   --------

   Deferred income taxes, net ...........      $70,541    $67,607    $50,538
                                               =======    =======    =======

   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,              1995       1994       1993
   --------------------------------------------------------------------------
                                                  (Thousands of Dollars)

   Expected federal income tax at 35 percent
     of pretax income ...................      $53,845    $51,127    $35,860
   Tax effect of differences:
     Depreciation .......................        1,868      1,407      1,593
     Amortization of acquisition costs ..       31,522     31,508     31,432
     Seabrook intercompany loss .........      (13,048)   (19,637)   (19,176)
     Investment tax credit amortization .         (555)      (560)      (565)
     State income taxes, net of federal benefit    105      3,175      2,804
     Other, net .........................       (3,150)     1,614     (1,729)
                                              --------   --------   --------

   Total income tax expense .............      $70,587    $68,634    $50,219
                                               =======    =======    =======

9. EMPLOYEE BENEFITS

   A.  PENSION BENEFITS
       PSNH participates in a uniform noncontributory-defined benefit
       retirement plan covering all regular system employees. Benefits are
       based on years of service and employees' highest eligible compensation
       during five consecutive years of employment.  The company's direct
       portion of the system's pension cost, part of which was charged to
       utility plant, approximated $2.3 million in 1995, $4.4 million in 1994,
       and $6.6 million in 1993.  Pension costs for 1994 and 1993 included
       approximately $1.9 million and $3.4 million, respectively, related to
       workforce-reduction programs.

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


       The components of net pension cost for PSNH are:

       <TABLE>
       <CAPTION>
       
       For the Years Ended December 31,              1995        1994         1993
       ---------------------------------------------------------------------------
                                                        (Thousands of Dollars)
       <S>                                         <C>         <C>         <C>
       Service cost ......................        $  3,462    $  5,531    $  7,539
       Interest cost .....................          11,923      11,129      11,180
       Return on plan assets .............         (33,156)        246     (19,308)
       Net amortization ..................          20,108     (12,526)      7,215
                                                  --------    --------   ---------
       Net pension cost ..................        $  2,337    $  4,380    $  6,626
                                                  ========    ========    ========
       ---------------------------------------------------------------

       </TABLE>

       For calculating pension cost, the following assumptions were used:

       For the Years Ended December 31,           1995     1994      1993
       -------------------------------------------------------------------

       Discount rate .....................        8.25%    7.75%     8.00%
       Expected long-term rate of return .        8.50     8.50      8.50
       Compensation/progression rate .....        5.00     4.75      5.00
       
       The following table represents the plan's funded status reconciled to the
       Balance Sheets:
       
       At December 31,                                      1995        1994
       -----------------------------------------------------------------------
                                                         (Thousands of Dollars)

       Accumulated benefit obligation, including vested
       benefits at December 31, 1995 and 1994 of
       $123,475,000 and $111,198,000, respectively       $133,840     $121,202
                                                         ========     ========

       Projected benefit obligation (PBO) ....           $169,040     $146,972
       Market value of plan assets ...........            159,094      136,104
                                                         --------     --------
       PBO in excess of plan assets ..........             (9,946)     (10,868)
       Unrecognized transition amount ........              4,671        5,004
       Unrecognized prior service costs ......              5,428        5,775
       Unrecognized net gain .................            (38,759)     (36,180)
                                                        ---------    ---------
       Accrued pension liability .............           $(38,606)     $(36,269)
                                                         ========      ========
      -------------------------------------------------------------------------

       The following actuarial assumptions were used in calculating the plan's
       year-end funded status:
       
       For the Years Ended December 31,               1995       1994
       ---------------------------------------------------------------

       Discount rate .........................        7.50%     8.25%
       Compensation/progression rate .........        4.75      5.00
       
       
  B.   POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
       PSNH provides certain health care benefits, primarily medical and
       dental, and life insurance benefits through a benefit plan to retired
       employees (referred to as SFAS 106 benefits).  These benefits are
       available for employees retiring from the company who have met specified
       service requirements. For current employees and certain retirees, the
       total SFAS 106 benefit is limited to two times the 1993 per-retiree
       health care costs.  The SFAS 106 obligation has been calculated based on
       this assumption.  PSNH's direct portion of SFAS 106 benefits, part of
       which were deferred or charged to utility plant, approximated $7.2
       million in 1995, $7.6 million in 1994, and $9.1 million in 1993.

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

       The components of health care and life insurance costs are:

       <TABLE>
       <CAPTION>
       

       For the Years Ended December 31,             1995         1994        1993
       ---------------------------------------------------------------------------
                                                        (Thousands of Dollars)
       <S>                                        <C>           <C>          <C>
       Service cost ..................          $    933     $    971       $1,260
       Interest cost .................             4,063        3,844        4,800
       Return on plan assets .........            (1,694)          37         -
       Amortization of unrecognized transition
         obligation ..................             2,941        2,941        3,046
       Other amortization, net .......               998         (206)        -
                                                 -------     --------    ---------
       Net health care and life insurance costs   $7,241       $7,587       $9,106
                                                  ======       ======       ======
       ---------------------------------------------------------------

       </TABLE>

       For calculating PSNH's SFAS 106 benefits cost, the following assumptions
       were used:
       
       For the Years Ended December 31,        1995      1994      1993
       ------------------------------------------------------------------

       Discount rate .................         8.00%     7.75%     7.75%
       Long-term rate of return:
          Health assets, net of tax ..         5.00      5.00      5.00
          Life assets ................         8.50      8.50      8.50
          
       The following table represents the plan's funded status reconciled to the
       Balance Sheet:

       At December 31,                                        1995        1994
       -------------------------------------------------------------------------
                                                          (Thousands of Dollars)

       Accumulated postretirement benefit obligation of:

          Retirees ...................                     $ 44,985    $ 39,881
          Fully eligible active employees                        27          52
          Active employees not eligible to retire            10,627       9,065
                                                           --------  ----------

       Total accumulated postretirement benefit obligation   55,639      48,998

       Market value of plan assets ...                       11,743       6,606
                                                          ---------  ----------
       Accumulated postretirement benefit obligation
        in excess of plan assets ..............             (43,896)    (42,392)
       Unrecognized transition amount                        49,989      52,930
       Unrecognized net gain  ........                       (8,373)    (13,204)
                                                           --------    --------
       Accrued postretirement benefit liability            $ (2,280)   $ (2,666)
                                                          =========    ========
       ------------------------------------------------------------------------

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

       At December 31,                                 1995           1994
       --------------------------------------------------------------------

       Discount rate .........................        7.50%          8.00%
       Health care cost trend rate (a) .......        8.40          10.20

       (a) The annual growth in per capita cost of covered health care
           benefits was assumed to decrease to 5.4 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, 1995 by $3.7
       million and the aggregate of the service and interest cost components of
       net periodic postretirement benefit cost for the year then ended by $0.3
       million.  The trust holding the plan assets is subject to federal income
       taxes at a 35 percent tax rate.

       PSNH is currently recovering SFAS 106 costs, including amounts
       previously deferred.

10. COMMITMENTS AND CONTINGENCIES

   A.  CONSTRUCTION PROGRAM
       The construction program is subject to periodic review and revision.
       PSNH currently forecasts construction expenditures of $200.9 million for
       the years 1996-2000, including $51.5 million for 1996. In addition, the
       company estimates that nuclear fuel requirements, for its share of
       Millstone 3, will be $4.8 million for the years 1996-2000, including
       $1.8 million for 1996.

   B.  NUCLEAR PERFORMANCE
       On January 31, 1996, the NRC announced that the three Millstone nuclear
       power plants operated by NNECO had been placed on its "watch list"
       because of long-standing performance concerns.  The NRC cited a number
       of operational problems which have arisen since 1990 at the Millstone
       plants.

       The NRC recognized that there are significant current variations in the
       performance of the three units.  The performance concerns cited by the
       NRC, combined with NU's failure to maintain previous performance
       improvements, have resulted in the NRC requiring close monitoring of
       Millstone unit operations and the implementation of a corrective action
       program.  While the NRC has not specifically restricted operations at
       the Millstone site, the company expects that there will be costs
       associated with the NRC's actions that cannot accurately be estimated at
       this time.

   C.  ENVIRONMENTAL MATTERS
       PSNH is subject to regulation by federal, state, and local authorities
       with respect to air and water quality, handling the disposal of toxic
       substances and hazardous and solid wastes, and the handling and use of
       chemical products.  PSNH has an active environmental auditing and
       training program and believes that it is in substantial compliance with
       current environmental laws and regulations.

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

       PSNH has recorded a liability for what it believes, based upon
       information currently available, are its estimated environmental
       remediation costs for waste disposal sites.  In most cases, additional
       future environmental cleanup costs are not reasonably estimable due to a
       number of factors, including the unknown magnitude of possible
       contamination, the appropriate remediation methods, the possible effects
       of future legislation or regulation, and the possible effects of
       technological changes.  At December 31, 1995, the liability recorded by
       PSNH for its estimated environmental remediation costs, excluding any
       possible insurance recoveries or recoveries from third parties, amounted
       to approximately $5.0 million.

       PSNH cannot estimate the potential liability for future claims,
       including environmental remediation costs, that may be brought against
       it.  However, considering known facts, existing laws, and regulatory
       practices, management does not believe the matters disclosed above will
       have a material effect on PSNH's financial position or future results of
       operations.

   D.  NUCLEAR INSURANCE CONTINGENCIES
       Under certain circumstances, in the event of a nuclear incident at one
       of the nuclear facilities covered by the federal government's third-
       party liability indemnification program, the company could be assessed
       in proportion to its ownership interest in each nuclear unit up to $75.5
       million, not to exceed $10 million per nuclear unit in any one year.
       The maximum assessment is to be adjusted at least every five years for
       inflationary changes.  Under the terms of the power contracts with NAEC,
       PSNH could be obligated to pay for any assessment charged to NAEC as a
       "cost of service."  Based on the ownership interest in Millstone 3 and
       NAEC's ownership interest in Seabrook 1, PSNH's maximum liability,
       including any additional potential assessments, would be $30.8 million
       per incident.  In addition, through power purchase contracts with the
       three operating Yankee regional nuclear generating companies, PSNH would
       be responsible for up to an additional $11.1 million per incident.
       Payments for PSNH's ownership interest in nuclear generating facilities
       would be limited to a maximum of $5.3 million per incident per year.

       Insurance has been purchased to cover the primary cost of repair,
       replacement, or decontamination of utility property resulting from
       insured occurrences at Millstone 3.  PSNH is subject to retroactive
       assessments if losses exceed the accumulated funds available to the
       insurer. The maximum potential assessment against PSNH with respect to
       losses arising during the current policy year is approximately $0.5
       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.
       PSNH is subject to retroactive assessments if losses exceed the
       accumulated funds available to the insurer. The maximum potential
       assessments against PSNH (including costs resulting from PSNH's
       contracts with NAEC), with respect to losses arising during current
       policy years are approximately $1.6 million under the replacement power
       policies and $11.1 million under the excess property damage,
       decontamination, and decommissioning policies.  Although PSNH has
       purchased the limits of coverage currently available from the
       conventional nuclear insurance pools, the cost of a nuclear incident
       could exceed available insurance proceeds.

       Insurance has been purchased aggregating $200 million on an industry
       basis for coverage of worker claims.  All participating reactor
       operators insured under this coverage are subject to retrospective
       assessments of $3.0 million per reactor.  The maximum potential
       assessment against  PSNH (including costs resulting from the Seabrook
       power contracts with NAEC), with respect to losses arising during the
       current policy period is approximately $1.8 million.

   E.  LONG-TERM CONTRACTUAL ARRANGEMENTS
       Yankee Companies:  PSNH, along with CL&P and WMECO, purchased
       approximately 6.7 percent of their electricity requirements pursuant to
       long-term contracts with the Yankee companies.  Under the terms of their
       agreements, the companies pay their ownership (or entitlement) shares of
       generating costs, which include depreciation, O&M expenses, taxes, the
       estimated cost of decommissioning, and a return on invested capital.
       These costs are recorded as purchased-power expense and recovered
       through the companies' rates.  PSNH's total cost of purchases under
       these contracts for the units that are operating amounted to $26.4
       million in 1995, $23.4 million in 1994, and $26.5 million in 1993.  See
       Note 1C, "Summary of Significant Accounting Policies-Investments and
       Jointly Owned Electric Utility Plant," and Note 4, "Nuclear
       Decommissioning," for more information on the Yankee companies.

       Nonutility Generators:  PSNH has entered into various arrangements for
       the purchase of capacity and energy from NUGs.  These arrangements have
       terms from 20 to 30 years, currently expiring in the years 1998 through
       2023, and require PSNH to purchase the energy at specified prices or
       formula rates.  For the 12 months ended December 31, 1995, approximately
       13 percent of system electricity requirements was met by NUGs. PSNH's
       total cost of purchases under these arrangements amounted to $129.6
       million in 1995, $130.0 million in 1994, and $133.4 million in 1993.
       These costs are eventually recovered through the company's rates.  For
       additional information, see Note 1I, "Summary of Significant Accounting
       Policies-Recoverable Energy Costs."

       New Hampshire Electric Cooperative:  PSNH entered into a buy-back
       agreement to purchase the capacity and energy of the New Hampshire
       Electric Cooperative, Inc.'s (NHEC) share of Seabrook 1 and to pay all
       of NHEC's Seabrook 1 costs for a ten-year period, which began July 1,
       1990.  The total cost of purchases under this agreement was $15.8
       million in 1995, $14.6 million in 1994, and $14.4 million in 1993.  A
       portion of these costs is collected currently through the FPPAC and the
       remaining costs are deferred for future collection in accordance with
       the Rate Agreement.  In connection with the agreement, NHEC agreed to
       continue as a firm-requirements customer of PSNH for 15 years.

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

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

                               1996      1997      1998      1999      2000
       --------------------------------------------------------------------
                                           (Millions of Dollars)

       Yankee Companies        $25.4     $25.8     $27.7     $27.6    $29.6
       Nonutility Generators   130.3     134.5     137.9     141.4    145.4
       NHEC ..........          14.6      22.5      29.5      29.7     14.6
       Hydro-Quebec ..          11.2      10.6      10.3      10.0      9.9
       
   F.  DEFERRED RECEIVABLE FROM AFFILIATED COMPANY
       At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
       with the phase-in under the Rate Agreement, it began accruing a deferred
       return on a portion of its Seabrook investment. From May 16, 1991 to the
       Acquisition Date, PSNH accrued a deferred return of $50.9 million.  On
       the Acquisition Date, PSNH sold the $50.9 million deferred return to
       NAEC as part of the Seabrook-related assets.

       At the time PSNH transferred the deferred return to NAEC, it realized,
       for income tax purposes, a gain that is deferred under the consolidated
       income tax rules.  This gain will be restored for income tax purposes
       when the deferred return of $50.9 million, and the associated income
       taxes of $32.9 million, are collected by NAEC through the Seabrook power
       contracts.  When NAEC recovers the $32.9 million in years eight through
       ten of the Rate Agreement, it is obligated to make corresponding
       payments to PSNH.

       On the Acquisition Date, PSNH recorded the $32.9 million of income taxes
       associated with the deferred return as a deferred receivable from NAEC,
       with a corresponding entry to deferred revenue, on its Balance Sheet.
       In 1993, due to changes in tax rates, this amount was adjusted to $33.3
       million.

11. DERIVATIVE FINANCIAL INSTRUMENTS

   The company utilizes derivative financial instruments to manage well-defined
   interest-rate risks.  The company does not use them for trading purposes.

   PSNH has entered into an interest-rate cap contract with a financial
   institution in order to reduce a portion of the interest-rate risk
   associated with certain variable-rate tax-exempt pollution control revenue
   bonds, as well as a portion of the PSNH Variable-Rate Term Loan.  During
   1995, there was one outstanding contract held by PSNH, covering $75 million
   of its variable rate debt, which expired in January 1996.  The contract
   entitled PSNH to receive from its counterparties the amount, if any, by
   which the interest payments on its variable-rate tax-exempt pollution
   control revenue bond exceeds the J. J. Kenny High Grade Index and the PSNH
   Variable-Rate Term Loan exceeds the three-month LIBOR rate.  Due to its
   upcoming expiration, as of December 31, 1995, the total fair market value of
   this cap was $0.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

   SFAS 115, Accounting for Certain Investments in Debt and Equity Securities,
   requires investments in debt and equity securities to be presented at fair
   value and was adopted by PSNH on a prospective basis as of January 1, 1994.
   Unrealized gains and losses resulting from the adoption of SFAS 115 have
   not been material.  There was no change in funding requirements of the
   trusts nor any impact on earnings as a result of the adoption of SFAS 115.

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

   The carrying amounts of PSNH's financial instruments and the estimated fair
   values are as follows:

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

   Preferred stock subject to mandatory redemption  $125,000    $131,250

   Long-term debt - First Mortgage Bonds ....        342,500     352,517

   Other long-term debt .....................        516,485     532,190
   
   ------------------------------------------------------------------------
                                                   Carrying       Fair
   At December 31, 1994                             Amount        Value
   ------------------------------------------------------------------------
                                                   (Thousands of Dollars)

   Preferred stock subject to mandatory redemption  $125,000    $127,500

   Long-term debt - First Mortgage Bonds ....        342,500     342,931

   Other long-term debt .....................        657,485     641,673

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



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

     We have audited the accompanying balance sheets of Public Service Company
of New Hampshire (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1995 and 1994, and the related
statements of income, common stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Public Service Company of
New Hampshire as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.



                                   /s/  Arthur Andersen LLP

                                   ARTHUR ANDERSEN LLP


Hartford, Connecticut
February 16, 1996


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

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


This section contains management's assessment of PSNH'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
financial statements and footnotes.


FINANCIAL CONDITION

OVERVIEW

Net income was approximately $83 million in 1995, an increase of approximately
$6 million, from approximately $77 million in 1994.  The 1995 net income was
higher primarily due to higher revenues from the sixth step of PSNH's Rate
Agreement and higher base fuel recoveries, partially offset by higher capacity
charges under the Seabrook Power Contract, higher purchased power, and higher
income taxes.

Retail kilowatt-hour sales rose by only 0.4 percent in 1995 as a result of a
flat economy in  New England.  With the New England economy not forecasted to
grow substantially during 1996, sales levels are expected to remain flat.

PSNH acts as both a buyer and a seller of electricity in the highly competitive
wholesale electricity market in the Northeast.  Increased competition has made
the renegotiation of expiring wholesale contracts, as well as the signing of new
contracts, financially challenging.

During 1995, the Federal Energy Regulatory Commission issued a proposal for
restructuring the electric-power industry which calls for open access to
transmission facilities, a standard formula for calculating rates, and full
recovery of stranded investments.  The impact on PSNH of this proposal, which is
expected to be finalized in 1996, is not known at this time.

During 1995, the Coalition of Northeastern Governors released its report
addressing the restructuring of the electric-power industry and its resulting
impact on customers and states. The report presented the future as one in which
there would be some form of continued regulation for transmission and
distribution with fully competitive generation.

In 1995, the New Hampshire Legislature created a committee to review the
industry's structure and called for the New Hampshire Public Utilities
Commission (NHPUC) to initiate a retail wheeling pilot program. Under the
current NHPUC proposal, the program, which is expected to begin in 1996, will
initially impact 3 percent of PSNH's peak retail electric load, but only allows
for a 50-percent recovery of PSNH's potentially strandable costs. PSNH and the
NHPUC Staff have entered into a joint recommendation that, if approved by the
NHPUC, would govern PSNH's participation in the retail wheeling pilot program.
Under this settlement, PSNH would provide competing electric suppliers access to
3 percent of its retail customers.  PSNH would recover 100 percent of its
potentially strandable costs via a delivery charge, but would provide a 10-
percent incentive credit off its traditional rates to encourage customer
participation in the two-year program.

PSNH is taking a proactive role in the electric-power industry's movement toward
competition. PSNH has outlined a comprehensive approach to enhancing customer
satisfaction and market efficiency while moving toward full competition in the
electricity marketplace.  The approach calls for several significant changes in
electricity pricing, the ability to introduce new products and services, the
method of rate-setting, and the operation of the New England Power Pool. The
plan also calls for the phase-in of supplier choices through the use of pilot
programs.  Management believes that a fully competitive market for electricity
should begin once all issues relating to the transition from traditional utility
regulation have been thoroughly addressed.

In addition to the formulation of this approach and ongoing meetings with
legislators, regulators, and others in the industry, PSNH is moving ahead in
other areas, including revenue enhancement initiatives, and cost reductions, to
better position itself for an increasingly competitive environment.

A comprehensive companywide effort, which started in 1994, to reengineer PSNH's
business and operating processes continued throughout 1995.  PSNH expects that
this effort will have significant positive effects on operating costs and
customer service.  Many of the organizational changes in the operating and
service functions announced in 1995 and early 1996 are consistent with the
initial recommendations of the reengineering teams.  While PSNH's reengineering
efforts will be reduced in 1996, implementation costs relating to the previous
reengineering efforts are expected to increase.

With retail electric revenues accounting for approximately  80 percent of its
1995 revenues, PSNH has continued to develop a number of initiatives to retain
and serve its existing customers and to expand its retail customer base. The
most visible result of these efforts is the expansion of the Retail Marketing
organization.  Retail Marketing's mission is to better understand the needs and
concerns of PSNH's retail customer and to develop innovative approaches to
addressing these issues. These initiatives include providing discounts to
certain customers for signing economic development and competitive generation-
based contracts, offering demand-side-management services, and providing
additional products and services.

WORKFORCE REDUCTIONS

In January 1996, NU completed its nuclear workforce reduction plan.
Approximately 220 positions were eliminated through a combination of early
retirements, attrition and layoffs.  The total pretax cost of the workforce
reduction, to the NU system, which was recognized in 1995, was approximately $9
million.

RATE MATTERS

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

The creation of these regulatory assets has kept down electric rates in past
years, at the expense of having higher rates in the future.  At December 31,
1995, PSNH's regulatory assets totaled approximately $430 million. The largest
regulatory assets are related to the future recovery of energy cots,
approximately $220 million, and income taxes, approximately $193 million.  The
substantial costs of amortizing these regulatory assets would hinder PSNH from
competing effectively in an openly competitive electric market if customers are
not required to pay such costs.  Given the increasingly competitive nature of
the industry and increased activity in the regulatory environment, PSNH has made
the recovery of regulatory assets one of its central financial strategies, while
balancing the customer's pricing needs with NU's shareholder's earnings
requirements. Under its existing rate agreement, PSNH is allowed to recover a
significant portion of its regulatory assets during the next five years.
However, maintaining the present recovery level is dependent upon the outcome of
negotiations between PSNH and the NHPUC when its current rate agreement expires.

As the expiration of PSNH's current rate agreement approaches, negotiations will
be held between PSNH and the NHPUC to determine whether, or to what extent,
rates should be adjusted going forward. PSNH's strategy during these
negotiations will be to maintain stable rates, applying any available earnings
that may result to reduce the balance of its regulatory assets. Management is
unable to predict the ultimate outcome of these negotiations, which will be
subject to NHPUC approval.

In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS 121, which was effective January 1, 1996, requires
assets, including regulatory assets, that are no longer probable of recovery
through future revenues be charged to earnings.

If future competition or regulatory actions cause any portion of its operations
to no longer be subject to SFAS 71, PSNH would be required to determine the fair
value of the related regulatory assets and liabilities and record any necessary
write-downs.  Additionally, if events create uncertainty about the
recoverability of any of PSNH'S remaining long-lived assets, a similar analysis
would be required for those assets in accordance with SFAS 121. Under its
current regulatory environment, PSNH believes that its use of SFAS 71 remains
appropriate and that the adoption of SFAS 121 will not have a material impact on
its financial position or results of operations.

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

In June 1995, PSNH's base rates increased by 5.5 percent under the sixth step of
a seven-year 1989 rate agreement approved by the NHPUC.

In November 1995, the NHPUC authorized a PSNH request to reduce its Fuel and
Purchased Power Adjustment Clause (FPPAC) rate, which took effect on December 1,
1995, and will continue through May 31, 1996. The decision reduced PSNH's
overall rates by approximately 2.6 percent.

In 1995, PSNH completed installation of equipment to comply with the Clean Air
Act Amendments of 1990.  The capitalized cost of the installation was
approximately $25 million, and will cause PSNH to spend approximately $4 million
annually for additional operation and maintenance costs.  In April 1995, the
NHPUC began proceedings to determine whether these costs are recoverable from
customers.  The NHPUC is allowing PSNH to recover these costs through the FPPAC,
subject to refund, pending a final decision.

The costs associated with purchases by PSNH from certain nonutility generators
(NUGs) over the level assumed in rates are deferred for recovery over ten-year
periods through the FPPAC.  PSNH is attempting to renegotiate these arrangements
with the NUGs. At December 31, 1995, the unrecovered deferral was approximately
$192 million, including buyout payments of approximately $34 million for two of
PSNH's eight wood-fired NUGs.  By December 31, 1995,  PSNH had reached
agreements with the owners of the remaining six wood-fired NUGs.  If
consummated, these agreements could result in net savings of approximately $430
million to PSNH's customers over a period of 20 years following guaranteed
payments of approximately $250 million. Management will reevaluate whether to
proceed with these agreements if the NHPUC fails to provide for full recovery of
stranded costs.

NUCLEAR PERFORMANCE

On January 31, 1996, the Nuclear Regulatory Commission (NRC) placed Millstone 1,
2, and 3 (Millstone) on its "watch list."  The NRC's action was in response to
a number of performance concerns which have arisen since 1990 and a failure to
resolve employee safety concerns.  The NRC's action will result in close
monitoring of programs and performance at Millstone to assure the development
and implementation of effective corrective actions.

NU's management plans to continue its extensive efforts already underway to
address these concerns. Concurrent with the NRC's action, NU provided the NRC
with the results of a comprehensive self-assessment review of the employee
concern program at Millstone.  Additionally, in January 1996, NU announced a
reorganization of its nuclear operations which included the creation of a new
office of Nuclear Safety and Oversight.

Operations at Millstone 3 have not been restricted by its placement on the
"watch list".  NU's management expects that the increased NRC attention will
inevitably have effects and costs that are not known at this time.

The Seabrook plant operated at 83.2 percent of capacity for the year ended
December 31, 1995, compared with 61.6 percent in 1994 and a 1995 national
average of 77.6 percent. The higher 1995 capacity factor was primarily the
result of unplanned and extended outages in 1994 compared to only a 37.5-day
planned refueling and maintenance outage in 1995, the unit's shortest to date.

ENVIRONMENTAL MATTERS

NU devotes substantial resources to identify and comply with the multitude of
environmental requirements it faces.  NU has active auditing programs addressing
a variety of regulatory requirements, including an environmental auditing
program to detect and remedy noncompliance with environmental laws or
regulations.

PSNH is potentially liable for environmental cleanup costs at a number of sites
both inside and outside its service territory.  To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of PSNH.  At December 31, 1995, the company had
recorded an environmental reserve amounting to approximately $5 million, as
required under SFAS 5, ``ccounting for Contingencies.'' These costs could be
significantly higher if alternative remedies become necessary.

NUCLEAR DECOMMISSIONING

PSNH's estimated cost to decommission its 2.85 percent share of Millstone 3 and
NAEC's 35.98 percent share of Seabrook 1 is approximately $13 million and $153
million, respectively, in year-end 1995 dollars. These costs are being
recognized over the lives of the respective units and a portion is being
recovered through rates. Under the terms of the Rate Agreement, the company is
obligated to pay NAEC's share of Seabrook's decommissioning costs, even if the
unit is shut down prior to the expiration of its operating license.

The FASB is currently reviewing the accounting for closure and removal costs,
including decommissioning and similar costs, for long-lived assets.  If current
electric-power industry accounting practices for such decommissioning costs were
changed, annual provisions for decommissioning would increase and the estimated
costs for decommissioning would be recorded as a liability rather than as a
component of accumulated depreciation.

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

LIQUIDITY AND CAPITAL RESOURCES

Cash provided from operations increased approximately $58 million in 1995, from
1994, primarily due to the 1994 payments to the NUGs. Cash used for financing
activities increased approximately $97 million in 1995, from 1994, primarily due
to the repayment of the Term Loan and the payment of its first common stock
dividends in 1995. Cash used for investments decreased approximately $44 million
in 1995, from 1994, primarily due to an increase in short-term loans to other NU
system companies under the NU system Money Pool.

The company has a more leveraged capital structure than most other investor-
owned public utilities and is required to make substantial interest payments.
The company's indebtedness under the Revolving Credit Facility, and some of the
company's pollution control revenue bonds bear interest at floating rates to be
set periodically, causing the company to be sensitive to fluctuating interest
rates.

PSNH has entered into an interest-rate-cap contract to reduce a portion of its
interest-rate risk.

In October 1995, Moody's Investors Service lowered its rating for PSNH and NAEC
securities, bringing the rating for PSNH's First Mortgage Bonds below investment
grade. Standard & Poor's had previously downgraded PSNH to below investment
grade. NAEC securities had not been previously rated at investment grade. These
downgrades could adversely affect the future availability and cost of funds for
these companies.

PSNH may be required to issue a significant amount of new debt in 1996, since it
must fund the maturity of its $172.5 million first mortgage bond issue at the
same time that it may need to finance more than $100 million for payments to its
wood-fired NUG's.

See the "Notes to Financial Statements," Note 7, for further information on
derivative financial instruments and Notes  6, 7, and 10A, for information on
construction and long-term debt funding requirements.


RESULTS OF OPERATIONS

OPERATING REVENUES

The components of the change in operating revenues for the past two years are
provided in the table below.


                                   Change In Operating Revenues

                                           Increase/(Decrease)
                            1995 vs. 1994   1994 vs. 1993
----------------------------------------------------------------------
                                        (Millions of Dollars)

Regulatory decisions             $20             $20
Fuel,  purchased power
  and FPPAC cost recoveries       49              32
Sales volume                     (11)              6
                                 ---             ---
Total revenue change             $58             $58
                                 ===             ===

Revenues related to regulatory decisions increased, primarily due to the effects
of the June 1995 and 1994 retail-rate increases. Fuel, purchased-power and FPPAC
cost recoveries increased primarily due to higher fuel and purchased-power
costs.  Sales volume decreased as a result of price discounts, milder weather,
and lower wholesale sales.

Operating revenues increased approximately $58 million in 1994, from 1993.
Revenues related to regulatory decisions increased primarily, due to the effects
of the June 1994 and 1993 retail-rate increases.  Fuel, purchased-power and
FPPAC cost recoveries increased, primarily due to higher fuel and purchased-
power costs. Sales volume increased as a result of higher retail sales from an
improved economy and colder winter weather. Retail sales increased 2.0 percent
in 1994 from 1993 sales levels.

FUEL, PURCHASED AND NET INTERCHANGE POWER

Fuel, purchased and net interchange power expense increased approximately $34
million in 1995, from 1994, primarily due to the timing in the recognition of
fuel expenses under the FPPAC.

Fuel, purchased and net interchange power increased approximately $15 million in
1994, from 1993, primarily due to an increase in purchased power.

OTHER OPERATION AND MAINTENANCE EXPENSES

Other operation and maintenance expenses increased by approximately $9 million
in 1995, from 1994, primarily due to higher capacity charges under the Seabrook
Power Contracts due to the 1995 refueling and maintenance outage at the Seabrook
nuclear plant in 1995.

Other operation and maintenance expenses increased by approximately $10 million
in 1994, from 1993, primarily due to maintenance work during the two outages at
the Seabrook nuclear plant in 1994 and higher storm-related expenses in 1994,
partially offset by lower 1994 payroll and benefit costs and the cost of an
employee-reduction program in 1993.

See the "Notes to Financial Statements," Note 2, for further information on the
Seabrook Power Contracts.

DEPRECIATION EXPENSES

Depreciation expenses increased by $6 million in 1995, from 1994, primarily due
to the additional depreciation allowed from the savings from burning gas at
Newington Station and an increase in plant additions.

The change in depreciation expense in 1994, from 1993, was not significant.
AMORTIZATION OF REGULATORY ASSETS, NET

Although the change in 1995, from 1994, was not significant, amortization of
regulatory assets net, decreased approximately $12 million in 1994, from 1993,
primarily due to the higher amortization in 1994 of the regulatory liability
recognized under a global settlement approved at the end of 1993.  Approximately
$128 million of pre-acquisition losses are being amortized over six years as a
credit to amortization expense.  1994 included a full year of amortization as
compared to only eight months of amortization in 1993.

FEDERAL AND STATE INCOME TAXES

Federal and state income taxes increased approximately $2 million in 1995, from
1994, primarily due to higher taxable income.

Federal and state income taxes increased approximately $18 million in 1994, from
1993, primarily due to higher taxable income.

<TABLE>
<CAPTION>

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

SELECTED FINANCIAL DATA
======================================================================================

                             Jan. 1, 1995   Jan. 1, 1994   Jan. 1, 1993   June 5, 1992(a)
                                to             to             to             to
For the Periods             Dec. 31, 1995  Dec. 31, 1994  Dec. 31, 1993  Dec. 31, 1992
---------------------------------------------------------------------------------------
                                              (Thousands of Dollars)
<S>                           <C>            <C>            <C>            <C>
Operating Revenues...       $   979,590    $   922,039    $   864,415    $   492,559

Operating Income.....           155,520        152,086        124,710         61,206

Net Income (Loss)....            83,255         77,444         52,237         29,398


At                          Dec. 31, 1995  Dec. 31, 1994  Dec. 31, 1993  Dec. 31, 1992
--------------------------------------------------------------------------------------

Total Assets.........        $2,909,636     $2,845,967     $2,774,511     $2,793,768          

Long-Term Debt (c)...           858,985        999,985      1,093,985      1,187,985

Liabilities Subject to
  Settlement(c)......              -              -              -              -

Preferred Stock Subject to                   
  Mandatory Redemption(c)       125,000        125,000        125,000        125,000

Preferred Stock Not Subject to
  Mandatory Redemption             -              -              -              -

Obligations Under Seabrook
  Power Contract and Other
  Capital Lease(c)...           915,288        887,967        856,559        787,826


(a)  PSNH was acquired by NU on June 5, 1992.
(b)  PSNH was reorganized on May 16, 1991.
(c)  Includes portions due within one year.

</TABLE>

SELECTED FINANCIAL DATA

-------------------------------------------------------
    Jan. 1, 1992    May  16, 1991(b)    January 1, 1991
         to              to                   to
    June 4, 1992    Dec. 31, 1991         May 15, 1991
-------------------------------------------------------
                (Thousands of Dollars)

   $  381,769      $  539,827          $  246,281
                 
       34,250          82,755              21,616
                   
       12,778          52,694            (100,791)
       

    June 4, 1992    Dec. 31, 1991       May 15, 1991**
-------------------------------------------------------
              (Thousands of Dollars)

   $2,693,414      $2,636,525          $2,502,237

    1,488,985       1,515,985                -

         -               -              1,901,803
         
      125,000         125,000                -

         -               -                   -

         -               -                   -
                   


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

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

1995     $2,716,060      11,001        6,576          406,077        1,325
1994      2,737,628      11,008        6,768          400,775        1,374
1993      2,760,228      11,146        6,817          397,277        1,426
1992(b)   2,763,075      12,294        6,874          394,046        1,680
1991      2,647,866      11,377        7,184          390,793        2,639


STATEMENTS OF QUARTERLY FINANCIAL DATA (Unaudited)
-----------------------------------------------------------------------------

                                           Quarter Ended    (c)
                            -------------------------------------------------

1995                         March 31     June 30   September 30  December 31
-----------------------------------------------------------------------------

                                         
Operating Revenues.......... $252,337     $232,849    $249,626     $244,778
                             ========     ========    ========     ========

Operating Income............ $ 41,858     $ 31,480    $ 40,333     $ 41,849
                             =========   =========   =========    =========

Net Income (Loss)........... $ 21,823     $ 13,892    $ 23,195     $ 24,345
                             =========   =========   =========    =========

1994
---------------------------------------------------------------------------

Operating Revenues.......... $249,279     $210,875    $227,976     $233,909
                             ========     ========    ========     ========
                                                    
Operating Income............ $ 43,441     $ 32,388    $ 38,713     $ 37,544
                            =========    =========   =========    =========

Net Income.................. $ 24,278     $ 14,001    $ 19,262     $ 19,903
                            =========    =========   =========    =========

---------------------------------------------------------------------------

(a)  Includes reclassification of the unamortized acquisition costs to gross
     utility plant.
(b)  PSNH was acquired by NU on June 5, 1992.
(c)  Reclassifications of quarterly data have been made to conform with the
     current presentation.