Company Profile

     Eastern Edison Company (Eastern Edison or the Company) is a retail
electric utility company.  Eastern Edison supplies retail electric service to
approximately 182,000 customers in 22 cities and towns in southeastern
Massachusetts.  The largest communities served are the cities of Brockton and
Fall River, Massachusetts.  Eastern Edison is a wholly owned subsidiary of
Eastern Utilities Associates (EUA).  EUA owns directly all of the shares of
common stock of Eastern Edison, Blackstone Valley Electric Company (Blackstone)
and Newport Electric Corporation (Newport).  Blackstone and Newport are retail
electric utility companies operating in northern Rhode Island and south coastal
Rhode Island, respectively.  Eastern Edison owns all of the permanent
securities of Montaup Electric Company (Montaup), a generation and transmission
company, which supplies electricity to Eastern Edison, to Blackstone, to
Newport and to two unaffiliated utilities for resale.  EUA also owns directly
all of the shares of common stock of EUA Cogenex Corporation (EUA Cogenex), EUA
Energy Investment Corporation (EUA Energy), EUA Ocean State Corporation (EUA
Ocean State), EUA Energy Services Corporation (EUA Energy Services) and EUA
Service Corporation (EUA Service).  EUA Service provides various accounting,
financial, engineering, planning, data processing and other services to all EUA
System companies.  EUA Cogenex is an energy services company.  EUA Energy was
organized to invest in energy-related projects.  EUA Ocean State owns a 29.9%
interest in Ocean State Power's two gas-fired generating units in northern
Rhode Island.   EUA Energy Services owns an interest in a limited liability
company which markets energy and energy services.  The holding company system
of EUA, the three retail subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA
Energy, EUA Energy Services and EUA Ocean State is referred to as the EUA
System.

Form 10-K

     A copy of EUA's, Eastern Edison's and Blackstone's Co-Registrant 1996
Annual Report on Form 10-K, which is filed with the Securities and Exchange
Commission, is available to shareholders without charge by contacting us at:

          EUA Service Corporation
          Post Office Box 2333
          Boston, MA 02107
          (617) 357-9590

Internet Address

Visit EUA's Home Page on the worldwide web at: http://www.eua.com. MARKET FOR

EASTERN EDISON'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     All of Eastern Edison's common stock is owned beneficially and of record
by Eastern Utilities Associates (EUA).

     The dividends paid on Eastern Edison's common stock during the past two
years are as follows:

                    Dividends Paid                   Dividends Paid
    1996               Per Share      1995              Per Share

    First Quarter      $2.87        First Quarter        $2.53
    Second Quarter      3.00        Second Quarter        0.43
    Third Quarter       3.00        Third Quarter         0.46
    Fourth Quarter      3.00        Fourth Quarter        0.45

     No dividends may be paid on Eastern Edison's common stock unless full
dividends on Eastern Edison's outstanding Preferred Stock for all past and the
current quarterly dividend periods have been paid or declared and set apart for
payment, nor may any dividends be paid on Eastern Edison's common stock if
Eastern Edison is in default on any sinking fund obligation provided for its
Preferred Stock.  See also Notes C, D and E of Notes to Consolidated Financial
Statements.


                SELECTED CONSOLIDATED FINANCIAL DATA


                            For the Years Ended December 31,
(In Thousands)             1996      1995      1994      1993     1992
 _________________________________________________________________________
Operating Revenues        $404,808  $420,069  $418,424  $417,021  $420,188
Net Earnings                30,983    31,455    31,395    28,145    29,231
Total Assets               775,082   739,198   756,045   742,273   776,510
Capitalization:
  Long-Term Debt           222,402   222,313   229,224   264,134   269,995
  Redeemable Preferred
     Stock-Net              27,035    26,218    25,257    24,824    28,171
  Non-Redeemable
     Preferred Stock                                                 8,949
  Common Equity            240,213   244,368   225,064   223,005   220,257

    Total Capitalization  $489,650  $492,899  $479,545  $511,963  $527,372


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

Overview

     1996 Consolidated Net Earnings of approximately $31.0 million decreased
$0.5 million, or 1.5% compared to those of  1995 which included a one-time
charge of approximately $1.5 million, on an after tax basis, related to the
voluntary retirement incentive offer (VRI). The results were impacted by
increased expenses related to an unusual number of severe storms  which struck
Eastern Edison's service territory during 1996 and increased legal expenses,
partially offset by a decrease in interest expense from debt issues that
matured in 1995.

     Consolidated Net Earnings for 1995 of approximately $31.5 million were
slightly higher than 1994 net earnings of $31.4 million due primarily to lower
litigation expenses resulting from favorable court decisions rendered in 1995,
lower interest expense and successful cost control efforts.   Offsetting these
impacts somewhat were the VRI charge and Montaup's approximately $13.9 million
annual wholesale rate reduction effective May 21, 1994.

Comparison of Financial Results

Operating Revenues

     Operating Revenues for 1996 decreased by approximately $15.3 million, as
compared to 1995.  The change was primarily due to decreased purchased power
recoveries of $6.9 million, decreased conservation and load management (C&LM)
expense recoveries of $7.1 million, and decreased contract demand sales of $1.6
million.

     Operating Revenues for 1995 increased by approximately $1.6 million as
compared to 1994.  This change was primarily due to increased purchased power
and fuel expense recoveries aggregating $5.8 million and additional revenues
related to the full year impact of Newport becoming an all-requirements
customer of Montaup on May 21, 1994.  Offsetting these increases somewhat were
decreased C&LM expense recoveries of $3.9 million and the full year impact of
Montaup's wholesale rate reduction implemented on May 21, 1994 which lowered
1995 revenues by approximately $4.9 million.

Voluntary Retirement Incentive Offer

     On March 15, 1995, EUA announced a corporate reorganization which, among
other things, consolidated management of Eastern Edison, Blackstone and
Newport.  As part of the reorganization, a VRI was offered to 66 professionals
of the  EUA System including 22 employees of Eastern Edison and Montaup.
Forty-nine of those eligible for the program, including 16 employees of Eastern
Edison and Montaup, accepted the incentive and retired effective June 1, 1995.
The cost to Eastern Edison of this incentive program amounted to a one-time
$2.4 million pre-tax ($1.5 million after-tax) charge to second quarter 1995
earnings.

Expenses

     The Company's most significant expense items continue to be fuel and
purchased power expenses which together comprised about 59% of total operating
expenses for 1996.

     Fuel expense increased by $1.3 million or 1.4% in 1996 as compared to 1995
due to primarily to a 2.0% increase in total energy generated and purchased.
Fuel expense increased by $3.4 million or 3.8% in 1995 as compared to 1994.
This change was caused by an increase of 14.1% in the average cost of fuel
offset by decreases in total energy generated and purchased of 11.1%.

     Purchased Power demand expense decreased $6.8 million or 5.4% in 1996.
The decrease was due primarily to the impact of lower billings from the Pilgrim
nuclear unit of approximately $4.2 million which includes a prior period refund
of approximately $2.0 million, and decreased billings from the Ocean State
Power Project and the Maine Yankee nuclear unit aggregating $2.5 million.
Purchased Power demand expense for 1995 increased $2.6 million to $125.6
million.  This increase was due primarily to the impact of Newport's purchased
power contracts assumed by Montaup effective May 21, 1994, coincident with
Newport becoming an all-requirements customer of Montaup, aggregating
approximately $4.8 million, and increased billings from the Ocean State Power
project and the Yankee nuclear units aggregating $5.2 million.  These increases
were offset somewhat by decreases of approximately $6.7 million resulting from
purchase power contracts totaling 41 mw which expired in October 1994, and a
net $700,000 reduction in purchases from other power suppliers.

     Other Operation and Maintenance expenses are comprised of two components,
Direct Controllable and Indirect.  Direct Controllable expenses include expense
items such as salaries, fringe benefits, insurance, maintenance, etc.  Indirect
expenses include items over which the Company has limited  short-term control
and include such expense items as Montaup's joint ownership interests in
generating facilities such as Seabrook I and Millstone III, power contracts
where transmission rental fees are fixed, conservation and load management
expenses that are fully recovered in revenues and expenses related to
accounting standards such as Statement of Financial Accounting Standard No.
106, "Employers' Accounting for Post Retirement Benefits-Retirement Benefits
Other Than Pensions" (FAS106).

     Other Operation and Maintenance expenses, including affiliated company
transactions, decreased by $4.8 million or 5% in 1996.   The change was
primarily due to decreased C&LM expenses of $7.7 million, lower power contract
and transmission expenses of Montaup and effective cost control efforts
aggregating $1.1 million.  Offsetting these decreases somewhat were increases
in storm related, legal and jointly owned unit expenses aggregating $4.5
million.  Other Operation and Maintenance expenses for 1995 decreased by
approximately $5.7 million or 5.6% from 1994 levels.  This decrease was due
primarily to lower C&LM expense totaling $4.3 million, decreased legal costs of
approximately $2.1 million and successful cost control efforts.  Offsetting
these year-to date decreases somewhat were increases in Montaup power contract
expenses and FAS106 expenses aggregating $1.4 million.

     Net interest charges decreased by approximately $2.7 million, due
primarily to the December 1995 maturity of $25 million of 9-9 1/4% Unsecured
Medium Term Notes and $10 million of 8.9% First Mortgage and Collateral Trust
Bonds and the September 1996 maturity of $7 million of 4 % First Mortgage
Collateral Trust Bonds of Eastern Edison.  Net interest charges decreased by
$1.4 million in 1995 versus 1994.  Other Interest expense provisions recorded
in June 1994 aggregating $1.0 million related to Internal Revenue Service
audits of prior years' consolidated income tax returns were primarily
responsible for this change.

Financial Condition and Liquidity

     Eastern Edison's and Montaup's need for permanent capital is primarily
related to the construction of facilities required to meet the needs of
existing and future customers.  For 1996, 1995 and 1994, Eastern Edison's and
Montaup's combined cash construction expenditures were $26.0 million, $23.4
million, and $23.6 million, respectively.  Internally generated funds provided
approximately 118% of Eastern Edison's and Montaup's combined cash construction
requirements in 1996.

     Cash construction expenditures are expected to be approximately $16.2
million in 1997, and $9.9 million in 1998 and 1999, and are expected to be
financed with internally generated funds.

     In the utility industry, cash construction requirements not met with
internally generated funds are obtained through short-term borrowings which are
ultimately funded with permanent capital.  EUA System companies,  including
Eastern Edison and Montaup, maintain short-term lines of credit with various
banks aggregating approximately $140 million.  These credit lines are available
to other affiliated companies under joint credit line arrangements.  At
December 31, 1996, unused short-term lines of credit amounted to approximately
$89 million.  At December 31, 1996, Eastern Edison had $2.0 million of
outstanding short-term debt and Montaup had no outstanding short-term debt.

     In addition to construction expenditures, projected requirements for
maturing long-term debt securities through 2001 are $60 million in 1998.   The
Company has no sinking fund requirements until the year 2003.

Electric Utility Industry Restructuring Initiatives

     On August 7, 1996 the Governor of Rhode Island signed into law the Utility
Restructuring Act of 1996 (URA).  The URA provides for customer choice of
electricity supplier to be phased-in commencing July 1, 1997 for large
manufacturing customers, certain new commercial and industrial customers, and
State of Rhode Island accounts.  By July 1, 1998 or sooner, all customers will
have retail access.  Under the URA the local distribution company will retain
the responsibility of providing distribution services to the ultimate
electricity consumer within its franchised service territory.  For customers
who choose not to choose, the local distribution company would be allowed to
arrange for supply at a non-discriminatory, "standard offer" price.
Distribution companies will also be providers of last resort, required to
arrange for supply, at prevailing market prices, for customers who are unable
to do so.

     Both Blackstone and Newport are currently all requirements customers of
Montaup for generation services.  This legislation provides for recovery of
prudently incurred embedded generation costs that may not be to recovered in a
competitive electric generation market, commonly referred to as "stranded
costs", through a non-bypassable transition charge initially set at 2.8 cents
per kWh.  The transition charge recovers, among other things, costs of
depreciated generation net of its market value, regulatory assets, nuclear
decommissioning and above market payments to power suppliers.  The costs of
net, above-market generation assets and regulatory assets will be recovered,
with a return, through a fixed component of the transition charge from July 1,
1997 through December 31, 2009.  A variable component of the transition charge
will recover, on a reconciling basis, among other things, nuclear
decommissioning and above market purchased power commitments from July 1, 1997
through the life of the respective unit or contract.  The URA also provides for
commitments to demand side management initiatives and renewables, low income
protections, divestiture of at least 15% of owned non-nuclear generating units
as a valuation basis for mitigation of  stranded cost recovery, and performance
based rate making standards for electric distribution companies.  Performance
based regulation provides for a minimum and maximum allowed return on equity.
In addition, the URA provides for adjustments to electric distribution
companies' base rates using the prior year's Consumer Price Index and other
performance factors.  Under this provision of the law, base rates were
increased 1.88% for customers of Blackstone, and 2.18% for our Newport
customers effective January 1, 1997.

     The implementation of the URA will require approvals from applicable
regulatory agencies, including the Federal Energy Regulatory Commission (FERC),
the Rhode Island Public Utilities Commission (RIPUC), and the Securities and
Exchange Commission (SEC).

     In February 1997, Blackstone, Newport and Montaup reached settlement with
the Rhode Island Division of Public Utilities and Carriers (RIDPUC) and the
Rhode Island Attorney General with regards to implementation of a restructuring
plan for Blackstone, Newport and Montaup.  In addition to complying with the
URA, the settlement provides for an immediate 10% rate reduction and a
commitment by Montaup to file a plan by July 1, 1997 to divest all of its
generating assets, and is similar in many respects to the settlement negotiated
in Massachusetts, described below.

     On December 23, 1996, Eastern Edison and Montaup reached an agreement in
principle with the Attorney General of Massachusetts and the Massachusetts
Division of Energy Resources on a plan, similar in many aspects to the URA,
which would allow  retail customers to choose their supplier of electricity in
1998 and provide Eastern Edison and Montaup full recovery of "stranded costs."
A formal plan is expected to be filed with the Massachusetts Department of
Public Utilities (MDPU) in March of 1997.

     The agreement envisions that all of Eastern Edison's customers will have
the ability to choose an alternative supplier of electricity beginning on
January 1, 1998.  Until a customer chooses an alternative supplier, that
customer would receive "standard offer" service which would be priced to
guarantee that customer at least a ten percent savings from today's electricity
prices.  Eastern Edison would be required to arrange for "standard offer"
service and would purchase power for "standard offer" service from suppliers
through a competitive bidding process.   The agreement is also designed to
achieve full divestiture of Montaup's generating assets via implementation of a
plan, to be submitted to the MDPU by July 1, 1997, that would require (1)
separation by Montaup of its generating and transmission businesses and (2)
full market valuation and sale of all generating assets through an auction or
equivalent process, to be conducted by an independent third party.

     Upon the commencement of retail choice in Massachusetts, Montaup's
wholesale contract with Eastern Edison would be terminated.  In return, the
cost of Montaup's above market, embedded generation commitments to serve
Eastern Edison's customers would be recovered, with a return, through a non-
bypassable transition access charge to all Eastern Edison customers.  The
transition access charge would be reduced by the fair market value of Montaup's
generating assets as determined by selling, spinning off, or otherwise
disposing of such generating facilities.

     Embedded costs associated with generating plants and regulatory assets
would be recovered, with a return, over a period of 12 years.  Purchased power
contracts and nuclear decommissioning costs would be recovered as incurred over
the life of those obligations, a period expected to extend beyond 12 years.
The initial transition access charge would be set at 3.04 cents per kWh through
December 31, 2000, and is expected to decline thereafter.

     The agreement  also establishes performance-based regulation for Eastern
Edison incorporating a floor and cap on allowed return on equity.  Under the
agreement, Eastern Edison's distribution rates would be frozen at 1996 levels
until December 31, 2000.  Subsequent to the commencement of retail choice,
Eastern Edison's annual return on equity would be subject to a floor of 6
percent and a ceiling of 11.75 percent.

     In addition to MDPU approval of the agreement, implementation is also
subject to the approval of the FERC.  Any disposition of generation assets
resulting from the agreement or the URA would also require the approval of the
SEC under the Public Utility Holding Company Act of 1935.

     Historically, electric rates have been designed to recover a utility's
full costs of providing electric service including recovery of investment in
plant assets.  Also, in a regulated environment, electric utilities are subject
to certain accounting rules that are not applicable to other industries.  These
accounting rules allow regulated companies, in appropriate circumstances, to
establish regulatory assets and liabilities, which defer the current financial
impact of certain costs that are expected to be recovered in future rates. The
SEC has raised issues concerning the continued applicability of these standards
with certain other electric utilities, in other states, facing restructuring.
The Company believes that its operations will continue to meet the criteria
established in these accounting standards.

     However, the potential exists that the final outcome of state and federal
agency determinations could result in the Company no longer meeting the
criteria of certain accounting standards which could trigger the discontinuance
of Statement of Financial Accounting Standards No.  71, "Accounting for the
Effects of Certain Types of Regulation" (FAS71).  Should it be required to
discontinue the application of FAS71, the Company would be required to take an
immediate write down of the affected assets in accordance with FAS101,
"Accounting for the Discontinuation of Application of FAS71."

     In addition, if legislative or regulatory changes and/or competition
result in electric rates which do not fully recover the company's costs, a
write-down of plant assets could be required pursuant to Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (FAS121) issued in March 1995.

 Environmental Matters

     Eastern Edison, Montaup and other companies owning generating units from
which power is obtained are subject, like other electric utilities, to
environmental and land use regulations at the federal, state and local levels.
The United States Environmental Protection Agency (EPA), and certain state and
local authorities, have jurisdiction over releases of pollutants, contaminants
and hazardous substances into the environment and have broad authority to set
rules and regulations in connection therewith, such as the Clean Air Act
Amendments of 1990, which could require installation of pollution control
devices and remedial actions.  In 1994, an environmental audit program designed
to ensure compliance with environmental laws and regulations and to identify
and reduce liability was instituted by EUA.

     Because of the nature of Eastern Edison's and Montaup's business, various
by-products and substances are produced or handled which are classified as
hazardous under the rules and regulations promulgated by such authorities.
Eastern Edison and Montaup generally provide for the disposal of such
substances through licensed contractors, but statutory provisions generally
impose potential joint and several responsibility on the generators of the
wastes for cleanup costs.  Eastern Edison and Montaup have been notified with
respect to a number of sites where they may be responsible for such costs,
including sites where they may have joint and several liability with other
responsible parties.  It is the policy of the EUA System companies to notify
liability insurers and to initiate claims, however, Eastern Edison and Montaup
are unable to predict whether liability, if any, will be assumed by, or can be
enforced against, the insurance carriers in these matters.

     As of December 31, 1996, Eastern Edison and Montaup had incurred costs of
approximately $800,000, in connection with these sites.  These amounts have
been financed primarily by internally generated cash.  Montaup is currently
recovering certain of its incurred environmental costs in rates.

     Eastern Edison and Montaup estimate that additional costs of up to
$130,000 may be incurred at these sites through 1998.  Estimates beyond 1998
cannot be made since site studies, which are the basis of these estimates, have
not been completed.

     As a result of the recoverability in current rates of environmental costs,
and the uncertainty regarding both its estimated liability, as well as
potential contributions from insurance carriers, Eastern Edison and Montaup do
not believe that the ultimate impact of environmental costs will be material to
their financial position and thus, no loss provision is required at this time.

     A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found wherever there is electricity.  While some of the studies have indicated
some association between exposure to EMF and health effects, many others have
indicated no direct association.  The research to date has not conclusively
established a direct causal relationship between EMF exposure and human health.
Additional studies, which are intended to provide a better understanding of
EMF, are continuing.  On October 31, 1996, the National Academy of Sciences
issued a literature review of all research to date, "Possible Health Effects of
Exposure to Residential Electric and Magnetic Fields."  Its most widely
reported conclusion stated,  "No clear, convincing evidence exists to show that
residential exposures to EMF are a threat to human health." Management cannot
predict the ultimate outcome of the EMF issue.

Nuclear Power Issues

       Montaup has a 4.01% ownership interest in Millstone III, an 1154-mw
nuclear unit that is jointly owned by a number of New England utilities,
including subsidiaries of Northeast Utilities (Northeast), the operator of
the plant.  On March 30, 1996, Northeast shut down the unit following an
engineering evaluation which determined that four safety-related valves would
not be able to perform their design function during certain postulated events.
The Nuclear Regulatory Commission (NRC) has raised numerous issues with respect
to the unit and certain of the other nuclear units operated by Northeast.  The
NRC has established a Special Projects Office to oversee inspection and
licensing activities at Millstone and directed Northeast to submit a plan for
disposition of safety issues raised by employees and retain an independent
third party to oversee implementation of this plan.  Northeast management
has indicated it cannot currently estimate the effect these efforts will have
on the timing of restarts or what additional costs, if any, these developments
may cause.

     While Millstone III is out of service, Montaup will incur incremental
replacement power costs estimated at $400,000 to $800,000 per month.  Montaup
bills its replacement power costs through its fuel adjustment clause, a
wholesale tariff jurisdictional to FERC.  However, there is no comparable
clause in Montaup's FERC-approved rates which at this time would permit Montaup
to recover its share of the incremental O&M costs incurred at Millstone III.

     The Company cannot predict the ultimate outcome of the NRC inquiries or
the impact which they may have on Montaup.  Montaup is also evaluating its
rights and obligations under the various agreements relating to the ownership
and operation of Millstone III.

     Montaup holds a 4.0% ownership interest in the Maine Yankee nuclear unit.
In December, 1996 the unit was shut down for inspections and repairs and in
January 1997 the NRC announced that it had placed the unit on its watch list.
The operator of the unit had been addressing issues of non-conformance to the
unit's licensing basis identified by the NRC in October 1996, prior to the
NRC's January 1997 announcement.  The operator of the plant cannot estimate
when the unit will restart.

     Connecticut Yankee, a 582-mw nuclear unit, was taken off-line in July 1996
because of issues related to certain containment air recirculation and service
water systems.  Montaup has a 4.5% equity ownership in Connecticut Yankee with
a book value of $4.8 million at December 31, 1996.

     In October 1996, Montaup, as one of the joint owners, participated in an
economic evaluation of Connecticut Yankee which recommended permanently closing
the unit and replacing its output with less expensive energy sources.  As a
result of the analysis, work at the plant had slowed pending a final board
decision.  In December 1996, the Board of Directors voted to retire the
generating station.  Connecticut Yankee certified to the NRC that it had
permanently closed power generation operations and removed fuel from the
reactor.  Connecticut Yankee has two years to submit its decommissioning
plan to the NRC.  The preliminary estimate of the sum of future payments for
the permanent shutdown, decommissioning, and recovery of the remaining
investment in Connecticut Yankee, is approximately $758 million.  Montaup's
share of the total estimated costs is $34.1 million at December 31, 1996 and
is included in Other Liabilities on the Consolidated Balance Sheet at December
31, 1996.  Also, due to anticipated recoverability, a regulatory asset has been
recorded for the same amount and is included with Other Assets.

     Recent actions by the NRC, some of which are cited above, indicate that
the NRC has become more critical and active in its oversight of nuclear power
plants.  EUA is unable to predict at this time, what, if any, ramifications
these NRC actions will have on any of the other nuclear power plants in which
Montaup has an ownership interest or power contract.

     Montaup is recovering through rates its share of estimated decommissioning
costs for the Millstone III and Seabrook I nuclear generating units.  Montaup's
share of the currently allowed estimated total costs to decommission Millstone
III is approximately $18.6 million in 1996 dollars and Seabrook I is
approximately $13.1 million in 1996 dollars.  These figures are based on
studies performed for the lead owners of the units.  Montaup also pays into
decommissioning reserves, pursuant to contractual arrangements, at other
nuclear generating facilities in which it has an equity ownership interest or
life-of-unit entitlement.  Such expenses are currently recovered through rates.

Other

     The Company occasionally makes forward-looking projections of expected
future performance or statements of our plans and objectives.  These forward-
looking statements may be contained in filings with the SEC, press releases and
oral statements.  Actual results could differ materially from these statements.
Therefore, no assurances can be given that such forward-looking statements and
estimates will be achieved.



Management's Discussion and Analysis of Financial Condition and Review of
Operations provides a summary of information regarding the Company's financial
condition and results of operation and should be read in conjunction with the
"Consolidated Financial Statements" and "Notes to Consolidated Financial
Statements" in arriving at a more complete understanding of such matters.

Financial Table of Contents


Consolidated Statement of Income. . . .  .  .  .  .  .  .  .  .  .   .  . 12

Consolidated Statement of Retained Earnings . . . . . . . . . .  . . . .  12

Consolidated Statement of Cash Flow  . . . . . . . . . . . . . . . . . .  13

Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . .  14

Consolidated Statement of Capitalization . . . . . . . . . . . . . . . .  15

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .  16

Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . 31
<TABLE>

Eastern Edison Company and Subsidiary
Consolidated Statement of Income
Years Ended December 31,
(In Thousands)

<CAPTION>

                                              1996         1995         1994
<S>                                         <C>          <C>             <C>
Operating Revenues:
   From Affiliated Companies                $ 127,981    $ 133,388    $ 126,481
   Other                                      276,827      286,681      291,943
     Total Operating Revenues                 404,808      420,069      418,424
Operating Expenses:
   Fuel                                        92,159       90,881       87,522
   Purchased Power - Demand                   118,843      125,594      122,995
   Other Operation and Maintenance             66,311       73,638       80,300
   Affiliated Company Transactions             25,908       23,386       22,446
   Voluntary Retirement Incentive                   0        2,413
   Depreciation and Amortization               26,810       26,039       25,546
   Taxes - Other than Income                   10,705       10,233       10,543
         - Income                              16,058       15,653       15,830
         Total Operating Expenses             356,794      367,837      365,182
Operating Income                               48,014       52,232       53,242
Equity in Earnings of Jointly Owned Companies   1,587        1,646        1,700
Allowance for Other Funds Used During
   Construction                                   365          473          263
Other Income (Deductions) - Net                 1,583          407          897
Income Before Interest Charges                 51,549       54,758       56,102
Interest Charges:
   Interest on Long-Term Debt                  15,233       18,277       18,488
   Other Interest Expense                       3,653        3,541        4,525
   Allowance for Borrowed Funds Used During
       Construction (Credit)                     (308)        (503)        (294)
         Net Interest Charges                  18,578       21,315       22,719
Net Income                                     32,971       33,443       33,383
Preferred Dividend  Requirements                1,988        1,988        1,988
Consolidated Net Earnings Applicable to
     Common Stock                           $  30,983    $  31,455    $  31,395
</TABLE>

<TABLE>
Consolidated Statement of Retained Earnings
Years Ended December 31,
(In Thousands)
<CAPTION>


                                                        1996         1995         1994
<S>                                                 <C>          <C>          <C>
Retained Earnings - Beginning of Year               $ 124,878    $ 105,574    $ 103,515
Net Income                                             32,971       33,443       33,383
Amortization of Preferred Stock Redemption Premium       (817)        (961)        (596)
      Total                                           157,032      138,056      136,302
Dividends Paid:
  Preferred                                             1,988        1,988        1,988
  Common                                               34,320       11,190       28,740
Retained Earnings - End of Year                     $ 120,724    $ 124,878    $ 105,574
</TABLE>

   The accompanying notes are an integral part of the financial statements.
<TABLE>
 Eastern Edison Company and Subsidiary
 Consolidated Statement of Cash Flows
 Years Ended December 31,
   (In Thousands)
<CAPTION>



                                                  1996         1995         1994
<S>                                             <C>          <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income                                       $  32,971    $  33,443    $  33,383
Adjustments to Reconcile Net Income
  to Net Cash Provided by Operating Activities:
       Depreciation and Amortization                28,607       29,852       28,981
       Amortization of Nuclear Fuel                  1,676        3,647        3,310
       Deferred Taxes                                5,217        2,694        5,500
       Investment Tax Credit, Net                     (939)        (942)        (348)
       Allowance for Funds Used During Construction   (365)        (473)        (263)
       Other - Net                                  (2,333)       1,219       (3,285)
Changes to Operating Assets and Liabilities:
       Accounts Receivable                          (1,862)      (7,055)      (7,667)
       Fuel, Materials and Supplies                    673       (1,678)         194
       Accounts Payable                                186          827        3,495
       Accrued Taxes                                  (241)       1,807       (2,814)
       Other - Net                                   9,266       (6,630)       4,485
Net Cash Provided from Operating Activities         72,856       56,711       64,971

CASH FLOW FROM INVESTING ACTIVITIES:
    Construction Expenditures                      (26,006)     (23,423)     (23,613)
    Decrease in Other Investments                      148
    Net Cash (Used in) Investing Activities        (25,858)     (23,423)     (23,613)

CASH FLOW FROM FINANCING ACTIVITIES:
   Redemptions:
     Long-Term Debt                                 (7,000)     (35,000)
     Premium on Reacquisition and Financing Expenses                             (62)
   Common Stock Dividends Paid                     (34,320)     (11,190)     (28,740)
   Preferred Dividends Paid                         (1,988)      (1,988)      (1,988)
   Net (Decrease) Increase in Short Term De         (2,118)       4,158
   Net Cash (Used in) Financing Activities         (45,426)     (44,020)     (30,790)

   Net Increase (Decrease) in Cash
   and Temporary Cash Investments                    1,572      (10,732)      10,568

   Cash and Temporary Cash Investments at
     Beginning of Year                                 533       11,265          697

   Cash and Temporary Cash Investments at
     End of Year                                 $   2,105    $     533    $  11,265


  Cash paid during the year for:
     Interest (Net of Amounts Capitalized)       $  15,241    $  18,343    $  18,406
     Income Taxes                                $  13,267    $   9,044    $  15,877
</TABLE>

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

<TABLE>

Eastern Edison Company and Subsidiary
Consolidated Balance Sheet
December 31,
(In Thousands)

<CAPTION>
ASSETS

                                                           1996         1995
<S>                                                        <C>          <C>
Utility Plant and Other Investments:
   Utility Plant                                            $ 817,992    $ 798,706
   Less Accumulated Provision for Depreciation                261,464      241,673
   Net Utility Plant                                          556,528      557,033
   Non-Utility Property - Net                                   2,705        2,705
   Investment in Jointly Owned Companies                       13,210       13,223
   Other Investments (at cost)                                     95           50
         Total Utility Plant and Other Investments            572,538      573,011
Current Assets:
   Cash and Temporary Cash Investments                          2,105          533
   Accounts Receivable:
       Customers                                               27,633       25,730
       Others                                                   3,464        2,348
       Accrued Unbilled Revenue                                 8,376        9,158
       Associated Companies                                    25,486       25,861
   Fuel (at average cost)                                       6,844        7,385
   Plant Materials and Operating Supplies (at average cost)     3,805        3,937
   Prepayments and Other Current Assets                         3,598        4,170
       Total Current Assets                                    81,311       79,122
Other Assets (Note A)                                         121,233       87,065
Total Assets                                                $ 775,082    $ 739,198

 LIABILITIES AND CAPITALIZATION
Capitalization:
   Common Equity                                            $ 240,213    $ 244,368
   Redeemable Preferred Stock - Net                            29,665       29,665
   Preferred Stock Redempton Cost                              (2,630)      (3,447)
   Long-term Debt - Net                                       222,402      222,313
       Total Capitalization                                   489,650      492,899
Current Liabilities:
   Long-term Debt Due Within One Year                               0        7,000
   Notes Payable                                                2,040        4,158
   Accounts Payable:
      Public                                                   27,391       27,242
      Associated Companies                                      3,950        3,913
   Customer Deposits                                            1,153        1,103
   Taxes Accrued                                                2,977        3,219
   Interest Accrued                                             4,895        4,999
   Other Current Liabilities                                   16,081        7,332
     Total Current Liabilities                                 58,487       58,966
Other Liabilities                                              41,914       10,100
Deferred Credits:
   Unamortized Investment Credit                               16,903       17,842
   Other Deferred Credits                                      25,689       30,625
     Total Deferred Credits                                    42,592       48,467
Accumulated Deferred Taxes                                    142,439      128,766
Commitments and Contingencies (Note J)
Total Liabilities and Capitalization                        $ 775,082    $ 739,198

</TABLE>

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

Eastern Edison Company and Subsidiary
Consolidated Statement of Capitalization
December 31,
(In Thousands)
<CAPTION>

                                                       1996         1995
<S>                                                   <C>          <C>
Common Stock:
  $25 par value, authorized and outstanding
     2,891,357 shares                              $  72,284    $  72,284
   Other Paid-In Capital                              47,249       47,249
   Common Stock Expense                                  (44)         (43)
   Retained Earnings                                 120,724      124,878
       Total Common Equity                           240,213      244,368
Redeemable Preferred Stock:
   6 5/8%, $100 par value, 300,000 shares <F1>        30,000       30,000
   Expense, Net of Premium                              (335)        (335)
   Preferred Stock Redemption Cost                    (2,630)      (3,447)
       Total Redeemable Preferred Stock               27,035       26,218
Long-Term Debt:
   First Mortgage and Collateral Trust Bonds:
   5 7/8% due 1998                                    20,000       20,000
   6 7/8% due 2003                                    40,000       40,000
   8% due 2023                                        40,000       40,000
   5 3/4% due 1998                                    40,000       40,000
   6.35% due 2003                                      8,000        8,000
   4.875% due 1996                                         0        7,000
    7.78% Secured Medium-Term Notes due 2002          35,000       35,000
   Pollution Control Revenue Bond:
    5 7/8% due 2008                                   40,000       40,000
Unamortized (Discount) - Net                            (598)        (687)
                                                     222,402      229,313
Less Portion Due Within One Year                           0        7,000
       Total Long-Term Debt                          222,402      222,313
Total Capitalization                               $ 489,650    $ 492,899

<FN>
<F1>  Authorized and Outstanding.
</FN>
</TABLE>

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


              EASTERN EDISON COMPANY AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                December 31, 1996, 1995, and 1994


(A) Nature of Operations and Summary of Significant Accounting Policies:

  General:  Eastern Edison Company (Eastern Edison or the Company) and its
wholly owned subsidiary, Montaup Electric Company (Montaup) are principally
engaged in the generation, transmission, distribution and sale of electric
energy.

     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.

     The accounting policies and practices of Eastern Edison and of Montaup are
subject to regulation by FERC and the MDPU with respect to their rates and
accounting.  Eastern Edison and Montaup conform with generally accepted
accounting principles, as applied in the case of regulated public utilities,
and conform with the accounting requirements and ratemaking practices of the
regulatory authority having jurisdiction.

  Principles of Consolidation:  The consolidated financial statements include
the accounts of Eastern Edison and its subsidiary, Montaup.  All material
intercompany balances and transactions have been eliminated in consolidation.

  Reclassifications:   Certain prior period amounts on the financial statements
have been reclassified to conform with current presentation.

  Jointly Owned Companies:  Montaup follows the equity method of accounting for
its stock ownership investments in jointly owned companies including four
regional nuclear generating companies.  Montaup's investments in these nuclear
generating companies range from 2.50 to 4.50 percent.  Montaup is entitled to
electricity produced from these facilities based on its ownership interests and
is billed for its entitlement pursuant to contractual agreements which are
approved by FERC.

     One of the four nuclear generating facilities, Yankee Atomic, is being
decommissioned.  Montaup is required to pay, and has received FERC
authorization to recover, its proportionate share of any unrecovered costs and
costs incurred after the plant's retirement.  Montaup's share of all
unrecovered assets and the total estimated costs to decommission the unit
aggregated approximately $7.8 million at December 31, 1996 and is included with
Other Liabilities on the Consolidated Balance Sheet.  Also, due to
recoverability, a regulatory asset has been recorded for the same amount and is
included with Other Assets.

     In December 1996 the Board of Directors of Connecticut Yankee voted to
retire the generating station. Connecticut Yankee certified to the NRC that it
had permanently closed power generation operations and removed fuel from the
reactor.  Montaup has a 4.5% equity ownership in Connecticut Yankee.  Montaup's
share of all unrecovered assets and the total estimated costs to decommission
the unit aggregated approximately $34.1 million at December 31, 1996 and is
included with Other Liabilities on the Consolidated Balance Sheet.  Also, due
to anticipated recoverability, a regulatory asset has been recorded for the
same amount and is included with Other Assets.

     Montaup also has a stock ownership investment of 3.27% in each of the two
companies which own and operate certain interconnection facilities used to
transmit hydroelectric power between the Hydro-Quebec Electric System and New
England.

  Transactions with Affiliates:  Eastern Edison is a wholly owned subsidiary of
Eastern Utilities Associates (EUA).  In addition to its investment in Eastern
Edison, EUA has interests in two other retail companies, a service corporation,
and four other non-utility companies.

     Transactions between Montaup and other affiliated companies include the
following:  sales of electricity by Montaup to Blackstone Valley Electric
Company (Blackstone) and Newport Electric Corporation (Newport) aggregating
approximately $127,536,000 in 1996, $133,841,000 in 1995 and $126,237,000 in
1994; accounting, engineering and other services rendered by EUA Service
Corporation to Eastern Edison and Montaup of approximately $30,886,000,
$29,264,000, and $27,365,000, in 1996, 1995 and 1994, respectively; and
operating expense from the rental of transmission and generation facilities by
Blackstone and Newport to Montaup aggregating approximately $3,960,000  in
1996, $4,351,000 in 1995 and  $3,627,000 in 1994.  Montaup rental of
transmission facilities to Newport was zero in 1996 and 1995, and $149,000 for
1994, respectively.  Transactions with affiliated companies are subject to
review by applicable regulatory commissions.

  Utility Plant and Depreciation:  Utility plant is stated at original cost.
The cost of additions to utility plant includes contracted work, direct labor
and material, allocable overhead, allowance for funds used during construction
and indirect charges for engineering and supervision.  For financial statement
purposes, depreciation is computed on the straight-line method based on
estimated useful lives of the various classes of property.  Provisions for
depreciation, on a consolidated basis, were equivalent to a composite rate of
approximately 3.2% in 1996, 1995 and 1994 based on the average depreciable
property balances at the beginning and end of each year.

  Electric Plant Held for Future Use:  In January 1994 Montaup determined that
it would not be economically feasible to bring its 42-year old, coal-fired
Somerset Station Unit 5 generating unit into compliance with Clean Air Act
Amendments of 1990 (Clean Air Act).  The unit was placed in cold storage and
its net investment, $5.4 million, was transferred to electric plant held for
future use pending final determination by Montaup of its usefulness.  Under
terms of the settlement agreement filed with FERC, entered into by Montaup and
the intervenors in Montaup's 1994 rate decrease application, Montaup continues
to earn a return on the net investment of the unit.

  Other Assets:  The components of Other Assets at December 31, 1996 and 1995
are detailed as follows:


(In Thousands)                            1996     1995
Regulatory Assets:
  Unamortized losses on
    reacquired debt                    $13,277    $14,981
  Unrecovered plant and
    decommissioning cost                41,914     10,100
  Deferred SFAS 109 costs (Note B)      47,326     44,387
  Deferred SFAS 106 costs (Note J)       2,153      2,365
  Other regulatory assets                4,886      4,790
    Total regulatory assets            109,556     76,623
Other deferred charges and assets:
  Unamortized debt expenses              2,456      2,847
  Other                                  9,221      7,595
    Total Other Assets                $121,233    $87,065

  Regulatory Accounting: Eastern Edison and Montaup are subject to certain
accounting rules that are not applicable to other industries.  These accounting
rules allow regulated companies, in appropriate circumstances, to establish
regulatory assets and liabilities, which defer the current financial impact of
certain costs that are expected to be recovered in future rates.  Eastern
Edison and Montaup believe that their operations continue to meet the criteria
established in these accounting standards.  Effects of legislation and/or
regulatory initiatives or EUA's own initiatives could ultimately cause Eastern
Edison and Montaup to no longer follow these accounting rules.  In such
an event, a non-cash write-off of regulatory assets and liabilities could be
required at that time.

  Allowance for Funds Used During Construction (AFUDC):  AFUDC represents the
estimated cost of borrowed and equity funds used to finance Eastern Edison's
and Montaup's construction program.  In accordance with regulatory accounting,
AFUDC is capitalized, as a cost of utility plant, in the same manner as certain
general and administrative costs.  AFUDC is not an item of current cash income,
but is recovered over the service life of utility plant in the form of
increased revenues collected as a result of higher depreciation expense.  The
combined rate used in calculating AFUDC was 8.9% in 1996, 9.4% in 1995 and 9.6%
in 1994.

  Operating Revenues:  Revenues are based on billing rates authorized by
applicable federal and state regulatory commissions.  Eastern Edison follows
the policy of accruing the estimated amount of unbilled base rate revenues for
electricity provided at the end of the month to more closely match costs and
revenues.  Montaup recognizes revenues when billed.  In addition, Eastern
Edison and Montaup also record the difference between fuel costs incurred and
fuel costs billed.  Montaup also records the difference between purchased power
costs incurred and billed.

(A) Nature of Operations and Summary of Significant Accounting Policies:
    (continued)

  Income Taxes:  The general policy of Eastern Edison and Montaup with respect
to accounting for federal and state income taxes is to reflect in income the
estimated amount of taxes currently payable, as determined from the EUA
consolidated tax return on an allocated basis, and to provide for deferred
taxes on certain items subject to temporary differences to the extent permitted
by the various regulatory commissions.

    As permitted by the regulatory commissions, it is the policy of Eastern
Edison and Montaup to defer recognition of the annual investment tax credits
and to amortize these credits over the productive lives of the related assets.

  Cash and Temporary Cash Investments:  Eastern Edison and Montaup consider all
highly liquid investments and temporary cash investments with a maturity of
three months or less, when acquired, to be cash equivalents.

(B)  Income Taxes:

  Components of income tax expense for the years 1996, 1995,
and 1994 are as follows:
___________________________________________________________________
(In Thousands)                   1996      1995       1994

Federal:
  Current                       $9,111    $11,387    $ 9,143
  Deferred                       5,152      3,679      4,697
  Investment Tax Credit, Net     (939)      (942)       (348)
                               $13,324    $14,124    $13,492
State:
  Current                        2,612      2,447      1,468
  Deferred                         122       (918)       870
                                 2,734      1,529      2,338
Charged to Operations           16,058     15,653     15,830
Charged to Other Income:
  Current                        1,233        522        617
  Deferred                        (67)       (67)        (67)
     Total                     $17,224    $16,108    $16,380


     Total income tax expense was different than the amounts computed by
applying federal income tax statutory rates to book income subject to tax for
the following reasons:
_____________________________________________________________________________
(In Thousands)                         1996        1995       1994

Federal Income Tax Computed
   at Statutory Rates                 $17,568    $17,343    $17,417
(Decreases) Increases in Tax from:
   Equity Component of AFUDC            (128)      (165)        (92)
   Consolidated Tax Savings             (156)      (108)       (651)
   Depreciation Differences             (452)      (264)       (321)
   Amortization and Utilization
      of ITC                            (939)      (942)       (945)
   State Taxes, Net of Federal
      Income Tax Benefit                1,897    (2,625)      1,614
 Cost of Removal                                      58       (226)
   Other                                (566)      2,811       (416)
Total Income Tax Expense              $17,224    $16,108    $16,380


(B)  Income Taxes  (continued)

     Eastern Edison and Montaup adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (FAS109) which required
recognition of deferred income taxes for temporary differences that are
reported in different years for financial reporting and tax purposes
using the liability method.  Under the liability method, deferred tax
liabilities or assets are computed using the tax rates that will be in effect
when temporary differences reverse.  Generally, for regulated companies, the
change in tax rates may not be immediately recognized in operating results
because of rate making treatment and provisions in the Tax Reform Act of 1986.
The total deferred tax assets and liabilities at December 31, 1996 and 1995
are comprised as follows:


                     Deferred Tax                       Deferred Tax
                          Assets                          Liabilities
                      ($000)                               ($000)
                     1996     1995                        1996      1995
Plant Related                         Plant Related
   Differences     $13,490   $16,181      Differences   $153,471   $146,632
Alternative                           Refinancing
      Minimum Tax      412     4,470       Costs           1,471      1,691
Pensions             1,299     1,070  Pensions               877        940
Other                1,040     1,060        Other          2,507      1,901
Total               16,241   $22,781  Total             $158,326   $151,164

     As of December 31, 1996 and 1995, the Company had recorded on its
Consolidated Balance Sheet a regulatory liability to ratepayers of
approximately $18.0 million and $23.6 million, respectively.  This amount
primarily represents excess deferred income taxes resulting from the
reduction in the federal income tax rate and also includes deferred taxes
provided on investment tax credits.  Also at December 31, 1996 and 1995, a
regulatory asset of approximately $47.3 million and $44.4 million,
respectively, has been recorded, representing the cumulative amount of federal
income taxes on temporary depreciation differences which were previously flowed
through to ratepayers.

     Montaup has approximately $0.4 million, respectively, of alternative
minimum tax credits which can be utilized to reduce the EUA System's
consolidated regular tax liability and have no expiration.

(C) Capital Stock:

     There were no changes in the number of shares of common or preferred stock
during the years ended December 31, 1996, 1995 and 1994.

     Under the terms and provisions of the issues of preferred stock of Eastern
Edison, certain restrictions are placed upon the payment of dividends on common
stock by Eastern Edison.  At December 31, 1996, 1995 and 1994, the respective
capitalization ratios were in excess of the minimum requirements which would
make these restrictions effective.

(D)  Redeemable Preferred Stock

     Eastern Edison's 6-5/8% Preferred Stock issue is entitled to an annual
mandatory sinking fund sufficient to redeem 15,000 shares commencing September
1, 2003.  The redemption price is $100 per share plus accrued dividends.  All
outstanding shares of the 6-5/8% issue will be subject to mandatory redemption
on September 1, 2008 at a price of $100 per share plus accrued dividends.

     In the event of liquidation, the holders of Eastern Edison's 6-5/8%
Preferred Stock are entitled to $100 per share plus accrued dividends.

(E)  Retained Earnings:

     Under the provisions of Eastern Edison's Indenture securing the First
Mortgage and Collateral Trust Bonds, retained earnings in the amount of
$117,385,954 as of December 31, 1996 were unrestricted as to the payment of
cash dividends on its Common Stock.

(F)  Long-Term Debt:

     The various mortgage bond issues of Eastern Edison are collateralized by
substantially all of their utility plant.  In addition, Eastern Edison's bonds
are collateralized by securities of Montaup, which are wholly-owned by Eastern
Edison, in the principal amount of approximately $236 million.

     In September, Eastern Edison used available cash to redeem $7 million of
4.875% First Mortgage Bonds at maturity.

     The Company's aggregate amount of current cash sinking fund requirements
and maturities of long-term debt, (excluding amounts that may be satisfied by
available property additions) for each of the five years following 1996 are:
none in 1997, $60 million in 1998, and none in 1999, 2000 and 2001.

(G)  Lines of Credit:

     EUA System companies including Eastern Edison maintain short-term lines of
credit with various banks aggregating approximately $140 million.  At December
31, 1996, unused short-term lines of credit were approximately $89 million.
These credit lines are available to other EUA System companies under joint
credit line arrangements.  In accordance with informal agreements with the
various banks, commitment fees are required to maintain certain lines of
credit.  During 1996, the weighted average interest rate for short-term
borrowings by the Company was 5.6%.

 (H) Jointly Owned Facilities:

     At December 31, 1996, in addition to the stock ownership interests
discussed in Note A, Summary of Significant Accounting Policies - Jointly
Owned Companies, Montaup had direct ownership interests in the following
electric generating facilities (In Thousands):

                                     Accumulated
                                     Provision For   Net     Construc-
                           Utility   Depreciation  Utility     tion
                   Percent Plant in      and       Plant in  Work in
($ In Thousands)    Owned  Service   Amortization  Service   Progress
Montaup:
 Canal 2           50.00%  $ 83,194     $41,843    $ 41,351    $446
 Wyman 4            1.96%     4,051       2,130       1,921
 Seabrook I         2.90%   194,928      29,983     164,945     251
 Millstone III      4.01%   178,854      49,560     129,294     170

     The foregoing amounts represent Montaup's interest in each facility,
including nuclear fuel where appropriate, and are included on the like-
captioned lines on the Consolidated Balance Sheet.  At  December 31, 1996,
Montaup's total net investment in nuclear fuel of the Seabrook and Millstone
units amounted to $2.8 million and $1.8 million, respectively.  Montaup's
shares of related operating and maintenance expenses with respect to units
reflected in the table above are included in the corresponding operating
expenses on the Consolidated Statement of Income.

(I)  Fair Value of Financial Instruments:

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate:

     Cash and Temporary Cash Investments:  The carrying amount approximates
fair value because of the short-term maturity of those instruments.

     Redeemable Preferred Stock and Long-Term Debt:  The fair value of the
Company's redeemable preferred stock and long-term debt were based on quoted
market prices for such securities.

     The estimated fair values of the Company's financial instruments at
December 31, 1996 are as follows (In Thousands):

                                       Carrying      Fair
                                        Amount       Value
 Cash and Temporary Cash Investments  $  2,105       $  2,105
 Redeemable Preferred Stock             30,000         30,300
 Long-Term Debt                       $223,000       $225,870

(J) Commitments and Contingencies:

Nuclear Fuel Disposal and Nuclear Decommissioning Costs: The owners (or lead
participants) of the nuclear units in which Montaup has an interest have made,
or expect to make, various arrangements for the acquisition of uranium
concentrate, the conversion, enrichment, fabrication and utilization of nuclear
fuel and the disposition of that fuel after use.  The owners (or lead
participants) of United States nuclear units have entered into contracts with
the Department of Energy (DOE) for disposal of spent nuclear fuel in accordance
with the Nuclear Waste Policy Act of 1982 (NWPA).  The NWPA requires (subject
to various contingencies) that the federal government design, license,
construct and operate a permanent repository for high level radioactive wastes
and spent nuclear fuel and establish a prescribed fee for the disposal of such
wastes and nuclear fuel.  The NWPA specifies that the DOE provide for the
disposal of such waste and spent nuclear fuel starting in 1998.  Objections on
environmental and other grounds have been asserted against proposals for
storage as well as disposal of spent nuclear fuel.  The DOE now estimates that
a permanent disposal site for spent fuel will not be ready to accept fuel for
storage or disposal until as late as the year 2010.  Montaup owns a 4.01%
interest in Millstone III and a 2.9% interest in Seabrook I.  Northeast
Utilities, the operator of the units, indicates that Millstone III has
sufficient on-site storage facilities which, with rack additions, can
accommodate its spent fuel for the projected life of the unit.   At the
Seabrook Project, there is on-site storage capacity which, with rack additions,
will be sufficient to at least the year 2011.

     The Energy Policy Act of 1992 requires that a fund be created for the
decommissioning and decontamination of the DOE uranium enrichment facilities.
The fund will be financed in part by special assessments on nuclear power
plants in which Montaup has an interest.  These assessments are calculated
based on the utilities' prior use of the government facilities and have been
levied by the DOE, starting in September 1993, and will continue over 15 years.
This cost is passed on to the joint owners or power buyers as an additional
fuel charge on a monthly basis and is currently being recovered by Montaup
through rates.

     Also, Montaup is recovering through rates its share of estimated
decommissioning costs for Millstone III and Seabrook I.  Montaup's share of
the current estimate of total costs to decommission Millstone III is $18.6
million in 1996 dollars, and Seabrook I is $13.1 million in 1996 dollars.
These figures are based on studies performed for the lead owner of the units.
Montaup also pays into decommissioning reserves pursuant to contractual
arrangements with other nuclear generating facilities in which it has an
equity ownership interest or life of the unit entitlement. Such expenses are
currently recoverable through rates.

Pensions:  Eastern Edison and Montaup participate with the other EUA System
companies in a non-contributory defined benefit pension plan covering
substantially all of their employees (Retirement Plan).  Retirement Plan
benefits are based on years of service and average compensation over the four
years prior to retirement.  It is the EUA System's policy to fund the
Retirement Plan on a current basis in amounts determined to meet the funding
standards established by the Employee Retirement Income Security Act of 1974.

     Total pension (income) expense for the Retirement Plan, including amounts
related to the 1995 Voluntary Retirement Incentive Offer, for 1996, 1995 and
1994 includes the following components ($ In Thousands):

                                              1996        1995        1994
Service cost - benefits earned during
  the period                              $    1,713    $  1,504     $ 1,783
Interest cost on projected benefit
  obligation                                   5,767       5,575       5,217
Actual (return)  loss on assets              (10,036)    (22,158)        927
Net amortization and deferrals                 2,407      14,855      (7,677)
Net periodic pension (income) expense     $     (149)   $   (224)    $   250
Voluntary retirement incentive                               857
  Total periodic pension (income) expense $     (149)   $    633     $   250


Assumptions used to determine pension cost:

                                          1996        1995       1994
Discount Rate                             7.25%      8.25%       7.25%
Compensation Increase Rate                4.25%      4.75%       4.75%
Long-Term Return on Assets                9.50%      9.50%       9.50%

     The discount rate used to determine pension obligations was changed
effective January 1, 1997 to 7.5%.  The funded status of the Retirement Plan
cannot be presented separately for Eastern Edison and Montaup as they
participate in the Retirement Plan with other subsidiaries of EUA.

     The one-time voluntary retirement incentive also resulted in approximately
$800,000 of non-qualified pension benefits which were expensed in 1995.  At
December 31, 1996, approximately $424,000 is included in other liabilities for
these unfunded benefits.

     EUA also maintains non-qualified supplemental retirement plans for certain
officers of the EUA System (Supplemental Plans).  Benefits provided under the
Supplemental Plans are based primarily on compensation at retirement date.  EUA
maintains life insurance on the participants of the Supplemental Plans to fund
in whole, or in part, its future liabilities under the Supplemental Plans.
For the years ended December 31, 1996, 1995 and 1994 Eastern Edison's and
Montaup's expenses related to the Supplemental Plan were approximately
$717,000, $825,000 and $266,000, respectively.

     The Company also provides a defined contribution 401(k) savings plan for
substantially all employees.  The Company's matching percentage of employees'
voluntary contributions to the plan, amounted to approximately $306,000 in
1996, approximately $369,000 in 1995 and approximately $ 431,000 in 1994.

     Post-Retirement Benefits:  Retired employees are entitled to participate
in health care and life insurance benefit plans.  Health care benefits are
subject to deductibles and other limitations.  Health care and life insurance
benefits are partially funded by EUA System companies for all qualified
employees.

     Eastern Edison and Montaup adopted FAS106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions," as of January 1, 1993.  This
standard establishes accounting and reporting standards for such post-
retirement benefits as health care and life insurance.  Under FAS106
the present value of future benefits is recorded as a periodic expense over
employee service periods through the date they become fully eligible for
benefits.  With respect to periods prior to adopting FAS106, EUA elected to
recognize accrued costs (the Transition Obligation) over a period of 20
years, as permitted by FAS106.  The resultant annual expense, including
amortization of the Transition Obligation and net of amounts capitalized and
deferred, was approximately $3.6 million in 1996, $4.0 million in 1995, and
$3.4 million in 1994.

     The total cost of Post-Retirement Benefits other than Pensions,
including amounts related to the 1995 Voluntary Retirement Incentive Offer,
for 1996, 1995 and 1994 includes the following components (In Thousands):

                                                 1996       1995        1994
  Service cost                                 $  637     $   565      $    880
  Interest cost                                 2,688       2,926         3,252
  Actual return on plan assets                   (115)       (388)         (75)
  Amortization of transition obligation         1,955       1,965         2,026
  Net other amortization & deferrals             (721)       (632)         (50)
  Net periodic post-retirement benefit costs    4,444       4,436        6,033
  Voluntary retirement incentive                              470

  Total post-retirement benefit costs          $4,444     $ 4,906      $  6,033

  Assumptions:
  Discount rate                                  7.25%       8.25%       7.25%
  Health care cost trend rate-near-term          9.00%      11.00%      13.00%
                    -long-term                   5.00%       5.00%       5.00%
  Compensation increase rate                     4.25%       4.75%       4.75%
  Rate of return on plan assets-union            8.50%       8.50%       8.50%
                       - non-union               7.50%       5.50%       5.50%

<TABLE>
  Reconciliation of funded status:
<CAPTION>

                                                    1996         1995        1994
<S>                                                <C>          <C>          <C>
(In Thousands)
Accumulated post-retirement benefit obligation (APBO):
Retirees                                            ($19,864)  $(23,223)   $(20,227)
Active employee fully eligible for benefits           (1,728)    (3,649)     (4,116)
Other active employees                                (6,031)    (7,711)     (9,255)
       Total                                         (27,623)   (34,583)    (33,598)
Fair Value of assets (primarily notes and bonds)       5,161      3,830        2,169

Unrecognized transition obligation                    26,095     27,726      30,007
Unrecognized net (gain) loss                          (9,297)    (2,142)     (3,158)
(Accrued) prepaid post-retirement benefit cost        $5,664   $ (5,169)   $ (4,580)
</TABLE>

     The discount rate and compensation increase rates used to determine post-
retirement benefit obligations effective January 1, 1997, are 7.5% and 4.25%,
and were used to calculate the funded status of Post-Retirement Benefits at
December 31, 1996.

     Increasing the assumed health care cost trend rate by 1% each year would
increase the total post-retirement benefit cost for 1996 by approximately
$311,000 and increase the total accumulated post-retirement benefit obligation
by approximately $3.0 million.

     Eastern Edison and Montaup have also established an irrevocable external
Voluntary Employees' Beneficiary Association (VEBA) Trust Fund as required by
the aforementioned regulatory decisions.  Contributions to the VEBA fund
commenced in March 1993 and contributions were made totaling approximately $2.9
million in 1996, $3.2 million in 1995, and $2.9 million during 1994,
respectively.

     Long-Term Purchased Power Contracts: Montaup is committed under long-term
purchased power contracts, expiring on various dates through September 2021, to
pay demand charges whether or not energy is received.  Under terms in effect at
December 31, 1996, the aggregate annual minimum commitments for such contracts
are approximately $122 million in 1997, $116 million in 1998, $114 million in
1999, $111 million in 2000, $111 million in 2001, and will aggregate $1.0
billion for the ensuing years.  In addition, the EUA System is required to pay
additional amounts depending on the actual amount of energy received under such
contracts.  The demand costs associated with these contracts are reflected as
Purchased Power-Demand on the Consolidated Statement of Income.  Such costs are
currently recoverable through rates.

     Environmental Matters: There is an extensive body of federal and state
statutes governing environmental matters, which permit, among other things,
federal and state authorities to initiate legal action providing for liability,
compensation, cleanup, and emergency response to the release or threatened
release of hazardous substances into the environment and for the cleanup of
inactive hazardous waste disposal sites which constitute substantial hazards.
Because of the nature of the Eastern Edison business, various by-products and
substances are produced or handled which are classified as hazardous under the
rules and regulations promulgated by the United States Environmental Protection
Agency (EPA) as well as state and local authorities.  The Company generally
provides for the disposal of such substances through licensed contractors, but
these statutory provisions generally impose potential joint and several
responsibility on the generators of the wastes for cleanup costs.  Eastern
Edison and Montaup have been notified with respect to a number of sites where
they may be responsible for such costs, including sites where they may have
joint and several liability with other responsible parties.  It is the policy
of Eastern Edison and Montaup to notify liability insurers and to initiate
claims.  However, it is not possible at this time to predict whether liability,
if any, will be assumed by, or can be enforced against, the insurance carrier
in these matters.

     As of December 31, 1996, Eastern Edison and Montaup have incurred costs of
approximately $800,000 in connection with the foregoing environmental matters
and estimate that additional expenditures may be incurred through 1997 up to
$130,000.

     As a general matter Eastern Edison and Montaup will seek to recover costs
relating to environmental proceedings in their rates.  Montaup is currently
recovering certain of the incurred costs in its rates.  Estimated amounts after
1998 are not now determinable since site studies which are the basis of these
estimates have not been completed.  As a result of the recoverability in
current rates, and the uncertainty regarding both its estimated liability, as
well as potential contributions from insurance carriers and other responsible
parties, Eastern Edison and Montaup do not believe that the ultimate impact of
the environmental costs will be material to their financial position and thus,
no loss provision is required at this time.

     The Clean Air Act Amendments of 1990 (Clean Air Act) created new
regulatory programs and generally updated and strengthened air pollution
control laws.  These amendments will expand the regulatory role of the EPA
regarding emissions from electric generating facilities and a host of
other sources.  Montaup generating facilities were first affected in 1995,
when EPA regulations took effect for facilities owned by Montaup.  Montaup's
coal-fired Somerset Unit No.  6 is utilizing lower sulfur content coal to meet
the 1995 air standards.  Eastern Edison does not anticipate the impact from the
Amendments to be material to its financial position.

     In November of 1996, the EPA proposed to toughen the nation's ozone
standards as well as the particulate matters standards.  The effect that such
rules will have on the EUA System cannot be determined by management at this
time.

     On December 23, 1996, Eastern Edison, Montaup, the Massachusetts Attorney
General and Division of Energy Resources reached a settlement in principle
regarding electric utility industry restructuring in the State of
Massachusetts.  The proposed settlement includes a plan for emissions
reductions related to Montaup's Somerset Station Units 5 and 6, and to
Montaup's 50% ownership share of Canal Electric's Unit #2.  The basis for
sulfur dioxide (SO2) and nitrogen oxide (NOx) emission reductions in the
proposed settlement is an allowance cap calculation.  Montaup may meet
its allowance caps by any combination of control technologies, fuel switching,
operational changes, and/or the use of purchased or surplus allowances.  The
proposed settlement is expected to be filed with MDPU in March 1997.

     In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight Northeast states including
Massachusett and Rhode Island issued recommendations for NOx controls for
existing utility boilers required to meet the ozone non-attainment requirements
of the Clean Air Act Amendments.  The NESCAUM recommendations are more
restrictive than Clean Air Act requirements.  The Massachusetts Department of
Environmental Management has amended its regulations to require that Reasonably
Available Control Technology (RACT) be implemented at all stationary sources
potentially emitting 50 tons per year or more of NOx.  Rhode Island has also
issued similar regulations requiring that RACT be implemented at all
stationary sources potentially emitting 50 tons or more per year of NOx.
Montaup has initiated compliance through, among other things, selective,
noncatalytic reduction processes.

     A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found wherever there is electricity.  While some of the studies have indicated
some association between exposure to EMF and health effects, many others have
indicated no direct association.  The research to date has not conclusively
established a direct causal relationship between EMF exposure and human health.
Additional studies, which are intended to provide a better understanding of
EMF, are continuing.  On October 31, 1996, the National Academy of Sciences
issued a literature review of all research to date, "Possible Health
Effects of Exposure to Residential Electric and Magnetic Fields."  Its most
widely reported conclusion stated,  "No clear, convincing evidence exists to
show that residential exposures to EMF are a threat to human health."

     Some states have enacted regulations to limit the strength of magnetic
fields at the edge of transmission line rights-of-way.  Rhode Island has
enacted a statute which authorizes and directs the Energy Facility Siting Board
to establish rules and regulations governing construction of high voltage
transmission lines of 69 kv or more.  Management cannot predict the ultimate
outcome of the EMF issue.

     Guarantee of Financial Obligations:  Montaup is a 3.27% equity participant
in two companies which own and operate transmission facilities interconnecting
New England and the Hydro Quebec system in Canada.  Montaup has guaranteed
approximately $4.8 million of the outstanding debt of these two companies.  In
addition, Montaup has a minimum rental commitment which totals approximately
$12.7 million under a noncancellable transmission facilities support agreement
for years subsequent to 1996.

     Other:  In early 1997, ten plaintiffs brought suit against numerous
defendants, including EUA, for injuries and illness allegedly caused by
exposure to asbestos over approximately a thirty-year period, at premises,
including some owned by EUA companies.  The total damages claimed in all of
these complaints is $25 million in compensatory and punitive damages, plus
exemplary damages and interest and costs.  Each names between fifteen and
twenty-eight defendants, including EUA.  These  complaints have been referred
to the applicable insurance companies, and EUA is consulting with those
insurers to determine the availability and extent of coverage.  EUA cannot
predict the ultimate outcome of this matter at this time.

Report of Independent Accountants


To the Directors and Shareholder of
Eastern Edison Company and Subsidiary:

We have audited the accompanying consolidated balance sheet and consolidated
statement of capitalization of Eastern Edison Company and its subsidiary (the
Company) as of December 31, 1996 and 1995, and the related consolidated
statement of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1996.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.





                                     /s/Coopers & Lybrand L.L.P.


Boston, Massachusetts
March 5, 1997