<PAGE 1>

               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 [FEE REQUIRED]

      For the fiscal year ended December 31, 1996

                                      OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      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 15, 1997
Common Stock, $25 par value                   1,523,200 shares

The Company meets the conditions set forth in General Instruction J(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 32 of this report.

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                            CANAL ELECTRIC COMPANY
                         FORM 10-K  DECEMBER 31, 1996

                               TABLE OF CONTENTS

                                    PART I
                                                                      PAGE

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

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

            New England Power Pool..........................            3

            Regulation......................................            4

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

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

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

            Power Supply Commitments and
              Support Agreements............................            7

            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.......           12

Item  9.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.............           12

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules and
            Reports on Form 8-K.............................           32


Signatures...................................................          41

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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
  ("System"), which together with its subsidiaries is collectively referred to
  as "the system."

      The Company's generating station is located in Sandwich, Massachusetts
  at the eastern end of the Cape Cod Canal.  The station consists of two
  electric generating units: Canal Unit 1 is an oil-fired facility with a
  rated capacity of 569 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 is
  operated by the Company under an agreement with Montaup which provides 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 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 System.
  The plant has a rated capacity of 1,150 MW.

      For additional information pertaining to the Company's relationship with
  the system's retail distribution companies, together with more extensive
  information on the Company's participation in the Seabrook plant and on
  other sources of power procurement, refer to the "Power Contracts" and
  "Power Supply Commitments and Support Agreements" sections of this Item 1.

      New England Power Pool

      The Company, together with other electric utility companies in the New
  England area, is a member of the New England Power Pool (NEPOOL), which was
  formed in 1971 to provide for the joint planning and operation of electric
  systems throughout New England.

      NEPOOL 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 generation during
  nights and weekends when demand is lowest.  It has performed as one of New
 
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                            CANAL ELECTRIC COMPANY

   England's most efficient units in this type of service.

      The Company and the System'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.

      Regulation

      The Company is a "public utility" within the meaning of Part II of the
  Federal Power Act and is subject to regulations thereunder by the FERC as to
  rates, accounting and other matters.  The Company is subject to regulation
  by the DPU as to the issuance of securities.

      Electric Industry Restructuring

      In August 1995, the DPU issued an order calling for the restructuring of
  the electric utility industry in Massachusetts.  On May 1, 1996, the DPU
  issued a second order containing proposed rules for implementing electric
  industry restructuring that were the subject of public comment and hearings
  during June and July 1996.  Subsequently, on December 30, 1996, the DPU
  issued another order announcing its "Model Rules and Legislative Proposal"
  as a guide in the creation of a competitive market for electric generation
  in Massachusetts that would provide customers with the opportunity to
  achieve lower electric bills beginning January 1, 1998.  The order also
  required electric utilities to file by March 3, 1997, revenue-neutral,
  unbundled rates and model bills showing a breakdown of the bill into
  generation, transmission, distribution and access charge categories.

      In its "Model Rules," the DPU has proposed that the minimum structural
  reorganization needed to create a competitive market is the functional
  separation of generation, transmission and distribution within one
  integrated company, and the establishment of a separate marketing affiliate
  if a company retains generation assets.  The Massachusetts Legislature,
  which will render the final passage of any restructuring law, is now
  considering the DPU's proposed legislation.  In addition, on March 20, 1997,
  the Legislature's own Joint Committee on Electric Utility Restructuring (the
  Committee) issued a comprehensive policy report which outlines options for
  the Legislature's consideration as debate on this issue continues.  In
  addition to the report, the Committee formulated its own recommendations and
  corresponding legislative package designed to address each of the major
  areas of the law which must develop if electric utility restructuring is to
  be successfully implemented in Massachusetts.

      Other elements of the DPU's Model Rules provide that electric customers
  will be able to buy their power on the open market; distribution services
  will remain a monopoly service offered exclusively by the existing local
  distribution companies in clearly defined service territories; and customers
  will have three types of electric generation choices.  First, customers may
  enter into unregulated agreements with a competitive supplier for the provi-
  sion of generation.  Second, customers may continue to buy power directly
  from their electric distribution company at a price regulated by the DPU.
  Third, customers who have received generation from a competitive supplier
  but who, for any reason, have stopped receiving such generation will be able
  to receive default generation service, provided by distribution companies at
 
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                            CANAL ELECTRIC COMPANY

  spot market price.

      The Company has FERC-approved power contracts in effect with various
  retail electric utilities (including certain affiliates).  The retail
  electric utilities with whom the Company has power contracts are directly
  affected by the state's electric industry restructuring order.  The Company
  believes that it will continue to collect the costs associated with these
  FERC-approved power contracts.

      During the last several months, three Massachusetts electric utilities
  have announced negotiated settlement agreements with the Massachusetts
  Attorney General's Office (Attorney General) that include divestiture of
  generating assets, provision for a ten percent reduction in customers'
  charges and recovery of stranded costs through a non-bypassable access
  charge.  One settlement agreement has already been approved by the DPU.
  Implementation of any restructuring settlement may be affected by actions of
  the Massachusetts Legislature.

      The system is engaged in preliminary settlement discussions with the
  Attorney General, and expects to reach a comprehensive settlement during the
  first half of 1997.  In the unlikely event the parties are unable to
  complete a settlement, the system would file a full restructuring plan with
  the DPU.

      Fuel Supply

      Effective October 1, 1996, the Company executed a fifteen-month contract
  with Enron Liquid Fuels, Inc. (Enron) for the purchase of 1% sulfur residual
  fuel oil.  The contract provides for delivery of a set percentage of the
  Company's fuel requirement, the balance (a maximum of 35%) to be met by spot
  purchases or by Enron at the discretion of the Company.  Through December
  31, 1996, 17.6% of the Company's total requirements have been met by lower-
  cost, spot purchases resulting in savings to its customers.

      Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) operates
  the Company's fuel oil terminal and manages 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 is held in
  inventory by ESCO Massachusetts, Inc. and delivered upon demand to the
  Company's two day tanks.

      Fuel oil storage facilities at the Canal site have a capacity of
  1,199,000 barrels, representing approximately 60 days of normal operation of
  the two units.  During 1996, ESCO Massachusetts, Inc. maintained an average
  daily inventory of 421,000 barrels of fuel oil which represents 34 days of
  normal operation of the two units.  This supply is maintained by tanker
  deliveries.

      During 1996 Unit 2 was converted to dual-fuel capability, residual fuel
  oil and natural gas.  During September and October 1996, Unit 2 burned
  approximately 1.6 million MMBTU's of natural gas, saving customers
  approximately $1.1 million.  Natural gas was not burned at Unit 2 during
  November and December as the cost of residual fuel oil was more economical
  during that period.  The Company anticipates that its dual fuel capability
  will result in future savings as the least expensive fuel is utilized.

      The Company has entered into a contract with Duke/Louis Dreyfus, L.L.C.
  to provide 100% of the natural gas requirements of Unit 2 through

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                            CANAL ELECTRIC COMPANY

      December 31, 1997.

      The nuclear fuel contract and inventory information for Seabrook 1 has
  been furnished to the Company by North Atlantic Energy Services Corporation
  (NAESCO), the plant manager responsible for operation of the unit.
  Seabrook's requirement for nuclear fuel components are 100% covered through
  1999 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 facility for nuclear waste was anticipated to 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 is 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 is
  severally obligated to purchase one-quarter of the capacity and energy of
  Canal Unit 1.  Commonwealth Electric and Cambridge are jointly obligated to
  purchase the remaining one-quarter of the unit's capacity and energy.
  Similar contracts are 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.  The price of power is based on a two-part rate consisting of a demand
  charge and an energy charge.  The demand charge covers all expenses except
  fuel costs and includes recovery of the original investment.  It also
  provides for any adjustments to that investment over the economic lives of
  the units.  The energy charge is based on the cost of fuel and is billed to
  each purchaser in proportion to its purchase of power.  Purchasers are
  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, or, to sell a portion of each com-
  pany'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 DPU

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                            CANAL ELECTRIC COMPANY

  regulation.  Currently, Agreements are in effect for Seabrook 1, Phase I and
  Phase II of the Hydro-Quebec Project and a 50 MW exchange with New England
  Power Company through April 1997.

      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 the system's NEPOOL 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(c) 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.

      The Company is party to support agreements for Phase I and Phase 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 $12.5 million at December 31, 1996.  In addition, the Company has
  an equity interest in Phase II which amounted to $3.3 million in 1996 and
  $3.4 million in 1995.

      Construction and Financing

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

      Employees

      The Company has 118 regular employees, 91 (77%) are represented by the
  Utility Workers' Union of America, A.F.L.-C.I.O.  The existing collective
  bargaining agreement expires on May 31, 1997.  Employee relations have
  generally been satisfactory.

Item 2.  Properties

      The Company operates a generating station located at the eastern end of
  the Cape Cod Canal in Sandwich, Massachusetts.  The station consists 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.  Refer to Note 4 of Notes to Financial Statements filed under
  Item 8 of this report for encumbrances relative to the Company's property.

  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, 1996

         One

  (c)    Frequency and Amount of Dividends Declared in 1996 and 1995

                       1996                                1995
                              Per Share                             Per Share
         Declaration Date      Amount         Declaration Date       Amount

         January 24, 1996      $ 2.52         January 25, 1995       $ 2.25
         April 29, 1996          3.25         April 21, 1995           2.10
         July 30, 1996           2.50         July 24, 1995            2.00
         November 4, 1996        2.25         November 14, 1995        2.65
                               $10.52                                $ 9.00

         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, 1996 and
1995 is shown below:
                                       Years Ended            Years Ended
                                       December 31,           December 31,
                                      1996 and 1995          1995 and 1994
                                              Increase (Decrease)
                                             (Dollars in Thousands)

Electric Operating Revenues        $ 39 565    27.1 %    $ (51 835)   (26.2)%

Operating Expenses:
 Fuel used in production             30 414    62.4        (33 157)   (40.5)
 Electricity purchased for resale    (6 523)  (43.5)       (12 628)   (45.7)
 Other operation and maintenance      2 728     7.0           (648)    (1.6)
 Depreciation                         2 209    13.4          2 934     21.7
 Taxes -
   Federal and state income           9 111 1 496.1         (7 781)   (92.7)
   Local property and other            (181)   (5.2)           (12)    (0.3)
                                     37 758    30.6        (51 292)   (29.4)

Operating Income                      1 807     8.0           (543)    (2.3)

Other Income                          1 163    94.6            527     75.0

Income Before Interest Charges        2 970    12.4            (16)    (0.1)

Interest Charges                        528     5.4             10      0.1

Net Income                         $  2 442    17.3      $     (26)    (0.2)

Unit Sales Increase
 (Decrease) (MWH)                   795 899    33.5     (1 959 307)   (45.2)

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
    1996          2 104 132     455 054    345 204    269 888     3 174 278
    1995            942 574     830 827    295 264    309 714     2 378 379
    1994          2 594 406   1 047 214    218 560    447 506     4 337 686


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                            CANAL ELECTRIC COMPANY

  Revenue, Fuel and Purchased Power

      Operating revenues for 1996 increased by nearly $39.6 million or 27.1%
  due to a 33.5% increase in unit sales.  The significant increase in unit
  sales was primarily due to the increased availability of Unit 1 which was
  out of service for approximately eight months in 1995 due to a combination
  of scheduled and unscheduled maintenance and an increase in power available
  from Seabrook 1.  Somewhat offsetting the increase in unit sales were the
  decreased availability of Unit 2 which returned to service in August 1996,
  following approximately five months of scheduled maintenance and a lower
  level of purchases made on behalf of affiliated retail distribution
  companies.

      During 1995, operating revenues decreased 26.2% or $51.8 million
  primarily due to the 45.2% decrease in unit sales.  The significant decrease
  in unit sales was due to a combination of scheduled maintenance and other
  repairs to the turbine which kept Unit 1 out of service for the first seven
  months of the year and an additional inspection outage of nearly one month
  during the fourth quarter.  Also contributing to the decline in unit sales
  was the decreased availability of Unit 2 and a lower level of purchases made
  on behalf of affiliated retail distribution companies.  Somewhat offsetting
  these items was an increase in power available from Seabrook 1.

      The significant changes in fuel used in production reflect the impacts
  of the aforementioned outages and during 1996 reflects an increase in the
  average cost of oil.  Fuel, purchased power and transmission costs (included
  in other operation) represented approximately 49% of the total revenue
  dollar in 1996, 46% in 1995 and 57% in 1994 and averaged 2.86 cents per KWH
  in 1996 as compared to 2.83 cents in 1995 and 2.60 cents in 1994.

  Other Operating Expenses

      Other operation includes the following:

                                             Years Ended December 31,
                                            1996       1995       1994
                                              (Dollars in millions)

  Other operation:                         $26.6      $23.2      $24.7
   Less:
    Seabrook 1 operations                    4.1        4.3        4.3
    Hydro-Quebec Phase II transmission       3.3        3.5        3.5
    Power purchased from affiliates          1.3        1.9        1.3
                                           $17.9      $13.5      $15.6

      After excluding the above items, other operation, net, increased approx-
  imately $4.4 million or 32.6% in 1996 and decreased 13.5% in 1995.  The
  increase in 1996 was primarily due to higher postretirement benefits costs
  reflecting the Federal Energy Regulatory Commission's acceptance of rate
  schedules which allowed the recovery of previously deferred costs ($1.8
  million) over a six-month period which began in March.  Also contributing to
  the increase was greater liability insurance costs ($800,000) due to the
  absence of adjustments made to the insurance accruals during 1995 reflecting
  better than anticipated experience.  The decrease in 1995 was mainly due to
  lower insurance and benefit costs including a significant decrease in

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                            CANAL ELECTRIC COMPANY

  liability insurance ($1.6 million) reflecting adjustments to insurance
  accruals.

      The 5.5% decrease in maintenance expense during 1996 reflects lower
  maintenance costs associated with Unit 1 ($1.5 million), offset in part by
  increased maintenance costs for Unit 2 ($1.2 million).  The increase in
  maintenance expense (8.1%) in 1995 reflects the previously discussed major
  repair work done at Unit 1 offset, in part, by lower maintenance costs at
  Unit 2.

  Depreciation and Taxes

      During 1996 depreciation expense increased due to the higher level of
  plant-in-service.  During 1995, depreciation expense increased approximately
  $2.9 million or 21.7% due to the higher level of plant-in-service and an
  adjustment to the depreciation rate related to Unit 1 made during the second
  quarter.

      Federal and state income taxes increased in 1996 due to the absence of a
  tax adjustment during the second quarter of 1995 that related to the
  settlement of certain Seabrook-related income tax issues ($7.5 million) and
  a higher level of pretax income.  Income tax expense declined 92.7% or
  approximately $7.8 million in 1995 due to the aforementioned tax adjustment
  and a lower level of pretax income.

  Other Income

      The change in other income was due to the recording of a regulatory
  asset for costs associated with postretirement benefits (approximately $1.8
  million) following FERC acceptance of rate schedules which provided for
  recovery of these costs over a six-month period that began in March 1996.
  The increase in other income during 1995 was due primarily to an increase in
  interest income related to contested income tax issues ($97,000).

  Interest Charges

      Total interest charges increased 5.4% in 1996 reflecting an increase in
  short-term interest ($459,000) due to a higher average level of short-term
  borrowings coupled with a decrease in the debt component of allowance for
  funds used during construction ($281,000), partially offset by lower long-
  term interest ($213,000) reflecting the retirement of Series A first
  Mortgage Bonds during the second quarter.  During 1995 total interest
  charges were virtually unchanged, reflecting an increase in short-term
  interest ($332,000) due to higher interest rates (6.1% as compared to 4.3%
  in 1994) on a higher average level of short-term debt, offset by a slight
  decline in interest on long-term debt and an increase in the debt component
  of AFUDC ($268,000).  The increase in AFUDC reflected the increase in
  construction activity during the year.

  Canal Unit 2

      September 30, 1996 marked the completion of a two and one-half year
  project that will enable Unit 2 to burn natural gas, or a combination of gas

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                            CANAL ELECTRIC COMPANY

  and oil, up to 250 days each year, while maintaining the ability to burn
  only fuel oil the remainder of the year.  The ability to burn natural gas in
  combination with fuel oil will reduce overall emissions by 25%.  The $23
  million project included the construction of a 1,400 foot pipeline under the
  Cape Cod Canal and a four and one-half mile pipeline through the adjacent
  town of Bourne, MA.

  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.  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, and uncertainty as to regulatory approval of the full recovery of
  regulatory assets and other stranded costs.

  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
  and will continue to have an impact on future operations, capital costs and
  construction schedules of major facilities.

      Effective January 1, 1997, the Company will adopt 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.  Management does not believe that SOP 96-1 will 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 13 through 31 of this report.

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

      None


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                            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, 1996 and 1995, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1996.  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, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1996, 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 19, 1997.

<PAGE>
<PAGE 14>

                            CANAL ELECTRIC COMPANY
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



                                   PART II.


FINANCIAL STATEMENTS

   Balance Sheets at December 31, 1996 and 1995

   Statements of Income for the Years Ended December 31, 1996, 1995 and 1994

   Statements of Retained Earnings for the Years Ended December 31, 1996, 1995
   and 1994

   Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and
   1994

   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, 1996, 1995 and 1994

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 15>

                            CANAL ELECTRIC COMPANY
                                BALANCE SHEETS
                          DECEMBER 31, 1996 AND 1995

                                    ASSETS



                                                           1996       1995
                                                        (Dollars in Thousands)

PROPERTY, PLANT AND EQUIPMENT, at original cost         $464 003   $449 659
   Less - Accumulated depreciation
     and amortization                                    179 307    163 929
                                                         284 696    285 730
   Add - Construction work in progress                       943      5 759
         Nuclear fuel in process                           1 597        122
                                                         287 236    291 611

INVESTMENTS
   Equity in corporate joint venture                       3 321      3 372

CURRENT ASSETS
   Cash                                                       12         12
   Accounts receivable -
     Affiliated companies                                 10 294      9 282
     Other                                                12 390      9 520
   Unbilled revenues                                         675        438
   Inventories, at average cost -
     Electric production fuel oil                            979        762
     Materials and supplies                                1 296      1 375
   Prepaid taxes -
     Income                                                   64        -
     Property                                                795        874
   Other                                                   1 116      1 622
                                                          27 621     23 885

DEFERRED CHARGES
   Regulatory assets                                      19 859     25 391
   Other                                                   5 486      5 201
                                                          25 345     30 592

                                                        $343 523   $349 460










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

<PAGE>
<PAGE 16>

                            CANAL ELECTRIC COMPANY
                                BALANCE SHEETS
                          DECEMBER 31, 1996 AND 1995

                        CAPITALIZATION AND LIABILITIES

                                                           1996        1995
                                                        (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                                     52 620      52 070
                                                           99 021      98 471
   Long-term debt, including premiums, less
     current sinking fund requirements                     83 618      83 941
                                                          182 639     182 412

CAPITAL LEASE OBLIGATIONS                                  11 878      12 547

CURRENT LIABILITIES
   Interim Financing -
     Notes payable to banks                                26 550      23 425
     Advances from affiliates                               7 250       5 865
     Maturing long-term debt                                  -         3 230
                                                           33 800      32 520
   Other Current Liabilities -
     Current sinking fund requirements                        350         920
     Accounts payable -
        Affiliated companies                                1 347       2 049
        Other                                              18 123      19 757
     Accrued taxes -
        Local property and other                              795         855
        Income                                                -         3 159
     Capital lease obligations                                576         581
     Accrued interest and other                             3 986       3 608
                                                           25 177      30 929
                                                           58 977      63 449

DEFERRED CREDITS
   Accumulated deferred income taxes                       71 550      72 914
   Unamortized investment tax credits                      11 493      12 020
   Other                                                    6 986       6 118
                                                           90 029      91 052

COMMITMENTS AND CONTINGENCIES

                                                         $343 523    $349 460


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

<PAGE>
<PAGE 17>

                            CANAL ELECTRIC COMPANY
                             STATEMENTS OF INCOME
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


                                                1996       1995       1994
                                                  (Dollars in Thousands)

ELECTRIC OPERATING REVENUES
   Sales to affiliated companies              $107 842   $ 93 478   $121 744
   Sales to non-affiliated companies            77 708     52 507     76 076
                                               185 550    145 985    197 820

OPERATING EXPENSES
   Fuel used in production                      79 121     48 707     81 864
   Electricity purchased for resale              8 476     14 999     27 627
   Other operation                              26 569     23 153     24 731
   Maintenance                                  11 768     12 456     11 526
   Depreciation                                 18 682     16 473     13 539
   Amortization                                  3 423      3 423      3 423
   Taxes -
     Income                                      9 720        609      8 390
     Local property                              2 603      2 777      2 793
     Payroll and other                             726        733        729
                                               161 088    123 330    174 622

OPERATING INCOME                                24 462     22 655     23 198

OTHER INCOME                                     2 393      1 230        703

INCOME BEFORE INTEREST CHARGES                  26 855     23 885     23 901

INTEREST CHARGES
   Long-term debt                                8 017      8 229      8 283
   Other interest charges                        2 337      1 878      1 546
   Allowance for borrowed funds used
     during construction                           (73)      (354)       (86)
                                                10 281      9 753      9 743

NET INCOME                                    $ 16 574   $ 14 132   $ 14 158











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

<PAGE>
<PAGE 18>

                            CANAL ELECTRIC COMPANY
                        STATEMENTS OF RETAINED EARNINGS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994





                                               1996       1995        1994
                                                 (Dollars in Thousands)

Balance at beginning of year                  $52 070    $51 647     $48 151

Add (Deduct)
  Net income                                   16 574     14 132      14 158
  Cash dividends on common stock              (16 024)   (13 709)    (10 662)

Balance at end of year                        $52 620    $52 070     $51 647



































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

<PAGE>
<PAGE 19>

                            CANAL ELECTRIC COMPANY
                           STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                 1996      1995       1994
                                                   (Dollars in Thousands)
OPERATING ACTIVITIES
   Net income                                  $ 16 574  $ 14 132   $ 14 158
   Effects of noncash items -
     Depreciation and amortization               23 485    21 929     18 668
     Deferred income taxes                         (963)   (3 239)     1 815
     Investment tax credits                        (527)     (638)      (702)
     Earnings from corporate joint venture         (498)     (539)      (507)
   Dividends from corporate joint venture           549       969        566
   Change in working capital, exclusive
     of cash and interim financing -
        Accounts receivable                      (3 882)   (1 767)     4 729
        Unbilled revenues                          (237)     (438)       659
        Income taxes                             (3 223)    3 220        199
        Local property and other taxes               19       (64)        13
        Accounts payable and other               (1 595)    3 972        485
   All other operating items, net                   565    (1 380)    (3 571)

Net cash provided by operating activities        30 267    36 157     36 512

INVESTING ACTIVITIES
   Additions to property, plant and
     equipment (exclusive of AFUDC)             (14 557)  (30 167)    (9 396)
   Allowance for borrowed funds used
     during construction                            (73)     (354)       (86)

Net cash used for investing activities          (14 630)  (30 521)    (9 482)

FINANCING ACTIVITIES
   Proceeds from (payment of)
    short-term borrowings                         3 125    12 100    (16 675)
   Proceeds from (payment of)
    affiliate borrowings                          1 385    (3 485)     1 040
   Payment of dividends                         (16 024)  (13 709)   (10 662)
   Long-term debt issue refunded                 (3 420)      -          -
   Retirement of long-term debt through
     sinking funds                                 (703)     (542)      (733)

Net cash used for financing activities          (15 637)   (5 636)   (27 030)

Net increase (decrease) in cash                     -         -          -
Cash at beginning of period                          12        12         12
Cash at end of period                          $     12  $     12   $     12

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Interest paid (net of capitalized
     amounts)                                   $ 9 959    $9 436     $9 224
   Income taxes paid                            $14 128    $2 269     $9 055



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

<PAGE>
<PAGE 20>

                            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 company is referred to in this
  report as the "System" and together with its subsidiaries is referred to as
  "the system."  The System 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.  The Company's
  generating station which is located in Sandwich, Massachusetts consists 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 are 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 has 118 regular employees including 91 (77%) who are
  represented by the Utility Workers' Union of America, A.F.L.-C.I.O.  The
  existing collective bargaining agreement expires in 1997.  Employee
  relations have generally been satisfactory.

(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 con-
  form 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 Public Utilities (DPU).

        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
  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.  Effective January
  1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of

<PAGE>
<PAGE 21>

                            CANAL ELECTRIC COMPANY

  Long-Lived Assets and for Long-Lived Assets to be Disposed Of."  SFAS No.
  121 imposes stricter criteria for regulatory assets by requiring that such
  assets be probable of future recovery at each balance sheet date.  SFAS No.
  121 did not have an impact on the Company's financial position upon
  adoption.  This result may change as modifications are made to the current
  regulatory framework due to ongoing electric industry restructuring efforts
  in Massachusetts.  For additional information relating to industry
  restructuring, see the "Electric Industry Restructuring" section under Item
  1 of this report.

        The principal regulatory assets included in deferred charges at
  December 31, 1996 and 1995 were as follows:
                                                         1996         1995
                                                       (Dollars in Thousands)

        Seabrook related costs                          $ 6 262     $ 9 511
        Deferred income taxes                            13 597      14 106
        Postretirement benefit costs                        -         1 774
          Total regulatory assets                       $19 859     $25 391

        As of December 31, 1996 all of the Company's regulatory assets are
  reflected in rates charged to customers over a weighted average period of
  approximately 23 years.  In February 1996, FERC accepted for filing rate
  schedules that provided for the recovery of the postretirement benefit costs
  over a six-month period which began in March 1996.

        (c) Transactions with Affiliates

        Transactions between the Company and other system 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 functions as the
  principal supplier of electric generation capacity for and on behalf of
  affiliates Cambridge Electric Light Company (Cambridge) and Commonwealth
  Electric Company (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
  system companies are subject to review by the FERC and the DPU.

        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)

      1996               $52 035             $11 882             $43 925
      1995                39 617              18 694              35 167
      1994                45 906              31 288              44 550


<PAGE>
<PAGE 22>

                            CANAL ELECTRIC COMPANY

        (d) Other Major Customers

        The Company is a wholesale electric generating company that sells
  power under life-of-the-unit contracts, approved by FERC to Boston Edison
  Company, Montaup Electric Company and New England Power Company,
  (unaffiliated utilities).  Each utility is obligated to purchase one-quarter
  of the capacity and energy of Canal Unit 1.

        (e) Equity Method of Accounting

        The Company uses the equity method of accounting for its 3.8% invest-
  ment 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 corre-
  sponding 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.

        (f) 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 4.42% in 1996, 4.09% in 1995 and 3.49% in 1994.

        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.

        (g) Maintenance

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

        (h) 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 6.25% in 1996, 6.75% in 1995 and 5.25% in 1994.

<PAGE>
<PAGE 23>

                            CANAL ELECTRIC COMPANY

(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 System and it makes tax payments
  or 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, 1996, 1995 and 1994:

                                             1996        1995        1994
                                              (Dollars in Thousands)
  Federal:
     Current                               $ 9 511      $ 3 637    $ 6 321
     Deferred                                 (577)       1 585      1 460
     Investment tax credits                   (527)        (638)      (702)
                                             8 407        4 584      7 079

  State:
     Current                                 1 747          955      1 138
     Deferred                                 (223)         (11)       355
                                             1 524          944      1 493
                                             9 931        5 528      8 572

  Amortization of regulatory liability
   relating to deferred income taxes          (163)      (4 813)       -

  Total                                    $ 9 768      $   715    $ 8 572

  Federal and state income taxes
     charged to:
       Operating expense                   $ 9 720      $   609    $ 8 390
       Other income                             48          106        182
                                           $ 9 768      $   715    $ 8 572

     Deferred tax liabilities and assets are determined based on the
  difference between the financial statement and tax basis of assets and
  liabilities using enacted tax rates in effect in the year in which the
  differences are expected to reverse.

     In May 1995, the Company refunded certain unprotected excess deferred
  taxes to Commonwealth Electric and Cambridge Electric resulting in a
  reduction to the 1995 tax provision.

<PAGE>
<PAGE 24>

                            CANAL ELECTRIC COMPANY

     Accumulated deferred income taxes consisted of the following in 1996 and
  1995:
                                                    1996         1995
                                                  (Dollars in Thousands)
        Liabilities
            Property-related                      $78 542      $79 918
            Seabrook nonconstruction                1 183        3 089
            All other                               3 535        2 327
                                                   83 260       85 334
        Assets
            Investment tax credit                   7 418        7 758
            Regulatory liability                    2 230        2 335
            All other                               1 569        1 443
                                                   11 217       11 536

     Accumulated deferred income taxes, net       $72 043      $73 798

     The net year-end deferred income tax liability above includes a current
  deferred tax liability of $493,000 and $884,000 in 1996 and 1995,
  respectively, which are included in accrued income taxes in the accompanying
  balance sheets.

     The total income tax provision set forth on the previous page represents
  37% in 1996, 5% in 1995 and 38% in 1994, of income before such taxes.  The
  following table reconciles the statutory federal income tax rate to these
  percentages:
                                                    1996      1995      1994

  Federal statutory rate                             35%       35%       35%

  Federal income tax expense at statutory levels   $9 220    $5 196  $ 7 956
  Increase (Decrease) from statutory rate:
    Tax versus book depreciation                    1 479     1 227    1 311
    State tax, net of federal tax benefit             991       613      970
    Amortization of investment tax credits           (527)     (638)    (689)
    Excess deferred reserves                         (163)   (4 813)     -
    Reversals of capitalized expenses                (559)     (556)    (555)
   Other                                             (673)     (314)    (421)
                                                   $9 768    $  715  $ 8 572

  Effective federal tax rate                         37%        5%      38%

(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

<PAGE>
<PAGE 25>

                            CANAL ELECTRIC COMPANY

  the Company's property, is as follows:

                                        Original     Balance December 31,
                                         Issue         1996         1995
                                              (Dollars in Thousands)
  First Mortgage Bonds -
    Series B, 8.85%, due 2006           $35 000      $34 300      $34 650
    Series E, 7 3/8%, due 2020           10 000       10 000       10 000
    Series F, 9 7/8%, due 2020           40 000       40 000       40 000
                                                     $84 300      $84 650

     The Series B First and General Mortgage Bonds require an annual sinking
  fund payment of $350,000.  The requirement may be met by payment, repurchase
  of bonds or certification of an amount of property additions equal to 60% of
  bondable property (as that term is 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
  National Bank of Boston, the Trustee.

     (b) Notes Payable to Banks

     The Company and other system 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,
  1996, system companies had $135 million of committed lines of credit that
  will expire at varying intervals in 1997.  These lines are normally renewed
  upon expiration and require annual fees of up to .1875% of the individual
  line.  At December 31, 1996, the system's uncommitted lines of credit
  totaled $20 million.  Interest rates on the Company's outstanding borrowings
  generally are at an adjusted money market rate and averaged 5.6% and 6.1% in
  1996 and 1995, respectively.  The Company's notes payable to banks totaled
  $26,550,000 and $23,425,000 at December 31, 1996 and 1995, respectively.

     (c) Advances from Affiliates

     The Company had short-term notes payable to the System totaling
  $5,620,000 and $555,000 at December 31, 1996 and 1995, respectively.  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% and 8.8% in 1996 and 1995, respectively.

     The Company is a member of the COM/Energy Money Pool (the Pool), an
  arrangement among the subsidiaries of the System, 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

<PAGE>
<PAGE 26>

                            CANAL ELECTRIC COMPANY

  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.  Rates on these borrowings averaged 5.3% and 5.8% in 1996 and 1995,
  respectively.  The Company had notes payable to the Pool of $1,630,000 and
  $5,310,000 at December 31, 1996 and 1995, respectively.

     (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, 1996 and 1995 are as follows:

                                  1996                  1995
                                     (Dollars in Thousands)

                           Carrying    Fair       Carrying    Fair
                             Value    Value         Value    Value

     Long-term Debt         $83 968   $97 446      $88 091  $105 197

    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
 debt with the same remaining maturity.  The fair values shown above do not
 purport to represent the amounts at which those obligations would be
 settled.

(5) Commitments and Contingencies

    (a) Construction

    The Company is engaged in a continuous construction program presently
 estimated at $68.2 million for the five-year period 1997 through 2001.  Of
 that amount, $20 million is estimated for 1997.  The program is subject to
 periodic review and revision because of factors such as changes in business
 conditions, rates of customer growth, effects of inflation, maintenance of
 reliable and safe service, equipment delivery schedules, licensing delays,
 availability, and cost of capital and environmental factors.  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

    The system'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 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:

<PAGE>
<PAGE 27>

                            CANAL ELECTRIC COMPANY

                                         1996              1995
                                         (Dollars in Thousands)

     Utility plant-in-service          $232 183          $232 547
     Nuclear fuel                        21 613            20 138
     Accumulated depreciation
       and amortization                 (57 359)          (50 230)
     Construction work in progress          844               946
                                       $197 281          $203 401

                                     1996       1995        1994
                                        (Dollars in Thousands)
     Operating expenses:
      Fuel                        $ 1 727     $ 2 353     $ 1 939
      Other operation               4 091       4 292       4 340
      Maintenance                     990       1 376       1 688
      Depreciation                  6 544       6 542       6 531
      Amortization                  1 319       1 319       1 320
                                  $14 671     $15 882     $15 818

        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 $449.9 million in current dollars.  The Company's share
  of this liability (approximately $15.8 million), less its share of the
  market value of the assets held in a decommissioning trust (approximately
  $1.9 million), is approximately $13.9 million at December 31, 1996.

     The New Hampshire Public Utilities Commission issued an electric utility
  industry restructuring order on February 28, 1997 that, if upheld, would
  have a significant negative financial impact on a New Hampshire joint-owner
  of the Seabrook unit that has a 35% interest.  The joint-owner is now
  involved in litigation to prevent the order from being implemented.  The
  Company is unable to predict the final outcome of this litigation and its
  impact, if any, on the Company.

     (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
  and could have an impact on future operations, capital costs and
  construction schedules of major facilities.

(6)  Dividend Restriction

     At December 31, 1996, approximately $37,561,000 of retained earnings was
  restricted against the payment of cash dividends by terms of the Indenture
 
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                            CANAL ELECTRIC COMPANY

  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.

     Components of pension expense and related assumptions to develop pension
  expense were as follows:

                                         1996      1995      1994
                                          (Dollars in Thousands)

  Service cost                         $   527   $   435   $   457
  Interest cost                          1 254     1 151       995
  Return on plan assets - (gain)/loss   (2 321)   (3 113)      220
  Net amortization and deferral          1 157     2 045    (1 139)
  Total pension expense                    617       518       533
  Transfers from affiliates, net           347       324       279
  Less: Amounts capitalized and other      224       193       181
  Net pension expense                  $   740   $   649   $   631


  Discount rate                          7.25%     8.50%     7.25%
  Assumed rate of return                 8.75      9.00      8.50
  Rate of increase in future
    compensation                         4.25      5.00      4.50

     Pension expense reflects the use of the projected unit credit method
  which is also the actuarial cost method used in determining future funding
  of the plan.  The funded status of the Company's pension plan (using a
  measurement date of December 31) is as follows:

                                                1996         1995
                                             (Dollars in Thousands)
  Accumulated benefit obligation:
        Vested                               $(12 241)     $(10 208)
        Nonvested                              (2 180)       (1 910)
                                             $(14 421)     $(12 118)

  Projected benefit obligation               $(17 576)     $(15 287)
  Plan assets at fair market value             17 523        15 452
  Projected benefit obligation
     (greater) less than plan assets              (53)          165
  Unamortized transition obligation                84           102
  Unrecognized prior service cost                 480           534
  Unrecognized gain                              (985)       (1 239)
  Accrued pension liability                  $   (474)     $   (438)

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                            CANAL ELECTRIC COMPANY

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

                                                1996         1995

  Discount rate                                 7.50%        7.25%
  Rate of increase in future compensation       4.25         4.25

     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.

     (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
  plan pursuant to section 401(h) of the Code to fund a portion of its
  postretirement benefit obligation.  The Company contributed approximately
  $725,000, $693,000 and $740,000 to these trusts during 1996, 1995 and 1994,
  respectively.

     The net periodic postretirement benefit cost for the years ended
  December 31, 1996, 1995 and 1994 includes the following components and
  related assumptions:
                                               1996     1995      1994
                                                (Dollars in Thousands)

     Service cost                            $  187    $ 131     $ 164
     Interest cost                              490      441       409
     Return on plan assets                     (324)    (383)      (11)
     Amortization of transition
       obligation over 20 years                 248      248       248
     Net amortization and deferral              131      261       (66)
     Total postretirement benefit cost          732      698       744
     Transfers from affiliates, net             446      447       426
     Less: Amounts capitalized and other      1 230      867       892
       Net postretirement benefit cost       $2 408    $ 278     $ 278

     Discount rate                             7.25%    8.50%     7.25%
     Assumed rate of return                    8.75     9.00      8.50
     Rate of increase in future compensation   4.25     5.00      4.50

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                            CANAL ELECTRIC COMPANY

     The funded status of the Company's postretirement benefit plan using a
  measurement date of December 31, 1996 and 1995 is as follows:

                                                         1996        1995
                                                     (Dollars in Thousands)
     Accumulated postretirement benefit obligation:
       Retirees                                        $(3 108)   $(2 829)
       Fully eligible active plan participants            (858)    (1 028)
       Other active plan participants                   (2 620)    (2 409)
                                                        (6 586)    (6 266)
     Plan assets at fair market value                    2 825      2 048
     Accumulated postretirement benefit obligation
       greater than plan assets                         (3 761)    (4 218)
     Unamortized transition obligation                   3 978      4 226
     Unrecognized gain                                    (217)        (8)
                                                       $   -      $   -

     The following actuarial assumptions were used in determining the plan's
  estimated accumulated postretirement benefit obligation (APBO) and the
  funded status for 1996 and 1995:
                                                         1996        1995

     Discount rate                                       7.50%       7.25%
     Rate of increase in future compensation             4.25        4.25
     Medicare part B premiums                            9.50       12.20
     Medical care                                        7.00        8.00
     Dental care                                         5.00        5.00

     The above dental rate remains constant through the year 2007.  Rates for
  Medicare Part B premiums and medical care decrease to 3.1% and 5%,
  respectively, by 2007 and remain at that level thereafter.  A one percent
  change in the medical trend rate would have a $111,000 impact on the
  Company's annual expense and would change the APBO by approximately
  $946,000.

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

     (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 $261,000 in 1996, $258,000 in 1995 and $250,000
  in 1994.

(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

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<PAGE 31>

                            CANAL ELECTRIC COMPANY

  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.

     Future minimum lease payments, by period and in the aggregate, of
  capital leases and noncancelable operating leases consisted of the following
  at December 31, 1996:
                                       Operating Leases  Capital Leases
                                            (Dollars in Thousands)

  1997                                     $  522        $ 1 921
  1998                                        479          1 856
  1999                                        468          1 794
  2000                                        468          1 732
  2001                                        468          1 669
  Beyond 2001                               1 292         18 845
  Total future minimum lease payments      $3 697         27 817
  Less:Estimated interest element
    included therein                                      15 363
  Estimated present value of future
    minimum lease payments                               $12 454

        Total rent expense for all operating leases, except those with terms
  of a month or less, amounted to $475,000 in 1996, $431,000 in 1995 and
  $421,000 in 1994.  There were no contingent rentals and no sublease rentals
  for the years 1996, 1995 and 1994.

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                            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 Schedules
      (page 14).

(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, 1996, 1995 and 1994
      (page 40).

(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).

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                            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).

10.1.2.1  Agreement between CEC and Montaup Electric Company (MEC) for use of
          common facilities by Canal Units I and II and for allocation of
          related costs, executed October 14, 1975 (Exhibit 1 to the CEC 1985
          Form 10-K, File No. 2-30057).

10.1.2.2  Agreement between CEC and MEC for joint-ownership of Canal Unit II,
          executed October 14, 1975 (Exhibit 2 to the CEC 1985 Form 10-K,
          File No. 2-30057).

10.1.2.3  Agreement between CEC and MEC for lease relating to Canal Unit II,
          executed October 14, 1975 (Exhibit 3 to the CEC 1985 Form 10-K,
          File No. 2-30057).

10.1.3    Contract between CEC, NBGEL and CEL, affiliated companies, for the
          sale of specified amounts of electricity from Canal Unit 2 dated
          January 12, 1976 (Exhibit 7 to the CES Form 10-K for 1985, File No.
          1-7316).

10.1.4    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).

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                            CANAL ELECTRIC COMPANY

10.1.5    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).

10.1.6    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:

10.1.6.1  First through Fifth Amendments to 10.1.6 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).

10.1.6.2  Sixth through Eleventh Amendments to 10.1.6 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).

10.1.6.3  Twelfth and Thirteenth Amendments to 10.1.6 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).

10.1.6.4  Fourteenth Amendment to 10.1.6 dated June 1, 1982 (Exhibit 3 to the
          CE Form 10-Q (June 1982), File No. 2-7749).

10.1.6.5  Fifteenth and Sixteenth Amendments to 10.1.6 dated April 27, 1984
          and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q
          (June 1984), File No. 2-30057).

10.1.6.6  Seventeenth Amendment to 10.1.6 dated March 8, 1985 (Exhibit 1 to
          the CEC Form 10-Q (March 1985), File No. 2-30057).

10.1.6.7  Eighteenth Amendment to 10.1.6 dated March 14, 1986 (Exhibit 1 to
          the CEC Form 10-Q (March 1986), File No. 2-30057).

10.1.6.8  Nineteenth Amendment to 10.1.6 dated May 1, 1986 (Exhibit 1 to the
          CEC Form 10-Q (June 1986), File No. 2-30057).

10.1.6.9  Twentieth Amendment to 10.1.6 dated September 19, 1986 (Exhibit 1
          to the CEC Form 10-K for 1986, File No. 2-30057).

10.1.6.10 Twenty-First Amendment to 10.1.6 dated November 12, 1987 (Exhibit 1
          to the CEC Form 10-K for 1987, File No. 2-30057).

10.1.6.11 Twenty-Second Amendment and Settlement Agreement to 10.1.6 dated
          January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No. 2-
          30057).

10.1.7    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).

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                            CANAL ELECTRIC COMPANY

10.1.7.1  Supplement to 10.1.7 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).

10.1.7.2  Amendment to 10.1.7 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).

10.1.7.3  Capacity Disposition Commitment dated June 25, 1993 by and between
          CEC (Unit 2) and CE for the sale of a portion of CE's entitlement
          in Unit 2 to Green Mountain Power Corporation (Exhibit 1 to the CEC
          Form 10-Q (September 1993), File No. 2-30057).

10.1.8    Termination Supplement between CEC, CE and CEL for Seabrook Unit 2,
          dated December 8, 1986 (Exhibit 3 to the CEC Form 10-K for 1986,
          File No. 2-30057).

10.1.9    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).

10.1.9.1  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).

10.1.10   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).

10.1.10.1 First through Third Amendments to 10.1.10 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).

10.1.10.2 Fifth through Seventh Amendments to 10.1.10 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).

10.1.10.3 Fourth and Eighth Amendments to 10.1.10 as amended July 1, 1987 and
          August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
          (September 1988), File No. 2-30057).

10.1.10.4 Ninth and Tenth Amendments to 10.1.10 as amended November 1, 1988
          and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
          10-K, File No. 2-30057).

10.1.10.5 Eleventh Amendment to 10.1.10 as amended November 1, 1989 (Exhibit
          4 to the CEC 1989 Form 10-K, File No. 2-30057).

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                            CANAL ELECTRIC COMPANY

10.1.10.6 Twelfth Amendment to 10.1.10 as amended April 1, 1990 (Exhibit 1 to
          the CEC Form 10-Q (June 1990) File No. 2-30057).

10.1.11   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).

10.1.12   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).

10.1.13   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).

10.1.13.1 Amendment No. 1 to 10.1.13 as amended May 1, 1986 (Exhibit 6 to the
          CEC Form 10-Q (March 1987), File No. 2-30057).

10.1.13.2 Amendment No. 2 to 10.1.13 as amended September 1, 1987 (Exhibit 3
          to the CEC Form 10-Q (September 1987), File No. 2-30057).

10.1.14   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).

10.1.15   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).

10.1.16   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).

10.1.16.1 Amendments Nos. 1 and 2 to 10.1.16 as amended May 1, 1986 and
          February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
          (March 1987), File No. 2-30057).

10.1.16.2 Amendments Nos. 3 and 4 to 10.1.16 as amended June 1, 1987 and
          September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
          (September 1987), File No. 2-30057).

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                            CANAL ELECTRIC COMPANY

10.1.17   Phase II BECO AC Facilities Support Agreement, dated June 1, 1985,
          between BECO and certain NEPOOL utilities (Exhibit 7 to the CEC
          Form 10-Q (September 1985), File No. 2-30057).

10.1.17.1 Amendments Nos. 1 and 2 to 10.1.17 as amended May 1, 1986 and
          February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q
          (March 1987), File No. 2-30057).

10.1.17.2 Amendments Nos. 3 and 4 to 10.1.17 as amended June 1, 1987 and
          September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q
          (September 1987), File No. 2-30057).

10.1.18   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).

10.1.19   Agreement to Share Certain Costs Associated with the Tewksbury-
          Seabrook Transmission Line, by and among certain NEPOOL utilities,
          amending participants, dated May 8, 1986 (Exhibit 2 to the CEC 1986
          Form 10-K, File No. 2-30057).

10.1.20   Power Exchange Contract, dated March 24, 1993, between New England
          Power Company (NEP) and CEC for an exchange of unit capacity in
          which NEP will purchase 20 MW of CEC's Unit 2 capacity in exchange
          for CEC's purchase of 20 MW of NEP's Bear Swamp Units 1 and 2 (10
          MW per unit) commencing May 31, 1993 through April 28, 1997 and NEP
          will purchase 50 MW of CEC's Unit 2 capacity in exchange for CEC's
          purchase of 50 MW of NEP's Bear Swamp Units 1 and 2 (25 MW per
          unit) commencing November 1, 1993 through April 28, 1997 (Exhibit 1
          to the CEC Form 10-Q (March 1993), 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).

10.2.2    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).

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                            CANAL ELECTRIC COMPANY

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).

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).

10.2.4    Fuel Supply, Facilities Lease and Operating Contract by and between
          on the one side, ESCO (Massachusetts), Inc. and Energy Supply &
          Credit Corporation on the other side and CEC dated February 1, 1985
          (Exhibit 1 to the CEC Form 10-K for 1984, File No. 2-30057).

10.2.4.1  Amendments Nos. 1 and 2 to 10.2.4 as amended July 1, 1986 and
          November 15, 1989, respectively (Exhibit 3 to the CEC 1989 Form
          10-K, File No. 2-30057).

10.2.5    Oil Supply Contract by and between CEC (buyer) and Carey Energy
          Fuels Corporation (seller) for a portion of CEC's requirements of
          No. 6 residual fuel oil, dated July 1, 1991 (Exhibit 3 to the CEC
          Form 10-Q (June 1991), File No. 2-30057).

10.2.6    Assignment Agreement between CEC and ESCO (Massachusetts), Inc.
          (ESCO-Mass) and Energy Supply and Credit Corporation whereby CEC
          assigns to ESCO-Mass rights and obligations under the Supply
          Contract with Carey Energy Fuels Corporation, dated July 1, 1991
          (Exhibit 4 to the CEC Form 10-Q (June 1991), File No. 2-30057).

<PAGE>
<PAGE 39>

                            CANAL ELECTRIC COMPANY

10.2.7    Assignment and Sublease Agreement and CEC's Consent of Assignment
          thereto whereby ESCO-Mass assigns its rights and obligations under
          Part II of the Resupply Agreement dated February 1, 1985 to ESCO
          Terminals Inc., dated June 4, 1985 (Exhibit 4 to the CEC Form 10-Q
          (June 1985), File No. 2-30057).

Filed herewith:

Exhibit 27.
           Filed herewith as Exhibit 1 is the Financial Data Schedule for the
           year ended December 31, 1996.

           Filed herewith as Exhibit 2 is the restated Financial Data
           Schedule for the year ended December 31, 1995.

           Filed herewith as Exhibit 3 is the restated Financial Data
           Schedule for the year ended December 31, 1994.


(b) Reports on Form 8-K

           No reports on Form 8-K were filed during the three months ended
           December 31, 1996.

<PAGE>
<PAGE 40>

<TABLE>                                                                              SCHEDULE I
                                           CANAL ELECTRIC COMPANY
                                     INVESTMENTS IN, EQUITY EARNINGS OF,
                                 AND DIVIDENDS RECEIVED FROM RELATED PARTIES
                            FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                           (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, 1996
 <S>                                 <C>          <C>          <C>           <C>          <C>
  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

                                                          YEAR ENDED DECEMBER 31, 1995
 <S>                                 <C>          <C>          <C>           <C>          <C>
  New England Hydro-Transmission
    Electric Company, Inc.           $ 2 313      136 656      $  328        $  615       $2 026
  New England Hydro-Transmission
    Corporation                        1 489      734.526         211           354        1 346
      Total                          $ 3 802                   $  539        $  969       $3 372

                                                          YEAR ENDED DECEMBER 31, 1994
 <S>                                 <C>          <C>          <C>           <C>          <C>
  New England Hydro-Transmission
    Electric Company, Inc.           $ 2 408      136 656      $  314        $  409       $2 313
  New England Hydro-Transmission
    Corporation                        1 453      785.772         193           157        1 489
      Total                          $ 3 861                   $  507        $  566       $3 802

In 1996 New England Hydro-Transmission Corporation (NEHTC) repurchased 6.52% of their outstanding shares at
$1,831.30 per share.  The Company received $112,616 for the repurchase of 61.495 shares, and included this
amount with dividends.  In 1995, NEHTC repurchased 6.52% of their outstanding shares at $1,834.62 per share.
The Company received $94,017 for the repurchase of 51.246 shares, and included this amount with dividends.
</TABLE>

<PAGE>
<PAGE 41>

                            CANAL ELECTRIC COMPANY

                     FORM 10-K          DECEMBER 31, 1996

                                  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: WILLIAM G. POIST
                                               William G. Poist,
                                               Chairman of the Board and
                                               Chief Executive Officer

      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:

WILLIAM G. POIST                                       March 27, 1997
William G. Poist,
Chairman of the Board and
Chief Executive Officer

R. D. WRIGHT                                           March 27, 1997
Russell D. Wright,
President and Chief Operating Officer

Principal Financial Officer:

JAMES D. RAPPOLI                                       March 27, 1997
James D. Rappoli
Financial Vice President and Treasurer


A majority of the Board of Directors:

WILLIAM G. POIST                                       March 27, 1997
William G. Poist, Director

R. D. WRIGHT                                           March 27, 1997
Russell D. Wright, Director

JAMES D. RAPPOLI                                       March 27, 1997
James D. Rappoli, Director