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

                                   Form 10-K

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

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

      For the fiscal year ended December 31, 1997

                                      OR

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

      For the transition period from _______________ to _______________

                        Commission file number 2-30057

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

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

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

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

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

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

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

                                Title of Class
                                     None

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

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

                                               Outstanding at
           Class of Common Stock               March 16, 1998
Common Stock, $25 par value                   1,523,200 shares

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

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

List of Exhibits begins on page 34 of this report.

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                            CANAL ELECTRIC COMPANY
                         FORM 10-K  DECEMBER 31, 1997

                               TABLE OF CONTENTS

                                    PART I
                                                                      PAGE

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

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

           ISO - New England...............................             3

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

           Fuel Supply.....................................             4

           Power Contracts.................................             5

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

           Construction and Financing......................             6

           Employees.......................................             6

Item  2. Properties........................................             6

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.......            13

Item  9. Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure.............            13

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and
           Reports on Form 8-K.............................            34


Signatures...................................................          42

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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's generating assets together with capacity entitlements
 associated with power contracts as further discussed later in this section
 are part of an ongoing auction process initiated during 1997 in response to
 electric industry restructuring legislation enacted in Massachusetts in
 November 1997.  The auction process is expected to be completed in 1998.
 For further information refer to the "Industry Restructuring" section of
 Management's Discussion and Analysis of Results of Operation filed under
 Item 7 of this report.

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

      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.

      ISO - New England

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

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                            CANAL ELECTRIC COMPANY

      ISO - New England operates a centralized dispatching facility to ensure
 reliability of service and to dispatch the most economically available
 generating units of the member companies to fulfill the region's energy
 requirements.  This concept is accomplished by use of computers to monitor
 and forecast load requirements.  In the past, this has required that Canal
 Unit 1 operate whenever possible since it is one of the most efficient oil-
 fired units in the country.  Canal Unit 2 is designed for cycling operation
 which provides for economic changes in unit load permitting reduced genera-
 tion during nights and weekends when demand is lowest.  It has performed as
 one of New England's most efficient units in this type of service.

      The Company and 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

      As more fully discussed in "Management's Discussion and Analysis of
 Results of Operations" in Item 7 of this report, the Company began to
 implement the provisions of the Electric Industry Restructuring Act on March
 1, 1998 as signed into law on November 25, 1997, following the Company's
 filing of its proposed restructuring plan with the DTE on November 19, 1997.
 A modified plan was approved by the DTE on February 27, 1998 prior to
 implementation on March 1, 1998.

      Fuel Supply

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

      Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) 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 1997, ESCO Massachusetts, Inc. maintained an average
 daily inventory of 395,000 barrels of fuel oil which represents 18 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.  Unit 2 has burned approximately 2.5 million MMBTU's of
 natural gas since the conversion was completed during periods when the use
 of natural gas was the most economical choice.  The Company anticipates that
 its dual-fuel capability will result in future savings as the least
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                            CANAL ELECTRIC COMPANY

 expensive fuel is utilized.

      The Company has a gas supply contract with PGE Energy Trading
 Corporation to provide 100% of the natural gas requirements of Unit 2
 through October 31, 1998.  The Company's original gas supply contract with
 Duke/Louis Dreyfus, L.L.C. expired on 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 or disposal 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
 <PAGE 6>
                             CANAL ELECTRIC COMPANY

 cost savings for their respective customers by planning for bulk power
 supply on a single system basis.  A Capacity Acquisition and Disposition
 Agreement, which has been accepted for filing as a rate schedule by the
 FERC, enables the Company to recover costs incurred in connection with any
 transaction covered by such Agreement.  Commonwealth Electric and Cambridge,
 in turn, bill charges to retail customers through rates subject to DTE
 regulation.  Currently, Agreements are in effect for Seabrook 1 and Phases I
 and II of the Hydro-Quebec Project.

      Power Supply Commitments and Support Agreements

      In response to solicitations by Northeast Utilities and other utilities,
 the Company, on behalf of Commonwealth Electric and Cambridge, purchased
 entitlements through short-term contracts in various selected generating
 units.  These and other bulk electric power purchases are necessary in order
 to fulfill the system's ISO - New England obligation and for the Company to
 acquire and deliver electric generating capacity to meet Commonwealth
 Electric and Cambridge requirements.  For additional information, refer to
 "Transactions with Affiliates" in Note 2(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 Phases I and II of the
 Hydro-Quebec Project and is thereby obligated to pay its share of operating
 and capital costs for Phase II over a 25 year period ending in 2015.  Future
 minimum lease payments for Phase II have an estimated present value of $11.8
 million at December 31, 1997.  In addition, the Company has an equity
 interest in Phase II which amounted to $3.1 million in 1997 and $3.3 million
 in 1996.

      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 106 regular employees, 79 (75%) are represented by the
 Utility Workers' Union of America, A.F.L.-C.I.O.  The existing collective
 bargaining agreement expires on May 31, 2001.  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.

<PAGE>
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                            CANAL ELECTRIC COMPANY

      On March 31, 1997, the Company, Cambridge and Commonwealth Electric
 submitted a report to the DTE that detailed the proposed auction process for
 selling their non-nuclear electric generation assets and entitlements.  The
 process included a standard, sealed-bid auction for generation assets and
 purchased power contracts.  This auction process provides a market-based
 approach to maximizing stranded cost mitigation and minimizing the
 transition charges that ratepayers of Cambridge and Commonwealth Electric
 will have to pay for stranded cost recovery.  A request for bids from
 interested parties was issued during August, and an Offering Memorandum was
 issued in October.  Potential bidders examined all pertinent information
 related to the Company's generating facilities and purchased power
 agreements in order to prepare and submit their first round of bids in mid-
 December.  In January 1998, the Company selected a short list of potential
 bidders, each of whom are expected to submit a final binding bid in the
 second quarter of 1998.  The entire process, including regulatory approvals,
 is expected to be completed in 1998.

 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, 1997

        One

 (c)    Frequency and Amount of Dividends Declared in 1997 and 1996

                      1997                                1996
                             Per Share                              Per Share
        Declaration Date      Amount         Declaration Date        Amount

        April 25, 1997        $ 2.50         January 24, 1996        $ 2.52
        July 21, 1997           2.40         April 29, 1996            3.25
        October 27, 1997        2.35         July 30, 1996             2.50
        December 22, 1997       2.15         November 4, 1996          2.25
                              $ 9.40                                 $10.52

        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, 1997 and
1996 is shown below:
                                      Years Ended            Years Ended
                                      December 31,           December 31,
                                     1997 and 1996          1996 and 1995
                                              Increase (Decrease)
                                             (Dollars in thousands)

Electric Operating Revenues        $ 28 573    15.4 %    $  39 565     27.1 %

Operating Expenses:
 Fuel used in production             36 192    45.7         30 414     62.4
 Electricity purchased for resale    (2 875)  (33.9)        (6 523)   (43.5)
 Other operation and maintenance     (3 844)   (9.2)         2 728      7.0
 Depreciation                           532     2.8          2 209     13.4
 Taxes -
   Federal and state income            (542)   (5.6)         9 911  1 496.1
   Local property and other             209     6.3           (181)    (5.2)
                                     29 672    18.4         37 758     30.6

Operating Income                     (1 099)   (4.5)         1 807      8.0

Other Income                         (1 925)  (80.4)         1 163     94.6

Income Before Interest Charges       (3 024)  (11.3)         2 970     12.4

Interest Charges                     (1 278)  (12.4)           528      5.4

Net Income                         $ (1 746)  (10.5)     $   2 442     17.3

Unit Sales Increase
 (Decrease) (MWH)                 1 583 582    49.9        795 899     33.5

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
    1997          3 219 542   1 098 463    279 941    159 914     4 757 860
    1996          2 104 132     455 054    345 204    269 888     3 174 278
    1995            942 574     830 827    295 264    309 714     2 378 379

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                            CANAL ELECTRIC COMPANY

 Revenue, Fuel and Purchased Power

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

      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 was 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.

      The significant increases in fuel used in production reflect the
 increased availability of Units 1 and 2 as discussed above, partially offset
 during 1997 by a decrease in the average cost of oil, while 1996 reflected
 an increase in the average cost of oil.  Fuel, purchased power and
 transmission costs (included in other operation) represented approximately
 58% of the total revenue dollar in 1997, 49% in 1996 and 46% in 1995 and
 averaged 2.61 cents per KWH in 1997 as compared to 2.86 cents in 1996 and
 2.83 cents in 1995.

 Other Operating Expenses

      Other operation decreased approximately $2.3 million or 7.6% and
 increased approximately $3.4 million or 12.8% in 1996. The decrease in 1997
 was primarily due to the absence of amortization related to postretirement
 benefits costs reflecting the Federal Energy Regulatory Commission's
 approval of rate schedules which allowed the recovery of previously deferred
 costs ($1.8 million) over a six-month period which began in March 1996.  The
 increase in 1996 was primarily due to higher postretirement benefits costs
 reflecting the amortization of previously deferred costs as discussed above.
 Also contributing to the increase in 1996 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 13.2% decrease in maintenance expense in 1997 reflects lower
 maintenance costs associated with Units 1 and 2 ($2.9 million), offset in
 part by increased maintenance costs at Seabrook 1 ($1.4 million) reflecting
 a scheduled refueling outage.  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).


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                            CANAL ELECTRIC COMPANY

 Depreciation and Taxes

      Depreciation increased in 1997 due to a higher level of plant-in-service
 reflecting the conversion of Unit 2 to burn both gas and oil.  During 1996
 depreciation increased due to the higher level of plant-in-service.

      Income tax expense declined 5.6% or approximately $500,000 in 1997 due
 to a lower level of pre-tax income  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 pre-tax income.

 Other Income

      The change in other income during 1997 was due to the absence of the
 1996 reversal of a reserve for costs associated with postretirement benefits
 (approximately $1.8 million) following FERC approval.  The change in other
 income during 1996 reflects the reversal of the aforementioned reserve.

 Interest Charges

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

 Forward-Looking Statements

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

 Industry Restructuring

      On November 25, 1997, the Governor of Massachusetts signed into law the
 Electric Industry Restructuring Act (the Act).  Provisions of this
 legislation include, among other things, a 10 percent discount on standard
 offer service and retail choice of energy supplier effective March 1, 1998,
 with a subsequent increase in the discount on standard offer service of up
 to 15 percent upon completion of divestiture of non-nuclear generating

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<PAGE 12>

                            CANAL ELECTRIC COMPANY

 assets and securitization of net non-mitigable stranded costs; and, recovery
 of stranded costs subject to review and an audit process.

      The system's electric subsidiaries including the Company, together with
 retail affiliates Cambridge Electric Company and Commonwealth Electric
 Company, filed a comprehensive electric restructuring plan with the DTE on
 November 19, 1997 that was thoroughly reviewed in five separate hearings
 that solicited public comment, and seven days of evidentiary hearings that
 were completed in February 1998.

      Consistent with the Act, the system's plan provides, as of March 1,
 1998, a rate reduction of 10 percent for retail customers choosing the
 standard service transition rate from the average of undiscounted rates in
 effect during August 1997, divestiture of non-nuclear generating assets
 (including the Company's Units 1 and 2) and a restructured electric
 generation market that is able to offer retail access to all customers.  The
 system's plan also includes the following provisions: 1) an estimate and
 detailed accounting of total transition costs eligible for recovery through
 a non-bypassable access or transition charge; 2) a description of the
 system's strategies to mitigate transition costs; 3) unbundled rates for
 generation, distribution, transmission and other services; 4) proposed
 charges for the recovery of transition costs through the non-bypassable
 transition charge; 5) proposed programs to provide universal service to all
 customers; 6) proposed programs and mandatory charges to promote energy
 conservation and demand-side management; 7) procedures for ensuring direct
 retail access to all electric generation suppliers; 8) discussions of the
 impact of the plan on the system's employees and the communities served by
 the system; and (9) a mandatory charge per kwh for all consumers to support
 the development and promotion of renewable energy projects.

      On February 27, 1998, the DTE approved the system's restructuring plan
 stating that the plan complies with the Act.  While the system is encouraged
 with the treatment afforded stranded or transition cost recovery by the
 legislation and the DTE, the mandated retail customer discount could have a
 significant impact on future cash flows of the retail subsidiaries.

 Auction Process

      On March 31, 1997, the Company together with Cambridge Electric and
 Commonwealth Electric (the Companies) submitted a report to the DTE that de-
 tailed the proposed auction process for selling their electric generation
 assets and entitlements.  The process included a standard, sealed-bid
 auction for generation assets (including the Company's Units 1 and 2) and
 the purchased power contracts of Cambridge Electric and Commonwealth
 Electric.  The auction process provides a market-based approach to
 maximizing stranded cost mitigation and minimizing the access charges that
 retail customers will have to pay for stranded cost recovery.  A request for
 bids from interested parties was issued during August, and an Offering
 Memorandum was issued in October.  Potential bidders examined all pertinent
 information related to the Companies generating facilities and purchased
 power agreements in order to prepare and submit their first round of bids in
 mid-December.  In January 1998, the Companies selected a short list of
 potential bidders, each of whom are expected to submit a final binding bid
 in the second quarter of 1998.  The entire process, including regulatory
 approvals, is expected to be completed in 1998.

<PAGE>
<PAGE 13>

                            CANAL ELECTRIC COMPANY
 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 would continue to have an impact on future operations, capital costs and
 construction schedules of major facilities; however, the Company's Units 1
 and 2 are likely to be sold as part of the aforementioned auction in 1998
 pursuant to the restructuring plan approved by the DTE.

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

 Year 2000

      The Company has been involved in the Year 2000 compliancy since 1996.  A
 complete inventory and review of software, information processing and
 delivery systems has been completed, and work continues on computer systems
 wherever necessary.  While some computer systems have already been updated,
 tested and placed in production, the Company expects to complete the balance
 of the modifications by early 1999.

      Expenditures incurred by the system through 1997 to review existing
 computer systems and to modify existing software and applications amounted
 to nearly $900,000, and it is estimated that approximately $2.6 million will
 be incurred in 1998 and 1999.

      Management believes, that with appropriate modifications, the Company
 will be fully compliant regarding all Year 2000 issues and will continue to
 provide its products and services uninterrupted through the millennium
 change.  Failure to become compliant could have a significant impact on the
 Company's operations.


Item 8.  Financial Statements and Supplementary Data

      The Company's financial statements required by this item are filed
 herewith on pages 14 through 33 of this report.

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

      None


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<PAGE 14>

                            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, 1997 and 1996, and the related
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1997.  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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.

      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, 1998.

<PAGE>
<PAGE 15>

                            CANAL ELECTRIC COMPANY
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



                                   PART II.


FINANCIAL STATEMENTS

  Balance Sheets at December 31, 1997 and 1996

  Statements of Income for the Years Ended December 31, 1997, 1996 and 1995

  Statements of Retained Earnings for the Years Ended December 31, 1997, 1996
  and 1995

  Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
  1995

  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, 1997, 1996 and 1995

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 16>

                            CANAL ELECTRIC COMPANY
                                BALANCE SHEETS
                          DECEMBER 31, 1997 AND 1996

                                    ASSETS



                                                           1997       1996
                                                        (Dollars in thousands)

PROPERTY, PLANT AND EQUIPMENT, at original cost         $469 861   $464 003
  Less - Accumulated depreciation
    and amortization                                     197 844    179 307
                                                         272 017    284 696
  Add - Construction work in progress                      2 228        943
        Nuclear fuel in process                              193      1 597
                                                         274 438    287 236

INVESTMENTS
  Equity in corporate joint venture                        3 075      3 321

CURRENT ASSETS
  Cash                                                        18         12
  Accounts receivable -
    Affiliated companies                                  12 159     10 294
    Other                                                 15 397     12 390
  Unbilled revenues                                           86        675
  Inventories, at average cost -
    Electric production fuel oil                             806        979
    Materials and supplies                                 1 268      1 296
  Prepaid taxes -
    Income                                                    -          64
    Property                                                 840        795
  Other                                                      923      1 116
                                                          31 497     27 621

DEFERRED CHARGES
  Regulatory assets                                       17 413     19 859
  Other                                                    9 774      5 486
                                                          27 187     25 345

                                                        $336 197   $343 523










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

<PAGE>
<PAGE 17>

                            CANAL ELECTRIC COMPANY
                                BALANCE SHEETS
                          DECEMBER 31, 1997 AND 1996

                        CAPITALIZATION AND LIABILITIES

                                                           1997        1996
                                                        (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                                      53 130      52 620
                                                           99 531      99 021
  Long-term debt, including premiums, less
    current sinking fund requirements                      83 917      83 618
                                                          183 448     182 639

CAPITAL LEASE OBLIGATIONS                                  11 227      11 878

CURRENT LIABILITIES
  Interim Financing -
    Notes payable to banks                                 20 850      26 550
    Advances from affiliates                                  -         7 250
                                                           20 850      33 800
  Other Current Liabilities -
    Current sinking fund requirements                         350         350
    Accounts payable -
       Affiliated companies                                 1 028       1 347
       Other                                               21 335      18 123
    Accrued taxes -
       Local property and other                               844         795
       Income                                               2 054         -
    Capital lease obligations                                 574         576
    Accrued interest and other                              6 174       3 986
                                                           32 359      25 177
                                                           53 209      58 977

DEFERRED CREDITS
  Accumulated deferred income taxes                        69 447      71 550
  Unamortized investment tax credits                       10 967      11 493
  Other                                                     7 899       6 986
                                                           88 313      90 029

COMMITMENTS AND CONTINGENCIES

                                                         $336 197    $343 523



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

<PAGE>
<PAGE 18>

                            CANAL ELECTRIC COMPANY
                             STATEMENTS OF INCOME
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


                                               1997        1996       1995
                                                 (Dollars in thousands)

ELECTRIC OPERATING REVENUES
  Sales to affiliated companies              $124 903    $107 842   $ 93 478
  Sales to non-affiliated companies            89 220      77 708     52 507
                                              214 123     185 550    145 985

OPERATING EXPENSES
  Fuel used in production                     115 313      79 121     48 707
  Electricity purchased for resale              5 601       8 476     14 999
  Other operation                              27 707      29 992     26 576
  Maintenance                                  10 209      11 768     12 456
  Depreciation                                 19 214      18 682     16 473
  Taxes -
    Income                                      9 178       9 720        609
    Local property                              2 770       2 603      2 777
    Payroll and other                             768         726        733
                                              190 760     161 088    123 330

OPERATING INCOME                               23 363      24 462     22 655

OTHER INCOME                                      468       2 393      1 230

INCOME BEFORE INTEREST CHARGES                 23 831      26 855     23 885

INTEREST CHARGES
  Long-term debt                                7 910       8 017      8 229
  Other interest charges                        1 231       2 337      1 878
  Allowance for borrowed funds used
    during construction                          (138)        (73)      (354)
                                                9 003      10 281      9 753

NET INCOME                                   $ 14 828    $ 16 574   $ 14 132















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

<PAGE>
<PAGE 19>

                            CANAL ELECTRIC COMPANY
                        STATEMENTS OF RETAINED EARNINGS
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995





                                              1997        1996        1995
                                                (Dollars in thousands)

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

Add (Deduct)
  Net income                                  14 828      16 574      14 132
  Cash dividends on common stock             (14 318)    (16 024)    (13 709)

Balance at end of year                       $53 130     $52 620     $52 070





































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

<PAGE>
<PAGE 20>

                            CANAL ELECTRIC COMPANY
                           STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                                                1997       1996       1995
                                                  (Dollars in thousands)
OPERATING ACTIVITIES
  Net income                                  $ 14 828   $ 16 574   $ 14 132
  Effects of noncash items -
    Depreciation and amortization               22 156     23 485     21 929
    Deferred income taxes                         (973)      (963)    (3 239)
    Investment tax credits                        (526)      (527)      (638)
    Earnings from corporate joint venture         (233)      (498)      (539)
  Dividends from corporate joint venture           479        549        969
  Change in working capital, exclusive
    of cash and interim financing -
       Accounts receivable                      (4 872)    (3 882)    (1 767)
       Unbilled revenues                           589       (237)      (438)
       Income taxes                              2 118     (3 223)     3 220
       Local property and other taxes                4         19        (64)
       Accounts payable and other                5 473     (1 595)     3 972
  All other operating items, net                (3 890)       565     (1 380)

Net cash provided by operating activities       35 153     30 267     36 157

INVESTING ACTIVITIES
  Additions to property, plant and
    equipment (exclusive of AFUDC)              (7 391)   (14 557)   (30 167)
  Allowance for borrowed funds used
    during construction                           (138)       (73)      (354)

Net cash used for investing activities          (7 529)   (14 630)   (30 521)

FINANCING ACTIVITIES
  Proceeds from (payment of)
    short-term borrowings                       (5 700)     3 125     12 100
  Proceeds from (payment of)
   affiliate borrowings                         (7 250)     1 385     (3 485)
  Payment of dividends                         (14 318)   (16 024)   (13 709)
  Long-term debt issue refunded                    -       (3 420)       -
  Retirement of long-term debt through
    sinking funds                                 (350)      (703)      (542)

Net cash used for financing activities         (27 618)   (15 637)    (5 636)

Net increase (decrease) in cash                      6        -          -
Cash at beginning of period                         12         12         12
Cash at end of period                         $     18   $     12   $     12

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid (net of capitalized
    amounts)                                   $ 8 700    $ 9 959     $9 436
  Income taxes paid                            $ 8 996    $14 128     $2 269



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

<PAGE>
<PAGE 21>

                            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 106 regular employees including 79 (75%) who are repre-
 sented by the Utility Workers' Union of America, A.F.L.-C.I.O.  During the
 first quarter of 1997, a new bargaining agreement was reached that will
 remain in effect through May 31, 2001.  Employee relations have generally
 been satisfactory.

     During the second quarter of 1997, the Company initiated a voluntary
 personnel reduction program.  As a result of this program, the total number
 of regular employees has declined by approximately 11% in 1997.

(2)  Significant Accounting Policies

     (a) Accounting Principles

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

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

     (b) Regulatory Assets

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

     Based on the current regulatory framework, the Company accounts for the

<PAGE>
<PAGE 22>

                            CANAL ELECTRIC COMPANY

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

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

     The principal regulatory assets included in deferred charges at December
 31, 1997 and 1996 were as follows:
                                                   1997         1996
                                                 (Dollars in thousands)

     Seabrook related costs                       $ 4 324     $ 6 262
     Deferred income taxes                         13 089      13 597
       Total regulatory assets                    $17 413     $19 859

     As of December 31, 1997, all of the Company's regulatory assets are
 reflected in rates charged to customers over a weighted average period of
 approximately 12 years.

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

<PAGE>
<PAGE 23>

                            CANAL ELECTRIC COMPANY

     The cost of transitioning to competition will be mitigated, in part,
 through the divestiture of the system's non-nuclear generating assets,
 including the Company's Units 1 and 2, in an auction process that is
 expected to be completed in 1998.  Any net proceeds in excess of book value
 received from the divestiture of these assets will be used to mitigate
 stranded costs.  For additional information relating to industry
 restructuring refer to "Management's Discussion and Analysis of Results of
 Operations" in Item 7 of this report.

     (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 and Commonwealth Electric, including
 abandonment and nonconstruction costs related to the Seabrook project.  In
 addition, payments for management, accounting, data processing and other
 services are made to affiliate COM/Energy Services Company.  Transactions
 with other system companies are subject to review by the FERC and the DTE.

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

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

     1997               $76 859              $ 8 885             $39 159
     1996                52 035               11 882              43 925
     1995                39 617               18 694              35 167

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

<PAGE>
<PAGE 24>

                            CANAL ELECTRIC COMPANY

     (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
 4.45% in 1997, 4.42% in 1996 and 4.09% in 1995.

     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% in 1997, 6.25% in 1996 and 6.75% in 1995.

(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

<PAGE>
<PAGE 25>

                            CANAL ELECTRIC COMPANY

years ended December 31, 1997, 1996 and 1995:

                                             1997        1996        1995
                                                (Dollars in thousands)
 Federal:
    Current                                $ 9 128      $ 9 511    $ 3 637
    Deferred                                  (764)        (577)     1 585
    Investment tax credits                    (526)        (527)      (638)
                                             7 838        8 407      4 584
 State:
    Current                                  1 558        1 747        955
    Deferred                                  (133)        (223)       (11)
                                             1 425        1 524        944
                                             9 263        9 931      5 528
 Amortization of regulatory liability
  relating to deferred income taxes            (76)        (163)    (4 813)

 Total                                     $ 9 187      $ 9 768    $   715

 Federal and state income taxes
    charged to:
      Operating expense                    $ 9 178      $ 9 720    $   609
      Other income                               9           48        106
                                           $ 9 187      $ 9 768    $   715

    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.

    Accumulated deferred income taxes consisted of the following in 1997 and
 1996:
                                                    1997         1996
                                                  (Dollars in thousands)
       Liabilities
            Property-related                      $78 706      $78 542
            Seabrook nonconstruction                  707        1 183
            All other                               1 645        3 535
                                                   81 058       83 260
       Assets
            Investment tax credit                   7 078        7 418
            Regulatory liability                    2 180        2 230
            All other                               1 490        1 569
                                                   10 748       11 217

    Accumulated deferred income taxes, net        $70 310      $72 043

    The net year-end deferred income tax liability above includes a current
 deferred tax liability of $863,000 and $493,000 in 1997 and 1996,
 respectively, which are included in accrued income taxes in the accompanying
 Balance Sheets.

<PAGE>
<PAGE 26>

                            CANAL ELECTRIC COMPANY

    The total income tax provision set forth on the previous page represents
 38% in 1997, 37% in 1996 and 5% in 1995, of income before such taxes.  The
 following table reconciles the statutory federal income tax rate to these
 percentages:
                                                    1997      1996      1995

 Federal statutory rate                              35%       35%       35%

 Federal income tax expense at statutory levels    $8 405    $9 220   $5 196
 Increase (Decrease) from statutory rate:
   Tax versus book depreciation                     1 515     1 479    1 227
   State tax, net of federal tax benefit              927       991      613
   Amortization of investment tax credits            (526)     (527)    (638)
   Excess deferred reserves                           (76)     (163)  (4 813)
   Reversals of capitalized expenses                 (560)     (559)    (556)
   Other                                             (498)     (673)    (314)
                                                   $9 187    $9 768   $  715

 Effective federal tax rate                          38%        37%      5%

(4)  Long-Term Debt and Interim Financing

     (a) Long-Term Debt

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

                                       Original     Balance December 31,
                                        Issue         1997          1996
                                             (Dollars in thousands)
 First Mortgage Bonds -
   Series B, 8.85%, due 2006           $35 000      $33 950       $34 300
   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
                                                    $83 950       $84 300

     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,
 1997, system companies had $145 million of committed lines of credit that

<PAGE>
<PAGE 27>

                            CANAL ELECTRIC COMPANY

 will expire at varying intervals in 1998.  These lines are normally renewed
 upon expiration and require annual fees of up to .1875% of the individual
 line.  At December 31, 1997, the system's uncommitted lines of credit
 totaled $10 million.  Interest rates on the Company's outstanding borrowings
 generally are at an adjusted money market rate and averaged 5.8% in 1997 and
 5.6% in 1996.  The Company's notes payable to banks totaled $20,850,000 and
 $26,550,000 at December 31, 1997 and 1996, respectively.

     (c) Advances from Affiliates

     The Company had no short-term notes payable to the System at December
 31, 1997 compared to $5,620,000 at December 31, 1996.  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 8.5% in 1997 and 8.3% in 1996.

     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
 rate and the monthly average U.S. Treasury Bill weekly auction rate.  The
 borrowings are for a period of less than one year and are payable upon
 demand.  The Company had no borrowings from the Pool at December 31, 1997
 compared to $1,630,000 at December 31, 1996.  Rates on these borrowings
 averaged 5.4% in 1997 and 5.3% in 1996.

     (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, 1997 and 1996 are as follows:

                                  1997                  1996
                                     (Dollars in thousands)

                           Carrying    Fair       Carrying    Fair
                             Value    Value         Value    Value

    Long-term Debt          $84 267  $102 121      $83 968   $97 446

    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.

<PAGE>
<PAGE 28>

                            CANAL ELECTRIC COMPANY

(5) Commitments and Contingencies

    (a) Construction

    The Company is engaged in a continuous construction program presently
 estimated at $19.3 million for the five-year period 1998 through 2002.  Of
 that amount, $10.5 million is estimated for 1998.  These estimates include
 expenditures related to the Company's Units 1 and 2 which are likely to be
 sold at auction in 1998 pursuant to the restructuring plan approved by the
 DTE.  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:

                                         1997              1996
                                         (Dollars in thousands)

    Utility plant-in-service           $232 471          $232 183
    Nuclear fuel                         22 207            21 613
    Accumulated depreciation
      and amortization                  (64 379)          (57 359)
    Construction work in progress         1 036               844
                                       $191 335          $197 281

                                     1997       1996        1995
                                        (Dollars in thousands)
    Operating expenses:
     Fuel                         $ 1 471     $ 1 727     $ 2 353
     Other operation                4 206       4 091       4 292
     Maintenance                    2 364         990       1 376
     Depreciation                   6 314       6 544       6 542
     Amortization                   1 319       1 319       1 319
                                  $15 674     $14 671     $15 882

       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

<PAGE>
<PAGE 29>

                            CANAL ELECTRIC COMPANY

     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 $469.1 million in current dollars.  The Company's share
 of this liability (approximately $16.5 million), less its share of the
 market value of the assets held in a decommissioning trust (approximately
 $2.5 million), is approximately $14 million at December 31, 1997.

     (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.  However, the Company's electric
 generating facilities are likely to be sold at auction in 1998 pursuant to
 the restructuring plan approved by the DTE.

(6)  Dividend Restriction

     At December 31, 1997, approximately $37,860,000 of retained earnings was
 restricted against the payment of cash dividends by terms of the Indenture
 of Trust securing long-term debt.

(7)  Employee Benefit Plans

     (a) Pension

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

<PAGE>
<PAGE 30>

                            CANAL ELECTRIC COMPANY

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

                                        1997      1996      1995
                                         (Dollars in thousands)

 Service cost                         $   524   $   527   $   435
 Interest cost                          1 314     1 254     1 151
 Return on plan assets - (gain)/loss   (3 145)   (2 321)   (3 113)
 Net amortization and deferral          1 844     1 157     2 045
 Total pension expense                    537       617       518
 Transfers from affiliates, net           372       347       324
 Less: Amounts capitalized and other      206       224       193
 Net pension expense                  $   703   $   740   $   649


 Discount rate                          7.50%     7.25%     8.50%
 Assumed rate of return                 8.75      8.75      9.00
 Rate of increase in future
   compensation                         4.25      4.25      5.00

    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 plan (using a measurement date of
 December 31) is as follows:

                                                1997         1996
                                             (Dollars in thousands)
 Accumulated benefit obligation:
       Vested                                $(17 279)     $(12 241)
       Nonvested                               (2 613)       (2 180)
                                             $(19 892)     $(14 421)

 Projected benefit obligation                $(22 119)     $(17 576)
 Plan assets at fair market value              20 287        17 523
 Projected benefit obligation greater
    than plan assets                           (1 832)          (53)
 Unamortized transition obligation                 66            84
 Unrecognized prior service cost                  426           480
 Unrecognized gain                                951          (985)
 Accrued pension liability                   $   (389)     $   (474)

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

                                                1997         1996

 Discount rate                                  7.00%        7.50%
 Rate of increase in future compensation        3.75         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.

<PAGE>
<PAGE 31>

                            CANAL ELECTRIC COMPANY

     (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
 $646,000, $725,000 and $693,000 to these trusts during 1997, 1996 and 1995,
 respectively.

     The net periodic postretirement benefit cost for the years ended
 December 31, 1997, 1996 and 1995 includes the following components and
 related assumptions:
                                               1997     1996      1995
                                                (Dollars in thousands)

    Service cost                             $  176    $  187    $ 131
    Interest cost                               493       490      441
    Return on plan assets                      (549)     (324)    (383)
    Amortization of transition
      obligation over 20 years                  248       248      248
    Net amortization and deferral               286       131      261
    Total postretirement benefit cost           654       732      698
    Transfers from affiliates, net              452       446      447
    Less: Amounts capitalized and other         296    (1 230)     867
      Net postretirement benefit cost        $  810    $2 408    $ 278

    Discount rate                              7.50%    7.25%     8.50%
    Assumed rate of return                     8.75     8.75      9.00
    Rate of increase in future compensation    4.25     4.25      5.00

    The funded status of the Company's plan using a measurement date of
 December 31, 1997 and 1996 is as follows:

                                                         1997        1996
                                                     (Dollars in thousands)
     Accumulated postretirement benefit obligation:
       Retirees                                        $(4 749)   $(3 108)
       Fully eligible active plan participants            (819)      (858)
       Other active plan participants                   (2 066)    (2 620)
                                                        (7 634)    (6 586)
     Plan assets at fair market value                    3 790      2 825
     Accumulated postretirement benefit obligation
       greater than plan assets                         (3 844)    (3 761)
     Unamortized transition obligation                   3 730      3 978
     Unrecognized gain                                    (114)      (217)
                                                       $   -      $   -

<PAGE>
<PAGE 32>

                            CANAL ELECTRIC COMPANY

     The following actuarial assumptions were used in determining the plan's
 estimated accumulated postretirement benefit obligation (APBO) and the
 funded status for 1997 and 1996:
                                                         1997        1996

     Discount rate                                       7.00%       7.50%
     Rate of increase in future compensation             3.75        4.25
     Medicare part B premiums                            3.10        9.50
     Medical care                                        6.75        7.00
     Dental care                                         4.50        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 4.5%,
 respectively, by 2007 and remain at that level thereafter.  A one percent
 change in the medical trend rate would have a $103,000 impact on the
 Company's annual expense and would change the APBO by approximately
 $977,000.

     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 $256,000 in 1997, $261,000 in 1996 and $258,000
 in 1995.

(8)  Lease Obligations

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

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

<PAGE>
<PAGE 33>

                            CANAL ELECTRIC COMPANY

     Future minimum lease payments, by period and in the aggregate, of
 capital leases and noncancelable operating leases consisted of the following
 at December 31, 1997:
                                      Operating Leases  Capital Leases
                                           (Dollars in thousands)

 1998                                     $  541         $ 1 851
 1999                                        530           1 784
 2000                                        476           1 722
 2001                                        422           1 660
 2002                                        422           1 598
 Beyond 2002                               1 259          17 129
 Total future minimum lease payments      $3 650          25 744
 Less:Estimated interest element
   included therein                                       13 943
 Estimated present value of future
   minimum lease payments                                $11 801

       Total rent expense for all operating leases, except those with terms
 of a month or less, amounted to $575,000 in 1997, $475,000 in 1996 and
 $431,000 in 1995.  There were no contingent rentals and no sublease rentals
 for the years 1997, 1996 and 1995.

<PAGE>
<PAGE 34>

                            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 15).

(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, 1997, 1996 and 1995
     (page 41).

(a) 3.   Exhibits:

              Notes to Exhibits -

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

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

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

                                 Exhibit Index

Exhibit 3. Articles of incorporation and by-laws.

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

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

<PAGE>
<PAGE 35>

                            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).

<PAGE>
<PAGE 36>

                            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).

<PAGE>
<PAGE 37>

                            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).

10.1.8    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).

10.1.8.1  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).

10.1.9    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).

10.1.9.1  First through Third Amendments to 10.1.9 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).

10.1.9.2  Fifth through Seventh Amendments to 10.1.9 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).

10.1.9.3  Fourth and Eighth Amendments to 10.1.9 as amended July 1, 1987 and
          August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
          (September 1988), File No. 2-30057).

10.1.9.4  Ninth and Tenth Amendments to 10.1.9 as amended November 1, 1988
          and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form
          10-K, File No. 2-30057).

10.1.9.5  Eleventh Amendment to 10.1.9 as amended November 1, 1989 (Exhibit 4
          to the CEC 1989 Form 10-K, File No. 2-30057).

10.1.9.6  Twelfth Amendment to 10.1.9 as amended April 1, 1990 (Exhibit 1 to
          the CEC Form 10-Q (June 1990) File No. 2-30057).

10.1.10   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).

<PAGE>
<PAGE 38>

                            CANAL ELECTRIC COMPANY

10.1.11   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).

10.1.12   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).

10.1.12.1 Amendment No. 1 to 10.1.12 as amended May 1, 1986 (Exhibit 6 to the
          CEC Form 10-Q (March 1987), File No. 2-30057).

10.1.12.2 Amendment No. 2 to 10.1.12 as amended September 1, 1987 (Exhibit 3
          to the CEC Form 10-Q (September 1987), File No. 2-30057).

10.1.13   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).

10.1.14   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).

10.1.15   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).

10.1.15.1 Amendments Nos. 1 and 2 to 10.1.15 as amended May 1, 1986 and
          February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
          (March 1987), File No. 2-30057).

10.1.15.2 Amendments Nos. 3 and 4 to 10.1.15 as amended June 1, 1987 and
          September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
          (September 1987), File No. 2-30057).

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

10.2      Other agreements.

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


<PAGE>
<PAGE 39>

                            CANAL ELECTRIC COMPANY

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

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

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

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

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

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

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

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

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

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

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

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

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


<PAGE>
<PAGE 40>

                            CANAL ELECTRIC COMPANY

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).

Filed herewith:

Exhibit 27.
           Filed herewith as Exhibit 1 is the Financial Data Schedule for the
           year ended December 31, 1997.

(b) Reports on Form 8-K

           No reports on Form 8-K were filed during the three months ended
           December 31, 1997.

<PAGE>
<PAGE 41>

<TABLE>                                                                              SCHEDULE I
                                           CANAL ELECTRIC COMPANY
                                     INVESTMENTS IN, EQUITY EARNINGS OF,
                                 AND DIVIDENDS RECEIVED FROM RELATED PARTIES
                            FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                           (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 -
<S>                                                      YEAR ENDED DECEMBER 31, 1997
 New England Hydro-Transmission  <C>             <C>        <C>           <C>           <C>
   Electric Company, Inc.           $ 2 030       126 407      $  140        $  301       $1 869

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

<S>                                                      YEAR ENDED DECEMBER 31, 1996
 New England Hydro-Transmission  <C>             <C>        <C>           <C>           <C>
   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

<S>                                                      YEAR ENDED DECEMBER 31, 1995
 New England Hydro-Transmission  <C>             <C>        <C>           <C>           <C>
   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
<FN>
In 1997 New England Hydro-Transmission Electric Company, Inc. repurchased 7.5% (10,249.2 shares) of its
outstanding shares at $14.20 per share.  The Company received proceeds of $145,539.  During 1997, 1996 and
1995, New England Hydro-Transmission Corporation (NEHTC) repurchased 6.85% (46.124 shares), 6.52% (61.495
shares) and 6.52% (51.246 shares), respectively, of its outstanding shares.  The Company received proceeds
of $85,207 ($1,847.46 per share), $112,616 ($1,831.30 per share) and $94,017 ($1,834.62 per share) for 1997,
1996 and 1995,respectively.  Receipts from the repurchase of shares are included with dividends.
</TABLE>
<PAGE>
<PAGE 42>

                            CANAL ELECTRIC COMPANY

                     FORM 10-K          DECEMBER 31, 1997

                                  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

      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 31, 1998
William G. Poist,
Chairman of the Board

R. D. WRIGHT                                           March 31, 1998
Russell D. Wright,
Vice Chairman and Chief Executive Officer

DEBORAH A. McLAUGHLIN                                  March 31, 1998
Deborah A. McLaughlin
President and Chief Operating Officer

Principal Financial Officer:

JAMES D. RAPPOLI                                       March 31, 1998
James D. Rappoli
Financial Vice President and Treasurer


A majority of the Board of Directors:

WILLIAM G. POIST                                       March 31, 1998
William G. Poist, Director

R. D. WRIGHT                                           March 31, 1998
Russell D. Wright, Director

DEBORAH A. McLAUGHLIN                                  March 31, 1998
Deborah A. McLaughlin, Director

JAMES D. RAPPOLI                                       March 31, 1998
James D. Rappoli, Director