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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                         Washington, D. C. 20549-1004

                                   Form 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the fiscal year ended December 31, 1998

                                      OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from _______________ to _______________

                        Commission file number 2-30057

                            CANAL ELECTRIC COMPANY
            (Exact name of registrant as specified in its charter)

         Massachusetts                                    04-1733577    
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

One Main Street, Cambridge, Massachusetts                 02142-9150
(Address of principal executive offices)                  (Zip Code)

                                (617) 225-4000                  
             (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:

    Title of each class        Name of each exchange on which registered
          None                                   None

          Securities registered pursuant to Section 12(g) of the Act:

                                Title of Class
                                     None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [ x ]  NO [  ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                                               Outstanding at
           Class of Common Stock               March 16, 1999 
Common Stock, $25 par value                   1,523,200 shares

The Company meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K as a wholly-owned subsidiary and is therefore filing this
Form with the reduced disclosure format.

Documents Incorporated by Reference           Part in Form 10-K
                None                           Not Applicable

List of Exhibits begins on page 35 of this report.
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                            CANAL ELECTRIC COMPANY
                         FORM 10-K  DECEMBER 31, 1998

                               TABLE OF CONTENTS

                                    PART I
                                                                      PAGE

Item  1. Business..........................................             3

           General.........................................             3

           ISO - New England...............................             4

           Electric Industry Restructuring.................             4

           Fuel Supply.....................................             5

           Power Contracts.................................             6

           Power Supply Commitments and
             Support Agreements............................             6

           Construction and Financing......................             7

           Employees.......................................             7

Item  2. Properties........................................             7

Item  3. Legal Proceedings.................................             7

                                    PART II

Item  5. Market for the Registrant's Common Stock and
           Related Stockholder Matters.....................             8

Item  7. Management's Discussion and Analysis of
           Results of Operations...........................             9

Item  8. Financial Statements and Supplementary Data.......            14

Item  9. Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure.............            14

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and
           Reports on Form 8-K.............................            35


Signatures...................................................          43
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                            CANAL ELECTRIC COMPANY

                                    Part I.

Item 1.  Business

      General

      Canal Electric Company (the Company) is a wholesale electric generating
 company organized in 1902 under the laws of the Commonwealth of Massachu-
 setts.  The Company assumed its present corporate name in 1966 after the
 sale to an affiliated company of its electric distribution and transmission
 properties together with the right to do business in the territories served. 
 The Company is a wholly-owned subsidiary of Commonwealth Energy System (the
 Parent), which together with its subsidiaries is collectively referred to as
 "COM/Energy."

      In December 1998, the Parent signed an Agreement and Plan of Merger with
 BEC Energy, the parent company of Boston Edison Company, that will create an
 energy delivery company serving approximately 1.3 million customers located
 entirely within Massachusetts including more than one million electric cus-
 tomers in 81 communities and 240,000 gas customers in 51 communities.  The
 merger is expected to occur shortly after the satisfaction of certain con-
 ditions, including receipt of certain regulatory approvals.  The regulatory
 approval process is expected to be completed during the second half of 1999.

      The Company owned a generating station located in Sandwich, Massachu-
 setts at the eastern end of the Cape Cod Canal until December 30, 1998 when
 it was sold to an affiliate of The Southern Company of Atlanta, Georgia. 
 The station consists of two electric generating units: Canal Unit 1 is an
 oil-fired facility with a rated capacity of 569 megawatts (MW), wholly-owned
 by the Company; and Canal Unit 2 which was converted to dual-fuel capability
 (oil and natural gas) in 1996, with a rated capacity of 580 MW, jointly-
 owned by the Company and Montaup Electric Company (Montaup) (an unaffiliated
 company).  Canal Unit 2 was operated by the Company under an agreement with
 Montaup which provided for the equal sharing of output, fixed charges and
 operating expenses.  Canal Units 1 and 2 commenced operation in 1968 and in
 1976, respectively.
 
      The Company's Canal Unit 1 and Unit 2 generating assets were sold to an
 affiliate of The Southern Company of Atlanta, Georgia on December 30, 1998. 
 The sale was conducted through an auction process initiated during 1997 in
 response to electric industry restructuring legislation enacted in
 Massachusetts in November 1997.  For further information refer to the
 "Industry Restructuring" section of Management's Discussion and Analysis of
 Results of Operation filed under Item 7 of this report.

      The Company also has a 3.52% interest in the Seabrook 1 nuclear power
 plant located in Seabrook, New Hampshire, to provide for a portion of the
 capacity and energy needs of Cambridge Electric Light Company (Cambridge)
 and Commonwealth Electric Company (Commonwealth Electric), each of which are
 retail distribution companies and wholly-owned subsidiaries of the Parent. 
 The plant has a rated capacity of 1,150 MW. 

      For additional information pertaining to the Company's relationship with
 COM/Energy's retail distribution companies, together with more extensive
 information on the Company's participation in the Seabrook plant and on
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                            CANAL ELECTRIC COMPANY

 other sources of power procurement, refer to the "Power Contracts" and
 "Power Supply Commitments and Support Agreements" sections of this Item 1.

      ISO - New England

      The Company, together with other electric utility companies in the New
 England area, is a member of ISO - New England (formerly the New England
 Power Pool or NEPOOL), which was formed in 1971 to provide for the joint
 planning and operation of electric systems throughout New England.  ISO -
 New England operates a centralized dispatching facility to ensure
 reliability of service and to dispatch the most economically available
 generating units of the member companies to fulfill the region's energy
 requirements.  This concept is accomplished by use of computers to monitor
 and forecast load requirements.  In the past, this has required that Canal
 Unit 1 operate whenever possible since it is one of the most efficient oil-
 fired units in the country.  Canal Unit 2 is designed for cycling operation
 which provides for economic changes in unit load permitting reduced genera-
 tion during nights and weekends when demand is lowest.  It has performed as
 one of New England's most efficient units in this type of service. 

      The Company and COM/Energy's other electric subsidiaries are also
 members of the Northeast Power Coordinating Council (NPCC), an advisory
 organization which includes the major power systems in New England and New
 York plus the provinces of Ontario and New Brunswick in Canada.  NPCC
 establishes criteria and standards for reliability and serves as a vehicle
 for coordination in the planning and operation of these systems.

      Electric Industry Restructuring

      On November 25, 1997, the Governor of Massachusetts signed into law the
 Electric Industry Restructuring Act (the Act).  This legislation provided,
 among other things, that customers of retail electric utility companies who
 take standard offer service receive a 10 percent rate reduction and be
 allowed to choose their energy supplier, effective March 1, 1998.  The Act
 also provides that utilities be allowed full recovery of transition costs
 subject to review and an audit process.  The rate reduction mandated by the
 legislation increases to 15 percent effective September 1, 1999 for
 customers who continue to take standard offer service.  A statewide ballot
 referendum that sought to repeal the legislation was defeated by a wide
 margin on November 3, 1998.

      The Company, together with retail affiliates Cambridge Electric and
 Commonwealth Electric had filed a comprehensive electric restructuring plan
 with the DTE in November 1997, that was substantially approved by the DTE in
 February 1998.  The divestiture of the Company's non-nuclear generation
 assets was an integral part of COM/Energy's restructuring plan and is
 consistent with the Act.

      On May 27, 1998, the Company selected an affiliate of Southern Energy
 New England, L.L.C. (Southern Energy), an affiliate of The Southern Company
 of Atlanta, Georgia, to buy Canal Units 1 and 2.  As a result of
 construction-related adjustments at the closing on December 30, 1998, the
 final amount of proceeds from the sale of these units was approximately $395
 million.  These facilities represented 848.5 MW of electric capacity and had
 a book value of $65.4 million.
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                            CANAL ELECTRIC COMPANY

      On July 31, 1998, a divestiture filing was submitted to the FERC and the
 DTE that requested approval of the sale of the generating assets to Southern
 Energy.  On October 30, 1998, the DTE approved the sale of assets to
 Southern Energy.  However, at that time, the DTE deferred ruling on the
 allocation of the net proceeds from the sale of the Company's Units 1 and 2
 between Cambridge Electric and Commonwealth Electric and on the rate of
 return to be paid to their customers on the net proceeds from the sale over
 an eleven-year period.  The FERC approved the sale on November 12, 1998.

      On December 23, 1998, the DTE approved the divestiture filing and
 COM/Energy's proposal to establish a special purpose affiliate, Energy
 Investment Services, Inc. (EIS), that will administer the above-book value
 net proceeds from the sale of the Company's units with the goal of
 preserving capital and maximizing earnings for the benefit of retail
 customers.  EIS will credit the proceeds and any return earned to the
 accounts of Commonwealth Electric and Cambridge Electric, resulting in a
 reduction in the transition costs to be billed to customers.

      Fuel Supply

      Effective March 15, 1998, the Company executed a one-year contract with
 Coastal Refining and Marketing Inc. (Coastal) for the purchase of 1% sulfur
 residual fuel oil.  The contract provided for delivery of a set percentage
 of the Company's fuel requirement, the balance (a maximum of 50%) to be met
 by spot purchases or by Coastal at the discretion of the Company.

      Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) operated
 the Company's fuel oil terminal and managed the receipt and payment for fuel
 oil under assignment of the Company's supply contracts to ESCO Massachu-
 setts, Inc.  Residual fuel oil in the terminal's shore tanks was held in
 inventory by ESCO Massachusetts, Inc. and delivered upon demand to the
 Company's two day tanks.

      During 1996, Unit 2 was converted to dual-fuel capability, residual fuel
 oil and natural gas.  The Company anticipated that dual-fuel capability
 would result in future savings as the least expensive fuel was utilized.

      The nuclear fuel contract and inventory information for Seabrook 1 has
 been furnished to the Company by North Atlantic Energy Services Corporation
 (NAESCO), the managing agent responsible for operation of the unit.  Sea-
 brook's requirement for nuclear fuel components are 100% covered through
 2002 by existing contracts.

      There are no spent fuel reprocessing or disposal facilities currently
 operating in the United States.  Instead, commercial nuclear electric gener-
 ating units operating in the United States are required to retain spent fuel
 on-site.  As required by the Nuclear Waste Policy Act of 1982 (the Act), as
 amended, the joint-owners entered into a contract with the Department of
 Energy for the transportation and disposal of spent fuel and high level
 radioactive waste at a national nuclear waste repository or Monitored
 Retrievable Storage (MRS) facility.  Owners or generators of spent nuclear
 fuel or its associated wastes are required to bear the costs for such
 transportation and disposal through payment of a fee of approximately 1
 mill/KWH based on net electric generation to the Nuclear Waste Fund.  Under
 the Act, a storage or disposal facility for nuclear waste was anticipated to
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                            CANAL ELECTRIC COMPANY

 be in operation by 1998; a reassessment of the project's schedule requires
 extending the completion date of the permanent facility until at least 2010. 
 Seabrook 1 is currently licensed for enough on-site storage to accommodate
 spent fuel expected to be accumulated through at least the year 2010.

      Power Contracts

      The Company was a party to substantially identical life-of-the-unit
 power contracts with Boston Edison Company, Montaup Electric Company and New
 England Power Company (unaffiliated utilities), under which each was
 severally obligated to purchase one-quarter of the capacity and energy of
 Canal Unit 1.  Commonwealth Electric and Cambridge were jointly obligated to
 purchase the remaining one-quarter of the unit's capacity and energy. 
 Agreements that would have Southern Energy assume responsibility for these
 contracts following the sale of the unit were not approved by the FERC. 
 Similar contracts that were in effect between the Company and Commonwealth
 Electric and Cambridge under which those companies are jointly obligated to
 purchase the Company's entire share of the capacity and energy of Canal Unit
 2 were terminated on December 30, 1998.  The price of power was based on a
 two-part rate consisting of a demand charge and an energy charge.  The
 demand charge covered all expenses except fuel costs and included recovery
 of the original investment.  It also provided for any adjustments to that
 investment over the economic lives of the units.  The energy charge was
 based on the cost of fuel and was billed to each purchaser in proportion to
 its purchase of power.  Purchasers were billed monthly.  The power contracts
 are on file with the FERC.

      The Company acts as agent for Commonwealth Electric and/or Cambridge in
 the procurement of additional capacity, and, prior to December 30, 1998, to
 sell a portion of each company's entitlement in Unit 2.  Exchange agreements
 are in place with several utilities whereby, in certain circumstances, it is
 possible to exchange capacity so that the mix of power improves the pricing
 for dispatch for both the seller and purchaser.  Commonwealth Electric and
 Cambridge thus secure cost savings for their respective customers by
 planning for bulk power supply on a single system basis.  A Capacity
 Acquisition and Disposition Agreement, which has been accepted for filing as
 a rate schedule by the FERC, enables the Company to recover costs incurred
 in connection with any transaction covered by such Agreement.  Commonwealth
 Electric and Cambridge, in turn, bill charges to retail customers through
 rates subject to DTE regulation.  Currently, Agreements are in effect for
 Seabrook 1 and Phases I and II of the Hydro-Quebec Project. 

      Power Supply Commitments and Support Agreements

      In response to solicitations by Northeast Utilities and other utilities,
 the Company, on behalf of Commonwealth Electric and Cambridge, purchased
 entitlements through short-term contracts in various selected generating
 units.  These and other bulk electric power purchases are necessary in order
 to fulfill COM/Energy's ISO - New England obligation and for the Company to
 acquire and deliver electric generating capacity to meet Commonwealth
 Electric and Cambridge requirements.  For additional information, refer to
 "Transactions with Affiliates" in Note 2(d) of Notes to Financial Statements
 and to "Management's Discussion and Analysis of Results of Operations" filed
 under Items 8 and 7, respectively, of this report.
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                            CANAL ELECTRIC COMPANY

      The Company is a party to support agreements for Phases I and II of the
 Hydro-Quebec Project and is thereby obligated to pay its share of operating
 and capital costs for Phase II over a 25 year period ending in 2015.  Future
 minimum lease payments for Phase II have an estimated present value of $11.1
 million at December 31, 1998.  In addition, the Company has an equity
 interest in Phase II which amounted to $2.8 million in 1998 and $3.1 million
 in 1997.

      Construction and Financing

      Information concerning the Company's financing and construction programs
 is contained in Note 5(a) of Notes to Financial Statements filed under Item
 8 of this report.

      Employees

      The Company had 109 regular employees, 82 (75%) were represented by the
 Utility Workers' Union of America, A.F.L.-C.I.O.  On December 31, 1998,
 following the sale of the Company's generating assets, the Company had no
 regular employees.

Item 2.  Properties

      Prior to the sale of the Company's generating assets to an affiliate of
 The Southern Company of Atlanta, Georgia, on December 30, 1998, the Company
 had operated a generating station located at the eastern end of the Cape Cod
 Canal in Sandwich, Massachusetts.  The station consisted of two steam
 electric generating units: Canal Unit 1 with a rated capacity of 569 MW,
 wholly-owned by the Company; and Canal Unit 2, with a rated capacity of
 580 MW, jointly-owned by the Company and Montaup Electric Company, a wholly-
 owned subsidiary of Eastern Utilities Associates.  In addition, the Company
 has a 3.52% joint-ownership interest (40.5 MW of capacity) in Seabrook 1.

 Item 3.  Legal Proceedings

      The Company is subject to legal claims and matters arising from its
 normal course of business, including its ownership interest in the Seabrook
 plant.
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                            CANAL ELECTRIC COMPANY

                                   PART II.

Item 5. Market for the Registrant's Common Stock and Related Stockholder
        Matters

 (a)    Principal Market

        Not applicable.  The Company is a wholly-owned subsidiary of
        Commonwealth Energy System.

 (b)    Number of Shareholders at December 31, 1998

        One

 (c)    Frequency and Amount of Dividends Declared in 1998 and 1997

                      1998                                1997              
                             Per Share                              Per Share
        Declaration Date      Amount         Declaration Date        Amount  

        May 11, 1998          $ 2.65         April 25, 1997          $ 2.50
        July 31, 1998           1.90         July 21, 1997             2.40
        October 26, 1998        2.20         October 27, 1997          2.35
                              $ 6.75         December 22, 1997         2.15
                                                                     $ 9.40

        Reference is made to Note 6 of Notes to Financial Statements filed
        under Item 8 of this report for restrictions against the payment of
        cash dividends.

 (d)    Future dividends may vary depending upon the Company's earnings and
        capital requirements as well as financial and other conditions
        existing at that time.
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                            CANAL ELECTRIC COMPANY

Item 7. Management's Discussion and Analysis of Results of Operations

        The following is a discussion of certain significant factors which
have affected operating revenues, expenses and net income during the periods
included in the accompanying Statements of Income and is presented to
facilitate an understanding of the results of operations.  This discussion
should be read in conjunction with the Notes to Financial Statements filed
under Item 8 of this report.

        A summary of the period to period changes in the principal items
included in the Statements of Income for the years ended December 31, 1998 and
1997 and unit sales for these periods is shown below:

                                      Years Ended            Years Ended
                                      December 31,           December 31,
                                     1998 and 1997          1997 and 1996
                                              Increase (Decrease)
                                             (Dollars in thousands)

Electric Operating Revenues        $(32,290)  (15.1)%    $  28,573     15.4 %

Operating Expenses:
 Fuel used in production            (25,744)  (22.3)        36,192     45.7
 Electricity purchased for resale    (5,050)  (90.2)        (2,875)   (33.9)
 Other operation and maintenance        978     2.6         (3,844)    (9.2)
 Depreciation                         1,333     6.9            532      2.8
 Taxes -
   Federal and state income          (1,010)  (11.0)          (542)    (5.6)
   Local property and other            (296)   (8.4)           209      6.3
                                    (29,789)  (15.6)        29,672     18.4

Operating Income                     (2,501)  (10.7)        (1,099)    (4.5)

Other Income                        186,05539,755.3         (1,925)   (80.4)

Income Before Interest Charges      183,554   770.2         (3,024)   (11.3)

Interest Charges                       (735)   (8.2)        (1,278)   (12.4)

Net Income                         $184,289 1,242.8      $  (1,746)   (10.5)

Unit Sales Increase (MWH)           159,804     3.4      1,583,582     49.9

The following is a summary of unit sales for the periods indicated:

                                    Unit Sales (MWH)                    
Period Ended                              Seabrook  Purchased
December 31,        Unit 1      Unit 2     Unit 1   For Resale      Total
    1998          3,136,328   1,485,797    295,539        -       4,917,664
    1997          3,219,542   1,098,463    279,941    159,914     4,757,860
    1996          2,104,132     455,054    345,204    269,888     3,174,278
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                            CANAL ELECTRIC COMPANY

 Revenue, Fuel and Purchased Power

      Operating revenues for 1998 decreased by $32.3 million or 15.1%, due
 primarily to decreases in fuel used in production and electricity purchased
 for resale, somewhat offset by a 3.4% increase in unit sales.  The increase
 in unit sales was due primarily to the increased availability of Unit 2 and 
 Seabrook 1.  Somewhat offsetting the increase in unit sales was the
 expiration of contracts for the purchase of electricity on behalf of
 affiliated retail distribution companies.  

      During 1997, operating revenues increased 15.4% or $28.6 million due
 primarily to a 50% increase in unit sales.  The significant increase in unit
 sales reflects the increased availability of Units 1 and 2 due to the timing
 of both scheduled and unscheduled maintenance.  Somewhat offsetting these
 items was a decrease in power available from Seabrook 1 due to the timing of
 a refueling outage and a lower level of purchases made on behalf of
 affiliated retail distribution companies.

      The decrease in fuel used in production in 1998 represents the lower
 average cost of fuel oil.  During 1997, the significant increases in fuel
 used in production reflect the increased availability of Units 1 and 2 as
 discussed above, partially offset by a decrease in the average cost of oil. 
 Fuel, purchased power and transmission costs (included in other operation
 expense) represented approximately 46% of the total revenue dollar in 1998,
 58% in 1997 and 49% in 1996 and averaged 1.9 cents per KWH in 1998 as
 compared to 2.61 cents in 1997 and 2.86 cents in 1996.

 Other Operating Expenses

      During 1998, other operation decreased approximately $1.3 million or
 4.6% due to the absence of amortization related to an abandoned nuclear unit
 ($584,000) and lower insurance and benefits costs ($293,000).  Other
 operation decreased approximately $2.3 million or 7.6% in 1997 due primarily
 to the absence of amortization related to postretirement benefits costs
 reflecting the Federal Energy Regulatory Commission's approval of rate
 schedules which allowed the recovery of previously deferred costs ($1.8
 million) over a six-month period which began in March 1996. 

      Maintenance expense increased approximately $2.3 million or 22.1% due to
 an increase in maintenance costs associated with the Unit 1 boiler plant and
 related equipment ($3.8 million), offset, in part , by lower costs
 associated with Unit 2 ($1.4 million).  The 13.2% decrease in maintenance
 expense in 1997 reflects lower maintenance costs associated with Units 1 and
 2 ($2.9 million), offset in part by increased maintenance costs at Seabrook
 1 ($1.4 million) reflecting a scheduled refueling outage.

 Depreciation and Taxes

      In 1998, depreciation increased 6.9% reflecting a higher level of plant-
 in-service and adjustments related to the sale of the Company's Units 1 and
 2.  Depreciation increased in 1997 due to a higher level of plant-in-service
 reflecting the conversion of Unit 2 to burn both gas and oil.

      Income tax expense declined 11% and 5.6% or approximately $1 million or 

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                            CANAL ELECTRIC COMPANY

 $500,000, respectively, in 1998 and 1997 due to a lower level of pre-tax
 income from normal operations.

 Other Income

      The significant increase in other income during 1998 reflects the net
 gain ($185.7 million) from the sale of the Company's Units 1 and 2 on
 December 30, 1998.  The change in other income during 1997 was due to the
 absence of the 1996 reversal of a reserve for costs associated with
 postretirement benefits (approximately $1.8 million) following FERC
 approval.

 Interest Charges

      The decrease in total interest charges during 1998 was due primarily to
 a decrease in short-term interest ($698,000) reflecting a lower average
 level of short-term debt.  During 1997, total interest charges decreased by
 approximately $1.3 million or 12.4% due primarily to a decrease in short-
 term interest ($1,106,000) reflecting a lower average level of short-term
 debt.  The decrease in interest charges for 1997 also reflects the
 retirement of Series A $19 million (7%) First Mortgage Bonds during the
 second quarter of 1996.

 Forward-Looking Statements

      This report contains statements which, to the extent they are not
 recitations of historical fact, constitute "forward-looking statements" and
 are intended to be subject to the safe harbor protection provided by the
 Private Securities Litigation Reform Act of 1995.  A number of important
 factors affecting the Company's business and financial results could cause
 actual results to differ materially from those stated in the forward-looking
 statements or projected amounts.  Those factors include developments in the
 legislative, regulatory and competitive environment, certain environmental
 matters, demands for capital expenditures and the availability of cash from
 various sources.

 Merger with BEC Energy

      The electric utility industry has continued to change in response to
 legislative and regulatory mandates that are aimed at lowering prices for
 energy by creating a more competitive marketplace.  These pressures have
 resulted in an increasing trend in the electric industry to seek competitive
 advantages and other benefits through business combinations.  On December 5,
 1998, the Parent and BEC Energy (BEC), headquartered in Boston, Massachu-
 setts, entered into an Agreement and Plan of Merger (the Merger Agreement). 
 Pursuant to the Merger Agreement, the Parent and BEC will be merged into a
 new holding company to be known as NSTAR.  The merger is expected to occur
 shortly after the satisfaction of certain conditions, including the receipt
 of certain regulatory approvals including that of the DTE.  The regulatory
 approval process is expected to be completed during the second half of 1999.

      The merger will create an energy delivery company serving approximately
 1.3 million customers located entirely within Massachusetts, including more
 than one million electric customers in 81 communities and 240,000 gas
 customers in 51 communities.
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                            CANAL ELECTRIC COMPANY

      Shareholder votes on the merger will be held as part of each of the
 Parent's and BEC's annual shareholder meetings scheduled for the second
 quarter of 1999.  The Merger Agreement may be terminated under certain
 circumstances, including by any party if the merger is not consummated by
 December 5, 1999, subject to an automatic extension of six months if the
 requisite regulatory approvals have not yet been obtained by such date.  The
 merger will be accounted for using the purchase method of accounting.

      Upon effectiveness of the merger, Thomas J. May, BEC's current Chairman,
 President and Chief Executive Officer (CEO), will become the Chairman and
 CEO of NSTAR.  Russell D. Wright, the Parent's current President and CEO,
 will become the President and Chief Operating Officer of NSTAR and will
 serve on NSTAR's board of directors. Also, upon effectiveness of the merger,
 NSTAR's board of directors will consist of the Parent's and BEC's current
 trustees.

 Year 2000

      The Year 2000 issue is the result of computer programs being written
 using two digits rather than four to define the applicable year.  Any
 computer program that has date sensitive software may recognize a date using
 "00" as the year 1900 rather than the year 2000.  This could result in a
 temporary inability to process transactions or engage in normal business
 activities.  COM/Energy has been involved in Year 2000 compliancy since
 1996.

      COM/Energy, on a coordinated basis and with the assistance of RCG
 Information Technologies and other consultants, is addressing the Year 2000
 issue.  COM/Energy has followed a five-phase process in its Year 2000
 compliance efforts, as follows: Awareness (through a series of internal
 announcements to employees and through contacts with vendors); Inventory
 (all computers, applications and embedded systems that could potentially be
 affected by the Year 2000 problem); Assessment (all applications or
 components and the impact on overall business operations and a plan to
 correct deficiencies and the cost to do so); Remediation (the modification,
 upgrade or replacement of deficient hardware and software applications and
 infrastructure modifications); and Testing (a detailed, comprehensive
 testing program for the modified critical component, system or software that
 involves the planning, execution and analysis of results).

      COM/Energy's inventory phase required an assessment of all date sensi-
 tive information and transaction processing computer systems and determined
 that approximately 90% of its software systems needed some modifications or
 replacement.  Plans were developed and are being implemented to correct and
 test all affected systems, with priorities assigned based on the importance
 of the activity.  COM/Energy has identified the software and hardware
 installations that are necessary.  All installations are expected to be
 completed and tested by mid-1999.

      COM/Energy has also inventoried its non-information technology systems
 that may be date sensitive (facilities, electric and gas operations, energy
 supply/production and distribution) that use embedded technology such as
 micro-controllers and micro-processors.  COM/Energy is approximately 86%
 complete in its efforts to resolve non-compliance with Year 2000
 requirements related to its non-information technology systems.  COM/Energy
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                            CANAL ELECTRIC COMPANY

 anticipates that these systems will be updated or replaced as necessary and
 tested by mid-1999.

      At present, the remediation phase for information technology as it
 applies to hardware and non-technology issues is scheduled for completion by
 June 1, 1999.  The testing phase for Year 2000 compliance is approximately
 70% complete and is scheduled to be concluded by June 30, 1999.  All other
 phases are complete.

      Modifying and testing COM/Energy's information and transaction process-
 ing systems from 1996 through 2000 is currently expected to cost
 approximately $7 million, including approximately $900,000 incurred through
 1997 and $3.1 million spent in 1998.  Approximately $3 million is expected
 to be spent in 1999 and 2000.  Year 2000 costs have been expensed as
 incurred and will continue to be funded from operations.

      In addition to its internal efforts, COM/Energy has initiated formal
 communications with its significant suppliers to determine the extent to
 which COM/Energy may be vulnerable to its suppliers' failure to correct
 their own Year 2000 issues.  As of February 1, 1999, COM/Energy has received
 responses from approximately 75% of those entities contacted, and nearly all
 have indicated that they are or will be Year 2000 compliant.  Failure of
 COM/Energy's significant suppliers to address Year 2000 issues could have a
 material adverse effect on COM/Energy's operations, although it is not
 possible at this time to quantify the amount of business that might be lost
 or the costs that could be incurred by COM/Energy.  Contact with significant
 vendors is continuing and inadequate or marginal responses are being pursued
 by COM/Energy.  COM/Energy is prepared to replace certain suppliers or to
 initiate other contingency plans should these vendors not respond to
 COM/Energy's satisfaction by July 1, 1999.

      In addition, parts of the global infrastructure, including national
 banking systems, electrical power grids, gas pipelines, transportation
 facilities, communications and governmental activities, may not be fully
 functional after 1999.  Infrastructure failures could significantly reduce
 COM/Energy's ability to acquire energy and its ability to serve its
 customers as effectively as they are now being served.  COM/Energy is
 identifying elements of the infrastructure that are critical to its
 operations and is obtaining information as to the expected Year 2000
 readiness of these elements.

      COM/Energy has started its contingency planning for critical operational
 areas that might be effected by the Year 2000 issue if compliance by
 COM/Energy is delayed.  COM/Energy gas and electric operations currently
 have emergency operating plans as well as information technology disaster
 recovery plans as components of its standard operating procedures.  These
 plans will be enhanced to identify potential Year 2000 risks to normal
 operations and the appropriate reaction to these potential failures
 including contingency plans that may be required for any third parties that
 fail to achieve Year 2000 compliance.  All necessary contingency plans are
 expected to be completed by June 30, 1999, although in certain cases,
 especially infrastructure failures, there may be no practical alternative
 course of action available to COM/Energy.
<PAGE>
<PAGE 14>

                            CANAL ELECTRIC COMPANY

      COM/Energy is working with other energy industry entities, both region-
 ally and nationally with respect to Year 2000 readiness and is cooperating
 in the development of local and wide-scale contingency planning.

      While COM/Energy believes its efforts to address the Year 2000 issue
 will allow it to be successful in avoiding any material adverse effect on
 COM/Energy's operations or financial condition, it recognizes that failing
 to resolve Year 2000 issues on a timely basis would, in a "most reasonably
 likely worst case scenario," significantly limit its ability to acquire and
 distribute energy and process its daily business transactions for a period
 of time, especially if such failure is coupled with third party or
 infrastructure failures.  Similarly, COM/Energy could be significantly
 effected by the failure of one or more significant suppliers, customers or
 components of the infrastructure to conduct their respective operations
 after 1999.  Adverse affects on COM/Energy could include, among other
 things, business disruption, increased costs, loss of business and other
 similar risks.

      The foregoing discussion regarding Year 2000 project timing, effective-
 ness, implementation and costs includes forward-looking statements that are
 based on management's current evaluation using available information. 
 Factors that might cause material changes include, but are not limited to,
 the availability of key Year 2000 personnel, the readiness of third parties,
 and COM/Energy's ability to respond to unforeseen Year 2000 complications.

 Environmental Matters

      The Company is subject to laws and regulations administered by federal,
 state and local authorities relating to the quality of the environment. 
 These laws and regulations affect, among other things, the siting and
 operation of electric generating and transmission facilities and can require
 the installation of expensive air and water pollution control equipment. 
 These regulations have had an impact on the Company's operations in the
 past, however their impact on future operations, capital costs and
 construction schedules is not expected to be significant since all of the
 Company's non-nuclear generating assets were sold in 1998.

      On January 1, 1997, the Company adopted the provisions of Statement of
 Position (SOP) 96-1, "Environmental Remediation Liabilities."  This
 Statement provides authoritative guidance for recognition, measurement,
 display and disclosure of environmental remediation liabilities in financial
 statements.  The adoption of SOP 96-1 did not have a material adverse effect
 on the Company's results of operations or financial position.


Item 8.  Financial Statements and Supplementary Data

      The Company's financial statements required by this item are filed
 herewith on pages 15 through 34 of this report.

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure

      None

<PAGE>
<PAGE 15>

                            CANAL ELECTRIC COMPANY

Item 8.       Financial Statements and Supplementary Data

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Canal Electric Company:

      We have audited the accompanying balance sheets of CANAL ELECTRIC
COMPANY, (a Massachusetts corporation and wholly-owned subsidiary of
Commonwealth Energy System) as of December 31, 1998 and 1997, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1998.  These financial statements and
the schedule referred to below are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and schedule 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 Canal Electric
Company as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.

      Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The schedule listed in the index to
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements.  This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required
to be set forth therein in relation to the basic financial statements taken as
a whole.



                                                     ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 18, 1999.
<PAGE>
<PAGE 16>

                            CANAL ELECTRIC COMPANY
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



                                   PART II.


FINANCIAL STATEMENTS

  Balance Sheets at December 31, 1998 and 1997

  Statements of Income for the Years Ended December 31, 1998, 1997 and 1996

  Statements of Retained Earnings for the Years Ended December 31, 1998, 1997
  and 1996

  Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
  1996

  Notes to Financial Statements


                                   PART IV.


SCHEDULE

  I     Investments In, Equity Earnings of, and Dividends Received From
        Related Parties for the Years Ended December 31, 1998, 1997 and 1996

SCHEDULES OMITTED

  All other schedules are not submitted because they are not applicable or
  required or because the required information is included in the financial
  statements or notes thereto.
<PAGE>
<PAGE 17>

                            CANAL ELECTRIC COMPANY
                                BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997

                                    ASSETS



                                                           1998       1997
                                                        (Dollars in thousands)

PROPERTY, PLANT AND EQUIPMENT, at original cost         $265,612   $469,861
  Less - Accumulated depreciation
    and amortization                                      77,081    197,844
                                                         188,531    272,017
  Add - Construction work in progress                      1,852      2,228
        Nuclear fuel in process                            1,568        193
                                                         191,951    274,438

INVESTMENTS
  Equity in corporate joint venture                        2,800      3,075

CURRENT ASSETS
  Cash                                                   301,179         18
  Accounts receivable -
    Affiliated companies                                  13,642     12,159
    Other                                                  9,736     15,397
  Unbilled revenues                                          659         86
  Inventories, at average cost -
    Electric production fuel oil                              -         806
    Materials and supplies                                 1,268      1,268
  Prepaid property taxes                                      -         840
  Other                                                      884        923
                                                         327,368     31,497

DEFERRED CHARGES 
  Regulatory assets                                       18,745     17,413
  Other                                                    5,840      9,774
                                                          24,585     27,187

                                                        $546,704   $336,197










The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 18>

                            CANAL ELECTRIC COMPANY
                                BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997

                        CAPITALIZATION AND LIABILITIES

                                                           1998        1997
                                                        (Dollars in thousands)

CAPITALIZATION
  Common Equity -
    Common stock, $25 par value -
       Authorized - 2,328,200 shares
       Outstanding - 1,523,200 shares, wholly-owned
       by Commonwealth Energy System (Parent)            $ 38,080    $ 38,080
    Amounts paid in excess of par value                     8,321       8,321
    Retained earnings                                     241,965      53,130
                                                          288,366      99,531
  Long-term debt, including premiums, less
    current sinking fund requirements                         -        83,917
                                                          288,366     183,448

CAPITAL LEASE OBLIGATIONS                                  10,551      11,227

CURRENT LIABILITIES
  Interim Financing - 
    Notes payable to banks                                    -        20,850
                                                              -        20,850
  Other Current Liabilities -
    Current sinking fund requirements                         -           350
    Accounts payable -
       Affiliated companies                                 8,678       1,028
       Other                                               31,327      21,335
    Accrued taxes -
       Local property and other                                30         844
       Income                                             121,712       2,054
    Capital lease obligations                                 568         574
    Accrued interest and other                              3,309       6,174
                                                          165,624      32,359
                                                          165,624      53,209

DEFERRED CREDITS
  Accumulated deferred income taxes                        64,383      69,447
  Unamortized investment tax credits                        8,427      10,967
  Other                                                     9,353       7,899
                                                           82,163      88,313

COMMITMENTS AND CONTINGENCIES 

                                                         $546,704    $336,197



The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 19>

                            CANAL ELECTRIC COMPANY
                             STATEMENTS OF INCOME
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                               1998        1997       1996
                                                 (Dollars in thousands)

ELECTRIC OPERATING REVENUES 
  Sales to affiliated companies              $113,024    $124,903   $107,842
  Sales to non-affiliated companies            68,809      89,220     77,708
                                              181,833     214,123    185,550

OPERATING EXPENSES
  Fuel used in production                      89,569     115,313     79,121
  Electricity purchased for resale                551       5,601      8,476
  Other operation                              26,426      27,707     29,992
  Maintenance                                  12,468      10,209     11,768
  Depreciation                                 20,547      19,214     18,682
  Taxes -
    Income                                      8,168       9,178      9,720
    Local property                              2,510       2,770      2,603
    Payroll and other                             732         768        726
                                              160,971     190,760    161,088

OPERATING INCOME                               20,862      23,363     24,462

OTHER INCOME
  Gain from sale of assets                    329,603         -          -
  Taxes and transaction costs
   related to sale                           (143,856)        -          -
  Other                                           776         468      2,393
                                              186,523         468      2,393

INCOME BEFORE INTEREST CHARGES                207,385      23,831     26,855


INTEREST CHARGES
  Long-term debt                                7,854       7,910      8,017
  Other interest charges                          533       1,231      2,337
  Allowance for borrowed funds used
    during construction                          (119)       (138)       (73)
                                                8,268       9,003     10,281

NET INCOME                                   $199,117    $ 14,828   $ 16,574










The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 20>

                            CANAL ELECTRIC COMPANY
                        STATEMENTS OF RETAINED EARNINGS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996





                                              1998        1997        1996
                                                (Dollars in thousands)

Balance at beginning of year                 $ 53,130    $52,620     $52,070

Add (Deduct)
  Net income                                  199,117     14,828      16,574
  Cash dividends on common stock              (10,282)   (14,318)    (16,024)

Balance at end of year                       $241,965    $53,130     $52,620





































The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 21>

                            CANAL ELECTRIC COMPANY
                           STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

                                                1998       1997       1996
                                                  (Dollars in thousands)
OPERATING ACTIVITIES
  Net income                                  $199,117   $ 14,828   $ 16,574
  Gain from sale of assets                    (329,603)       -          -
  Effects of noncash items -
    Depreciation and amortization               22,839     22,156     23,485
    Deferred income taxes                       (7,673)      (973)      (963)
    Investment tax credits                      (2,539)      (526)      (527)
    Earnings from corporate joint venture         (454)      (233)      (498)
  Dividends from corporate joint venture           729        479        549
  Change in working capital, exclusive
    of cash and interim financing -
       Accounts receivable                       4,178     (4,872)    (3,882)
       Unbilled revenues                          (573)       589       (237)
       Income taxes                            119,658      2,118     (3,223)
       Local property and other taxes               26          4         19
       Accounts payable and other               15,266      5,473     (1,595)
  All other operating items, net                (6,908)    (3,890)       565

Net cash provided by operating activities       14,063     35,153     30,267

INVESTING ACTIVITIES
  Proceeds from sale of generating assets      408,017        -          -
  Additions to property, plant and
    equipment (exclusive of AFUDC)              (5,368)    (7,391)   (14,557)
  Allowance for borrowed funds used
    during construction                           (119)      (138)       (73)

Net cash from (used for)investing activities   402,530     (7,529)   (14,630)

FINANCING ACTIVITIES
  Proceeds from (payment of)
    short-term borrowings                      (20,850)    (5,700)     3,125
  Proceeds from (payment of)
   affiliate borrowings                            -       (7,250)     1,385
  Payment of dividends                         (10,282)   (14,318)   (16,024)
  Long-term debt issues refunded               (83,950)       -       (3,420)
  Retirement of long-term debt through
    sinking funds                                 (350)      (350)      (703)

Net cash used for financing activities        (115,432)   (27,618)   (15,637)

Net increase in cash                           301,161          6        -
Cash at beginning of period                         18         12         12
Cash and cash equivalents at end of period    $301,179   $     18   $     12

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid (net of capitalized
    amounts)                                   $ 9,028    $ 8,700    $ 9,959
  Income taxes paid                            $10,796    $ 8,996    $14,128

The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE 22>

                            CANAL ELECTRIC COMPANY
                         NOTES TO FINANCIAL STATEMENTS

(1)  General Information

     Canal Electric Company (the Company) is a wholly-owned subsidiary of
 Commonwealth Energy System (the Parent).  The Parent, together with its
 subsidiaries is referred to as "COM/Energy."  The Parent is an exempt
 holding company under the provisions of the Public Utility Holding Company
 Act of 1935 and, in addition to its investment in the Company, has interests
 in other utility companies and several non-regulated companies.

     The Company is a wholesale electric generating company organized in 1902
 under the laws of the Commonwealth of Massachusetts.  On December 30, 1998,
 in response to the significant changes that have taken place in the utility
 industry, COM/Energy sold substantially all of its non-nuclear generating
 assets, including the Company's generating station, to affiliates of The
 Southern Company of Atlanta, Georgia.  The Company's generating station ,
 located in Sandwich, Massachusetts consisted of two units: Canal Unit 1
 wholly-owned by the Company; and Canal Unit 2 jointly-owned by the Company
 and Montaup Electric Company (Montaup) (an unaffiliated company).  The
 Company's largest customers with respect to output from Unit 1 and Unit 2
 had been affiliates Cambridge and Commonwealth Electric.  The Company also
 has a 3.52% interest in the Seabrook 1 nuclear power plant to provide a
 portion of the capacity and energy needs of Cambridge and Commonwealth
 Electric and acts as agent in the procurement of additional capacity for the
 aforementioned affiliates.

     The Company had 109 regular employees prior to the sale of Canal Units 1
 and 2 on December 30, 1998.  At December 31, 1998, the Company had no
 regular employees.

(2)  Significant Accounting Policies

     (a) Accounting Principles

     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 assets and 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 prior year amounts are reclassified from time to time to conform
 with the presentation used in the current year's financial statements. 

     (b) Regulatory Assets

     The Company is regulated as to rates, accounting and other matters by
 various authorities, including the Federal Energy Regulatory Commission
 (FERC) and the Massachusetts Department of Telecommunications and Energy
 (DTE), formerly the Massachusetts Department of Public Utilities.

     Based on the current regulatory framework, the Company accounts for the
 economic effects of regulation in accordance with the provisions of
 Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for  
<PAGE>
<PAGE 23>

                            CANAL ELECTRIC COMPANY

 the Effects of Certain Types of Regulation."  The Company has established
 various regulatory assets in cases where the FERC has permitted or is
 expected to permit recovery of specific costs over time.  In the event the
 criteria for applying SFAS No. 71 are no longer met, the accounting impact
 would be an extraordinary, non-cash charge to operations of an amount that
 could be material.  Criteria that give rise to the discontinuance of SFAS
 No. 71 include: 1) increasing competition restricting the Company's ability
 to establish prices to recover specific costs, and 2) a significant change
 in the current manner in which rates are set by regulators from cost based
 regulation to another form of regulation.  These criteria are reviewed on a
 regular basis to ensure the continuing application of SFAS No. 71 is
 appropriate.  Based on the current evaluation of the various factors and
 conditions that are expected to impact future cost recovery, the Company
 believes that its regulatory assets are probable of future recovery.

     The principal regulatory assets included in deferred charges at December
 31, 1998 and 1997 were as follows:
                                                   1998         1997
                                                 (Dollars in thousands)

     Seabrook related costs                       $ 3,008     $ 4,324
     Deferred income taxes                         15,737      13,089
       Total regulatory assets                    $18,745     $17,413

     As of December 31, 1998, all of the Company's regulatory assets are
 reflected in rates charged to customers over a weighted average period of
 approximately 11 years.

     In November 1997, the Commonwealth of Massachusetts enacted a
 comprehensive electric utility industry restructuring bill.  On November 19,
 1997, the Company, along with Cambridge Electric and Commonwealth Electric
 filed a restructuring plan with the DTE.  The plan, approved by the DTE on
 February 27, 1998, provides that Commonwealth Electric and Cambridge
 Electric will, beginning March 1, 1998, initiate a ten percent rate
 reduction for all customer classes and allow customers to choose their
 energy supplier.  As part of the plan, the DTE authorized the recovery of
 certain strandable costs and provides that certain future costs may be
 deferred to achieve or maintain the rate reductions that the restructuring
 bill mandates.  The legislation gives the DTE the authority to determine the
 amount of strandable costs that will be eligible for recovery.  Costs that
 will qualify as strandable costs and be eligible for recovery include, but
 are not limited to, certain above market costs associated with generating
 facilities, costs associated with long-term commitments to purchase power at
 above market prices from independent power producers and regulatory assets
 and associated liabilities related to the generation portion of the electric
 business.

     (c) Divestiture of Generation Assets

     The cost of transitioning to competition will be mitigated, in part, by
 the sale of COM/Energy's non-nuclear generating assets.  On May 27, 1998,
 COM/Energy agreed to sell substantially all of its non-nuclear generating
 assets (984 MW) to affiliates of The Southern Company of Atlanta, Georgia. 
 The sale was conducted through an auction process that was outlined in a
 restructuring plan filed with the DTE in November 1997 in conjunction with 
<PAGE>
<PAGE 24>

                            CANAL ELECTRIC COMPANY

 the state's industry restructuring legislation enacted in 1997.  The sale
 was approved by the DTE on October 30, 1998 and by the FERC on November 12,
 1998.  Proceeds from the sale of the Company's non-nuclear generating
 assets, after construction-related adjustments at the closing that occurred
 on December 30, 1998, amounted to approximately $395 million or 6 times
 their book value of approximately $65.4 million.  The proceeds from the
 sale, net of book value, transaction costs and certain other adjustments
 amounted to approximately $298 million and will be used to reduce transition
 costs of Cambridge Electric and Commonwealth Electric related to electric
 industry restructuring that otherwise would have been collected through a
 non-bypassable transition charge.

     COM/Energy established Energy Investment Services, Inc. as the vehicle to
 invest the net proceeds from the sale of the Company's generation assets. 
 These proceeds will be invested in a conservative portfolio of securities
 that is designed to maintain principal and earn a reasonable return.  Both
 the principal amount and income earned will be used to reduce the transition
 costs that would otherwise be billed to customers of Cambridge Electric and
 Commonwealth Electric.

     (d) Transactions with Affiliates

     Transactions between the Company and other COM/Energy companies include
 purchases and sales of electricity, including the Company's acquisition and
 resale of capacity entitlements and related energy generated by certain
 units of other New England utilities.  The Company has functioned as the
 principal supplier of electric generation capacity for and on behalf of
 affiliates Cambridge Electric and Commonwealth Electric, including
 abandonment and nonconstruction costs related to the Seabrook project.  In
 addition, payments for management, accounting, data processing and other
 services are made to affiliate COM/Energy Services Company.  Transactions
 with other COM/Energy companies are subject to review by the FERC and the
 DTE.

     The Company's operating revenues included the following intercompany
 amounts for the periods indicated:

 Period Ended       Electricity Sales                         Seabrook Units
 December 31,         (Canal Units)       Purchased Power        and Other  
                                     (Dollars in thousands)

     1998               $70,283              $ 3,667             $39,074
     1997                76,859                8,885              39,159
     1996                52,035               11,882              43,925

       (e) Other Major Customers

       The Company is a wholesale electric generating company selling power
 under life-of-the-unit contracts, approved by FERC to Boston Edison Company,
 Montaup Electric Company and New England Power Company, (unaffiliated
 utilities).  Prior to the sale of Canal Units 1 and 2 on December 30, 1998,
 each utility was obligated to purchase one-quarter of the capacity and
 energy of Canal Unit 1.
<PAGE>
<PAGE 25>

                            CANAL ELECTRIC COMPANY

     (f) Equity Method of Accounting

     The Company uses the equity method of accounting for its 3.8% investment
 in the New England/Hydro-Quebec Phase II transmission facilities due in part
 to its ability to exercise significant influence over operating and
 financial policies of the entity.  Under this method, it records as income
 the proportionate share of the net earnings of this project with a
 corresponding increase in the carrying value of the investment.  The
 investment amount is reduced as cash dividends are received.  For further
 information on this investment, refer to Schedule I in Part IV of this
 report. 

     (g) Depreciation and Nuclear Fuel Amortization

     Depreciation is provided using the straight-line method at rates intended
 to amortize the original cost and the estimated cost of removal less salvage
 of properties over their estimated economic lives.  The Company's composite
 depreciation rate, based on average depreciable property in service, was
 4.71% in 1998, 4.45% in 1997 and 4.42% in 1996.

     The cost of nuclear fuel is amortized to fuel expense based on the
 quantity of energy produced.  Nuclear fuel expense also includes a provision
 for the costs associated with the ultimate disposal of the spent nuclear
 fuel.

     (h) Maintenance

     Expenditures for repairs of property and replacement and renewal of items
 determined to be less than units of property were charged to maintenance
 expense.  Additions, replacements and renewals of property considered to be
 units of property, were charged to the appropriate plant accounts.  Upon
 retirement, accumulated depreciation was charged with the original cost of
 property units and the cost of removal net of salvage.

     (i) Allowance for Funds Used During Construction

     Under applicable rate-making practices, the Company is permitted to
 include an allowance for funds used during construction (AFUDC) as an
 element of its depreciable property costs.  This allowance is based on the
 amount of construction work in progress that is not included in the rate
 base on which the Company earns a return.  An amount equal to the AFUDC
 capitalized in the current period is reflected in the accompanying
 Statements of Income.

     While AFUDC does not provide funds currently, these amounts are
 recoverable in revenues over the service life of the constructed property. 
 The Company develops rates based upon its current cost of capital and used a
 compound rate of 5.75% in 1998, 6% in 1997 and 6.25% in 1996.

(3)  Income Taxes

     For financial reporting purposes, the Company provides federal and state
 income taxes on a separate return basis.  However, for federal income tax
 purposes, the Company's taxable income and deductions are included in the
 consolidated income tax return of the Parent and it makes tax payments or
<PAGE>
<PAGE 26>

                            CANAL ELECTRIC COMPANY

 receives refunds on the basis of its tax attributes in the tax return in
 accordance with applicable regulations.

     The following is a summary of the provisions for income taxes for the
 years ended December 31, 1998, 1997 and 1996:

                                             1998        1997        1996
                                                (Dollars in thousands) 
 Federal:
    Current                               $109,267      $ 9,128    $ 9,511
    Deferred                                (6,775)        (764)      (577)
    Investment tax credits                  (2,539)        (526)      (527)
                                            99,953        7,838      8,407
 State:
    Current                                 21,413        1,558      1,747
    Deferred                                  (776)        (133)      (223)
                                            20,637        1,425      1,524
                                           120,590        9,263      9,931
 Amortization of regulatory liability
  relating to deferred income taxes           (122)         (76)      (163)

 Total                                    $120,468      $ 9,187    $ 9,768

 Federal and state income taxes
    charged to:
      Operating expense                   $  8,168      $ 9,178    $ 9,720
      Other income                         112,300            9         48
                                          $120,468      $ 9,187    $ 9,768

    The significant change in the provision for income taxes in 1998 reflects
 the current tax related to the sale of the generating assets.

    Deferred tax liabilities and assets are determined based on the
 difference between the financial statement and tax bases of assets and
 liabilities using enacted tax rates in effect in the year in which the
 differences are expected to reverse.
 
    Accumulated deferred income taxes consisted of the following:

                                                    1998         1997
                                                  (Dollars in thousands)
       Liabilities
            Property-related                      $74,585      $78,706
            Seabrook nonconstruction                  707          707
            All other                               1,832        1,645
                                                   77,124       81,058
       Assets
            Investment tax credit                   7,844        7,078
            Regulatory liability                    2,102        2,180
            All other                               2,244        1,490
                                                   12,190       10,748
    
    Accumulated deferred income taxes, net        $64,934      $70,310
    
    The net year-end deferred income tax liability above includes a current
<PAGE>
<PAGE 27>

                            CANAL ELECTRIC COMPANY

 deferred tax liability of $551,000 and $863,000 in 1998 and 1997,
 respectively, which is included in accrued income taxes in the accompanying
 Balance Sheets.

    The total income tax provision set forth on the previous page represents
 38% in 1998, and 37% in 1997 and 1996, of income before such taxes.  The
 following table reconciles the statutory federal income tax rate to these
 percentages:
                                                   1998       1997      1996

 Federal statutory rate                             35%        35%       35%

 Federal income tax expense at statutory levels  $111,854    $8,405   $9,220
 Increase (Decrease) from statutory rate:
   Tax versus book depreciation                     1,207     1,515    1,479
   State tax, net of federal tax benefit           13,414       927      991
   Additional FIT sale of generation assets        (2,596)      -        -
   Amortization of investment tax credits          (2,539)     (526)    (527)
   Excess deferred reserves                          (122)      (76)    (163)
   Reversals of capitalized expenses                 (561)     (560)    (559)
   Other                                             (189)     (498)    (673)
                                                 $120,468    $9,187   $9,768

 Effective federal tax rate                          38%        37%      37%

(4)  Long-Term Debt and Interim Financing

     (a) Long-Term Debt

     Long-term debt outstanding, exclusive of current sinking fund
 requirements and related premiums, collateralized by substantially all of
 the Company's property, is as follows:

                                       Original     Balance December 31,
                                        Issue         1998          1997
                                             (Dollars in thousands)
 First Mortgage Bonds -
   Series B, 8.85%, due 2006           $35,000      $   -         $33,950
   Series E, 7 3/8%, due 2020           10,000          -          10,000
   Series F, 9 7/8%, due 2020           40,000          -          40,000
                                                    $   -         $83,950

       On December 30, 1998, upon the sale of the Company's Units 1 and 2, a
 portion of the proceeds from the sale was used to retire all of the
 Company's long-term debt.

     The Series B First and General Mortgage Bonds required an annual sinking
 fund payment of $350,000.  The requirement could be met by payment,
 repurchase of bonds or certification of an amount of property additions
 equal to 60% of bondable property (as defined in the indenture).

     The Series E and Series F First and General Mortgage Bonds were issued
 in conjunction with The Industrial Development Authority of the State of New
 Hampshire issuing Solid Waste Disposal Bonds and Pollution Control Bonds,
 respectively.  The bonds were issued pursuant to a Loan and Trust Agreement
 dated December 1, 1990 among the Authority, the Company and the First
<PAGE>
<PAGE 28>

                            CANAL ELECTRIC COMPANY

 National Bank of Boston, the Trustee. 

     (b) Notes Payable to Banks

     The Company and other COM/Energy companies maintain both committed and
 uncommitted lines of credit for the short-term financing of their
 construction programs and other corporate purposes.  As of December 31,
 1998, COM/Energy companies had $122 million of committed lines of credit
 that will expire at varying intervals in 1999.  These lines are normally
 renewed upon expiration and require annual fees of up to .1875% of the
 individual line.  At December 31, 1998, COM/Energy's uncommitted lines of
 credit totaled $10 million.  Interest rates on the Company's outstanding
 borrowings generally are at an adjusted money market rate and averaged 5.7%
 in 1998 and 5.8% in 1997.  The Company had no notes payable to banks at
 December 31, 1998 and $20,850,000 at December 31, 1997.

     (c) Advances from Affiliates

     The Company had no short-term notes payable to the Parent at December
 31, 1998 and 1997.  These notes are written for a term of up to 11 months
 and 29 days.  Interest is at the prime rate and is adjusted for changes in
 that rate during the terms of the notes.  This rate averaged 8.3% in 1998
 and 8.5% in 1997.

     The Company is a member of the COM/Energy Money Pool (the Pool), an
 arrangement among the subsidiaries of the Parent, whereby short-term cash
 surpluses are used to help meet the short-term borrowing needs of the
 utility subsidiaries.  In general, lenders to the Pool receive a higher rate
 of return than they otherwise would on such investments, while borrowers pay 
 a lower interest rate than that available from banks.  Interest rates on the
 outstanding borrowings are based on the monthly average rate the Company
 would otherwise have to pay banks, less one-half the difference between that
 rate and the monthly average U.S. Treasury Bill weekly auction rate.  The
 borrowings are for a period of less than one year and are payable upon
 demand.  The Company had no borrowings from the Pool at December 31, 1998
 and 1997.  Rates on these borrowings averaged 5.3% in 1998 and 5.4% in 1997.

     (d) Disclosures About Fair Value of Financial Instruments

     The fair value of certain financial instruments included in the
 accompanying Balance Sheets as of December 31, 1998 and 1997 are as follows:

                                  1998                  1997   
                                     (Dollars in thousands)

                           Carrying    Fair       Carrying    Fair  
                             Value    Value         Value    Value  

    Long-term Debt           $  -      $  -        $84 267  $102 121

    The carrying amount of cash, notes payable to banks and advances from
 affiliates approximates the fair value because of the short maturity of
 these financial instruments.

    The estimated fair value of long-term debt is based on quoted market
 prices of the same or similar issues or on the current rates offered for
<PAGE>
<PAGE 29>

                            CANAL ELECTRIC COMPANY

 debt with the same remaining maturity.  The fair value shown above does not
 purport to represent the amount at which the obligations would be settled.

(5) Commitments and Contingencies

    (a) Construction

    The Company is engaged in a continuous construction program presently
 estimated at $9.7 million for the five-year period 1999 through 2003.  Of
 that amount, $1.2 million is estimated for 1999.  The Company expects to
 finance these expenditures on an interim basis with internally generated
 funds and short-term borrowings that are ultimately expected to be repaid
 with proceeds from sales of long-term debt and equity securities.

    (b) Seabrook Nuclear Power Plant

    COM/Energy's 3.52% interest in the Seabrook nuclear power plant is owned
 by the Company to provide for a portion of the capacity and energy needs of
 Cambridge and Commonwealth Electric.  The Company is recovering 100% of its
 Seabrook 1 investment through power contracts pursuant to FERC and DTE
 approval.

    Pertinent information with respect to the Company's joint-ownership
 interest in Seabrook 1 and information relating to operating expenses which
 are included in the accompanying financial statements, are as follows:

                                         1998              1997
                                         (Dollars in thousands)

    Utility plant-in-service           $232,471          $232,471
    Nuclear fuel                         23,581            22,207
    Accumulated depreciation
      and amortization                  (71,929)          (64,379)
    Construction work in progress         1,852             1,036
                                       $185,975          $191,335

                                     1998       1997        1996
                                        (Dollars in thousands)
    Operating expenses:
     Fuel                         $ 1,274     $ 1,471     $ 1,727
     Other operation                4,369       4,206       4,091
     Maintenance                    1,437       2,364         990
     Depreciation                   6,577       6,314       6,544
     Amortization                   1,319       1,319       1,319
                                  $14,976     $15,674     $14,671

       Plant capacity (MW)          1,150        In-service date    1990
       Canal's share:                            Operating license
        Percent interest             3.52%        expiration date   2026
        Entitlement (MW)             40.5

     The Company and the other joint-owners have established a decommis-
 sioning fund to cover decommissioning costs.  The estimated cost to decom-
 mission the plant is $489 million in current dollars.  The Company's share
 of this liability (approximately $17.2 million), less its share of the
<PAGE>
<PAGE 30>

                            CANAL ELECTRIC COMPANY

 market value of the assets held in a decommissioning trust (approximately
 $3.2 million), is approximately $14 million at December 31, 1998.

     (c) Environmental Matters

     The Company is subject to laws and regulations administered by federal,
 state and local authorities relating to the quality of the environment. 
 These laws and regulations affect, among other things, the siting and
 operation of electric generating and transmission facilities and can require
 the installation of expensive air and water pollution control equipment. 
 These regulations have had an impact on the Company's operations in the
 past, however their impact on future operations, capital costs and
 construction schedules is not expected to be significant since all of the
 Company's non-nuclear generating assets were sold in 1998.

(6)  Dividend Restriction

     At December 31, 1998, no retained earnings were restricted against the
 payment of cash dividends by terms of the Indenture of Trust securing long-
 term debt.

(7)  Employee Benefit Plans

     (a) Pension

     The Company has a noncontributory pension plan covering substantially
 all regular employees who have attained the age of 21 and have completed one
 year of service.  Pension benefits are based on an employee's years of
 service and compensation.  The Company makes monthly contributions to the
 plan consistent with the funding requirements of the Employee Retirement
 Income Security Act of 1974.

     The following tables set forth the change in the pension benefit
 obligation and plan assets as well as the plan's funded status reconciled to
 the amount included in the financial statements:

                                                 1998          1997
                                               (Dollars in thousands)
      Change in benefit obligation
        Obligation at beginning of year        $  22,119     $  17,576
        Service cost                                 509           524
        Interest cost                              1,542         1,314
        Actuarial loss                             2,526         3,708
        Benefits paid                             (1,346)       (1,003)
        Obligation at end of year              $  25,350     $  22,119

                                                 1998          1997
                                               (Dollars in thousands)
      Change in plan assets
        Fair value of plan assets at
          beginning of year                    $  20,287     $  17,523
        Actual return on plan assets               1,576         3,145
        Employer contributions                       478           622
        Benefits paid                             (1,346)       (1,003)
        Fair value of plan assets at
          end of year                          $  20,995     $  20,287
<PAGE>
<PAGE 31>

                            CANAL ELECTRIC COMPANY

                                                 1998          1997
                                               (Dollars in thousands)

      Funded status                            $  (4,355)    $  (1,832)
      Unrecognized transition obligation              50            66
      Unrecognized prior service cost                373           426
      Unrecognized net actuarial loss              3,467           951
      Prepaid (accrued) benefit cost           $    (465)    $    (389)

      Weighted-average assumptions as of December 31 were as follows:

                                                 1998          1997

      Discount rate                              6.50%         7.00%
      Expected return on plan assets             9.00          8.75
      Rate of increase in future compensation    3.75          3.75

      Plan assets consist primarily of fixed-income and equity securities.
Fluctuations in the fair market value of plan assets will affect pension
expense in future years.

      Components of net periodic pension cost were as follows:

                                            1998        1997        1996
                                               (Dollars in thousands)

      Service cost                        $    509    $    524    $    527
      Interest cost                          1,542       1,314       1,254
      Expected return on plan assets        (1,566)     (1,373)     (1,236)
      Amortization of transition
        obligation                              16          18          18
      Amortization of prior service cost        53          54          54
        Total                                  554         537         617
      Transfers from affiliates, net           206         372         347
      Less: Amounts capitalized
            and deferred                       171         206         224
        Net periodic pension cost         $    589    $    703    $    740

      The net periodic pension cost reflects the use of the projected unit
credit method which is also the actuarial cost method used in determining
future funding of the plan.

      (b) Other Postretirement Benefits

      Certain employees are eligible for postretirement benefits if they meet
specific requirements.  These benefits could include health and life insurance
coverage and reimbursement of Medicare Part B premiums.  Under certain
circumstances, eligible employees are required to make contributions for
postretirement benefits.

      To fund its postretirement benefits, the Company makes contributions to
various voluntary employees' beneficiary association (VEBA) trusts that were
established pursuant to section 501(c)(9) of the Internal Revenue Code (the
Code).  The Company also makes contributions to a subaccount of its pension
<PAGE>
<PAGE 32>

                            CANAL ELECTRIC COMPANY

plan pursuant to section 401(h) of the Code to fund a portion of its
postretirement benefit obligation.

      The following tables set forth the change in the postretirement benefit
obligation and plan assets as well as the plan's funded status reconciled to
the amount included in the financial statements:

                                                 1998          1997
                                               (Dollars in thousands)
      Change in benefit obligation
        Obligation at beginning of year        $   7,634     $   6,586
        Service cost                                 179           176
        Interest cost                                533           493
        Actuarial loss (gain)                       (244)          612
        Participant contributions                      7             3
        Benefits paid                               (365)         (236)
        Obligation at end of year              $   7,744     $   7,634

                                                 1998          1997
                                               (Dollars in thousands)
      Change in plan assets
        Fair value of plan assets at
          beginning of year                    $   3,790     $   2,825
        Actual return on plan assets                 230           543
        Employer contributions                       610           655
        Participant contributions                      7             3
        Benefits paid                               (365)         (236)
        Fair value of plan assets at
         end of year                           $   4,272     $   3,790

      Funded status                            $  (3,472)    $  (3,844)
      Unrecognized transition obligation           3,481         3,730
      Unrecognized net actuarial loss                 (9)          114
      Prepaid (accrued) benefit cost           $     -       $     -  

      Weighted-average assumptions as of December 31 were as follows:

                                                  1998          1997

      Discount rate                               6.50%         7.00%
      Expected return on plan assets              9.00          8.75
      Rate of increase in future compensation     3.75          3.75

      For measurement purposes, a 6.50% annual rate of increase in the per
capita cost of covered medical claims was assumed for 1999.  The rates were
assumed to decrease gradually to 4.5% for 2007 and remain at that level
thereafter.  Dental claims and Medicare Part B premiums are expected to
increase at 4.5% and 3.1%, respectively.

      Plan assets consist primarily of fixed-income and equity securities.
Fluctuations in the fair market value of plan assets will affect the periodic
postretirement benefit cost in future years.
<PAGE>
<PAGE 33>

                            CANAL ELECTRIC COMPANY

      Components of net periodic postretirement benefit cost were as follows:

                                                  1998      1997     1996
                                                  (Dollars in thousands)

      Service cost                              $   179   $   176  $   187
      Interest cost                                 533       493      489
      Expected return on plan assets               (351)     (263)    (194)
      Amortization of transition obligation         249       249      249
         Total                                      610       655      731
      Transfers from affiliates, net                236       452      447
      Add: Net amortization of deferrals           (117)     (234)   1,320
      Less: Amounts capitalized and deferred        102        63       90
         Net periodic postretirement
         benefit cost                           $   627   $   810  $ 2,408

      Assumed healthcare cost trend rates have a significant effect on the
amounts reported for health care plans.  A one-percentage point change in
assumed healthcare cost trend rates would have the following effects: 

                                                 One-Percentage-Point 
                                                Increase      Decrease
                                                (Dollars in thousands)

      Effect on total of service and
         interest cost components               $    85         $ (78)
      Effect on postretirement
         benefit obligation                     $   695         $(682)

         (c) Savings Plan

      The Company has an Employees Savings Plan that provides for Company
contributions equal to contributions by eligible employees up to four percent
of each employee's compensation rate and up to five percent for those
employees no longer eligible for postretirement health benefits.  The
Company's contribution was $244,000 in 1998, $256,000 in 1997 and $261,000 in
1996.

(8)   Lease Obligations

      The Company leases equipment and office space under arrangements that
are classified as operating leases.  These lease agreements are for terms of
one year or longer.  Leases currently in effect contain no provisions that
prohibit the Company from entering into future lease agreements or
obligations.

      The Company has entered into support agreements with other participating
New England utilities for 3.8% of the Hydro-Quebec Phase II transmission
facilities and makes monthly support payments to cover depreciation and
interest costs.
<PAGE>
<PAGE 34>

                            CANAL ELECTRIC COMPANY

      Future minimum lease payments, by period and in the aggregate, of
capital leases and noncancelable operating leases consisted of the following
at December 31, 1998:
                                      Operating Leases  Capital Leases
                                           (Dollars in thousands)

 1999                                     $  253         $ 1,770
 2000                                        253           1,704
 2001                                        253           1,643
 2002                                        253           1,581
 2003                                        248           1,520
 Beyond 2003                                 745          15,422
 Total future minimum lease payments      $2,005          23,640
 Less:Estimated interest element
   included therein                                       12,521
 Estimated present value of future
   minimum lease payments                                $11,119

       Total rent expense for all operating leases, except those with terms
of a month or less, amounted to $356,000 in 1998, $575,000 in 1997 and
$475,000 in 1996.  There were no contingent rentals and no sublease rentals
for the years 1998, 1997 and 1996.
<PAGE>
<PAGE 35>

                            CANAL ELECTRIC COMPANY

                                   PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1.   Index to Financial Statements

     Financial statements and notes thereto of the Company together with the
     Report of Independent Public Accountants, are filed under Item 8 of this
     report and listed on the Index to Financial Statements and Schedule
     (page 16).

(a) 2.   Index to Financial Statement Schedules

     Filed herewith at page indicated are financial statement schedules of
     the Company:

     Schedule I - Investments in, Equity Earnings of, and Dividends Received
     from Related Parties - Years Ended December 31, 1998, 1997 and 1996
     (page 42).

(a) 3.   Exhibits:

              Notes to Exhibits - 

    a. Unless otherwise designated, the exhibits listed below are
       incorporated by reference to the appropriate exhibit numbers and the
       Securities and Exchange Commission file numbers indicated in
       parentheses.

    b. The following is a glossary of Commonwealth Energy System and
       subsidiary companies' acronyms that are used throughout the following
       Exhibit Index:

       CES....................  Commonwealth Energy System
       CE.....................  Commonwealth Electric Company
       CEL....................  Cambridge Electric Light Company
       CEC....................  Canal Electric Company
       NBGEL..................  New Bedford Gas and Edison Light Company

                                 Exhibit Index

Exhibit 3. Articles of incorporation and by-laws.

 3.1.      Articles of incorporation of CEC (Exhibit 1 to CEC's 1990 Form
           10-K, File No. 2-30057).

 3.2.      By-laws of CEC, as amended (Exhibit 2 to the CEC 1990 Form 10-K,
           File No. 2-30057).
<PAGE>
<PAGE 36>

                            CANAL ELECTRIC COMPANY

Exhibit 4. Instruments defining the rights of security holders, including
           indentures

4.2.1      Indenture of Trust and First Mortgage between CEC and State Street
           Bank and Trust Company, Trustee, dated October 1, 1968 (Exhibit
           4(b) to the CEC Form S-1, File No. 2-30057).

4.2.2      First and General Mortgage Indenture between CEC and Citibank,
           N.A., Trustee, dated September 1, 1976 (Exhibit 4(b)(2) to the CEC
           Form S-1, File No. 2-56915).

4.2.3      First Supplemental dated October 1, 1968 with State Street Bank
           and Trust Company, Trustee, dated September 1, 1976 (Exhibit
           4(b)(3) to the CEC Form S-1, File No. 2-56915).

4.2.4      Third Supplemental dated September 1, 1976 with Citibank, N.A.,
           New York, NY, Trustee, dated December 1, 1990 (Exhibit 3 to the
           CEC 1990 Form 10-K, File No. 2-30057).

4.2.5      Fourth Supplemental dated September 1, 1976 with Citibank, N.A.,
           New York, NY, Trustee, dated December 1, 1990 (Exhibit 4 to the
           CEC 1990 Form 10-K, File No. 2-30057).

Exhibit 10. Material Contracts

10.1      Power contracts.

10.1.1    Power contracts between CEC and NBGEL and CEL dated December 1,
          1965 (Exhibit 13(a)(1-4) to the CEC Form S-1, File No. 2-30057).

10.1.2    Power contract, as amended to February 28, 1990, superseding the
          Power Contract dated September 1, 1986 and amendment dated June 1,
          1988, between CEC (seller) and CE and CEL (purchasers) for seller's
          entire share of the Net Unit Capability of Seabrook 1 and related
          energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File No. 2-
          30057).

10.1.3    Purchase and Sale Agreement together with an implementing Addendum
          dated December 31, 1981 between CEC and CE for the purchase and
          sale of the CE 3.52% joint-ownership interest in the Seabrook
          units, dated January 2, 1981 (Exhibit 1 to the Company's Form 8-K
          (January 13, 1982), File No. 2-30057).

10.1.4    Agreement for Joint-Ownership, Construction and Operation of the
          New Hampshire Nuclear Units (Seabrook) dated May 1, 1973 and filed
          by NBGEL as Exhibit 13(N) on Form S-1 dated October 1973, File No.
          2-49013, and as amended below:

10.1.4.1  First through Fifth Amendments to 10.1.4 dated May 24, 1974,
          June 21, 1974, September 25, 1974, October 25, 1974, and January
          31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1
          (November 7, 1975), File No. 2-54995).

<PAGE>
<PAGE 37>

                            CANAL ELECTRIC COMPANY

10.1.4.2  Sixth through Eleventh Amendments to 10.1.4 dated April 18, 1979,
          April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979 and
          December 15, 1979, respectively (Exhibit 1 to the CEC 1989 Form 10-
          K, File No. 2-30057).

10.1.4.3  Twelfth and Thirteenth Amendments to 10.1.4 dated May 16, 1980 and
          December 31, 1980, respectively ((Exhibit 1 and 2 to the CE Form
          10-Q (June 1982), File No. 2-7749).

10.1.4.4  Fourteenth Amendment to 10.1.4 dated June 1, 1982 (Exhibit 3 to the
          CE Form 10-Q (June 1982), File No. 2-7749).

10.1.4.5  Fifteenth and Sixteenth Amendments to 10.1.4 dated April 27, 1984
          and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q
          (June 1984), File No. 2-30057).

10.1.4.6  Seventeenth Amendment to 10.1.4 dated March 8, 1985 (Exhibit 1 to
          the CEC Form 10-Q (March 1985), File No. 2-30057).

10.1.4.7  Eighteenth Amendment to 10.1.4 dated March 14, 1986 (Exhibit 1 to
          the CEC Form 10-Q (March 1986), File No. 2-30057).

10.1.4.8  Nineteenth Amendment to 10.1.4 dated May 1, 1986 (Exhibit 1 to the
          CEC Form 10-Q (June 1986), File No. 2-30057).

10.1.4.9  Twentieth Amendment to 10.1.4 dated September 19, 1986 (Exhibit 1
          to the CEC Form 10-K for 1986, File No. 2-30057).

10.1.4.10 Twenty-First Amendment to 10.1.4 dated November 12, 1987 (Exhibit 1
          to the CEC Form 10-K for 1987, File No. 2-30057).

10.1.4.11 Twenty-Second Amendment and Settlement Agreement to 10.1.4 dated
          January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No. 2-
          30057).

10.1.5    Capacity Acquisition Agreement between CEC, CEL and CE dated
          September 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No.
          2-30057).

10.1.5.1  Supplement to 10.1.5 consisting of three Capacity Acquisition
          Commitments each dated May 7, 1987, concerning Phases I and II of
          the Hydro-Quebec Project and electricity acquired from Connecticut
          Light and Power Company (CL&P) (Exhibit 1 to the CEC Form 10-Q
          (September 1987), File No. 2-30057).

10.1.5.2  Amendment to 10.1.5 as amended, and restated, June 1, 1993,
          henceforth referred to as the Capacity Acquisition and Disposition
          Agreement, whereby CEC, as agent, in addition to acquiring power
          may also sell bulk electric power which CEL and/or CE owns or
          otherwise has the right to sell (Exhibit 1 to the CEC Form 10-Q
          (September 1993), File No. 2-30057).
<PAGE>
<PAGE 38>

                            CANAL ELECTRIC COMPANY

10.1.6    Agreement, dated September 1, 1985, With Respect To Amendment of
          Agreement With Respect To Use Of Quebec Interconnection, dated
          December 1, 1981, among certain NEPOOL utilities to include Phase
          II facilities in the definition of "Project" (Exhibit 1 to the CEC
          Form 10-Q (September 1985), File No. 2-30057).

10.1.6.1  Amendatory Agreement No.3 with Respect to Use of Quebec
          Interconnection dated December 1, 1981, as amended to June 1, 1990,
          among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q
          (September 1990), File No. 2-30057).

10.1.7    Preliminary Quebec Interconnection Support Agreement - Phase II
          among certain New England electric utilities dated June 1, 1984
          (Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749).

10.1.7.1  First through Third Amendments to 10.1.7 as amended March 1, 1985,
          January 1, 1986 and March 1, 1987, respectively (Exhibit 1 to the
          CEC Form 10-Q (March 1987), File No. 2-30057).

10.1.7.2  Fifth through Seventh Amendments to 10.1.7 as amended October 15,
          1987, December 15, 1987 and March 1, 1988, respectively (Exhibit 1
          to the CEC Form 10-Q (June 1988), File No. 2-30057).

10.1.7.3  Fourth and Eighth Amendments to 10.1.7 as amended July 1, 1987 and
          August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
          (September 1988), File No. 2-30057).

10.1.7.4  Ninth and Tenth Amendments to 10.1.7 as amended November 1, 1988
          and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
          10-K, File No. 2-30057).

10.1.7.5  Eleventh Amendment to 10.1.7 as amended November 1, 1989 (Exhibit 4
          to the CEC 1989 Form 10-K, File No. 2-30057).

10.1.7.6  Twelfth Amendment to 10.1.7 as amended April 1, 1990 (Exhibit 1 to
          the CEC Form 10-Q (June 1990) File No. 2-30057).

10.1.8    Agreement to Preliminary Quebec Interconnection Support Agreement -
          Phase II among Public Service Company of New Hampshire (PSNH), New
          England Power Co. (NEP), Boston Edison Co. (BECO), and CEC whereby
          PSNH assigns a portion of its interests under the original
          Agreement to the other three parties, dated October 1, 1987
          (Exhibit 2 to the CEC 1987 Form 10-K, File No. 2-30057).

10.1.9    Phase II Equity Funding Agreement for New England Hydro
          Transmission Electric Company, Inc. (New England Hydro)
          (Massachusetts), dated June 1, 1985, between New England Hydro and
          certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September
          1985), File No. 2-30057).

10.1.10   Phase II Equity Funding Agreement for New England Hydro
          Transmission Corporation (New Hampshire Hydro), dated June 1, 1985,
          between New Hampshire Hydro and certain NEPOOL utilities (Exhibit 3
          to the CEC Form 10-Q (September 1985), File No. 2-30057).
<PAGE>
<PAGE 39>

                            CANAL ELECTRIC COMPANY

10.1.10.1 Amendment No. 1 to 10.1.10 as amended May 1, 1986 (Exhibit 6 to the
          CEC Form 10-Q (March 1987), File No. 2-30057).

10.1.10.2 Amendment No. 2 to 10.1.10 as amended September 1, 1987 (Exhibit 3
          to the CEC Form 10-Q (September 1987), File No. 2-30057).

10.1.11   Phase II Massachusetts Transmission Facilities Support Agreement,
          dated June 1, 1985, refiled as a single agreement incorporating
          Amendments 1 through 7 dated May 1, 1986 through January 1, 1989,
          respectively, between New England Hydro and certain NEPOOL
          utilities (Exhibit 2 to the CEC Form 10-Q (September 1990), File
          No. 2-30057).

10.1.12   Phase II New Hampshire Transmission Facilities Support Agreement,
          dated June 1, 1985, refiled as a single agreement incorporating
          Amendments 1 through 8 dated May 1, 1986 through January 1, 1989,
          respectively,  between New Hampshire Hydro and certain NEPOOL
          utilities (Exhibit 3 to the CEC Form 10-Q (September 1990), File
          No. 2-30057).

10.1.13   Phase II New England Power AC Facilities Support Agreement dated
          June 1, 1985, between New England Power and certain NEPOOL
          utilities (Exhibit 6 to the CEC Form 10-Q (September 1985), File
          No. 2-30057).

10.1.13.1 Amendments Nos. 1 and 2 to 10.1.13 as amended May 1, 1986 and
          February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
          (March 1987), File No. 2-30057).

10.1.13.2 Amendments Nos. 3 and 4 to 10.1.13 as amended June 1, 1987 and
          September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
          (September 1987), File No. 2-30057).

10.1.14   Agreement Authorizing Execution of Phase II Firm Energy Contract,
          dated September 1, 1985, among certain NEPOOL utilities in regard
          to the purchase of power from Hydro Quebec (Exhibit 8 to the CEC
          Form 10-Q (September 1985), File No. 2-30057).

10.2      Other agreements.

10.2.1    Employees Savings Plan of Commonwealth Energy System and Subsidiary
          Companies as amended and restated as of January 1, 1993 (Exhibit 2
          to the CES Form 10-Q (September 1993), File No. 1-7316).

10.2.1.1  First Amendment to the Employees Savings Plan of Commonwealth
          Energy System and Subsidiary Companies, as amended and restated as
          of January 1, 1993, effective October 1, 1994 (Exhibit 1 to CES
          Form S-8 (January 1995), File No. 1-7316).

10.2.1.2  Second Amendment to the Employees Savings Plan of Commonwealth
          Energy System and Subsidiary Companies, as amended and restated as
          of January 1, 1993, effective April 1, 1996 (Exhibit 1 to CES Form
          10-K/A Amendment No. 1 (April 30, 1996), File No. 1-7316).
<PAGE>
<PAGE 40>

                            CANAL ELECTRIC COMPANY

10.2.1.3  Third Amendment to the Employees Savings Plan of Commonwealth
          Energy System and Subsidiary Companies, as amended and restated as
          of January 1, 1993, effective January 1, 1997 (Exhibit 1 to CES
          Form 10-K/A Amendment No. 1 (April 29, 1997), File No. 1-7316).

10.2.1.4  Fourth Amendment to the Employees Savings Plan of Commonwealth
          Energy System and Subsidiary Companies, as amended and restated as
          of January 1, 1993, effective January 1, 1998 (Exhibit 1 to CES
          Form 10-K/A Amendment No. 1 (April 29, 1998), File No. 1-7316).

10.2.2    Pension Plan for Employees of Commonwealth Energy System and
          Subsidiary Companies as amended and restated January 1, 1993
          (Exhibit 1 to the CES Form 10-Q (September 1993), File No.1-7316).

10.2.3    New England Power Pool Agreement (NEPOOL) dated September 1, 1971
          as amended through August 1, 1977, between NEGEA Service Corp. as
          agent for CEL, CEC, NBGEL, and various other electric utilities
          operating in New England, together with amendments dated August 15,
          1978 and January 31, 1979 and February 1, 1980 (Exhibit 5(c)(13) to
          the CES Form S-16 (April 1980), File No. 2-64731).

10.2.3.1  Thirteenth Amendment to 10.2.3 as amended September 1, 1981
          (Exhibit 5 to the CES Form 10-K for 1981, File No. 1-7316).

10.2.3.2  Fourteenth through Twentieth Amendments to 10.2.3 as amended
          December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983,
          August 1, 1985, August 15, 1985 and September 1, 1985, respectively
          (Exhibit 4 to the CES Form 10-Q (September 1985), File No. 1-7316).

10.2.3.3  Twenty-first Amendment to the New England Power Pool Agreement
          dated September 1, 1971, as amended January 1, 1986 (Exhibit 1 to
          the CES Form 10-Q (March 1986), File No. 1-7316).

10.2.3.4  Twenty-second Amendment to 10.2.3 as amended to September 1, 1986
          (Exhibit 1 to the CES Form 10-Q (September 1986), File No. 1-7316).

10.2.3.5  Twenty-third Amendment to 10.2.3 as amended to April 30, 1987
          (Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316).

10.2.3.6  Twenty-fourth Amendment to 10.2.3 as amended to March 1, 1988
          (Exhibit 1 to the CES Form 10-K for 1987, File No. 1-7316).

10.2.3.7  Twenty-fifth Amendment to 10.2.3 as amended to May 1, 1988 (Exhibit
1 to the CES Form 10-Q (March 1988), File No. 1-7316).

10.2.3.8  Twenty-sixth Amendment to 10.2.3 as amended to March 15, 1989
          (Exhibit 1 to the CES Form 10-Q (March 1989), File No. 1-7316).

10.2.3.9  Twenty-seventh Amendment to 10.2.3 as amended to October 1, 1990
          (Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316).

10.2.3.10 Twenty-eighth Amendment to 10.2.3 as amended September 15, 1992
          (Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-7316).

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                            CANAL ELECTRIC COMPANY

10.2.3.11 Twenty-ninth Amendment to 10.2.3 as amended May 1, 1993 (Exhibit 2
          to the CES Form 10-Q (September 1994), File No. 1-7316).

Filed herewith:

Exhibit 27.
           Filed herewith as Exhibit 1 is the Financial Data Schedule for the
           year ended December 31, 1998.

(b) Reports on Form 8-K

           No reports on Form 8-K were filed during the three months ended
           December 31, 1998.
<PAGE>
<PAGE 42>
<TABLE>
                                                                                     SCHEDULE I
                                           CANAL ELECTRIC COMPANY
                                     INVESTMENTS IN, EQUITY EARNINGS OF,
                                 AND DIVIDENDS RECEIVED FROM RELATED PARTIES
                            FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                           (Dollars in Thousands)
<CAPTION>
                                    Investment                                          Investment
                                     Balance                                              Balance
Description of Investment and      Beginning of                Equity      Dividends      End of
Name of Issuer                         Year       Shares      Earnings     Received         Year  

New England/Hydro-Quebec Phase II
HVDC Transmission Project -
                                                         YEAR ENDED DECEMBER 31, 1998                  
<S>                              <C>             <C>        <C>           <C>           <C>
 New England Hydro-Transmission
   Electric Company, Inc.           $ 1,869       116,158      $  273        $  423       $1,719

 New England Hydro-Transmission
   Corporation                        1,206       563.710         181           306        1,081
     Total                          $ 3,075                    $  454        $  729       $2,800

                                                         YEAR ENDED DECEMBER 31, 1997                  
 New England Hydro-Transmission
   Electric Company, Inc.           $ 2,030       126,407      $  140        $  301       $1,869

 New England Hydro-Transmission
   Corporation                        1,291       626.910          93           178        1,206
     Total                          $ 3,321                    $  233        $  479       $3,075

                                                         YEAR ENDED DECEMBER 31, 1996                  
 New England Hydro-Transmission
   Electric Company, Inc.           $ 2,026       136,656      $  311        $  307       $2,030

 New England Hydro-Transmission
   Corporation                        1,346       673.031         187           242        1,291
     Total                          $ 3,372                    $  498        $  549       $3,321
<FN>
In 1998 New England Hydro-Transmission Electric Company, Inc. (NEHTEC) repurchased 8.1% (10,249.2 shares) of
its outstanding shares at $14.15 per share.  The Company received proceeds of $145,028.  In 1997 NEHTEC
repurchased 7.5% (10,249.2 shares) of its outstanding shares at $14.20 per share.  The Company received
proceeds of $145,539.  During 1998, 1997 and 1996, New England Hydro-Transmission Corporation (NEHTC)
repurchased 10.1% (63.2 shares), 6.85% (46.124 shares) and 6.52% (61.495 shares), respectively, of its
outstanding shares.  The Company received proceeds of $115,910 ($1,833.92 per share), $85,207 ($1,847.46 per
share) and $112,616 ($1,831.30 per share) for 1998, 1997 and 1996,respectively.  Receipts from the
repurchase of shares are included with dividends.
</TABLE>
<PAGE>
<PAGE 43>

                            CANAL ELECTRIC COMPANY

                     FORM 10-K          DECEMBER 31, 1998

                                  SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                                CANAL ELECTRIC COMPANY   
                                                      (Registrant)

                                           By: R. D. WRIGHT             
                                               Russell D. Wright,
                                               Chairman of the Board

      Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Principal Executive Officers:

R. D. WRIGHT                                           March 31, 1999
Russell D. Wright,
Chairman of the Board and
Chief Executive Officer

DEBORAH A. McLAUGHLIN                                  March 31, 1999
Deborah A. McLaughlin
President and Chief Operating Officer

Principal Financial Officer:

JAMES D. RAPPOLI                                       March 31, 1999
James D. Rappoli
Financial Vice President and Treasurer


A majority of the Board of Directors:

R. D. WRIGHT                                           March 31, 1999
Russell D. Wright, Director

DEBORAH A. McLAUGHLIN                                  March 31, 1999
Deborah A. McLaughlin, Director

JAMES D. RAPPOLI                                       March 31, 1999
James D. Rappoli, Director