Company Profile


     Blackstone Valley Electric Company (Blackstone or the Company) is a retail
electric utility company.  Blackstone supplies retail electric service to
approximately 86,000 customers in the cities of Central Falls, Pawtucket and
Woonsocket, and four surrounding towns in northern Rhode Island.  Blackstone is
a wholly owned subsidiary of Eastern Utilities Associates (EUA).  EUA owns
directly all of the shares of common stock of Blackstone, Eastern Edison
Company (Eastern Edison) and Newport Electric Corporation (Newport).  These EUA
subsidiaries are collectively referred to as the Retail Subsidiaries.  Eastern
Edison and Newport are retail electric utility companies operating in
southeastern Massachusetts 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
Blackstone, to Eastern Edison, to Newport and to two unaffiliated utilities for
resale.  EUA also owns directly all of the shares of common stock of EUA
Service Corporation (EUA Service), EUA Cogenex Corporation (EUA Cogenex), EUA
Energy Investment Corporation (EUA Energy), EUA Ocean State Corporation (EUA
Ocean State), EUA Energy Services, Inc. (EUA Energy Services) and EUA
Telecommunications Corporation (EUA Telecommunications).  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 Island.  EUA Energy Services markets
energy and energy related services.  EUA Telecommunications provides
telecommunications and information services.  The holding company system of
EUA, the Retail Subsidiaries, Montaup, EUA Service, EUA Cogenex, EUA Energy,
EUA Ocean State, EUA Energy Services, and EUA Telecommunications is referred to
as the EUA System.  The Core Electric Business consists of the Retail
Subsidiaries and Montaup. (See Electric Utility Industry Restructuring for a
discussion of changes taking place in the utility industry in the territories
serviced by EUA's Core Electric Business.)

Form 10-K

     A copy of EUA's, Eastern Edison's and Blackstone's Co-Registrant 1998
Annual Report on Form 10-K, which is filed with the Securities and Exchange
Commission, is available 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 BLACKSTONE'S COMMON EQUITY AND RELATED
                       STOCKHOLDER MATTERS

     All of Blackstone's common stock is owned beneficially and of record by
     EUA.

     The dividends paid on common stock during the past two years are as
     follows:

                          Dividends Paid                       Dividends Paid
    1998                    Per Share           1997              Per Share

    First Quarter               $1.90      First Quarter            $4.75
    Second Quarter               1.90      Second Quarter            4.75
    Third Quarter                1.90      Third Quarter             4.75
    Fourth Quarter                -0-      Fourth Quarter            4.75


     No dividend may be paid on the common stock unless full dividends on the
outstanding preferred stock for all past and the current quarterly dividend
periods have been paid or declared and set apart for payment.  Blackstone's
First Mortgage Indenture and Deed of Trust securing its First Mortgage Bonds
contains provisions which restrict the payment by Blackstone of cash dividends
on its common stock.  See Notes C and D of Notes to Financial Statements and
Management's Discussion and Analysis of Financial Condition and Review of
Operations under Financial Condition and Liquidity.
<TABLE>
<CAPTION>

                         SELECTED FINANCIAL DATA
<S>                                 <C>        <C>        <C>        <C>       <C>

                             For the Years Ended December 31,
(In Thousands)                     1998       1997       1996       1995      1994
 ____________________________________________________________________________________
Operating Revenues              $130,202   $140,258   $136,911   $140,861   $140,611
Net Earnings                       4,616      5,357      3,776      4,009      3,438
Total Assets                     134,145    130,833    132,313    129,835    121,413
Capitalization:
  Long-Term Debt-Net              32,000     33,500     35,000     36,500     38,000
  Non-Redeemable Preferred
   Stock (including premium)       6,130      6,130      6,130      6,130      6,130
  Common Equity                   41,658     38,092     36,232     37,045     37,180

    Total Capitalization        $ 79,788   $ 77,722   $ 77,362   $ 79,675   $ 81,310
</TABLE>




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

Overview

     Net Earnings for 1998 decreased approximately $700,000 to $4.6 million as
compared to 1997.  Kilowatthour sales (kWh) of electricity were relatively
unchanged in 1998 as compared to 1997.  KWh sales increases in the second and
third quarters of 1998 of 3.6% and 3.2%, respectively, were offset by sales
decreases in the first and fourth quarters of 1998 of 1.7% and 4.5%,
respectively, largely due to milder weather as compared to 1997.

     Net Earnings for 1997 increased approximately $1.6 million to $5.4 million
compared to 1996.  Net Earnings for 1997 include a one-time charge of
approximately $260,000, on an after-tax basis, related to the costs of a
voluntary retirement incentive offer (VRI) recorded in 1997, discussed below.
Kilowatthour (kWh) sales of electricity for 1997 increased by 2.6% as compared
to 1996, led by increased sales to residential and commercial customers of 4.8%
and 2.6%, respectively.

Proposed Merger Agreement

     On February 1, 1999, EUA and New England Electric System (NEES) announced
a merger agreement under which NEES will acquire all outstanding shares of EUA
for $31 per share in cash.  The merger agreement, which is subject to the
approval of EUA shareholders and various regulatory agencies, values the equity
of EUA at approximately $634 million, which represents a 23% premium above the
price of EUA shares on December 4, 1998, the last trading day before other
regional merger announcements affected EUA's share price.  The merger is
expected to occur by early 2000.

Comparison of Financial Results

Operating Revenues

     Operating Revenues decreased by approximately $10.1 million or 7.2% in
1998 as compared to 1997.   This change was due primarily to recoveries of
decreased purchased power expenses (see below) resulting from rate reductions
pursuant to electric industry restructuring legislation and approved
settlements agreements.  Offsetting this decrease somewhat was a 1.3% base rate
increase pursuant to the Rhode Island Utility Restructuring Act of 1996 (URA)
effective January 1, 1998.

     Operating Revenues increased by approximately $3.3 million or 2.4% in 1997
as compared to 1996.  This change was primarily due to recoveries of increased
conservation and load management (C&LM) expenses of approximately $800,000
(discussed below), and an approximate 1.9% base rate increase effective January
1, 1997 pursuant to the URA offset by recoveries of lower purchased power
expense (see discussions below).

1997 Voluntary Retirement Incentive

     In June 1997, an early retirement offer was accepted by a group of
employees who were eligible for, but not offered, a VRI offer completed in
1995.  The pre-tax cost of the 1997 offer, recorded in that year's second
quarter was approximately $400,000 (approximately $260,000 after-tax).

Expenses

     Purchased Power expense, recovered through Blackstone's purchased power
adjustment clause, represented 66% of total 1998 operating expense. Purchased
Power expense decreased approximately $9.8 million or 10.8% in 1998 as compared
to 1997.   The Company's purchased power expense now reflects the contract
termination charge and standard offer billings from Montaup effective January
1,
1998, pursuant to electric industry restructuring legislation and settlement
agreements.  Purchased Power expense decreased approximately $700,000 or less
than 1% in 1997 as compared to 1996.

     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
including expenses related to accounting standards such as Statement of
Financial Accounting Standard No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions" (FAS106).

     Other Operation and Maintenance (O&M) expenses, including affiliated
company transactions, increased approximately $1.2 million or 5.2% in 1998 as
compared to 1997.  This increase was primarily due to increased C&LM expenses
of approximately $400,000 consistent with provisions of electric utility
industry restructuring legislation in Rhode Island, and increased customer
accounts expense of approximately $500,000.  Other O&M expenses for 1997,
including affiliated company transactions, increased approximately $800,000
or 3.4% as compared to 1996.  This change was primarily due to increased C&LM
expenses in 1997.

     Taxes Other than Income decreased approximately $700,000 or 8.9% in 1998
as compared to 1997 due to lower Rhode Island Gross Receipts taxes as a result
of decreased revenues in 1998 and the absence of Rhode Island Gross Receipts
Tax rate billed to industrial customers of Blackstone since July of 1997.
Taxes Other than Income decreased by approximately $200,000 or 2.0% in 1997 as
compared to 1996.  This decrease was due primarily to the 1% decrease in the
Rhode Island Gross Receipts Tax rate billed to industrial customers in 1997.

     Blackstone's effective income tax rate for 1998 was approximately 39.7%
compared to 38.1% in 1997.  Provisions of restructuring settlement agreements
which require acceleration of the catch-up of deferred tax deficiencies created
under prior regulatory practices were responsible for this change.

     Other (Deductions) Income - Net decreased approximately $300,000 in 1998
as compared to 1997.  The decrease is primarily due to the absence of interest
income allocated to Blackstone by the EUA Service Corporation in 1997 related
to the favorable resolution of a Massachusetts corporate income tax dispute.
Other Income and (Deductions) - Net increased approximately $200,000 in 1997
compared to 1996, primarily due to increased interest income allocated to
Blackstone by EUA Service Corporation in the first quarter of 1997 (discussed
above).

     Net Interest charges decreased approximately $300,000 or 7.7% in 1998 as
compared to 1997, primarily due to lower interest on long-term debt due to
reductions in long-term debt balances resulting from normal required sinking
fund payments and decreased intercompany interest expense.   Net Interest
charges for 1997 increased by approximately $300,000 or 8.5% as compared to
1996.  This increase was primarily due to increased short-term borrowings and
increased intercompany interest expense offset by lower interest on long-term
debt due to reductions in long-term debt balances resulting from required
sinking fund payments.

Financial Condition and Liquidity

     The Company is required to make capital expenditures in order to meet the
needs of its existing and future customers.  For 1998, 1997 and 1996, the
Company's cash construction expenditures were approximately $6.0 million, $3.8
million, and $4.2 million, respectively.  Internally generated funds provided
approximately 210%, 164%, and 104% of cash construction requirements in 1998,
1997 and 1996, respectively.

     Cash Construction expenditures are expected to be $8.7 million in 1999,
$8.9 million in 2000, and $9.2 million in 2001, and are expected to be financed
with internally generated funds.  Traditionally, construction requirements in
excess of internally generated funds are obtained through short-term borrowings
which are ultimately funded with permanent capital.

     In July 1997, several EUA System companies, including Blackstone, entered
into a three-year revolving credit agreement allowing for borrowings in
aggregate of up to $145 million from all sources of short-term credit.  As of
December 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility.  In addition to the $75 million
available under the revolving credit facility, EUA System companies maintain
short-term lines of credit with various banks totaling $90 million for an
aggregate amount available of $165 million.  At December 31, 1998, under the
revolving credit agreement, the EUA System had unused short-term lines of
credit of approximately $101.4 million. Blackstone had zero short-term
borrowings outstanding at December 31, 1998 and $1.4 million  at December 31,
1997.

     Blackstone's requirements for sinking fund payments and redemption of
securities for the five years following 1998 are $1.5 million in each of 1999
and 2000, and $3.3 million in each of 2001, 2002 and 2003, none of which
relate to the variable rate bonds.  Blackstone is exposed to interest rate
risk primarily related to its variable rate bonds.  Refer to the Statements of
Capitalization for a listing of Blackstone's long-term fixed and variable rate
debt.

Electric Utility Industry Restructuring

     Rhode Island legislation along with approved electric utility industry
restructuring settlement agreements at both the state and federal levels,
granted Blackstone's customers with choice of electricity supplier and rate
reductions commencing January 1, 1998.  Until a customer chooses an alternative
supplier, that customer will receive standard offer service.  Blackstone is
required to arrange for standard offer service through December 31, 2009.
Under the approved settlement agreements, Montaup had guaranteed standard offer
supply at a fixed price schedule for the duration of the standard offer period
and Blackstone agreed to subject its standard offer requirements to a
competitive bidding process in which competitive suppliers would bid against
the guaranteed price.  Through its successful divestiture process, combined
with a competitive bidding process conducted in late 1998, Montaup has assigned
100% of its standard offer obligation to purchasers of its generating assets.
The guaranteed standard offer price will increase over time to encourage
customers to leave standard offer service and enter the competitive power
supply market.

     Provisions of the approved settlement agreements also allowed Montaup to
replace its all-requirements wholesale contract with Blackstone with a contract
termination charge (CTC) which permits Montaup to recover, among other things,
its above market investments and commitments in generation assets.  Montaup
began billing the CTC to Blackstone coincident with retail access and
Blackstone is recovering the CTC through a non-bypassable transition charge to
all of its distribution customers.

     As part of the approved settlement agreements, Montaup agreed to divest
its entire generation portfolio.  The net proceeds of the sale, as defined in
the settlement agreements, will be used to mitigate Montaup's CTC to its retail
affiliates, including Blackstone, via a Residual Value Credit (RVC).  The
RVC will reduce the fixed component of the CTC by an amount equal to the net
proceeds, with a return, over the period commencing on the date the RVC is
implemented through December 31, 2009.  On February 12, 1999, Montaup filed to
implement the RVC effective April 1, 1999 and is awaiting approval.  See
"Generation Divestiture" below.

Generation Divestiture

     Montaup now has agreements  to sell all of its non-nuclear power
generation assets and its 2.9% ownership share of the Seabrook Nuclear Station
and has agreements to transfer all of its remaining purchased power contracts
with the exception of its purchase power commitment with the Vermont Yankee
Nuclear Station.

     On January 5, 1999, EUA announced that Montaup had agreed to transfer its
remaining non-nuclear power purchase contracts, amounting to approximately 177
mw, to Constellation Power Source, Inc.  Montaup previously entered into
agreements to sell: its 160-mw Somerset, Massachusetts electric generating
station for approximately $55 million to NRG Energy, Inc.; its 2.6% (16 mw)
share of the W. F. Wyman Unit 4 in Yarmouth, Maine to the Florida based FPL
Group for approximately $2.4 million; and its 2.9% share (34 mw) of the
Seabrook Station nuclear power plant to the Great Bay Power Corporation, a
subsidiary of BayCorp Holdings, Ltd. for $3.2 million.  Montaup has also
signed agreements for the transfer of power purchase contracts for
approximately 170 mw between Montaup and Ocean State Power and for the buyout
of its 11% (73 mw) power entitlement from the Pilgrim Nuclear Power Station in
Plymouth, Massachusetts.  All of the sale and contract transfer agreements are
subject to federal and state regulatory approvals, including that of the
Nuclear Regulatory Commission with respect to the Seabrook sale.  Closing of
the non-nuclear sale agreements are anticipated to take place in the first
quarter of 1999.  The Seabrook sale and Pilgrim buyout are expected to take
place later in 1999.

     The sale of Montaup's 50% share (280 mw) of Unit 2 of the Canal Generating
Station in Sandwich, Massachusetts to Southern Energy for $75 million, which
was announced in May 1998, was completed on December 30, 1998, and the sale of
two diesel-powered generating units (totaling approximately 16 mw) owned by
Newport to Illinois-based Wabash Power Equipment Co. for $1.5 million closed on
October 1, 1998.

     Montaup's remaining generating capacity includes approximately 46 mw from
its 4.0% joint ownership share of Millstone 3 nuclear unit and 12 mw from its
2.25% equity ownership of the Vermont Yankee nuclear facility.

Environmental Matters

     Blackstone and other electric utilities owning generating units from which
power is obtained are subject to environmental and land use regulations at the
federal, state and local levels.  The federal 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, EUA instituted an
environmental audit program designed for Montaup and the Retail Subsidiaries,
including Blackstone, to ensure compliance with environmental laws and
regulations and to identify and reduce liability with respect to those
requirements.

     Because of the nature of Blackstone'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. Blackstone generally
provides for the disposal of such substances through licensed contractors, but
these statutory provisions may impose joint and several responsibility on the
generators of the wastes for cleanup costs.  Blackstone has been notified with
respect to a number of sites where it may be responsible for such costs,
including sites where it 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, Blackstone is 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, 1998, Blackstone had incurred costs of approximately
$7.7 million in connection with these sites.  These amounts have been financed
primarily by internally generated cash.  Blackstone is currently recovering
certain of its incurred environmental costs in rates.  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, Blackstone does not believe that the ultimate impact of
environmental costs will be material to its financial position and thus, no
loss provision is required at this time.

     Blackstone estimates that additional costs of up to $1.8 million may be
incurred at these sites through 1999.  Estimates beyond 1999 cannot be made
since site studies, which are the basis of these estimates, have not been
completed.

     In addition to the previously discussed costs, Blackstone is currently
litigating responsibility for clean-up costs and related interest aggregating
$5.9 million.  The cleanup costs were incurred by the Commonwealth of
Massachusetts at a site in which Blackstone has been named as the responsible
party.  (See Note H of "Notes to Financial Statements" for further discussion.)

     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.  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 the
subject, are continuing.  Management cannot predict the ultimate outcome of the
EMF issue.


Year 2000 Issue

     EUA is addressing the Year 2000 issue on an EUA System basis, which
includes Blackstone.  EUA's Year 2000 Program (the Program) is proceeding on
schedule. The Program is addressing the potential impact on computer systems
and embedded systems and components resulting from a common software program
code convention that utilizes two digits instead of four to represent a year.
If  not addressed, the year 2000 may be systemically recognized as the year
1900, which could cause system or equipment failures or malfunctions, and
ultimately result in disruptions to Company operations.

EUA's State of Readiness:

     To address potential Year 2000 issues, EUA has divided the focus of its
Year 2000 Program into three major categories of business activity: the
generation and delivery of electricity to customers, the acquisition of goods
and services (including purchased power), and, ongoing general and
administrative activities relating to the corporate infrastructure and support
functions, which includes among other things, billings and collections.

     EUA has adopted a four phase approach in addressing information technology
(IT) issues. As of January 31, 1999, each phase was at the following percentage
of completion: analysis - 100%; remediation - 79%; unit testing - 78%; and
integrated testing - 11%.  EUA is on schedule to achieve Year 2000 readiness
for 100% of mission critical projects by June 30, 1999.  For non-IT projects,
approximately 90% are either Year 2000 ready or not affected by the Year 2000.
The remaining items are in the process of being remediated and tested and are
scheduled to be Year 2000 ready by June 30, 1999.

     EUA has an ongoing process to identify and assess the Year 2000 readiness
of third parties with which it has a material relationship.   Where necessary,
contingency plans will be developed.  This process is on schedule to be
completed by June 30, 1999.

Costs to Address EUA's Year 2000 Issues:

     Through December 31, 1998, EUA has incurred costs of approximately $3.0
million to address Year 2000 issues, including approximately $1.5 million of
non-incremental labor, $1.2 million of capital expenditures and $300,000 of
consulting and other costs. EUA estimates it will incur additional costs
approximating $7.0 million during the period January 1, 1999 through March 31,
2000, to complete its resolution of Year 2000 issues including approximately
$5.5 million of non-incremental labor, $500,000 of capital expenditures and
$1.0 million of consulting and other costs. Because 70% of the total estimated
costs associated with the Year 2000 issue relate to non-incremental internal
labor, management continues to believe that the Year 2000 will not present a
material incremental impact to future operating results or financial condition.

Risks of EUA's Year 2000 Issues:

     EUA's first priority continues to be the minimization of any potential
disruptions to electric service as a result of the Year 2000.  The provision of
electric service depends in large part on the viability of the New England
power grid which is managed by ISO/NEPOOL.  EUA is actively participating on
ISO/NEPOOL's Year 2000 operating and oversight committees.  EUA's assessment
of its own transmission and distribution equipment and facilities indicated
that the risk of failure of this equipment does not appear to be significant.
However, due to the interconnectivity of the New England power grid, and the
reliance on many other entities also connected to the grid, it is not possible
to conclude with certainty that there will be no significant interruptions in
service.

     In addition, dependable voice and data telecommunications are critical to
EUA's ongoing operations.  EUA's internal telecommunication systems are either
Year 2000 ready now, or on schedule to become Year 2000 ready by June 30, 1999.
EUA also relies heavily on external telecommunication systems, i.e., the local
and regional telephone systems, and has identified these providers as critical
vendors. EUA has made direct contact with representatives of the telephone
companies on which EUA depends, each of which anticipates being Year 2000 ready
and devoid of major system failures.

     No other significant reasonably likely failure scenarios stemming solely
from Year 2000 related problems have been identified thus far.  Accordingly,
EUA does not currently believe that any Year 2000 related risks in and of
themselves constitute reasonably likely worst case scenarios.  Rather, EUA's
most reasonably likely Year 2000 related worst case scenario would be the
occurrence of isolated Year 2000 failures such as described above in
conjunction with a severe winter storm.  However, EUA believes that such Year
2000 failures would not likely affect whether the storm event would have a
material impact on EUA's business or financial condition.

Year 2000 Contingency Plans:

     Contingency planning teams consisting of managers and employees
experienced in system reliability, disaster recovery and risk have been
established and are responsible for developing contingency plans. The overall
strategy will be to identify Year 2000 risks, both internal and external
to EUA, that could have a material impact on EUA's operations or financial well
being.  Preliminary plans are expected by the end of the first quarter of 1999.
Final plans are scheduled to be in place and ready to implement, if necessary,
by June 30, 1999.

Summary:

     The amount of effort and resources necessary to address Year 2000 issues
and make EUA Year 2000 ready is significant. There are dedicated teams in place
to ensure EUA's transition into the next century occurs with minimal
disruption. EUA's Year 2000 program is on schedule and in accordance with
timetables and progress points published by the North American Electric
Reliability Council. In addition, EUA is utilizing outside technical
consultants and other experts to help ensure EUA's Year 2000 program remains on
schedule and effective.  Management believes EUA's Year 2000 project is well
managed and has the appropriate resources and plans in place to ensure the
Company is positioned for a successful transition to the Year 2000.

     The foregoing constitutes a Year 2000 Statement and Readiness Disclosure
subject to the protections afforded by the federal Year 2000 Information and
Readiness Disclosure Act of 1998.

New Accounting Standards

     In March 1998, The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (SOP 98-1), effective in 1999.  SOP 98-1 provides
specific guidance on whether to capitalize or expense costs within its scope.
The Company does not expect SOP 98-1 to have a material impact on its financial
position or result of operations.

     In June 1998, the Financial Accounting Standards Board issued FAS133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective in 2000.  This statement requires the recognition of all derivative
instruments as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value.  The Company
is currently evaluating the impact FAS133 will have on its financial position
or results of operations.

Other

     Blackstone 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. This report contains information about the Company's future
business prospects including, without limitation, statements about the
potential impact of  Year 2000 issues on the Company's financial condition or
results.  These statements are considered "forward-looking" within the meaning
of the Private Securities Litigation Reform Act.  These statements are based on
the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the forward-
looking statements.  The Company expressly undertakes no duty to update any
forward-looking statement.


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
"Financial Statements" and "Notes to Financial Statements" in arriving at a
more complete understanding of such matters.

                     Financial Table of Contents




  Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . .   12

  Statements of Retained Earnings. . . . . . . . . . . . . . . . . . . . .  12

  Statements of Cash Flows  . . . . . . . . . . . . . . . . . . . . . . . . 13

  Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

  Statements of Capitalization . . . . . . . . . . . . . . . . . . . . . .  15

  Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . 17

  Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . 31



                                    [This page left blank intentionally]


<TABLE>

Blackstone Valley Electric Company
Statements of Income
Years Ended December 31,
(In Thousands)
<CAPTION>



                                                    1998         1997         1996
<S>                                             <C>          <C>          <C>

Operating Revenues                              $ 130,202    $ 140,258    $ 136,911

Operating Expenses:
    Purchased Power (princ. from an affiliate)     80,552       90,327       91,016
    Other Operation and Maintenance                12,069       11,682       11,781
    Affiliated Company Transactions                11,730       10,943       10,092
    Voluntary Retirement Incentive                      0          363            0
    Depreciation                                    6,252        5,725        5,594
    Taxes - Other than Income                       7,594        8,340        8,506
    Income and Deferred Taxes                       3,245        3,326        2,156
      Total Operating Expenses                    121,442      130,706      129,145
Operating Income                                    8,760        9,552        7,766
Allowance for Other Funds Used During
    Construction                                                                 50
Other (Deductions) Income - Net                       (71)         195           30
Income Before Interest Charges                      8,689        9,747        7,846
Interest Charges:
  Interest on Long-Term Debt                        3,030        3,186        3,313
  Other Interest Expense                              869          996          524
  Allowance for Borrowed Funds Used
    During Construction (Credit)                     (115)         (81)         (56)
    Net Interest Charges                            3,784        4,101        3,781
Net Income                                          4,905        5,646        4,065
Preferred Dividend Requirements                       289          289          289
Net Earnings Applicable to Common Stock         $   4,616    $   5,357    $   3,776


Statements of Retained Earnings
Years Ended December 31,
(In Thousands)

                                                    1998         1997         1996

Retained Earnings - Beginning of Year           $  10,981    $   9,121    $   9,934
Net Income                                          4,905        5,646        4,065
      Total                                        15,886       14,767       13,999
Dividends Paid:
  Preferred                                           289          289          289
  Common                                            1,050        3,497        4,589
Retained Earnings - End of Year                 $  14,547    $  10,981    $   9,121


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

</TABLE>
<TABLE>
Blackstone Valley Electric Company
Statements of Cash Flows
Years Ended December 31,
(In Thousands)
<CAPTION>

                                                    1998         1997         1996
<S>                                             <C>          <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income                                      $   4,905    $   5,646    $   4,065
Adjustments to Reconcile Net Income
  to Net Cash Provided from Operating Activities:
    Depreciation and Amortization                   6,905        6,184        5,976
    Deferred Taxes                                  2,258       (1,667)        (561)
    Investment Tax Credit, Net                       (178)        (181)        (182)
    Allowance for Funds Used During Construction                                (50)
    Other - Net                                    (1,752)      (1,768)        (555)

    Net Changes in Operating Assets and Liabilities:
        Accounts Receivable                        (2,545)         238        2,389
        Materials and Supplies                        (98)         113           66
        Accounts Payable                            5,034       (7,977)        (383)
        Accrued Taxes                                (572)         650         (362)
        Other - Net                                (3,959)       6,762          740

Net Cash Provided from Operating Activities         9,998        8,000       11,143

CASH FLOW FROM INVESTING ACTIVITIES:
        Construction Expenditures                  (5,989)      (3,769)      (4,196)
Net Cash (Used in) Investing Activities            (5,989)      (3,769)      (4,196)

CASH FLOW FROM FINANCING ACTIVITIES:
   Redemptions of Long-Term Debt                   (1,500)      (1,500)      (1,500)
   Common Share Dividends Paid                     (1,050)      (3,497)      (4,589)
   Preferred Dividends Paid                          (289)        (289)        (289)
   Net (Decrease) Increase in Short-Term Debt      (1,400)         665         (524)
Net Cash (Used in) Financing Activities            (4,239)      (4,621)      (6,902)

Net (Decrease) Increase in Cash                      (230)        (390)          45
Cash and Temporary Cash Investments at
    Beginning of Year                                 408          798          753
Cash and Temporary Cash Investments at
    End of Year                                 $     178    $     408    $     798

Cash paid during the year for:
    Interest (Net of Amounts Capitalized)       $   3,243    $   3,436    $   3,390
    Income Taxes                                $   1,957    $   4,906    $   3,301

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

</TABLE>
<TABLE>
Blackstone Valley Electric Company
Balance Sheets
December 31,
(In Thousands)
<CAPTION>


ASSETS

                                                                 1998         1997
<S>                                                         <C>           <C>

Utility Plant and Other Investments:
    Utility Plant                                            $ 146,185    $ 141,609
    Less Accumulated Provision for Depreciation                 60,534       55,851
    Net Utility Plant                                           85,651       85,758
    Non-Utility Property - Net                                     196           45
          Total Utility Plant and Other Investments             85,847       85,803
Current Assets:
    Cash and Temporary Cash Investments                            178          408
    Accounts Receivable:
        Customers, Net                                          10,228       11,394
        Accrued Unbilled Revenue                                 2,606        1,584
        Others                                                   4,664        1,631
        Associated Companies                                       169          513
    Plant Materials and Operating Supplies (at average cost)       857          759
    Other Current Assets                                           429          395
          Total Current Assets                                  19,131       16,684
Other Assets (Note A)                                           29,167       28,346
Total Assets                                                 $ 134,145    $ 130,833



LIABILITIES AND CAPITALIZATION

Capitalization:
    Common Equity                                            $  41,658    $  38,092
    Non-Redeemable Preferred Stock                               6,130        6,130
    Long-Term Debt                                              32,000       33,500
        Total Capitalization                                    79,788       77,722
Current Liabilities:
    Long-Term Debt  Due Within One Year                          1,500        1,500
    Notes Payable                                                    0        1,400
    Accounts Payable:
       Public                                                      684          960
       Associated Companies                                     13,642        8,332
    Customer Deposits                                              926        1,049
    Taxes Accrued                                                1,493        2,065
    Dividends Accrued                                               72           72
    Interest Accrued                                               779          842
    Other Current Liabilities                                    4,278        8,017
        Total Current Liabilities                               23,374       24,237
Deferred Credits:
    Unamortized Investment Credit                                2,202        2,380
    Mendon Road Contingency Reserve (Note H)                     7,409        7,065
    Other Deferred Credits                                       8,087        7,532
        Total Deferred Credits                                  17,698       16,977
Accumulated Deferred Taxes                                      13,285       11,897
Commitments and Contingencies (Note H)
Total Liabilities and Capitalization                         $ 134,145    $ 130,833


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


</TABLE>
<TABLE>
Blackstone Valley Electric Company
Statements of Capitalization
December 31,
(In Thousands)


<CAPTION>


                                                                 1998         1997
<S>                                                          <C>          <C>

Common Stock, $50 par value, authorized 233,000
    shares, issued and outstanding 184,062 shares            $   9,203    $   9,203
Other Paid-in Capital                                           17,908       17,908
Retained Earnings                                               14,547       10,981
        Total Common Equity                                     41,658       38,092

Non-Redeemable Cumulative Preferred Stock:
    4.25%, $100 par value, 35,000 shares <F1>                    3,500        3,500
    5.60%, $100 par value, 25,000 shares <F2>                    2,500        2,500
    Premium                                                        130          130
        Total Non-Redeemable Cumulative Preferred Stock          6,130        6,130

Long-Term Debt:
    First Mortgage Bonds:
        9 1/2% due 2004 (Series B)                               9,000       10,500
       10.35%  due 2010 (Series C)                              18,000       18,000
    Variable Rate Demand Bonds Due 2014 <F2>                     6,500        6,500
                                                                33,500       35,000
    Less Portion Due Within One Year                             1,500        1,500
        Total Long-Term Debt                                    32,000       33,500
  Total Capitalization                                       $  79,788    $  77,722


<FN>
<F1>  Authorized, Issued and Outstanding.
<F2>  Weighted average interest rate was 3.6% for 1998 and 3.7% for 1997.
</FN>
The accompanying notes are an integral part of the financial statements.

</TABLE>



                  BLACKSTONE VALLEY ELECTRIC COMPANY
                    NOTES TO FINANCIAL STATEMENTS
                  December 31, 1998, 1997 and 1996


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

General:  Blackstone Valley Electric Company (Blackstone or the Company) is
principally engaged in the 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 Blackstone are subject to
regulation by the Federal Energy Regulatory Commission (FERC) and the Rhode
Island Public Utilities Commission (RIPUC) with respect to its rates and
accounting.  Blackstone conforms with generally accepted accounting principles,
as applied in the case of regulated public utilities, and conforms with the
accounting requirements and ratemaking practices of the RIPUC.  A description
of the significant accounting policies follows.

Transactions with Affiliates:  The Company is a wholly-owned subsidiary of EUA.
In addition to its investment in the Company, EUA has interests in other retail
and wholesale utility companies, a service corporation, and five other non-
utility companies.

     Transactions between Blackstone and other affiliated companies include the
following: purchased power costs billed by Montaup of approximately $80,505,000
in 1998, $90,276,000 in 1997, and $90,970,000 in 1996; accounting, engineering
and other services rendered by EUA Service of approximately $13,254,000 in
1998, $12,608,000 in 1997, and $11,923,000 in 1996; and operating revenue from
the rental of transmission facilities to Montaup of approximately $2,369,000 in
1998, $3,124,000 in 1997, and $2,501,000 in 1996.  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 were equivalent to a composite rate of approximately 4.2% in 1998
3.9%, in 1997 and 1996, based on the average depreciable property balances at
the beginning and end of each year.

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

Allowance for Funds Used During Construction (AFUDC):   AFUDC represents the
estimated cost of borrowed and equity funds used to finance the Company'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 rate used
in calculating AFUDC was 7.1% in 1998 and 1997, and 9.4% in 1996.

Operating Revenues:  Revenues are based on billing rates authorized by the
RIPUC.  The Company follows the policy of accruing the estimated amount of
unbilled base rate revenues for electricity provided at the end of each month
to match costs and revenues more closely.  In 1998, the Company began recording
revenues in an amount management believes to be recoverable pursuant to
provisions of approved settlement agreements and state legislation.  Through
1997, the Company accrued the difference between fuel and purchased power costs
incurred and fuel and purchased power costs billed to its customers.

Income Taxes:  The general policy of Blackstone 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 regulatory commissions.

     Blackstone has provided deferred income taxes on certain income and
expense items that are accounted for in different periods for financial
accounting purposes than for income tax purposes.  Prior to 1987, AFUDC and
certain costs for pensions, employee benefits and payroll-related  insurances
and payroll taxes applicable to construction activity, which were included in
utility plant, were deducted for income tax purposes.  Deferred taxes on these
amounts and on certain differences created by the use of different depreciation
methods in the years prior to 1981 have not been provided.  The tax benefits on
these items have been flowed through in accordance with approved rate orders of
the RIPUC.

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

Cash and Temporary Cash Investments:  Blackstone considers all highly liquid
investments and temporary cash investments with a maturity of three months or
less when acquired to be cash equivalents.

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

Other Assets:  The components of Other Assets at December 31, 1998 and 1997 are
detailed as follows:

(In Thousands)                                     1998                 1997
Regulatory Assets:
     Unamortized losses on reacquired debt         $364             $    394
     Deferred SFAS 109 costs (Note B)             6,595                7,211
     Deferred SFAS 106 costs (Note H)               581                  727
     Mendon Road Judgment (Note H)                6,154                6,154
     Other regulatory assets                      1,575                1,551
         Total regulatory assets                 15,269               16,037
Other deferred charges and assets:
     Unamortized debt expenses                      536                  587
     Mendon Road Escrow (Note H)                  7,408                7,065
     Other                                        5,954                4,657
         Total Other Assets                     $29,167              $28,346

     Regulatory assets represent deferred costs for which future revenues are
expected in accordance with regulators.  These costs are expensed when the
corresponding revenues are received in order to appropriately match revenues
and expenses.

Regulatory Accounting: Blackstone is 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.  Blackstone believes that its
operations continue to meet the criteria established in these accounting
standards.

 (B)  Income Taxes:

  Components of income and deferred tax expense for the years 1998, 1997, and
  1996 are as follows:
<TABLE>
<CAPTION>
_________________________________________________________________________________
(In Thousands)                           1998             1997               1996
<S>                                    <C>             <C>               <C>

Federal:
  Current                              $1,173           $5,202             $2,901
  Deferred                              2,172           (1,580)             (531)
  Investment Tax Credit, Net            (178)             (181)             (182)
                                        3,167            3,441              2,188

State:
  Current                                   2                3                  2
  Deferred                                 76             (118)              (34)
                                           78             (115)              (32)
Charged to Operations                   3,245            3,326              2,156

Charged to Other Income:
   Current                               (22)              143                 40
   Total                               $3,223           $3,469             $2,196

     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)                           1998             1997               1996

Federal Income Tax Computed
  at Statutory Rates                   $2,845           $3,190              $2,191
(Decreases) Increases in Tax from:
  Equity Component of AFUDC                                                    (17)
  Consolidated Tax Savings                                                     (32)
  Depreciation Differences                226              256                 283
  Amortization of ITC                   (178)             (181)               (182)
  State Taxes, Net of Federal
     Income Tax Benefit                    51              (74)                (21)
  Cost of Removal                         284               285
  Other                                   (5)               (7)                (26)
  Total Income Tax Expense             $3,223           $3,469              $2,196
</TABLE>

 (B)  Income Taxes (continued)

     Blackstone 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 the 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.  Total deferred tax assets and
liabilities for 1998 and 1997 are comprised as follows:
<TABLE>
<CAPTION>

                             Deferred Tax                                    Deferred Tax
                                Assets                                        Liabilities
                                ($000)                                           ($000)
<S>         <C>                <C>     <C>              <C>                   <C>       <C>

                              1998    1997                                   1998      1997
 Plant Related                                 Plant Related Differences  $14,017   $14,490
  Differences               $1,543   1,489     Deregulation                   844
 Employee Benefit Accruals     650     602     Refinancing Costs              127       138
 Other                       2,036   2,872     Employee Benefit Accruals      681       513
                                               Other                        1,845     1,719
  Total                     $4,229  $4,963      Total                     $17,514   $16,860
</TABLE>


    Blackstone has recorded on its Balance Sheets as of December 31, 1998 and
1997 a regulatory liability to ratepayers of approximately $3.6 million and
$3.4 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, 1998 and 1997, a regulatory asset of approximately $6.6 million
and $7.2 million, respectively, has been recorded, representing the cumulative
amount of federal income taxes on temporary depreciation differences which were
previously flowed through to ratepayers.

(C) Capital Stock:

    There were no changes in the number of shares of common or preferred stock
during the years ended December 31, 1998, 1997, and 1996.

    In the event of involuntary liquidation, the holders of non-redeemable
preferred stock of Blackstone are entitled to $100 per share plus accrued
dividends.  In the event of voluntary liquidation, or if redeemed at the option
of the Company, each share of the non-redeemable preferred stock is entitled to
accrued dividends and to: 4.25% issue, $104.40; 5.60% issue, $103.82.

(C) Capital Stock (continued)

    Under the terms and provisions of the First Mortgage Indenture and of the
issues of preferred stock of Blackstone, certain restrictions are placed upon
the payment of dividends on common stock by the Company.  At the years ended
December 31, 1998 and 1997, the respective capitalization ratios were in excess
of the minimum which would make these restrictions effective.

(D) Retained Earnings:

    Under the provisions of Blackstone's First Mortgage Indenture, retained
earnings in the amount of $9,551,081 were unrestricted as to the payment of
cash dividends on its common stock at December 31, 1998.

(E) Long-Term Debt:

    Blackstone's First Mortgage Bonds are collateralized by substantially all
of its utility plant.

    Blackstone's Variable Rate Demand Bonds are collateralized by an
irrevocable letter of credit which expires on January 21, 2000.  The letter of
credit permits extensions on an annual basis upon mutual agreement of the bank
and Blackstone.

    The aggregate amount of Blackstone's cash sinking fund requirements and
maturities for long-term debt for each of the five years following 1998 is $1.5
million in each of 1999 and 2000, and $3.3 million in each of 2001, 2002, and
2003.

(F) Lines of Credit:

    In July 1997, several EUA System companies, including Blackstone, entered
into a three-year revolving credit agreement allowing for borrowings in
aggregate of up to $145 million from all sources of short-term credit.  As of
December 31, 1998, various financial institutions have committed up to $75
million under the revolving credit facility.  In addition to the $75 million
available under the revolving credit facility, EUA System companies maintain
short-term lines of credit with various banks totaling $90 million for an
aggregate amount available of $165 million.  In accordance with the revolving
credit agreement, commitment fees are required to maintain certain lines of
credit.  At December 31, 1998 under the revolving credit agreement, the EUA
System had short-term borrowings available of approximately $101.4 million.
Blackstone had zero short-term borrowings outstanding at December 31, 1998.
During 1998, Blackstone's weighted average interest rate for short-term
borrowings was 5.7%.

(G) Fair Value of Financial Instruments:

    The following methods 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.

    Long-Term Debt:  The fair value of the Company's long-term debt was based
on quoted market prices for such securities.

    The estimated fair values of the Company's financial instruments at
December 31, 1998 and 1997 were as follows (In Thousands):

                                             Carrying Amount      Fair Value
                                             1998      1997      1998     1997
    Cash and Temporary Cash Investments      $178      $408      $178     $408
    Long-Term Debt                        $33,500   $35,000   $37,102  $36,363

(H)  Commitments and Contingencies:

Pensions:  Blackstone participates with 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 the
amount related to the 1997 voluntary retirement incentive offer, for 1998, 1997
and 1996 included the following components ($ In Thousands):
<TABLE>
<CAPTION>
<S>                                         <C>        <C>        <C>

                                           1998       1997       1996
Service cost                               $639       $615       $616
Interest cost                             2,457      2,361      2,264
Expected return on assets                (3,820)    (3,415)    (3,122)
Net amortization:
   Prior service cost                       205        204        203
   Net actuarial (gain)                     (93)       (43)        -
   Transition obligation                    (77)       (77)       (77)
Total periodic pension (income) expense   $(689)     $(355)     $(116)
</TABLE>

 (H)  Commitments and Contingencies (continued)

Assumptions used to determine pension cost:

Discount Rate                              7.25%      7.50%      7.25%
Compensation Increase Rate                 4.25%      4.25%      4.25%
Long-Term Return on Assets                 9.50%      9.50%      9.50%

     The discount rate used to determine pension obligations, effective January
1, 1999 was changed from 7.25% to 6.75%.  The projected benefit obligation,
fair value of assets and funded status of the Retirement Plan cannot be
presented separately for Blackstone as it participates in the Retirement Plan
with other subsidiaries of EUA.

     The voluntary retirement incentive also resulted in approximately $281,000
of non-qualified pension benefits which were expensed in 1997.  At December 31,
1998, approximately $160,000 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, 1998, 1997 and 1996, Blackstone's portion of
expenses related to the Supplemental Plans were approximately $220,000,
$322,000, and $284,000, 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 $119,000 in
1998, $113,000 in 1997, and $111,000 in 1996.

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 Blackstone for all qualified employees.

(H)      Commitments and Contingencies (continued)

     The total cost of Post-Retirement Benefits other than Pensions, including
the Company's allocated share of EUA Service Corporation costs and the amount
related to the 1997 Voluntary Retirement Incentive offer, for 1998, 1997 and
1996 includes the following components ($ In Thousands):

                                                    1998      1997      1996
   Service cost                                     $209      $202      $216
   Interest cost                                   1,074     1,050     1,060
   Expected return on plan assets                   (350)     (221)     (133)
   Net Amortization:
       Net actuarial (gain)                         (185)     (200)     (147)
       Transition obligation                         839       836       835
   Net periodic post-retirement benefit cost       1,587     1,667     1,831
   Voluntary retirement incentive                               40
   Total periodic post-retirement benefit costs   $1,587    $1,707    $1,831

   Assumptions:
     Discount rate                                  7.25%     7.50%     7.25%
     Health care cost trend rate-near-term          6.00%     7.00%     9.00%
     Health care cost trend rate-long-term          5.00%     5.00%     5.00%
     Compensation increase rate                     4.25%     4.25%     4.25%
     Rate of return on plan assets                  7.50%     7.75%     7.50%

Reconciliation of Accumulated Post-Retirement Benefit Obligation

(In Thousands)                                             1998         1997
Beginning of Year Benefit Obligation (January 1)        $11,022      $11,002
Service Cost                                                 86           86
Interest Cost                                               758          763
Participant Contributions                                    18           84
Actuarial Loss (Gain)                                       382         (351)
Disbursements                                              (659)        (562)
End of Year Benefit Obligation (December 31)            $11,607      $11,022

Reconciliation of Fair Value Assets

(In Thousands)                                             1998         1997
Beginning of Year Fair Value of Assets (January 1)       $2,408       $1,573
Actual return on plan assets                                393          154
Company contributions                                     1,159        1,159
Participant contributions                                    18           84
Disbursements                                              (659)        (562)
End of Year Fair Value of Assets (December 31)           $3,319      $ 2,408

(H)  Commitments and Contingencies (continued)

Reconciliation of Funded Status

(In Thousands)                                             1998         1997
Accumulated post-retirement benefit
 obligation (APBO)                                     $(11,607)    $(11,022)
Fair value of plan assets (FVA)                           3,319        2,408
APBO (in excess of) less than FVA (Funded Status)        (8,288)      (8,614)
Unrecognized net transition obligation (asset)            9,951       10,662
Unrecognized net actuarial loss/(gain)                   (5,513)      (5,816)
Net amount recognized                                   $(3,850)     $(3,768)

Effect of 1% Change in Assumed Health Care Cost Trend Rate

                                                         One-Percentage Point
(In Thousands)                                        Increase       (Decrease)
Effect on 1998 Service and                              $188          $(150)
     Interest Cost Components of Net-Periodic cost     1,430         (1,166)
Effect on 1998 Accumulated Post-retirement
     Benefit Obligation

     The discount rate used to determine post-retirement benefit obligations,
was changed from 7.25% to 6.75% effective January 1, 1999, and was used to
calculate the funded status of Post-Retirement benefits at December 31, 1998.

Environmental Matters:  The Comprehensive Environmental Response, Compensation
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, and certain similar state statutes authorize
various governmental authorities to seek court orders compelling responsible
parties to take cleanup action at disposal sites which have been determined by
such governmental authorities to present an imminent and substantial danger to
public health and welfare and to the environment because of an actual or
threatened release of hazardous substances.  Due to the nature of
Blackstone's business, various by-products and substances are produced or
handled which are classified as hazardous under the rules and regulations
promulgated by the EPA as well as state and local authorities.  Blackstone
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.
Blackstone has been notified with respect to a number of sites where it may be
responsible for such costs, including sites where it may have joint and several
liability with other responsible parties.  It is the policy of Blackstone 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 carriers in these matters.

     On December 13, 1994, the United States District Court for the District of
Massachusetts (District Court) issued a judgment against Blackstone, finding
Blackstone liable to the Commonwealth of Massachusetts (Commonwealth) for the
full amount of response costs incurred by the Commonwealth in the cleanup of a
by-product of manufactured gas at a site on Mendon Road in Attleboro,
Massachusetts.  The judgment also found Blackstone liable for interest and
litigation expenses calculated to the date of judgment.  The total liability is
approximately $5.9 million, including approximately $3.6 million in interest
which has accumulated since 1985.  Due to the uncertainty of the ultimate
outcome of this proceeding and anticipated recoverability, Blackstone recorded
the $5.9 million District Court judgment as a deferred debit.  This amount is
included with Other Assets on the Balance Sheet at December 31, 1998 and 1997.

     On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth whereby Blackstone deposited $5.9 million with an escrow agent who
transferred the funds into an interest bearing money market account.  The
distribution of the proceeds of the escrow account will be determined upon the
final resolution of the judgment.  No additional interest expense will accrue
on the judgment amount.

     Blackstone appealed the District Court's judgment which was vacated by the
First Circuit (Circuit Court) on October 6, 1995.  The Circuit Court referred
the matter to the EPA to determine whether the chemical substance, ferric
ferrocyanide (FFC), contained within the by-product is a hazardous substance.
If it were not, then Blackstone may not have to reimburse the Commonwealth for
its clean up costs.

     Given the present posture of the case, Blackstone may not be liable to
reimburse the Commonwealth for the Mendon Road cleanup costs if the EPA
determines that FFC is not a hazardous substance.  On January 9, 1997,
Blackstone met with representatives of EPA and the Commonwealth to discuss the
procedure EPA would follow in resolving the FFC issue.  In January 1997,
Blackstone submitted written comments which were followed by the Commonwealth's
written reply in March 1997.  Both parties submitted additional memoranda to
EPA during remainder of the year.  The EPA will now determine whether FFC is a
hazardous substance. Further court proceedings are likely.

     On January 28, 1994, Blackstone filed a complaint in the Massachusetts
District Court seeking, among other relief, contribution and reimbursement from
Stone & Webster Inc. of New York City and several of its affiliated companies
(Stone & Webster), and Valley Gas Company of Cumberland, Rhode Island (Valley)
for any damages incurred by Blackstone regarding the Mendon Road site. On
November 7, 1994, the Court denied motions to dismiss the complaint filed by
Stone & Webster and Valley.  This proceeding was stayed in December 1995
pending final EPA determination as to whether FFC is a hazardous substance.

     In addition, Blackstone has notified certain liability insurers and has
filed claims with respect to the Mendon Road site, as well as other sites.
Blackstone reached settlement with one carrier for reimbursement of legal costs
related to the Mendon Road case.  In January 1996, Blackstone received the
proceeds of the settlement.

     As of December 31, 1998, Blackstone had incurred costs of approximately
$7.7 million (excluding the $5.9 million Mendon Road judgment) in connection
with the investigation and cleanup of these sites.  These amounts have been
financed primarily by internally generated cash.  Blackstone is currently
amortizing all of its incurred costs over a five-year period consistent with
prior regulatory recovery periods and is recovering certain of those costs in
rates.  The Company estimates that additional costs of up to approximately $1.8
million (excluding the $5.9 million Mendon Road judgment) may be incurred at
these sites through 1999 by it and the other responsible parties.  Estimated
amounts after 1999 are not now determinable since site studies, which are the
basis of these estimates, have not been completed.

     As a result of the recoverability of cleanup costs in rates and the
uncertainty regarding both its estimated liability, as well as potential
contributions from insurance carriers and other responsible parties, Blackstone
does not believe that the ultimate impact of the environmental costs will be
material to its 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.   Some states have enacted regulations to
limit the strength of EMF at the edge of transmission line rights-of-way.  The
Rhode Island legislature has enacted a statute which authorizes and directs the
Rhode Island Energy Facility Siting Board to establish rules and regulations
governing construction of high voltage transmission lines of 69 kv or more.  In
addition, an energy facility siting application, in Rhode Island must include,
when applicable, any current independent scientific research pertaining to EMF
exposure for review by the Board.  Management cannot predict the impact, if
any, that legislation or other developments concerning EMF may have on
Blackstone.

Other:  Since early 1997, fourteen 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 various
premises, including some owned by EUA companies.  The total damages claimed
in all of these complaints is $34 million in compensatory and punitive damages,
plus exemplary damages and interest and costs.  Each complaint names between
fifteen and twenty-eight defendants, including EUA. These  complaints have been
referred to the applicable insurance companies.  Counsel has been retained by
the insurers and is actively defending all cases.  Four cases have been
dismissed as against EUA companies.  EUA cannot predict the ultimate outcome of
this matter at this time.

                              BLACKSTONE
             Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
                      Operating    Operating      Net       Net
($ in Thousands)      Revenues       Income     Income    Earnings
<S>                    <C>           <C>       <C>         <C>

For The Quarters
Ended 1998:
  December 31          $33,049       $1,805    $  940      $  868
  September 30          35,007        2,586     1,617       1,544
  June 30               30,965        1,907       907         835
  March 31              31,181        2,462     1,441       1,369

For The Quarters
Ended 1997:
  December 31          $34,398       $2,770    $1,825      $1,753
  September 30          37,179        2,196     1,113       1,040
  June 30               34,150        2,074     1,011         939
  March 31              34,531        2,512     1,697       1,625
</TABLE>


Basic and Diluted Earnings per Average Common Share, Dividends Paid per Common
Share and Common Share Market Price information is not meaningful as
Blackstone's Common Stock is wholly-owned by Eastern Utilities Associates.


                   Report of Independent Accountants


To the Directors and Shareholder of
Blackstone Valley Electric Company:

In our opinion, the accompanying balance sheets and statements of
capitalization present fairly, in all material respects, the financial
position of Blackstone Valley Electric (the "Company") at December 31, 1998 and
1997, and its statements of income, retained earnings and cash flows present
fairly its results of operations and cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.  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 of these
statements in accordance with generally accepted auditing standards which
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, evidences supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP


Boston, Massachusetts
March 5, 1999



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