Document:

<PAGE>
                                                                   EXHIBIT 4.3.7

                                                                  EXECUTION COPY

                       SERIES C LOAN AND TRUST AGREEMENT

                                     among

                         BUSINESS FINANCE AUTHORITY OF
                           THE STATE OF NEW HAMPSHIRE

                                      and

                    PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

                                      and

                STATE STREET BANK AND TRUST COMPANY, as Trustee

                          Dated as of October 1, 2001

                          Providing for the Issue of:

                    $108,985,000 Business Finance Authority
                         of the State of New Hampshire
                     5.45% Pollution Control Revenue Bonds
  (Public Service Company of New Hampshire Project - 2001 Tax-Exempt Series C)
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
ARTICLE I. INTRODUCTION AND DEFINITIONS                                        1
  Section 101. Description of the Agreement and the Parties                    1
  Section 102. Definitions                                                     2
    (a) Words                                                                  2
    (b) Number and Gender                                                      5
    (c) Use of Examples                                                        5

ARTICLE II. LOAN OF BOND PROCEEDS; THE ASSIGNMENT AND PLEDGE                   5
  Section 201. Loan of Bond Proceeds; Issue of First Mortgage Bonds            5
  Section 202. Assignment and Pledge of the Authority                          6
  Section 203. Further Assurance                                               6
  Section 204. Defeasance                                                      7

ARTICLE III. THE BORROWING                                                     8
  Section 301. The Bonds                                                       8
    (a) Issue, Authentication and Form of Bonds                                8
    (b) Details of the Bonds                                                  15
    (c) Cancellation and Destruction of Bonds                                 15
    (d) Replacement Bonds                                                     15
    (e) Registration of Bonds in the Book-Entry Only System                   16
    (f) Paying Agent                                                          17
    (g) Interest on Overdue Principal                                         17
  Section 302. Application of Bond Proceeds                                   18
  Section 303. Bond Fund                                                      18
  Section 304. Application of Moneys                                          18
  Section 305. Payments by the Company                                        18
    (a) Debt Service                                                          19
    (b) Additional Payments                                                   19
    (c) Unclaimed Moneys                                                      19
    (d) Rebate                                                                19
  Section 306. Unconditional Obligation                                       19
  Section 307. Redemption of the Bonds                                        20
    (c) Notice to the Trustee                                                 21
    (d) Payment of Redemption Price and Accrued Interest                      21
    (e) Notice of Redemption                                                  21
  Section 308. Investments                                                    21
  Section 309. Tax Status of Bonds                                            24
  Section 310. Payment Procedure Pursuant to Bond Insurance Policy            24
  Section 311. The Bond Insurer                                               26

ARTICLE IV. THE PROJECT                                                       26
  Section 401. Company not to Impair Tax Status; Use of Project Facilities    26
  Section 402. Qualification of Project Facilities                            26
  Section 403. Reserved                                                       26
  Section 404. Reserved                                                       26
  Section 405. Disposition and Use of Project Facilities                      27

ARTICLE V. ADDITIONAL COVENANTS OF THE COMPANY                                27
</TABLE>

                                       -i-
<PAGE>

<TABLE>
<S>                                                                           <C>
  Section 501. Existence and Good Standing; Merger; Consolidation; Notice
               to Trustee                                                     27
  Section 502. Indemnification by the Company                                 27
  Section 503. Continuing Disclosure                                          28

ARTICLE VI. DEFAULT AND REMEDIES                                              28
  Section 601. Default                                                        28
  Section 602. Remedies for Events of Default                                 29
    (a) Acceleration                                                          29
    (b) Rights as a Secured Party                                             29
  Section 603. Court Proceedings                                              30
  Section 604. Revenues after Default                                         30
  Section 605. Rights of Bondowners                                           30
  Section 606. Performance of Company's Obligations                           31
  Section 607. Remedies Cumulative; No Waiver                                 31
  Section 608. Rights of Bond Insurer                                         31

ARTICLE VII. THE TRUSTEE                                                      31
  Section 701. Corporate Organization, Authorization and Capacity             31
  Section 702. Rights and Duties of the Trustee                               31
    (a) Moneys to be Held in Trust                                            31
    (b) Accounts                                                              32
    (c) Performance of the Authority's Obligations                            32
    (d) Responsibility                                                        32
    (e) Limitations on Actions                                                32
    (f) Financial Obligations                                                 33
    (g) Registration Books                                                    33
    (h) Ownership of Bonds                                                    33
    (i) No Surety Bond                                                        33
    (j) Requests by the Company                                               33
    (k) Trustee as Holder of Series K First Mortgage Bonds                    34
  Section 703. Fees and Expenses of the Trustee                               34
  Section 704. Resignation or Removal of Trustee                              34
  Section 705. Successor Trustee                                              34

ARTICLE VIII. THE AUTHORITY                                                   35
  Section 801. Limited Obligation                                             35
  Section 802. Rights and Duties of the Authority                             35
    (a) Remedies of the Authority                                             35
    (b) Limitations on Actions                                                36
    (c) Responsibility                                                        36
  Section 803. Expenses of the Authority                                      37
  Section 804. Matters to be Considered by Authority                          37
  Section 805. Actions by Authority                                           37

ARTICLE IX. THE BONDOWNERS                                                    37
  Section 901. Action by Bondowners                                           37

ARTICLE X. AMENDMENTS AND MISCELLANEOUS                                       39
  Section 1001. Amendments                                                    39
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<S>                                                                          <C>
    (a) Without Bondowners' Consent                                           39
    (b) With Bondowners' Consent                                              39
  Section 1002. Notices                                                       40
  Section 1003. Agreement Not for the Benefit of Other Parties                40
  Section 1004. Severability                                                  40
  Section 1005. Counterparts                                                  40
  Section 1006. Captions                                                      40
  Section 1007. Governing Law                                                 40
  Section 1008. Payment Date Not a Business Day                               41

EXHIBIT A THE PROJECT FACILITIES                                             A-1
EXHIBIT B SERIES C SEABROOK POLLUTION CONTROL FACILITIES AGREEMENT           B-1
</TABLE>

                                      -iii-
<PAGE>

ARTICLE I. INTRODUCTION AND DEFINITIONS

      Section 101. Description of the Agreement and the Parties. This SERIES C
LOAN AND TRUST AGREEMENT (the "Agreement") is entered into as of October 1, 2001
by the Business Finance Authority of the State of New Hampshire (with its
successors, the "Authority" and formerly The Industrial Development Authority of
the State of New Hampshire), a body corporate and politic created under New
Hampshire RSA 162-A:3; Public Service Company of New Hampshire (with its
successors, the "Company"), a New Hampshire corporation; and State Street Bank
and Trust Company, a Massachusetts trust company, as Trustee (with its
successors, the "Trustee"). This Agreement is a financing document combined with
a security document as one instrument in accordance with New Hampshire RSA
Chapter 162-I (the "Act") and relates to industrial facilities as defined in
Paragraphs 2, VII(d) and (e) of the Act and located in the Town of Seabrook,
Rockingham County, New Hampshire.

      This Agreement provides for the following transactions:

      (a) the Authority's issue of the Bonds;

      (b) the Authority's loan of the proceeds of the Bonds to the Company to
refund the outstanding balance of the Authority's $108,985,000 7 1/2%Pollution
Control Revenue Bonds (Public Service Company of New Hampshire Project - 1991
Tax-Exempt Series B) (the "1991 Series B Bonds") which in turn were issued to
refund a portion of (i) the Authority's $100,000,000 Pollution Control Revenue
Bonds 1986 Series A (Public Service Company of New Hampshire Project) (the "1986
Bonds") and (ii) the Authority's $20,000,000 Pollution Control Revenue Bonds,
1983 Series A (Public Service Company of New Hampshire Project) (the "1983
Bonds"), which 1986 Bonds and 1983 Bonds were originally issued for the purpose
of financing the acquisition, construction and installation of the Project
Facilities;

      (c) the Company's repayment of the loan of Bond proceeds from the
Authority through payment to the Trustee of all amounts necessary to pay the
Bonds issued by the Authority;

      (d) the Company's agreement to evidence and secure its repayment
obligations hereunder by the issuance of the Series K First Mortgage Bonds; and

      (e) the Authority's assignment to the Trustee in trust for the benefit and
security of the Bondowners of the Authority's rights in respect of the loan to
the Company hereunder, including repayment of the loan to be received from the
Company.

      In consideration of the mutual promises contained in this Agreement, the
rights conferred and the obligations assumed hereby, and other good and valuable
consideration, the receipt of which is hereby acknowledged, each of the Company,
the Authority and the Trustee agree, assign, covenant, grant, pledge, promise,
represent and warrant as set forth herein for their own benefit and for the
benefit of the Bondowners.

                                       1
<PAGE>

      Section 102. Definitions.

      (a) Words. In addition to terms defined elsewhere herein, the following
terms have the following meanings in this Agreement, unless the context
otherwise requires:

            (i) "Act" has the meaning set forth in Section 101.

            (ii) "Authority's Service Charge" means payment to the Authority for
      its own use of .375% of the principal amount of the Bonds payable on the
      date of the issue of the Bonds and an additional .375% of the then
      Outstanding principal balance of the Bonds payable on the date which is
      three years from the date of the issue of the Bonds.

            (iii) "Bond Counsel" means Palmer & Dodge LLP or such other
      nationally recognized bond counsel selected by the Company and reasonably
      satisfactory to the Trustee and the Bond Insurer.

            (iv) "Bond Fund" means the fund established under Section 303.

            (v) "Bond Insurance Agreement" means the Reimbursement and Indemnity
      Agreement dated as of December 19, 2001, between the Company and the Bond
      Insurer.

            (vi) "Bond Insurance Policy" means the financial guaranty insurance
      policy issued by the Bond Insurer insuring the payment when due of the
      principal of and interest on the Bonds as provided therein.

            (vii) "Bond Insurer" means MBIA Insurance Corporation, a New York
      stock insurance company.

            (viii) "Bond Insurer Default" has the meaning defined in Section
      608(b).

            (ix) "Bond Insurer Event of Insolvency" means the institution of a
      proceeding in a court having jurisdiction in the premises seeking an order
      for relief, rehabilitation, reorganization, conservation, liquidation or
      dissolution in respect of the Bond Insurer and the continuance of such
      proceeding for a period of sixty (60) consecutive days or such court
      enters an order granting the relief sought in such proceeding and such
      order is not reversed or action thereunder stayed within sixty (60) days
      of such entry.

            (x) "Bondowners", "owners" or words of similar import means the
      registered owners of the Bonds from time to time as shown in the books
      kept by the Trustee as bond registrar, except that wherever appropriate
      the term "owners" shall mean the owners of the Bonds for federal income
      tax purposes.

            (xi) "Bonds" means the 5.45% $108,985,000 principal amount of the
      Business Finance Authority of the State of New Hampshire Pollution Control
      Revenue Bonds (Public Service Company of New Hampshire Project - 2001
      Tax-Exempt Series C) dated

                                       2
<PAGE>

      as of December 1, 2001 substantially in the form set forth in Subsection
      301(a) and any bond or bonds duly issued in exchange or replacement
      therefor.

            (xii) "Book-Entry Only System" means the system of registration of
      the Bonds described in Subsection 301(e).

            (xiii) "Company Representative" means the person or persons at the
      time designated to act on behalf of the Company in a written certificate
      (or any alternate or alternates at the time so designated) furnished to
      the Trustee, containing the specimen signature of such person or persons
      and signed on behalf of the Company by its Chairman, Vice Chairman,
      President, Chief Financial Officer, Treasurer, any Assistant Treasurer, or
      any Vice President.

            (xiv) "Continuing Disclosure Agreement" means the Continuing
      Disclosure Agreement between the Company and the Trustee dated the date of
      issuance and delivery of the Bonds as originally executed and as it may be
      amended from time to time in accordance with its terms.

            (xv) "Debt Service" means all money payable to the Bondowners in
      accordance with the terms hereof and of the Bonds including (i) principal,
      (ii) interest and (iii) any premium.

            (xvi) "Default" has the meaning given such term in Section 601.

            (xvii) "Event of Default" has the meaning given such term in Section
      601.

            (xviii) "Facilities Agreement" has the meaning given to it in
      Section 405.

            (xix) "Federal Tax Statement" means the Statement as to Tax Exempt
      Status of Bonds executed by the Company in connection with the original
      issuance of the Bonds and delivered to the Trustee.

            (xx) "First Mortgage Bond Indenture" means the First Mortgage
      Indenture dated as of August 15, 1978, as amended, and the Twelfth
      Supplemental Indenture thereto dated as of December 1, 2001 between the
      Company and First Union National Bank, successor to First Fidelity Bank,
      National Association, New Jersey, as Trustee, as amended and supplemented
      from time to time.

            (xxi) "First Mortgage Bond Trustee" means the trustee under the
      First Mortgage Bond Indenture.

            (xxii) "IRC" means the Internal Revenue Code of 1986, as it may be
      amended from time to time.

                                       3
<PAGE>

            (xxiii) "Loan" has the meaning given such term in Section 201.

            (xxiv) "MBIA" means MBIA Insurance Corporation, the principal
      operating subsidiary of MBIA Inc., a New York Stock Exchange listed
      company, as Bond Insurer.

            (xxv) "1954 Code" means the Internal Revenue Code of 1954, as
      amended, as applicable to the Bonds and the Project Facilities.

            (xxvi) "NAEC" means North Atlantic Energy Corporation, a New
      Hampshire corporation and an affiliate of the Company.

            (xxvii) "Outstanding", when used to modify Bonds, refers to Bonds
      issued, authenticated, and delivered under this Agreement, excluding: (i)
      Bonds which have been exchanged or replaced; (ii) Bonds which have been
      paid; (iii) Bonds which have become due and for the payment of which
      moneys have been duly provided; and (iv) Bonds with respect to which this
      Agreement has been defeased pursuant to Section 204.

            (xxviii) "Paying Agent" means State Street Bank and Trust Company,
      as Paying Agent under this Agreement, and its successors in such capacity.

            (xxix) "Permitted Investments" has the meaning given such term in
      Section 308.

            (xxx) The word "person" means any individual or entity so recognized
      by law.

            (xxxi) "Project Costs" means the Company's cost of acquisition or
      construction and installation of the Project Facilities which are "project
      costs" within the meaning of Paragraph 2, IX of the Act, including, but
      not limited to, the cost of issuing the Bonds, obtaining professional and
      advisory services, and certain interest on the Bonds, which may be paid
      from Bond proceeds pursuant to the Act.

            (xxxii) "Project Facilities" means the Company's former ownership
      share of the sewage or solid waste disposal and air or water pollution
      control facilities at the Station as of the date of issuance of the Bonds
      described generally in the attached Exhibit A.

            (xxxiii) "Refunding Trust Agreement" means the Refunding Trust
      Agreement among the Authority, the Company and State Street Bank and Trust
      Company, as trustee for the 1991 Series B Bonds, dated as of October 1,
      2001.

            (xxxiv) "Seabrook Transfer" means each of the transfer by the
      Company of its interest in the Station (including the Project Facilities)
      to NAEC as of June 5, 1992, the proposed transfer of such interest to an
      unaffiliated party pursuant to an order of the New Hampshire Public
      Utilities Commission and any subsequent transfer of such interest.

            (xxxv) "Seabrook Transferee" means each of NAEC, any subsequent
      owner or owners of the Project Facilities pursuant to a Seabrook Transfer,
      and its or their

                                       4
<PAGE>

      successors.

            (xxxvi) "Series K First Mortgage Bonds" means the $108,985,000 in
      aggregate principal amount 5.45% First Mortgage Bonds, Series K issued by
      the Company and delivered to the Trustee pursuant to Section 201 of this
      Agreement and the First Mortgage Bond Indenture to evidence and secure the
      Company's obligation to repay the Loan.

            (xxxvii) "Station" means Unit No. 1 of the nuclear electric
      generating plant located in Seabrook, New Hampshire, of which the Company
      is a joint owner.

            (xxxviii) "Trustee" means the State Street Bank and Trust Company,
      as trustee under this Agreement and its successors in such capacity.

            (xxxix) "UCC" means the New Hampshire Uniform Commercial Code (New
      Hampshire Revised Statutes Annotated Chapter 382-A).

      Except in the Bonds, "here" in such words as "hereby," "herein," "hereof"
or "hereunder" means this Agreement as a whole rather than the particular
section, subsection, paragraph, subparagraph, clause or subclause in which the
word appears; and in the Bonds it refers thereto.

      (b) Number and Gender. Wherever appropriate (1) the singular and plural
forms of words and (2) words of different gender shall, within those respective
classifications, be deemed interchangeable.

      (c) Use of Examples. When a condition, class, category, circumstance or
other concept is described in general terms herein and a list of possible
examples or components of what has been described generally is associated with
that description, and regardless of whether the words "include" or "including"
or the like are also used, the listing shall be deemed illustrative only and
shall not be construed as excluding other possible examples or components or as
otherwise limiting the generality of the description in any way.

                                       5
<PAGE>

          ARTICLE II. LOAN OF BOND PROCEEDS; THE ASSIGNMENT AND PLEDGE

      Section 201. Loan of Bond Proceeds; Issue of First Mortgage Bonds. The
Authority shall issue the Bonds pursuant to the Act in the amount, in the form,
and with the terms provided herein, and shall loan to the Company such amount
(the "Loan") to refinance Project Costs as hereinafter provided. The Company
agrees to repay the Loan of the aggregate principal amount of the Bonds in the
amounts and at the times necessary to pay principal of, premium, if any, and
interest on the Bonds by making the payments required under Section 305, and to
evidence and secure the Company's obligation to do so, the Company shall issue
and deliver to the Trustee a like aggregate principal amount of its Series K
First Mortgage Bonds in the form set forth in the First Mortgage Bond Indenture.
Upon payment of the principal of and premium, if any, on any of the Bonds and
payment of all accrued interest in connection therewith, whether at maturity or
prior to maturity by redemption or otherwise, or upon provision for the payment
thereof having been made in accordance with Section 204, Series K First Mortgage
Bonds in an aggregate principal amount equal to the aggregate principal amount
of the Bonds so paid, or for the payment of which such provision has been made,
shall be deemed fully paid and the obligations of the Company thereunder
terminated as provided in the First Mortgage Indenture and shall be surrendered
by the Trustee to the First Mortgage Bond Trustee for cancellation. The Trustee
shall promptly notify the First Mortgage Bond Trustee by telephone, confirmed in
writing, of any default in the payment of principal of, and premium, if any, and
interest on the Bonds, and shall promptly notify the First Mortgage Bond Trustee
by telephone, confirmed in writing of any payment of principal of and premium,
if any, and interest (other than payment of regularly scheduled interest) on the
Bonds, or if the Bonds have been paid or deemed paid, defeased, redeemed,
retired, surrendered or canceled. In accordance with the terms thereof, the
Series K First Mortgage Bonds shall be issued to and registered in the name of
the Trustee and shall not be sold, assigned, pledged or transferred, except to
effect transfer to any successor Trustee hereunder. The Series K First Mortgage
Bonds shall have a principal amount, an interest rate, a maturity date and
redemption provisions corresponding to the Bonds. Payments of principal of and
premium, if any, and interest on the Series K First Mortgage Bonds shall upon
receipt by the Trustee be deemed to constitute payments of corresponding amounts
by the Company in respect of the Bonds pursuant to Subsection 305(a).

      Section 202. Assignment and Pledge of the Authority. The Authority, for
consideration paid as hereinabove acknowledged, hereby irrevocably assigns and
pledges to the Trustee in trust for the security of the Bondowners upon the
terms hereof all of the Authority's right, title and interest in (i) respect of
the Loan and all payments thereon, (ii) all moneys and securities held by the
Trustee for deposit in, or deposited in, the Bond Fund and investment earnings
thereon, (iii) the Series K First Mortgage Bonds, all bonds issued in
replacement thereof or in exchange or substitution therefor and all payments on,
and proceeds of, the foregoing, and (iv) any collateral security for, and all
proceeds of, any of the foregoing. The Trustee shall hold (a) all the rights,
title and interest received under this section and (b) all payments (exclusive
of funds to which the Trustee is entitled in its own right as fees,
reimbursement, indemnity or otherwise) received from the Company or derived from
the exercise of the Authority's powers hereunder (which shall include all
payments under Subsection 305(a)) and in respect of the Series K First Mortgage

                                       6
<PAGE>

Bonds in trust for the security of the Bondowners in accordance with the
provisions hereof.

      Section 203. Further Assurance. The Company and the Authority shall from
time to time execute, deliver and record and file such instruments as may be
necessary to perfect or to maintain or continue the perfection of, or as the
Trustee may reasonably require to confirm, perfect or maintain, the security
created hereby and the assignment and pledge of rights hereunder.

      Section 204. Defeasance. When there are in the Bond Fund sufficient funds,
or non-callable and non-prepayable obligations issued by, or the full and timely
payment of which are guaranteed by, the United States, in such principal amount,
bearing interest at such rates and with such maturities as will provide, without
reinvestment, sufficient amounts to pay principal of, premium, if any, and
interest on the Bonds in full as and when such amounts become due, as determined
through a verification report or computation, which may be prepared by the
Company, and when all the rights hereunder of the Authority and the Trustee have
been provided for (1) the Bondowners will cease to be entitled to any right,
benefit or security under this Agreement except the right to receive payment of
the funds deposited and held for payment and other rights set forth below or
which by their nature cannot be satisfied prior to or simultaneously with
termination of the lien hereof, (2) the security interests created by this
Agreement (except in such funds and investments) shall terminate, and (3) the
Authority and the Trustee shall execute and deliver such instruments as may be
necessary to discharge the lien and security interests created hereunder;
provided, however, that, if within ninety (90) days of such deposit, the Bonds
are not to be redeemed in full prior to maturity or paid in full at maturity,
the Trustee and the Bond Insurer shall have received on the date of the deposit
an opinion of Bond Counsel to the effect that such deposit and the investment
thereof will not affect the exclusion of interest on the Bonds from gross income
of the owners thereof for federal income tax purposes; and provided further that
if any Bonds are to be redeemed prior to the maturity thereof, such Bonds shall
have been duly called for redemption or irrevocable instructions for such a call
shall have been given to the Trustee. Upon such defeasance, the funds and
investments required to pay or redeem the Bonds in full shall be irrevocably set
aside for such purpose. The Trustee shall cause to be mailed to all Bondowners
within fifteen (15) days of the conditions of this section being met in the
manner herein specified for redemption of Bonds a notice stating that such
conditions have been met and that the lien of this Agreement has been
discharged, and, if the Bonds are to be redeemed prior to maturity, specifying
the date of redemption and the redemption price. Any funds or property held by
the Trustee for payment of the Bonds under this section and not required for
such payment shall (unless there is an Event of Default hereunder, in which case
they shall be applied as provided in Section 604), after satisfaction of all the
rights of the Authority and the Trustee, and payment of the rebate, if any, due
to the United States under IRC ss.148(f), and upon such indemnification, if any,
as the Authority or the Trustee may reasonably require, be distributed to the
Company. If Bonds are not presented for final payment when due and moneys are
available in the hands of the Trustee therefor, the Trustee shall, without
liability for interest thereon, continue to hold the moneys held for that
purpose subject to Subsection 305(c), and interest shall cease to accrue on the
principal amount represented thereby.

      When there are in the Bond Fund funds or securities as described in the
preceding

                                       7
<PAGE>

paragraph as are sufficient to pay principal of, premium, if any, and interest
on, some but not all of the Bonds in full as and when such amounts become due
and all of the other conditions in the preceding paragraph have been met with
respect to such Bonds, the particular Bonds (or portions thereof) for which such
provision for payment shall have been considered made shall be selected by lot
by the Trustee (or, if the Bonds are then registered to CEDE & CO. and the
Book-Entry Only System is then in effect, by The Depository Trust Company) and
thereupon the Trustee and the Authority shall take similar action to release the
security interests created by this Agreement in respect of such Bonds (except in
such funds or securities and investments thereon), subject however to compliance
with the applicable conditions set forth in the provisos above.

      Notwithstanding the foregoing, those provisions relating to the maturity
of Bonds, interest payments and dates thereof and the Trustee's remedies with
respect thereto, and provisions relating to exchange, transfer and registration
of Bonds, replacement and cancellation of Bonds, the holding of moneys in trust
and the duties of the Trustee in connection with all of the foregoing and the
fees, expenses and indemnities of the Trustee and the Authority, shall remain in
full force and effect and shall be binding upon the Trustee, the Authority, the
Company and the Bondowners notwithstanding the release and discharge of this
Agreement and the lien on the Series K First Mortgage Bonds until the Bonds have
been actually paid in full.

      Notwithstanding anything herein to the contrary, if moneys or governmental
obligations have been deposited or set aside with the Trustee pursuant to the
provisions of this Section 204 and the principal of, premium, if any, and
interest on the Bonds shall not, in fact, have been actually paid in full, no
amendment to the provisions of this Section 204 will be made without the consent
of the owner of each of the Bonds affected thereby.

      Subject to Subsection 608(b), the prior written consent of the Bond
Insurer, which consent shall not be unreasonably withheld, shall be required for
defeasance of the Bonds.

      Notwithstanding anything herein to the contrary, in the event that the
principal and/or interest due on the Bonds shall be paid by the Bond Insurer
pursuant to the Bond Insurance Policy, the Bonds shall remain Outstanding for
all purposes, not be defeased or otherwise satisfied and not be considered paid
by the Company, and the assignment and pledge hereunder and all covenants,
agreements and other obligations of the Company to the registered owners of the
Bonds shall continue to exist and shall run to the benefit of the Bond Insurer,
and the Bond Insurer shall be subrogated to the rights of such Bondowners.

                           ARTICLE III. THE BORROWING

      Section 301. The Bonds.

      (a) Issue, Authentication and Form of Bonds. Upon written direction of the
Authority, the Trustee will authenticate and deliver the Bonds in substantially
the following form:

$                                                                         No. R-

                                       8
<PAGE>

                            United States of America

                             State of New Hampshire

                           BUSINESS FINANCE AUTHORITY
                         OF THE STATE OF NEW HAMPSHIRE
                      5.45% Pollution Control Revenue Bond
                (Public Service Company of New Hampshire Project
                           2001 Tax-Exempt Series C)

DATE OF THIS BOND: December 1, 2001

(date as of which bonds of this series were initially issued)

REGISTERED OWNER: CEDE & CO.

INTEREST RATE: 5.45% per annum

MATURITY DATE: May 1, 2021

PRINCIPAL AMOUNT:                                                        DOLLARS

INTEREST PAYMENT DATES: (May 1 and November 1 commencing May 1, 2002)

CUSIP: 64468C AV 6

      THIS BOND DOES NOT CONSTITUTE AN INDEBTEDNESS OF THE STATE OF NEW
HAMPSHIRE OR OF THE AUTHORITY EXCEPT TO THE EXTENT PERMITTED BY NEW HAMPSHIRE
RSA CHAPTER 162-I. ALL AMOUNTS OWED HEREUNDER ARE PAYABLE ONLY FROM THE SOURCES
PROVIDED IN THE LOAN AND TRUST AGREEMENT DESCRIBED BELOW, AND NO PUBLIC FUNDS
MAY BE USED FOR THAT PURPOSE.

      The Business Finance Authority of the State of New Hampshire (the
"Authority"), for value received, promises to pay to the REGISTERED OWNER, or
registered assigns, but solely from the moneys to be provided under the
Agreement mentioned below, upon presentation and surrender hereof, in lawful
money of the United States of America, the PRINCIPAL AMOUNT on the MATURITY
DATE, unless paid earlier as provided below, with interest (computed on the
basis of a 360-day year consisting of twelve 30-day months) from the most recent
INTEREST PAYMENT DATE to which interest has been paid or duly provided for or,
if no interest has been paid, from the DATE OF THIS BOND, at the INTEREST RATE
per annum, payable semiannually on the INTEREST PAYMENT DATES, until the date on
which this bond becomes due, whether at maturity, upon redemption, by
acceleration or otherwise. From and after that date, any unpaid principal will
bear interest at the same rate until paid or duly provided for. The

                                       9
<PAGE>

principal of and premium, if any, on this bond are payable upon presentation and
surrender of this bond at the corporate trust office of State Street Bank and
Trust Company, as Trustee (with its successors, the "Trustee") in Boston,
Massachusetts, or such other address as the Trustee may designate in writing to
the REGISTERED OWNER, unless this bond is in the Book-Entry Only System (as
defined in the Agreement) in which case payment shall be by wire or bank
transfer of immediately available funds within the continental United States.
Interest is payable by check or draft mailed on the INTEREST PAYMENT DATE by the
Trustee to the REGISTERED OWNER of this bond, determined as of the close of
business on the applicable record date, at its address as shown on the
registration books kept by the Trustee unless this bond is in the Book-Entry
Only System, in which case interest is payable by wire or bank transfer of
immediately available funds within the continental United States. If any
payment, redemption or maturity date for principal, premium or interest shall be
(i) a Sunday or a legal holiday, or (ii) a day on which banking institutions are
authorized pursuant to law to close and on which the corporate trust office of
the Trustee or the First Mortgage Bond Trustee is not open for business, then
the payment thereof may be made on the next succeeding day not a day specified
in (i) or (ii) with the same force and effect as if made on the specified
payment date and no interest shall accrue for the period after the specified
payment date.

      The record date for payment of interest is the fifteenth day of the month
preceding the date on which the interest is to be paid, provided that, with
respect to payment of overdue interest or interest payable on redemption of this
bond other than on an INTEREST PAYMENT DATE or interest on any overdue amount,
the Trustee may establish a special record date. The special record date may be
not more than thirty (30) days before the date set for payment. The Trustee will
mail notice of a special record date to the registered owners of the Bonds at
least ten (10) days before the special record date. A certificate of the Trustee
shall conclusively establish the mailing of such notice for all purposes.

      This bond is one of a series of 5.45% Pollution Control Revenue Bonds
(Public Service Company of New Hampshire Project - 2001 Tax-Exempt Series C)
(the "Bonds") in the aggregate principal amount of $108,985,000 issued under New
Hampshire Chapter RSA 162-I (the "Act"). The proceeds of the Bonds are being
loaned to Public Service Company of New Hampshire (the "Company"), a New
Hampshire corporation, pursuant to a Series C Loan and Trust Agreement (the
"Agreement") dated as of October 1, 2001 among the Company, the Authority and
the Trustee to refinance certain costs associated with the Company's prior
ownership interest in air or water pollution control and sewage or solid waste
disposal facilities installed for use by Unit No. 1 at the nuclear electric
generating station (the "Station") in Seabrook, New Hampshire (the "Project
Facilities"). Pursuant to the Agreement, the Company has unconditionally agreed
to repay such loan in the amounts and at the times necessary to pay the
principal of, premium, if any, and interest on the Bonds when due. To evidence
and secure such loan the Company has issued and delivered to the Trustee its
First Mortgage Bonds, Series K (the "Series K First Mortgage Bonds") issued
under the First Mortgage Indenture dated as of August 15, 1978, as amended, and
the Twelfth Supplemental Indenture thereto dated as of December 1, 2001 between
the Company and First Union National Bank, successor to First Fidelity Bank,
National Association, New Jersey, as Trustee (as amended and supplemented from
time to time, the "First Mortgage Bond Indenture") in an aggregate principal
amount and with an

                                       10
<PAGE>

interest rate, maturity date and redemption provisions corresponding to those of
the Bonds. As provided in the Agreement, payments of principal of, and premium,
if any, and interest on the Series K First Mortgage Bonds shall, upon receipt by
the Trustee, be deemed to constitute payments in corresponding amounts by the
Company in respect of the Bonds. Reference is hereby made to the Agreement for
the provisions thereof with respect to the rights, limitations of rights,
duties, obligations and immunities of the Company, the Authority, the Trustee
and the Bondowners, including the order of payments in the event of insufficient
funds, the disposition of unclaimed moneys held by the Trustee and restrictions
on the rights of owners of the Bonds to bring suit. The Agreement may be amended
to the extent and in the manner provided therein. Copies of the Agreement are
available for inspection at the corporate trust office of the Trustee. Unless
otherwise defined herein, capitalized terms shall have the meanings given them
in the Agreement.

      If an Event of Default (as defined in the Agreement) occurs and is
continuing, the Trustee may, and upon the written request of Bondowners of at
least 25% in principal amount of the Bonds outstanding shall, declare the
principal of all Bonds then outstanding and the interest accrued thereon
immediately due and payable in accordance with the Agreement. The Bondowners
shall have no right to institute any proceeding or pursue any other remedy to
enforce the Bonds or the covenants of the Company under the Agreement except as
provided therein.

      The Bonds are subject to optional redemption prior to maturity on or after
May 1, 2012 at the option of the Company, as a whole or in part at any time, at
the following prices expressed as percentages of their principal amounts, plus
accrued interest to the redemption date:

<TABLE>
<CAPTION>
      Period During Which Redeemed          Redemption Price
      ----------------------------          ----------------
<S>                                         <C>
      May 1, 2012 through April 30, 2013          101%

      May 1, 2013 and thereafter                  100
</TABLE>

      The Bonds are subject to mandatory redemption at any time at a redemption
price of 100% of the principal amount of the Bonds so redeemed plus accrued
interest to the redemption date in the event (i) the Company delivers to the
Trustee an opinion of nationally recognized bond counsel selected by the Company
and reasonably satisfactory to the Trustee ("Bond Counsel") stating that
interest on the Bonds is or will become includable in gross income of the owners
thereof for federal income tax purposes, or (ii) it is finally determined by the
Internal Revenue Service or a court of competent jurisdiction, as a result of
(A) a proceeding in which the Company has participated or been given notice and
an opportunity to participate, and (B) either a failure by the Company or the
Seabrook Transferee (as defined in the Agreement) to observe any covenant or
agreement undertaken in or pursuant to the Agreement or a Seabrook Transfer (as
defined in the Agreement), or the inaccuracy of any representation made by the
Company or the Seabrook Transferee in or pursuant to the Agreement or a Seabrook
Transfer, that interest payable on the Bonds is includable for federal income
tax purposes in the gross income of any owner thereof (other than an owner which
is a "substantial user" or a "related person" within the meaning of Section
147(a) of the Internal Revenue Code of 1986). Any determination under

                                       11
<PAGE>

clause (ii) above will not be considered final for this purpose until the
earliest of the conclusion of any appellate review, the denial of appellate
review or the expiration of the period for seeking appellate review. Redemption
under this paragraph shall be in whole unless not later than forty-five (45)
days prior to the redemption date the Company delivers to the Trustee an opinion
of Bond Counsel reasonably satisfactory to the Trustee to the effect that a
redemption of less than all of the Bonds will preserve the tax-exempt status of
interest on the remaining Bonds outstanding subsequent to such redemption. Any
such redemption shall be made on the 60th day after the date on which the
opinion described in clause (i) is delivered or the determination described in
clause (ii) becomes final or on such earlier date as the Company may designate
by notice given to the Trustee at least forty-five (45) days prior to such
designated date. If such redemption shall occur in accordance with the terms of
the Agreement, then such failure by the Company or the Seabrook Transferee to
observe such covenant or agreement, or the inaccuracy of any such representation
will not, in and of itself, constitute a default thereunder.

      If the Trustee receives written notice from any Bondowner stating that (i)
such Bondowner has been notified in writing by the Internal Revenue Service that
it proposes to include the interest on the Bonds in the gross income of such
owner for federal income tax purposes, or any other proceeding has been
instituted against such owner which may lead to a like determination, and (ii)
such owner will afford the Company the opportunity to participate at its own
expense in the proceeding, either directly or in the name of such owner, until
the conclusion of any appellate review, and the Trustee has examined such
written notice and it appears to be accurate on its face, then the Trustee shall
promptly give notice thereof to the Company, the Authority, and each Bondowner
whose Bonds may be affected. The Trustee shall thereafter keep itself reasonably
informed of the progress of any administrative proceedings or litigation
relating to such notice. Under the Agreement the Company is required to give the
Trustee written notice of such a final determination within forty-five (45) days
of such final determination.

      If less than all of the outstanding Bonds are to be called for redemption,
the Bonds or portions thereof to be redeemed will be selected by the Trustee by
lot or in any customary manner as determined by the Trustee in units of $5,000,
provided that for so long as CEDE & CO., as nominee of the Depository Trust
Company ("DTC"), is the REGISTERED OWNER and the Book-Entry Only System (as
defined in the Agreement) is in effect, the particular Bonds or portions thereof
to be redeemed shall be selected by DTC, in such manner as DTC may determine.

      Notice of redemption of this bond will be given by first class mail,
postage prepaid, not more than forty-five (45) nor less than thirty (30) days
prior to the redemption date to the REGISTERED OWNER at its registered address.
Failure to mail notice to the owner of any other Bond or any defect in the
notice to such other owner shall not affect the redemption of this bond.

      If the denomination of this bond exceeds five thousand dollars ($5,000),
portions of the principal sum in the amount of five thousand dollars ($5,000) or
any multiple thereof may be redeemed. If less than all of the principal amount
is to be redeemed, upon surrender of this bond

                                       12
<PAGE>

to the Trustee, there will be issued to the REGISTERED OWNER, without charge, a
new bond or bonds, at the option of the owner, for the unredeemed principal
amount.

      Notice of redemption having been duly mailed, this bond, or the portion
called for redemption, will become due and payable on the redemption date at the
applicable redemption price and, moneys for the redemption having been deposited
with the Trustee, from and after the date fixed for redemption interest on this
bond (or such portion) will no longer accrue.

      This bond is transferable by the REGISTERED OWNER, in person or by its
attorney duly authorized in writing, at the corporate trust office of the
Trustee upon surrender of this bond to the Trustee for cancellation. Upon
transfer, a new bond or bonds of the same aggregate principal amount will be
issued to the transferee at the same office. This bond may also be exchanged at
the corporate trust office of the Trustee for a new bond or bonds in authorized
denominations of the same aggregate principal amount. Exchanges and transfers
will be without expense to the owner except for applicable taxes or other
governmental charges, if any. The Trustee will not be required to make an
exchange or transfer of this bond during the fifteen (15) days preceding any
date fixed for selection for redemption if this bond (or any part thereof) is
eligible to be selected or has been selected for such redemption.

      The Bonds are issuable only in fully registered form in the denomination
of five thousand dollars ($5,000) or any multiple thereof.

      The Authority, the Trustee and the Company may treat the REGISTERED OWNER
as the absolute owner of this bond for all purposes, notwithstanding any notice
to the contrary.

      No director, officer, employee or agent of the Authority nor any person
executing this bond (by facsimile signature or otherwise) shall be personally
liable, either jointly or severally, hereon or be subject to any personal
liability or accountability by reason of the issuance hereof.

      This bond shall not be valid until the Certificate of Authentication has
been signed by the Trustee.

                                        BUSINESS FINANCE AUTHORITY OF
                                        THE STATE OF NEW HAMPSHIRE

                                        By:
                                        Chairman
(Seal)

                                        By:
                                        Executive Director

                                       13
<PAGE>

                         Certificate Of Authentication

      This bond is one of the Bonds described in the Agreement.

                                        STATE STREET BANK AND TRUST
                                        COMPANY, as Trustee

                                        By: ____________________________________
                                            Authorized Signer

                             STATEMENT OF INSURANCE

      MBIA Insurance Corporation (the "Insurer") has issued a policy containing
the following provisions, such policy being on file at the principal corporate
trust office of the Trustee (which on the date of this Bond is State Street Bank
and Trust Company, Boston, Massachusetts).

      The Insurer, in consideration of the payment of the premium and subject to
the terms of this policy, hereby unconditionally and irrevocably guarantees to
any owner, as hereinafter defined, of the following described obligations, the
full and complete payment required to be made by or on behalf of the Issuer to
State Street Bank and Trust Company, or its successor, as Paying Agent for the
Bonds (the "Paying Agent") of an amount equal to (i) the principal of (either at
the stated maturity or by any advancement of maturity pursuant to a mandatory
sinking fund payment) and interest on, the Obligations (as that term is defined
below) as such payments shall become due but shall not be so paid (except that
in the event of any acceleration of the due date of such principal by reason of
mandatory or optional redemption or acceleration resulting from default or
otherwise, other than any advancement of maturity pursuant to a mandatory
sinking fund payment, the payments guaranteed hereby shall be made in such
amounts and at such times as such payments of principal would have been due had
there not been any such acceleration); and (ii) the reimbursement of any such
payment which is subsequently recovered from any owner pursuant to a final
judgment by a court of competent jurisdiction that such payment constitutes an
avoidable preference to such owner within the meaning of any applicable
bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding
sentence shall be referred to herein collectively as the "Insured Amounts."
"Obligations" shall mean:

                                  $108,985,000
            Business Finance Authority of the State of New Hampshire
                     5.45% Pollution Control Revenue Bonds
  (Public Service Company of New Hampshire Project - 2001 Tax-Exempt Series C)

      Upon receipt of telephonic notice, such notice subsequently confirmed in
writing by registered or certified mail, or upon receipt of written notice by
registered or certified mail, by the Insurer from the Paying Agent or any owner
of an Obligation the payment of an Insured Amount

                                       14
<PAGE>

for which is then due, that such required payment has not been made, the Insurer
on the due date of such payment or within one business day after receipt of
notice of such nonpayment, whichever is later, will make a deposit of funds, in
an account with State Street Bank and Trust Company, N.A., in New York, New
York, or its successor, sufficient for the payment of any such Insured Amounts
which are then due. Upon presentment and surrender of such Obligations or
presentment of such other proof of ownership of the Obligations, together with
any appropriate instruments of assignment to evidence the assignment of the
Insured Amounts due on the Obligations as are paid by the Insurer, and
appropriate instruments to effect the appointment of the Insurer as agent for
such owners of the Obligations in any legal proceeding related to payment of
Insured Amounts on the Obligations, such instruments being in a form
satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and
Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of
the Insured Amounts due on such Obligations, less any amount held by the Paying
Agent for the payment of such Insured Amounts and legally available therefor.
This policy does not insure against loss of any prepayment premium which may at
any time be payable with respect to any Obligation.

      As used herein, the term "owner" shall mean the registered owner of any
Obligation as indicated in the books maintained by the Paying Agent, the Issuer,
or any designee of the Authority for such purpose. The term owner shall not
include the Issuer or any party whose agreement with the Issuer constitutes the
underlying security for the Obligations.

      Any service of process on the Insurer may be made to the Insurer at its
offices located at 113 King Street, Armonk, New York 10504 and such service of
process shall be valid and binding.

      This policy is non-cancelable for any reason. The premium on this policy
is not refundable for any reason including the payment prior to maturity of the
Obligations.

      This policy has been endorsed as follows:

            It is further understood that this policy shall guarantee to the
owner or holder, as defined in the policy, the full and complete payments
required to be made by or on behalf of the Issuer if there occurs pursuant to
the terms of the Obligations an event which results in the loss of the tax
exempt status of the interest on the Obligations, including any principal,
interest or premium payments payable thereon, if any, as and when thereby
required.

            This endorsement forms a part of the policy to which it is attached,
effective on the inception date of the policy.

                                        MBIA INSURANCE CORPORATION

                                       15
<PAGE>

                                   Assignment

      For value received the undersigned sells, assigns and transfers this bond
to

(Name and Address of Assignee)

Social Security or Other Identifying Number of Assignee

and irrevocably appoints
attorney-in-fact to transfer it on the books kept for registration of the bond,
with full power of substitution.

                              NOTE: The signature to this assignment must
                              correspond with the name as written on the face of
                              the bond without alteration or enlargement or
                              other change and must be guaranteed by a
                              Participant in a Recognized Signature Guaranty
                              Medallion Program.

Dated:

Signature Guaranteed:

Participant in a Recognized Signature
Guaranty Medallion Program

By:

Authorized Signature

      (b) Details of the Bonds. The Bonds shall mature on May 1, 2021 in the
principal amount of $108,985,000 and shall bear interest at 5.45% per annum. The
Bonds shall be issued in fully registered form and shall be numbered from R-1
upwards in the order of their issuance, or in any other manner determined by the
Trustee. Each Bond shall be in the denomination of five thousand dollars
($5,000) or any multiple thereof. The Bonds shall be dated as of December 1,
2001. The interest on the Bonds shall be payable on May 1 and November 1 of each
year commencing on May 1, 2002. Interest payments shall be calculated on the
basis of a 360-day year consisting of twelve 30-day months. No Bond shall be
issued except in compliance with this Section 301.

                                       16
<PAGE>

      Bonds shall be signed on behalf of the Authority by the manual or
facsimile signatures of any two of the Chairman, Vice Chairman, Treasurer, and
Executive Director and the corporate seal of the Authority or a facsimile
thereof shall be engraved or otherwise reproduced thereon. The Certificate of
Authentication of the Trustee shall be manually signed on behalf of the Trustee.
No bonds shall be issued under this Agreement other than the Bonds.

      In case any officer whose signature or facsimile signature shall appear on
any Bond shall cease to be such officer before the delivery thereof, such manual
or facsimile signature shall nevertheless be valid and sufficient for all
purposes as if he or she had remained in office to the date of such delivery,
and any Bond may be signed by the persons who at the time of the execution
thereof shall be the proper officers to sign such Bond although at the date of
such Bond such persons may not have been such officers.

      (c) Cancellation and Destruction of Bonds. All Bonds paid or redeemed in
full, either at or before maturity, shall be delivered to the Trustee when such
payment or redemption is made, and such Bonds, and all Bonds surrendered in any
exchanges or transfers, shall thereupon be promptly canceled. All Bonds acquired
and owned by the Company and delivered to the Trustee for cancellation shall be
deemed paid and shall be promptly canceled. Bonds so canceled may at any time be
cremated or otherwise destroyed by the Trustee, which shall execute a
certificate of cremation or destruction in duplicate by the signature of one of
its authorized officers describing the Bonds so cremated or otherwise destroyed,
and one executed certificate shall be filed with the Authority and the other
executed certificate shall be retained by the Trustee.

      (d) Replacement Bonds. Replacement Bonds shall be issued pursuant to
applicable law as a result of the destruction, loss, wrongful taking or
mutilation of the Bonds. The costs of a replacement bond shall be paid or
reimbursed by the applicant, who shall indemnify the Authority, the Trustee and
the Company in such manner as they may require against all liability and expense
in connection therewith.

      (e) Registration of Bonds in the Book-Entry Only System.

                  (i) Notwithstanding any provision herein to the contrary, the
            provisions of this Subsection 301(e) and the Representation Letter
            (as defined below) shall apply with respect to any Bond registered
            to CEDE & CO. or any other nominee of The Depository Trust Company
            ("DTC") while the Book-Entry Only System (meaning the system of
            registration described in paragraph (ii) of this Subsection 301(e))
            is in effect.

                  (ii) The Bonds shall be issued in the form of a separate
            single authenticated fully registered Bond for each stated maturity
            in substantially the form set forth in Subsection 301(a). Any legend
            required to be on the Bonds by DTC may be added by the Trustee. On
            the date of original delivery thereof, the Bonds shall be registered
            in the registration books of the Trustee in the name of CEDE & CO.,
            as nominee of DTC as agent for the Authority in maintaining the

                                       17
<PAGE>

            Book-Entry Only System. With respect to Bonds registered in the
            registration books kept by the Trustee in the name of CEDE & CO., as
            nominee of DTC, the Authority, the Company and the Trustee shall
            have no responsibility or obligation to any Participant (which means
            securities brokers and dealers, banks, trust companies, clearing
            corporations and various other entities, some of whom or their
            representatives own DTC) or to any Beneficial Owner (which means,
            when used with reference to the Book-Entry Only System, the person
            who is considered the beneficial owner of the Bonds pursuant to the
            arrangements for book entry determination of ownership applicable to
            DTC) with respect to the following: (A) the accuracy of the records
            of DTC, CEDE & CO. or any Participant with respect to any ownership
            interest in the Bonds, (B) the delivery to or from any Participant,
            any Beneficial Owner or any other person, other than DTC, of any
            notice with respect to the Bonds, including any notice of
            redemption, or (C) the payment to any Participant, any Beneficial
            Owner or any other person, other than DTC, of any amount with
            respect to the principal of or premium, if any, or interest on the
            Bonds. The Trustee shall pay all principal of and premium, if any,
            and interest on the Bonds only to or upon the order of DTC, and all
            such payments shall be valid and effective fully to satisfy and
            discharge the Authority's obligations with respect to the principal
            of and premium, if any, and interest on such Bonds to the extent of
            the sum or sums so paid. No person other than DTC shall receive an
            authenticated Bond evidencing the obligation of the Authority to
            make payments of principal of and premium, if any, and interest
            pursuant to this Agreement. Upon delivery by DTC to the Trustee of
            written notice to the effect that DTC has determined to substitute a
            new nominee in place of CEDE & CO., the words "CEDE & CO." in this
            Agreement shall refer to such new nominee of DTC.

                  (iii) Upon receipt by the Trustee of written notice from DTC
            to the effect that DTC is unable or unwilling to discharge its
            responsibilities, the Trustee shall issue, transfer and exchange
            Bond certificates as requested by DTC in appropriate amounts and in
            authorized denominations, and whenever DTC requests the Authority
            and the Trustee to do so, the Trustee and the Authority will
            cooperate with DTC in taking appropriate action after reasonable
            notice (A) to arrange for a substitute bond depository willing and
            able upon reasonable and customary terms to maintain custody of the
            Bonds or, if no such substitute bond depository is available, (B) to
            make available Bond certificates registered in whatever name or
            names DTC shall designate.

                  (iv) In the event the Company desires to permit Beneficial
            Owners to be able to obtain Bond certificates, the Company may so
            notify DTC, the Authority and the Trustee, whereupon the Trustee
            shall issue, transfer and exchange Bond certificates as requested by
            DTC in appropriate amounts and in authorized denominations and DTC
            will notify the Participants of the availability through DTC of Bond
            certificates. Following such notice, the Company, the Trustee and
            the Authority will cooperate with DTC in taking appropriate action
            after reasonable notice to make available Bonds registered in
            whatever name or

                                       18
<PAGE>

            names DTC shall designate.

                  (v) Notwithstanding any other provision of this Agreement to
            the contrary, so long as any Bond is registered in the name of CEDE
            & CO., as nominee of DTC, all payments with respect to the principal
            of and premium, if any, and interest on such Bond and all notices
            with respect to such Bond shall be made and given, respectively, to
            DTC as provided in the Letter of Representation (the "Representation
            Letter"), from the Authority to DTC as in effect from time to time.

                  (vi) Notwithstanding any provision in Section 307 to the
            contrary, so long as all of the Bonds Outstanding are held in the
            Book-Entry Only System, if less than all of such Bonds are to be
            redeemed upon any redemption of Bonds hereunder, the particular
            Bonds or portions of Bonds to be redeemed shall be selected by DTC
            in such manner as DTC may determine.

      (f) Paying Agent. At the direction of the Company, the Authority may
appoint one or more paying agents, each of which will execute and deliver to the
Trustee an instrument in which such paying agent shall agree with the Trustee
that such paying agent shall hold in trust, for the benefit of the Bondowners,
all sums held by such paying agent for the payment of the principal of, premium,
if any, and interest on the Bonds.

      (g) Interest on Overdue Principal. Any overdue principal of any Bond shall
bear interest after its maturity or acceleration at the interest rate of the
Bonds.

      Section 302. Application of Bond Proceeds. The Authority shall loan the
proceeds of the Bonds to the Company by promptly causing (A) the accrued
interest, if any, to be deposited in the Bond Fund and (B) $108,985,000 to State
Street Bank and Trust Company, as trustee under the Refunding Trust Agreement,
to refund the 1991 Series B Bonds on a current basis. The Company represents and
warrants that (i) substantially all of the proceeds (within the meaning of the
1954 Code) of the 1983 Bonds and the 1986 Bonds were spent to pay directly or to
reimburse the Company for Project Costs; (ii) such Project Costs were incurred
by and were chargeable to the capital account of the Company; (iii) such Project
Costs are costs of "sewage or solid waste disposal facilities" or "air or water
pollution control facilities" within the meaning of Section 103(b)(4)(E) or (F)
of the 1954 Code incurred and paid after January 14, 1976; and (iv) such Project
Costs were for an "industrial facility" within the meaning of Paragraphs 2, VII
(d) and (e) of the Act. The Company shall pay expenses and costs of issuance of
the Bonds from its own funds.

      Section 303. Bond Fund. A Bond Fund is hereby established with the Trustee
for the account of the Company, and moneys shall be deposited therein as
provided in this Agreement. The Company hereby grants to the Trustee for the
benefit of the Bondowners a lien on and security interest in all deposits in the
Bond Fund. The moneys in the Bond Fund and any investments held as part of such
Fund shall be held in trust and, except as otherwise provided in Sections 304,
604 and 703, shall be applied by the Trustee solely to the payment of principal
of,

                                       19
<PAGE>

premium, if any, and interest on the Bonds. If at any time the amount in the
Bond Fund exceeds the amount necessary to pay or redeem the Bonds in full, and
all amounts owing or to be owing under this Agreement to the Authority and the
Trustee have been paid or provided for to the reasonable satisfaction of the
Trustee and the Authority, then the excess shall be paid to the Company except
as otherwise may be required by applicable law. When moneys in the Bond Fund are
to be applied to the payment of the Bonds, such moneys shall be transferred by
the Trustee to itself for the account of the Authority and shall then be so
applied. The Trustee shall pay out of the Bond Fund on each payment date the
amount required for the payment of principal of, premium, if any, and interest
on the Bonds payable on such date (whether at maturity, upon redemption, by
acceleration or otherwise).

      Section 304. Application of Moneys. If available moneys in the Bond Fund
are not sufficient on any day to pay all principal of, premium, if any, and
interest on the Outstanding Bonds then due or overdue, such moneys shall, after
payment of all amounts owing to the Trustee and the Authority under this
Agreement, be applied first to the payment of interest, including interest on
overdue principal, in the order in which the same became due (pro rata with
respect to interest which became due at the same time) and second to the pro
rata payment of principal and premium, if any, without regard to the order in
which the same became due, in each case pro rata among Bondowners. For this
purpose interest on overdue principal shall be treated as coming due on the
first day of each month. Whenever moneys are applied pursuant to this section,
such moneys shall be applied by the Trustee at such times, and from time to
time, as the Trustee in its discretion shall determine, having due regard to the
amount of such moneys available and the likelihood of additional moneys becoming
available for such application in the future. Whenever the Trustee shall
exercise such discretion it shall fix the date (which shall be the first day of
a month unless the Trustee shall deem another date more suitable) upon which
such application is to be made, and upon such date interest on the amounts of
principal paid on such date shall cease to accrue. The Trustee shall give such
notice as it may deem appropriate of the fixing of any such date. When interest
or a portion of the principal is to be paid on an overdue Bond, the Trustee may
require presentation of the Bond for endorsement of the payment.

      Section 305. Payments by the Company.

      (a) Debt Service. The Company shall pay to the Trustee for deposit in the
Bond Fund not later than 12:00 noon, New York City time, on the second Business
Day preceding each date on which payment of Debt Service shall become due on any
interest payment date, at maturity, upon redemption, by acceleration or
otherwise, an amount in immediately available funds on such date equal to the
payment then coming due less the amount, if any, then in the Bond Fund and
available to pay Debt Service. At any time when any principal of the Bonds is
overdue, the Company shall also have a continuing obligation to pay to the
Trustee for deposit in the Bond Fund an amount equal to interest on the overdue
principal, but the payments required under this section shall not otherwise bear
interest. The Company may make payments to the Bond Fund earlier than required
by this section, but such payments shall not affect the accrual of interest. If
any moneys are invested in accordance with this Agreement and a loss results
therefrom so that there are insufficient funds to pay principal of, premium, if
any, and interest on the Bonds when

                                       20
<PAGE>

due, the Company shall supply the deficiency.

      (b) Additional Payments.

                  (i) The Company shall pay when due the Authority's Service
            Charge and other expenses as provided in Section 803.

                  (ii) Within thirty (30) days after notice from the Trustee,
            the Company shall pay to the Trustee the reasonable fees and
            expenses of the Trustee as set forth in Section 703 and other
            indemnified or reimbursable amounts.

      (c) Unclaimed Moneys. Except as may otherwise be required by applicable
law, in case any moneys deposited with the Trustee for the payment of the
principal of, premium, if any, or interest on any Bond remain unclaimed for
three years after such principal, premium, if any, or interest has become due
and payable, the Trustee may, and upon receipt of a written request of the
Company Representative shall, pay over to the Company the amount so deposited
and thereupon the Trustee and the Authority shall be released from any further
liability with respect to the payment of such principal, premium or interest,
and the owner of such Bond shall be entitled (subject to any applicable statute
of limitations) to look only to the Company as an unsecured creditor for the
payment thereof.

      (d) Rebate. The Company shall pay to the United States when due any rebate
with respect to the Bonds pursuant to IRC ss.148(f).

      Section 306. Unconditional Obligation. The obligation of the Company to
make payments under this Agreement shall be absolute and unconditional, shall be
binding and enforceable in all circumstances whatsoever as provided in the Act
and shall not be subject to set-off, recoupment or counterclaim, and shall be a
general obligation of the Company to which the full faith and credit of the
Company are pledged. The Company shall be obligated to make such payments
whether or not the Project Facilities have ceased to exist or be functional to
any extent from any cause whatsoever. The Company shall be obligated to make
such payments regardless of whether it is in possession or entitled to be in
possession of the Project Facilities.

      Section 307. Redemption of the Bonds. The Bonds shall be subject to
redemption prior to maturity under the circumstances, in the manner and subject
to the conditions provided in this section and in the form of Bonds. Whenever
Bonds are called for redemption, the accrued interest thereon shall become due
on the redemption date. Transfers and payments for the purpose of redeeming
Bonds under this Agreement shall be made on behalf of the Authority, and the
Authority hereby consents to any redemption of Bonds in accordance herewith.
Except as otherwise provided in Subsection 301(e), if less than all of the Bonds
are to be redeemed, the Bonds to be redeemed shall be selected by the Trustee by
lot or in any customary manner as determined by the Trustee. For this purpose
each $5,000 portion of a Bond shall be treated as a separate Bond.

      (a) Optional Redemption. The Outstanding Bonds are subject to redemption
prior to

                                       21
<PAGE>

maturity on or after May 1, 2012, at the option of the Company, as a whole or in
part at any time, at the following prices expressed as percentages of their
principal amount, plus accrued interest to the redemption date:

<TABLE>
<CAPTION>
      Period During Which Redeemed            Redemption Price
      ----------------------------            ----------------
<S>                                           <C>
      May 1, 2012 through April 30, 2013            101%

      May 1, 2013 and thereafter                    100
</TABLE>

      (b) Mandatory Taxability Redemption. The Outstanding Bonds are subject to
mandatory redemption at any time at a redemption price of 100% of the principal
amount of the Bonds so redeemed plus accrued interest to the date of redemption
in the event (i) the Company delivers to the Trustee and the Bond Insurer an
opinion of Bond Counsel stating that interest on the Bonds is or will become
includable in gross income of the owners thereof for federal income tax
purposes, or (ii) it is finally determined by the Internal Revenue Service or a
court of competent jurisdiction, as a result of (A) a proceeding in which the
Company has participated or been given notice and an opportunity to participate,
and (B) either a failure by the Company or the Seabrook Transferee to observe
any covenant or agreement undertaken in or pursuant to this Agreement or a
Seabrook Transfer, or the inaccuracy of any representation made by the Company
or the Seabrook Transferee in or pursuant to this Agreement or a Seabrook
Transfer, that interest payable on the Bonds is includable for federal income
tax purposes in the gross income of any owner thereof (other than an owner which
is a "substantial user" or a "related person" within the meaning of IRC Section
147(a)). Any determination under clause (ii) above will not be considered final
for this purpose until the earliest of the conclusion of any appellate review,
the denial of appellate review or the expiration of the period for seeking
appellate review. Redemption under this Subsection 307(b) shall be in whole
unless, not later than forty-five (45) days prior to the redemption date, the
Company delivers to the Trustee an opinion of Bond Counsel to the effect that a
redemption of less than all of the Bonds will preserve the tax-exempt status of
interest on the remaining Bonds outstanding subsequent to such redemption. Any
redemption under this Subsection 307(b) shall be made on the 60th day after the
date on which the opinion described in clause (i) is delivered or the
determination described in clause (ii) becomes final or on such earlier date as
the Company may designate by notice given to the Trustee at least forty-five
(45) days prior to such designated date. If such redemption shall occur in
accordance with the terms of this Agreement, then such failure by the Company or
the Seabrook Transferee to observe such covenant or agreement, or the inaccuracy
of any such representations will not, in and of itself, constitute a Default
hereunder.

      If the Trustee receives written notice from any Bondowner stating that (I)
such Bondowner has been notified in writing by the Internal Revenue Service that
it proposes to include the interest on the Bonds in the gross income of such
owner for federal income tax purposes, or any other proceeding has been
instituted against such owner which may lead to a like determination, and (II)
such owner will afford the Company the opportunity to participate at its own
expense in the proceeding, either directly or in the name of such owner, until
the conclusion of any appellate review, and the Trustee has examined such
written notice and it

                                       22
<PAGE>

appears to be accurate on its face, then the Trustee shall promptly give notice
thereof to the Company, the Authority, and each Bondowner whose Bonds may be
affected. The Trustee shall thereafter keep itself reasonably informed of the
progress of any administrative proceedings or litigation relating to such
notice.

      (c) Notice to the Trustee. The Company shall exercise its option to have
Bonds redeemed under Subsection 307(a) by giving written notice to the Trustee
at least forty-five (45) days before the redemption date. The Company shall keep
the Trustee informed of the progress of any proceeding referred to in Subclause
307(b)(ii)(A) and shall give written notice to the Trustee within forty-five
(45) days after it has actual knowledge of a final determination as described in
Clause 307(b)(ii).

      (d) Payment of Redemption Price and Accrued Interest. Whenever Bonds are
called for redemption, the accrued interest thereon shall become due on the
redemption date and shall be paid from the Bond Fund to the extent available
therein. To the extent not otherwise provided, the Company shall deposit with
the Trustee on the second Business Day preceding the redemption date a
sufficient sum to pay the redemption price and accrued interest.

      (e) Notice of Redemption. When Bonds are to be redeemed, the Trustee shall
give notice to Bondowners in the name of the Authority as provided in the form
of Bond and this Subsection 307(e), which notice shall identify the Bonds or
portions thereof to be redeemed and state the date fixed for redemption and the
place or places of payment of the redemption price. The notice shall further
state that on such date there shall become due and payable upon each Bond or
portion thereof to be redeemed the redemption price thereof, together with
interest accrued to the redemption date, that money available therefor having
been deposited with the Trustee, from and after such date, interest thereon
shall cease to accrue and that the Bonds or portions thereof called for
redemption shall cease to be entitled to any benefit under this Agreement except
the right to receive payment of the redemption price. Failure to mail notice to
a particular Bondowner, or any defect in the notice to such Bondowner, shall not
affect the redemption of any other Bond.

                                       23
<PAGE>

      Section 308. Investments.

      (a) Pending their use under this Agreement, moneys in the Bond Fund may be
invested or reinvested by the Trustee at the written direction of the Company
Representative (upon which the Trustee may conclusively rely) in Permitted
Investments, as defined below, with maturities at or before the time when such
moneys are required to be available and shall be so invested upon and pursuant
to written direction of the Company if no Default known to the Trustee then
exists under this Agreement; provided that the Company shall not request,
authorize or permit any investment which would cause any of the Bonds to be
classified as "arbitrage bonds" as defined in IRC ss.148(a). Any investments and
proceeds thereof shall be held by the Trustee as part of the Bond Fund and shall
be sold or redeemed at the direction of the Company to the extent necessary to
make payments or transfers or anticipated payments or transfers from such Fund.

      (b) Any interest or dividends realized from an investment and any profit
realized upon the sale or disposition thereof shall be credited to the Bond Fund
and any loss shall be charged thereto.

      (c) (1) The term "Permitted Investments" means (A) Direct obligations of
the United States of America (including obligations issued or held in book-entry
form on the books of the Department of the Treasury, and CATS and TIGRS) or
obligations the principal of and interest on which are unconditionally
guaranteed by the United States of America; (B) Bonds, debentures, notes or
other evidence of indebtedness issued or guaranteed by any of the following
federal agencies and provided such obligations are backed by the full faith and
credit of the United States of America (stripped securities are only permitted
if they have been stripped by the agency itself):

                  (i) U.S. Export-Import Bank (Eximbank) - Direct obligations or
            fully guaranteed certificates of beneficial ownership;

                  (ii) Farmers Home Administration (FmHA) - Certificates of
            beneficial ownership;

                  (iii) Federal Financing Bank

                  (iv) Federal Housing Administration Debentures (FHA)

                  (v) General Services Administration - Participation
            certificates

                  (vi) Government National Mortgage Association (GNMA or "Ginnie
            Mae") - GNMA - guaranteed mortgage-backed bonds and GNMA -
            guaranteed pass-through obligations

                  (vii) U.S. Maritime Administration - Guaranteed Title XI
            financing

                                       24
<PAGE>

                  (viii) U.S. Department of Housing and Urban Development (HUD)
            - Project Notes, Local Authority Bonds, New Communities Debentures -
            U.S. government guaranteed debentures, U.S. Public Housing Notes and
            Bonds - U.S. government guaranteed public housing notes and bonds;

      (C) Bonds, debentures, notes or other evidence of indebtedness issued or
guaranteed by any of the following non-full faith and credit U.S. government
agencies (stripped securities are only permitted if they have been stripped by
the agency itself):

                  (i) Federal Home Loan Bank System - Senior debt obligations

                  (ix) Federal Home Loan Mortgage Corporation (FHLMC or "Freddie
            Mac") - Participation Certificates and Senior debt obligations

                  (x) Federal National Mortgage Association (FNMA or "Fannie
            Mae") - Mortgage-backed securities and senior debt obligations

                  (xi) Student Loan Marketing Association (SLMA or "Sallie Mae")
            - Senior debt obligations

                  (xii) Resolution Funding Corp. (REFCORP) obligations, and

                  (xiii) Farm Credit System - Consolidated systemwide bonds and
            notes;

      (D) Money market funds registered under the Federal Investment Company Act
of 1940, whose shares are registered under the Federal Securities Act of 1933,
and having a rating by S&P of AAAm-G; AAAm; or Aam; (E) Certificates of deposit
secured at all times by collateral described in (A) and/or (B) above. Such
certificates must be issued by commercial banks, savings and loan associations
or mutual savings banks. The collateral must be held by a third party and the
bondholders must have a perfected first security interest in the collateral; (F)
Certificates of deposit, savings accounts, deposit accounts or money market
deposits which are fully insured by FDIC, including BIF and SAIF; (G) Investment
Agreements, including GIC's, acceptable to the Bond Insurer; (H) Commercial
paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or better
by S&P; (I) Bonds or notes issued by any state or municipality which are rated
by Moody's and S&P in one of the two highest rating categories assigned by such
agencies; (J) Federal funds or bankers acceptances with a maximum term of one
year of any bank which has an unsecured, uninsured and unguaranteed obligation
rating of "Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by
S&P; and (K) Repurchase agreements acceptable to the Bond Insurer.

      (2) Notwithstanding the immediately preceding paragraph Permitted
Investments shall not include the following:

                  (i) obligations the principal of and interest on which are
            unconditionally guaranteed by the United States of America,
            certificates of

                                       25
<PAGE>

            deposit and bankers' acceptances, in each case with yields lower
            than the yield available on comparable obligations of the United
            States Treasury; or

                  (xiv) any demand deposit or similar account with a bank, trust
            company or broker, unless the account is used for holding funds for
            a short period of time until such funds are reinvested or spent.

      Any of the requirements of this paragraph (2) shall not apply to moneys as
to which the Trustee and the Authority shall have received an opinion of
nationally recognized bond counsel to the effect that such requirements are not
necessary to preserve the exclusion of interest on Bonds from the gross income
of the owner thereof for federal income tax purposes. Any such Permitted
Investments obtained from or through or issued by the Trustee in its commercial
banking capacity, or from or by any of its affiliates, shall be permitted
(provided that such investment otherwise qualifies in accordance with the
definition of "Permitted Investments").

      Section 309. Tax Status of Bonds. The Company will perform its obligations
and agreements contained in the Federal Tax Statement as if they were set forth
herein. All representations of the Company in the Federal Tax Statement shall be
treated as if they were set forth herein. Any covenants, agreements or
representations made by the Company or any transferee of the Project Facilities
(or any successor to such a transferee) in connection with such a transfer shall
be performed and treated as if set forth herein. The Authority will cooperate
with the Bondowners and the Company to the extent deemed necessary or permitted
by law in the opinion of bond counsel to the Authority in order to preserve the
exclusion of interest on the Bonds from the gross income of the owners thereof
for federal income tax purposes.

      Section 310. Payment Procedure Pursuant to Bond Insurance Policy. In the
event that, on the second Business Day, and again on the Business Day, prior to
the payment date on the Bonds, the Trustee has not received sufficient moneys to
pay all principal of and interest on the Bonds due on the second following or
following, as the case may be, Business Day, the Trustee shall immediately
notify the Bond Insurer or its designee on the same Business Day by telephone,
facsimile or telegraph, confirmed in writing by registered or certified mail, of
the amount of the deficiency.

      (a) If the deficiency is made up in whole or in part prior to or on the
payment date, the Trustee shall so notify the Bond Insurer or its designee.

      (b) In addition, if the Trustee has actual notice that any Bondowner has
been required to disgorge payments of principal or interest on the Bond to a
trustee in bankruptcy or creditors or others pursuant to a final judgment by a
court of competent jurisdiction that such payment constitutes an avoidable
preference to such Bondowner within the meaning of any applicable bankruptcy
laws, then the Trustee shall notify the Bond Insurer or its designee of such
fact by telephone, facsimile or telegraphic notice, confirmed in writing by
registered or certified mail.

      (c) The Trustee is hereby irrevocably designated, appointed, directed and
authorized

                                       26
<PAGE>

to act as attorney-in-fact for Bondowners as follows:

            (i) If and to the extent there is a deficiency in amounts required
      to pay interest on the Bonds, the Trustee shall (a) execute and deliver to
      State Street Bank and Trust Company, N.A., or its successors under the
      Bond Insurance Policy (the "Insurance Paying Agent"), in form reasonably
      satisfactory to the Insurance Paying Agent, an instrument appointing the
      Bond Insurer as agent for such Bondowners in any legal proceeding related
      to the payment of such interest and an assignment to the Bond Insurer of
      the claims for interest to which such deficiency relates and which are
      paid by the Bond Insurer, (b) receive as designee of the respective
      Bondowners (and not as Trustee) in accordance with the tenor of the Bond
      Insurance Policy payment from the Insurance Paying Agent with respect to
      the claims for interest so assigned, and (c) disburse the same to such
      respective Bondowners ; and

            (ii) If and to the extent of a deficiency in amounts required to pay
      principal of the Bonds, the Trustee shall (a) execute and deliver to the
      Insurance Paying Agent in form reasonably satisfactory to the Insurance
      Paying Agent an instrument appointing the Bond Insurer as agent for such
      Bondowners in any legal proceeding relating to the payment of such
      principal and an assignment to the Bond Insurer of any of the Bonds
      surrendered to the Insurance Paying Agent of so much of the principal
      amount thereof as has not previously been paid or for which moneys are not
      held by the Trustee and available for such payment (but such assignment
      shall be delivered only if payment from the Insurance Paying Agent is
      received), (b) receive as designee of the respective Bondowners (and not
      as Trustee) in accordance with the tenor of the Bond Insurance Policy
      payment therefor from the Insurance Paying Agent, and (c) disburse the
      same to such Bondowners.

      (d) Payments with respect to claims for interest on and principal of Bonds
disbursed by the Trustee from proceeds of the Bond Insurance Policy shall not be
considered to discharge the obligation of the Authority with respect to such
Bonds, and the Bond Insurer shall become the owner of such unpaid Bonds and
claims for the interest in accordance with the tenor of the assignment made to
it under the provisions of this section or otherwise.

      (e) Irrespective of whether any such assignment is executed and delivered,
the Authority and the Trustee hereby agree for the benefit of the Bond Insurer
that:

            (i) They recognize that to the extent the Bond Insurer makes
      payments, directly or indirectly (as by paying through the Trustee), on
      account of principal of or interest on the Bonds, the Bond Insurer will be
      subrogated to the rights of such Owners to receive the amount of such
      principal and interest from the Authority, with interest thereon as
      provided and solely from the sources stated in this Agreement and the
      Bonds; and

            (ii) They will accordingly pay to the Bond Insurer the amount of
      such principal

                                       27
<PAGE>

      and interest (including principal and interest recovered under
      subparagraph (ii) of the first paragraph of the Bond Insurance Policy,
      which principal and interest shall be deemed past due and not to have been
      paid), with interest thereon as provided in this Agreement and the Bonds,
      but only from the sources and in the manner provided herein for the
      payment of principal of and interest on the Bonds to Bondowners, and will
      otherwise treat the Bond Insurer as the owner of such rights to the amount
      of such principal and interest.

      (f) Copies of any amendments made to the documents executed in connection
with the issuance of the Bonds which are consented to by the Bond Insurer shall
be sent to S&P.

      (g) The Bond Insurer shall receive notice of the resignation or removal of
the Trustee and the appointment of a successor thereto.

      (h) The Bond Insurer shall receive copies of all notices required to be
delivered to Bondowners and, on an annual basis, the Company shall provide to
the Bond Insurer copies of the Company's audited financial statements and annual
budget.

      (i) Any notice that is required to be given to an owner of the Bonds or to
the Trustee or by any party pursuant to this Agreement shall also be provided to
the Bond Insurer. All notices required to be given to the Bond Insurer under
this Agreement shall be in writing and shall be sent by registered or certified
mail addressed to MBIA Insurance Corporation, 113 King Street, Armonk, NY 10504,
Attention: Surveillance.

      Section 311. The Bond Insurer. Except as provided in Subsection 608(b),
anything in this Agreement to the contrary notwithstanding, the Bond Insurer
shall be deemed to be the owner of the Bonds for purposes of giving consents
(including consent to amendments to this Agreement other than those requiring
unanimous consent of the affected Bondowners), notices, directions and waivers
to the Company, the Authority and the Trustee under this Agreement.

      (j) Except as provided in Subsection 608(b), the Bond Insurer, acting
alone, shall have the right to direct all remedies pursuant to Section 602(b) in
an Event of Default, subject to the terms of the Agreement.

                                       28
<PAGE>

                            ARTICLE IV. THE PROJECT

      Section 401. Company not to Impair Tax Status; Use of Project Facilities.
Notwithstanding any provision herein to the contrary, the Company did not and
will not use any of the proceeds of the 1983 Bonds, the 1986 Bonds, the 1991
Series B Bonds or the Loan (or the income earned through the investment thereof,
if any) and did not take or omit any action or permit any action to be taken or
omitted with the result that interest on the Bonds is included in the gross
income of the owners thereof for federal income tax purposes. The use of the
Project Facilities (or facilities replacing the same) is in furtherance of the
purpose of air or water pollution control or sewage or solid waste disposal and
in compliance with the Act.

      Section 402. Qualification of Project Facilities. Notwithstanding any
provision herein to the contrary, the Company did not permit the Project
Facilities to fail to qualify as (a) "industrial facilities" under the Act, and
(b) a facility described in Section 1312(a) of the Tax Reform Act of 1986, or
(c) "sewage or solid waste disposal facilities" or "air or water pollution
control facilities" within the meaning of Section 103(b)(4)(E) or (F) of the
1954 Code. No funds of the Authority, other than the proceeds of the Bonds,
shall be available to pay Project Costs. The Company acknowledges that it is not
relying on any representation of any kind by the Authority or the Trustee
concerning the nature or condition of the Project Facilities. Neither the
Authority nor the Trustee shall be liable to the Company or any other person for
any latent or patent defect in the Project Facilities.

      Section 403. Reserved .

      Section 404. Reserved.

      Section 405. Disposition and Use of Project Facilities. The Company has
transferred its interest in the Project Facilities to NAEC. NAEC is expected to
transfer the Project Facilities to an unaffiliated party pursuant to an order of
the New Hampshire Public Utilities Commission. No Bonds shall be issued under
this Agreement until the Authority, the Company, the Trustee and NAEC have
executed and delivered a Series C Seabrook Pollution Control Facilities
Agreement substantially in the form attached hereto as Exhibit B (such Agreement
and each subsequent agreement providing for a Seabrook Transfer, a "Facilities
Agreement"). No sale, lease, transfer or other disposition of the Project
Facilities or the Station shall relieve the Company of any of its obligations
under this Agreement.

                                       29
<PAGE>

                 ARTICLE V. ADDITIONAL COVENANTS OF THE COMPANY

      Section 501. Existence and Good Standing; Merger; Consolidation; Notice to
Trustee. The Company will maintain its corporate existence, qualification to do
business and good standing under the laws of the State of New Hampshire and will
maintain itself as a foreign corporation duly qualified to do business and in
good standing, where applicable, in each jurisdiction in which the failure to so
qualify would have a material adverse effect upon its business or properties.
The Company shall not merge or consolidate with or sell all or substantially all
of its assets to another entity, except that the Company may so merge or
consolidate with or sell all or substantially all of its assets to another
corporation if (i) the surviving or transferee corporation is qualified to do
business in New Hampshire, (ii) the surviving or transferee corporation (if not
the Company) has assumed in writing all of the Company's obligations hereunder
and under the Series K First Mortgage Bonds, and (iii) upon such assumption
there will not be a Default hereunder or under the First Mortgage Indenture
(disregarding any required passage of time or giving of notice thereunder). The
Company shall not change its name or reorganize or change its legal structure,
or merge or consolidate with or sell all or substantially all its assets to
another entity, without at least thirty (30) days prior written notice to the
Trustee (unless the Trustee agrees to a shorter period).

      Section 502. Indemnification by the Company. The Company, regardless of
any agreement to maintain insurance, shall and does hereby indemnify the
Authority and the Trustee against (a) any and all claims by any person related
to the participation of the Authority or the Trustee in the transactions
contemplated by this Agreement, including without limitation claims arising out
of any condition of the Project Facilities or Station or the construction, use,
occupancy or management thereof; any accident, injury or damage to any person
occurring in or about the Station; any breach by the Company of its obligations
under this Agreement; any act or omission of the Company or any of its agents,
contractors, servants, employees or licensees; or the offering, issuance, sale
or any resale of the Bonds to the extent permitted by law, and (b) all costs,
counsel fees, expenses or liabilities reasonably incurred in connection with any
such claim or any action or proceeding brought thereon. In case any action or
proceeding is brought against the Authority or the Trustee by reason of any such
claim, the Company will defend the same at its expense upon notice from the
Authority or the Trustee, and the Authority or the Trustee, as the case may be,
will cooperate with the Company, at the expense of the Company, in connection
therewith.

      Section 503. Continuing Disclosure. The Company and the Trustee hereby
covenant and agree that each will comply with and carry out all of the
provisions of the Continuing Disclosure Agreement applicable to it and this
Section 503 of this Agreement. The Authority shall have no liability to the
owners of the Bonds or any other person with respect to such disclosure matters.
Notwithstanding any other provision of this Agreement, failure of the Company or
the Trustee to comply with the Continuing Disclosure Agreement shall not be
considered an Event of Default; however, the Trustee may (and, at the request of
the owners of at least 25% aggregate principal amount of Outstanding Bonds,
shall) or any owner (including a beneficial owner) of Bonds may seek specific
performance of the Company's or the Trustee's obligations to comply with the
Continuing Disclosure Agreement or this Section 503 and not for

                                       30
<PAGE>

money damages in any amount.

                        ARTICLE VI. DEFAULT AND REMEDIES

      Section 601. Default.

      (a) Events of Default; Default. "Event of Default" in this Agreement means
any one of the events set forth below and "Default" means any Event of Default
without regard to any lapse of time or notice.

                  (i) Debt Service on Bonds. Any payment of interest, principal
            or premium on the Bonds shall not be paid when the same becomes due
            and payable.

                  (ii) Other Obligations. The Company shall fail to observe or
            perform any of its other covenants or agreements contained herein,
            or the Seabrook Transferee shall fail to observe or perform any of
            its covenants or agreements related to the Project Facilities
            contained in the Facilities Agreement, and such failure shall
            continue for a period of sixty (60) days after written notice given
            to the Company by the Trustee, the Bond Insurer or the Bondowners of
            at least 25% in principal amount of the Bonds Outstanding; provided,
            however, that if such Default cannot be cured by the Company or the
            Seabrook Transferee within such sixty-day period, it shall not
            constitute an Event of Default if, with the written consent of the
            Bond Insurer (which shall not be unreasonably withheld), curative
            action is instituted by the Company or the Seabrook Transferee
            within such sixty-day period and thereafter is diligently pursued
            until such Default is cured.

                  (iii) First Mortgage Bond Default. The occurrence of any
            "event of default" as defined in the First Mortgage Bond Indenture.

                  (iv) Bond Insurance Agreement Default. The Trustee shall have
            received written notice from the Bond Insurer of the occurrence of
            any "Event of Default" as defined in the Bond Insurance Agreement.

      The Company agrees to notify the Authority, the Trustee and the Bond
Insurer promptly in writing of the occurrence of any Default or Event of Default
of which it has knowledge. Immediately after becoming aware of an Event of
Default under (i) above, or within five (5) days or the next Business Day if
such fifth day is not a Business Day after becoming aware of a Default or an
Event of Default under (ii), (iii), or (iv) above, the Trustee will give notice
to the Bondowners and, in the case of an Event of Default under (i), (ii) or
(iv) above, to the First Mortgage Bond Trustee.

      Notwithstanding anything in this section to the contrary, no action or
failure to act by the Company or the Seabrook Transferee which results in
interest on the Bonds becoming includable in gross income of the owners thereof
for federal income tax purposes shall constitute a Default or Event of Default
under this Agreement so long as (I) the Company shall have delivered the

                                       31
<PAGE>

opinion described in clause (i) of Subsection 307(b) or shall have complied with
the second sentence of Subsection 307(c) and (II) the redemption provided by
Subsection 307(b) occurs. In such event, no Bondowner shall be entitled to any
claim for monetary damages hereunder and the redemption of the Bonds as provided
under Subsection 307(b) shall be the exclusive recourse of Bondowners.

      (b) Waiver. At any time before an acceleration pursuant to Section 602,
the Trustee may waive a Default (other than a Default in the payment of
principal of, premium, if any, or interest on the Bonds) and its consequences,
with the written consent of the Bond Insurer, by written notice to the Company,
and in the absence of any inconsistent instructions from Bondowners pursuant to
Sections 605 or 901 shall do so, with the written consent of the Bond Insurer,
upon written instruction of the owners of at least twenty-five per cent (25%) in
principal amount of the Outstanding Bonds. No waiver under this section shall
affect the right of the Trustee or the Authority to enforce the payment of any
amounts owing to it.

      Any cure or waiver of any "event of default" under the First Mortgage Bond
Indenture and a rescission and annulment of its consequences shall constitute a
cure or waiver of the corresponding Event of Default under Paragraph 601(a)(iii)
and a rescission and annulment of the consequences thereof, and the Trustee,
upon obtaining knowledge thereof, shall give written notice of such cure or
waiver, rescission or annulment to the Authority and the Company, and shall give
notice thereof by mail to all Bondowners; but no such cure or waiver, rescission
and annulment shall extend to or affect any subsequent Event of Default or
impair any right or remedy consequent thereon.

      Section 602. Remedies for Events of Default. If an Event of Default occurs
and is continuing:

      (a) Acceleration. With the written consent of the Bond Insurer, the
Trustee may, and upon the written request of the Bondowners of at least 25% in
principal amount of the Bonds Outstanding shall, by written notice to the
Authority and the Company, declare immediately due and payable the principal
amount of the Outstanding Bonds and accrued interest thereon, whereupon the same
shall become immediately due and payable without any further action or notice.

      If at any time after such acceleration and before any judgment or decree
for the payment of moneys with respect thereto has been entered all amounts
payable hereunder except principal of and interest on the Bonds which are due
solely by reason of such acceleration shall have been paid or provided for by
deposit with the Trustee and all existing Defaults shall have been cured or
waived, then the Bondowners representing a majority in principal amount of the
Bonds Outstanding may annul such acceleration and its consequences by written
notice to the Authority, the Trustee and the Company. Such annulment shall be
binding upon the Authority, the Trustee and all of the Bondowners, but no such
annulment shall extend to or affect any subsequent Default or impair any right
or remedy consequent thereto.

      (b) Rights as a Secured Party. The Trustee may, with the written consent
of the Bond

                                       32
<PAGE>

Insurer and shall at the written direction of the Bond Insurer, exercise all of
the rights and remedies of a secured party under the UCC, subject to the terms
of this Agreement. Notice sent by registered or certified mail, postage prepaid,
or delivered during business hours, to the Company at least seven (7) days
before an event under UCC Section 9-611(b) or any successor provision of law
shall constitute reasonable notification of such event.

      Section 603. Court Proceedings. The Trustee and the Bond Insurer may
enforce the provisions of this Agreement by appropriate legal proceedings for
the specific performance of any covenant, obligation or agreement contained
herein whether or not a Default or an Event of Default exists, or for the
enforcement of any other appropriate legal or equitable remedy, and may recover
damages caused by any breach by the Company of the provisions of this Agreement,
including (to the extent this Agreement may lawfully provide) court costs,
reasonable attorney's fees and other costs and expenses incurred in enforcing
the obligations of the Company hereunder. The Authority may likewise enforce
obligations owed to it hereunder which it has not assigned to the Trustee. All
rights under this Agreement and the Bonds may be enforced by the Trustee without
the possession of any Bonds or the production thereof at the trial or other
proceedings relative thereto, and any proceeding instituted by the Trustee shall
be brought in its name for the ratable benefit of the Bondowners.

      Section 604. Revenues after Default. After the occurrence of an Event of
Default, any funds pledged as security hereunder and any other moneys received
by the Trustee (other than amounts irrevocably set aside to pay particular
Bonds), after payment or reimbursement of the reasonable expenses of the Trustee
and the Authority in connection therewith shall be applied, first, to any other
amounts owing to the Trustee; second, to any other amounts owing to the
Authority other than the Authority's Service Charge; third, to amounts due under
Section 305(a), which amounts shall be applied to the payment of principal of,
premium, if any, and interest on the Bonds in the order specified in Section
304; fourth, to the Authority's Service Charge; and fifth, to other obligations
of the Company hereunder in such order as determined by the Trustee. Any amounts
remaining after the satisfaction of all obligations of the Company hereunder
shall be paid to the Company.

      Section 605. Rights of Bondowners. If an Event of Default occurs and is
continuing, and if the Bondowners representing not less than 25% in principal
amount of the Bonds Outstanding shall have requested the Trustee in writing to
exercise one or more of the rights and remedies provided hereunder and offered
it indemnity as provided in Subsection 702(e), the Trustee shall be required to
exercise such one or more of the rights and remedies hereunder as the Trustee
shall determine to be in the best interest of the Bondowners and not
inconsistent with any directions given in accordance with Section 901. No
Bondowner shall have any right to institute an action in law or equity or to
pursue any other remedy hereunder with respect to any Bond unless (i) an Event
of Default of which the Trustee has been notified has occurred and Bondowners
representing not less than 25% in principal amount of the Bonds Outstanding
shall have requested the Trustee in writing to exercise its rights and remedies
with respect thereto and shall have offered the Trustee reasonable opportunity
to do so and indemnity as provided in Subsection 702(e), and (ii) the Trustee
shall within a reasonable time thereafter fail to exercise any of such rights or
remedies. No Bondowner shall have any right to institute any action or

                                       33
<PAGE>

pursue any other remedy if and to the extent that the surrender, impairment,
waiver, or loss of the lien of this Agreement would, under applicable law,
result. Notwithstanding the foregoing, each Bondowner shall have a right of
action to enforce payment of the Bonds at and after the due date thereof at the
place, from the sources and in the manner expressed in the Bonds.

      Section 606. Performance of Company's Obligations. If the Company shall
fail to observe or perform any of its agreements or obligations hereunder, the
Authority or the Trustee may perform the same in its own name or in the
Company's name and each is hereby irrevocably appointed the Company's
attorney-in-fact for such purpose. Unless an Event of Default exists, the
Authority or the Trustee, as the case may be, shall give at least five (5) days
notice to the Company before taking action under this section, except that in
case of emergency as reasonably determined by the acting party, it may act on
lesser notice or give the notice promptly after rather than before taking the
action. The reasonable cost of any such action performed by the Trustee or the
Authority shall be paid or reimbursed by the Company within thirty (30) days
after the Trustee or the Authority notify the Company of such cost.

      Section 607. Remedies Cumulative; No Waiver. The rights and remedies under
this Agreement shall be cumulative and shall not exclude any other rights and
remedies allowed by law, provided there is no duplication of recovery. Neither
the failure to insist upon a strict performance of any of the obligations of the
Company, nor the failure to exercise any remedy for any violation thereof, shall
be taken as a waiver for the future of the right to insist upon strict
performance of the obligation or to exercise any remedy for the violation.

Section 608. Rights of Bond Insurer.

      (a) Anything in this Agreement to the contrary notwithstanding, except as
provided in subsection (b), upon the occurrence and continuance of an Event of
Default, the Bond Insurer shall be entitled to control and direct the
enforcement of all rights and remedies granted to the Bondowners or the Trustee
for the benefit of the Bondowners under this Agreement, including, without
limitation, acceleration of the principal of the Bonds as described in this
Agreement and the right to annul any declaration of acceleration, and the Bond
Insurer shall also be entitled to approve all waivers of Events of Default with
respect to the Bonds.

      (b) Anything in this Agreement to the contrary notwithstanding, the
provisions contained in this Section 608 and all other rights and remedies
granted to the Bond Insurer under this Agreement shall be null and void upon the
happening and during the continuance of any of the following (a "Bond Insurer
Default"): (1) a Bond Insurer Event of Insolvency, except to the extent of
payments made by the Bond Insurer under the Bond Insurance Policy which are not
voidable preferences; or (2) failure of the Bond Insurer to pay in accordance
with the Bond Insurance Policy, except to the extent of prior payments made by
the Bond Insurer under the Bond Insurance Policy which are not voidable
preferences.

                                       34
<PAGE>

                            ARTICLE VII. THE TRUSTEE

      Section 701. Corporate Organization, Authorization and Capacity. The
Trustee represents and warrants that it is a trust company duly organized and
validly existing under the laws of The Commonwealth of Massachusetts and duly
licensed in Massachusetts, with the capacity to exercise the powers and duties
of the Trustee hereunder, and that by proper corporate action it has duly
authorized the execution and delivery of this Agreement.

      Section 702. Rights and Duties of the Trustee.

      (a) Moneys to be Held in Trust. All moneys deposited with the Trustee
under this Agreement (other than amounts received for its own use) shall be held
by the Trustee in trust and applied subject to the provisions of this Agreement,
but need not be segregated from other funds except as required herein or by law.

      (b) Accounts. The Trustee shall keep proper accounts of its transactions
hereunder (separate from its other accounts), which shall be open to inspection
at reasonable times and upon reasonable advance written request by the
Authority, the Company, the Bond Insurer and the Bondowners and their
representatives duly authorized in writing.

      (c) Performance of the Authority's Obligations. If the Authority shall
fail to observe or perform any agreement or obligation contained in this
Agreement, the Trustee may take whatever legal proceedings may be required to
compel full performance by the Authority of its obligations, and in addition,
the Trustee may, to whatever extent it deems appropriate for the protection of
the Bondowners, itself or the Company, perform any such obligation in the name
of the Authority and on its behalf.

      (d) Responsibility. The Trustee shall be entitled to the advice of counsel
(who may be the Trustee's counsel, counsel for the Authority, the Company or any
Bondowner) and shall be wholly protected as to any action taken or omitted to be
taken in good faith in reliance on such advice. The Trustee may rely
conclusively on any notice, certificate or other document furnished to it
hereunder and reasonably believed by it to be genuine. The Trustee shall not be
liable for any action taken by it in good faith and reasonably believed by it to
be within the discretion or powers conferred upon it, in good faith omitted to
be taken by it and reasonably believed to be beyond the discretion or powers
conferred upon it, taken by it pursuant to any direction or instruction by which
it is governed hereunder, or omitted to be taken by it by reason of the lack of
direction or instruction required hereby for such action; nor shall it be
responsible for the consequences of any error of judgment reasonably made by it.
The duties of the Trustee are those expressly set forth in this Agreement, and
no additional duties shall be implied. When any payment, consent or other action
by it is called for hereby, it may defer such action pending receipt of such
evidence, if any, as it may require in support thereof. The Trustee shall in no
event be liable for the application or misapplication of funds, or for other
acts or defaults by any person, firm, or corporation, except its own directors,
officers, and employees. No recourse shall be had by the Company, the Authority
or any Bondowner for any claim based on this Agreement or any Bond against any
director, officer, employee, or agent of the Trustee alleging personal

                                       35
<PAGE>

liability on the part of such person, unless such claim is based upon the bad
faith, negligence, fraud or deceit of such person. The Trustee has no
responsibility for the validity or sufficiency of this Agreement or the Bonds or
any security therefor.

      (e) Limitations on Actions. The Trustee shall not be required to monitor
the financial condition of the Company or the physical condition of the Project
Facilities and, unless otherwise expressly provided, shall not have any
responsibility with respect to notices, certificates or other documents filed
with it hereunder, except to make them available for inspection by the
Bondowners. The Trustee shall not be deemed to have knowledge of and shall not
be required to take notice of any Default or Event of Default, except for a
Default or Event of Default described in Paragraph 601(a)(i) relating to the
payment of principal of, premium, if any, and interest on the Bonds, unless the
Trustee shall be specifically notified in writing by the Company, the Authority
or Bondowners representing not less than 25% in principal amount of the Bonds
Outstanding, or in the case of a Default or Event of Default described in
Paragraph 601(a)(iii), the Trustee shall be notified in writing by the First
Mortgage Bond Trustee. The Trustee shall not be required to take any remedial
action (other than the giving of notice) unless indemnity reasonably
satisfactory to it is furnished for any expense or liability to be incurred
therein, other than liability for failure to meet the standards set forth in
this section. The Trustee shall be entitled to reimbursement from the Company
for its expenses reasonably incurred or advances reasonably made, which
reimbursement shall be due and payable thirty (30) days after notifying the
Company of such expenses or advances, in the exercise of its rights or the
performance of its obligations hereunder, whether or not it acts without
previously obtaining indemnity.

      A permissive right or power to act shall not be construed as a requirement
to act. Upon receipt of written notice, direction, instruction, and indemnity as
provided above and, after making such investigation, if any, as it deems
appropriate to verify the occurrence of any Default of which it is notified by
the Bondowners, the Trustee shall pursue such remedies hereunder (not contrary
to such direction) as it deems appropriate for the protection of the Bondowners;
and in its actions under this provision, the Trustee shall be required to act
for the protection of the Bondowners with the same prudence as would be expected
of a prudent person in the conduct of such person's affairs.

      (f) Financial Obligations. Nothing contained in this Agreement shall in
any way obligate the Trustee to pay any debt or meet any financial obligations
to any person in relation to the Project Facilities except from moneys received
under the provisions of this Agreement (including from the exercise of its
rights and remedies hereunder) other than moneys received for its own purposes.

      (g) Registration Books. The Trustee will keep books for the registration
of the Bonds and transfers thereof as provided in this Agreement. The Trustee
shall furnish a list of the Bondowners to the Authority, the Bond Insurer or
Company at any time upon its request, and to Bondowners representing at least
15% in principal amount of the Outstanding Bonds, at any time upon their
request.

      (h) Ownership of Bonds. The Trustee or any affiliate of the Trustee may be
or

                                       36
<PAGE>

become the owner of Bonds with the same rights as if it were not Trustee.

      (i) No Surety Bond. The Trustee shall not be required to furnish any bond
or surety.

      (j) Requests by the Company. Upon any request by the Company to the
Trustee to take any action under this Agreement (including but not limited to
any proposed amendment pursuant to Section 1001) the Trustee shall be entitled
to receive from the Company prior to taking such action, and to rely upon, a
certificate of a Company Representative and an opinion of counsel reasonably
satisfactory to the Trustee (who may be counsel to the Company), and, if
applicable in the reasonable judgment of the Trustee, a certificate of an
accountant satisfactory to the Company (who may be an employee of the Company),
each to the effect that in the signer's opinion all conditions precedent
applicable to such action under this Agreement, if any, have been satisfied
(and, in the case of the certificate of the Company Representative, including
but not limited to the absence of any Default or Event of Default) and such
action is permitted by this Agreement.

      (k) Trustee as Holder of Series K First Mortgage Bonds. So long as no
Default has occurred and is continuing, the Trustee may, but shall have no
obligation to, take any action in its capacity as the registered holder of the
Series K First Mortgage Bonds (other than the duty to exercise reasonable care
in the safekeeping thereof and the giving of notices set forth below), unless
and except to the extent the Trustee is directed in writing by the Bondowners as
provided in Section 901 of this Agreement. The Trustee shall promptly notify the
Bondowners of the receipt of and contents of any notice it receives under the
First Mortgage Bond Indenture (other than notices solely of payments being made
on the Series K First Mortgage Bonds).

      Section 703. Fees and Expenses of the Trustee. The Company shall pay to
the Trustee reasonable compensation for its services and prepay or reimburse the
Trustee for its reasonable expenses and disbursements, including attorney's
fees, hereunder. The Company shall indemnify and save the Trustee harmless
against any and all (a) claims as set forth in Section 502 above, (b) costs,
counsel fees, expenses and liabilities reasonably incurred in connection with
such claims, and (c) costs, counsel fees, expenses and liabilities which it may
incur in or arising from the administration, performance or exercise of its
duties, rights, powers or responsibilities hereunder and which are not due to
the bad faith, negligence, fraud or deceit of any director, officer, employee or
agent of the Trustee. Any fees, expenses, reimbursements, or other charges which
the Trustee may be entitled to receive from the Company hereunder shall be due
and payable thirty (30) days after a request for payment has been made by the
Trustee, and if not otherwise paid, shall be a first lien upon any funds or
other property then or thereafter held hereunder by the Trustee. If any such
moneys are so applied, the Company shall be immediately obligated to restore the
moneys so applied.

      Section 704. Resignation or Removal of Trustee. The Trustee may resign on
not less than sixty (60) days' notice given in writing to the Authority, the
Bondowners, the Bond Insurer and the Company, but such resignation shall not
take effect until a successor, approved by the Bond Insurer (which approval
shall not be unreasonably withheld), has been appointed and has assumed the
duties hereunder. The Trustee will promptly certify to the other parties that it
has

                                       37
<PAGE>

mailed such notice to all Bondowners and such certificate shall be conclusive
evidence that such notice was given in the manner required hereby. The Trustee
may be removed by written notice to the parties from the Bondowners representing
a majority in principal amount of the Bonds Outstanding (upon not less than
thirty (30) days written notice unless such removal is for cause), but no such
removal shall take effect until a successor has been appointed and assumed the
duties hereunder. A petition in a court of competent jurisdiction for removal of
the Trustee and the appointment of a successor may be filed by the Bondowners
representing not less than 25% in principal amount of the Bonds Outstanding.

      Section 705. Successor Trustee. Any corporation or association which
succeeds to the corporate trust business of the Trustee as a whole, or
substantially as a whole, whether by sale, merger, consolidation or otherwise,
shall become vested with all the property, rights and powers of the Trustee
hereunder, without any further act or conveyance.

      In case the Trustee resigns or is removed or becomes incapable of acting,
or becomes bankrupt or insolvent, or if a receiver, liquidator or conservator of
the Trustee or of its property is appointed, or if a public officer takes charge
or control of the Trustee, or of its property or affairs, a successor shall be
appointed by written notice from the Company to the Bond Insurer and the
Authority. The Company shall notify the Bondowners of the appointment in writing
within twenty (20) days from the appointment. The Company will promptly certify
to the successor Trustee that it has mailed such notice to all Bondowners and
such certificate will be conclusive evidence that such notice was given in the
manner required hereby. If no appointment of a successor is made within twenty
(20) days after the giving of written notice in accordance with Section 704 or
after the occurrence of any other event requiring or authorizing such
appointment, the outgoing Trustee or any Bondowner may apply to any court of
competent jurisdiction for the appointment of such a successor, and such court
may thereupon, after such notice, if any, as such court may deem proper, appoint
such successor. Any successor Trustee appointed under this section shall be a
trust company or a bank having the powers of a trust company that meets the
requirements of the Act and has a capital and surplus of not less than
$50,000,000. Any such successor Trustee shall notify the Authority and the
Company of its acceptance of the appointment and, upon giving such notice, shall
become Trustee, vested with all the property, rights and powers of the Trustee
hereunder, without any further act or conveyance. Such successor Trustee shall
execute, deliver, record and file such instruments as are required to confirm or
perfect its succession hereunder and any predecessor Trustee shall from time to
time execute, deliver, record and file such instruments as the incumbent Trustee
may reasonably require to confirm or perfect any succession hereunder.

                                       38
<PAGE>

                          ARTICLE VIII. THE AUTHORITY

      Section 801. Limited Obligation. Under no circumstances shall the
Authority be obligated directly or indirectly to pay Project Costs, principal of
or premium, if any, and interest on the Bonds, or expenses of operation,
maintenance and upkeep of the Project Facilities except from Bond proceeds or
from funds received under this Agreement, exclusive of funds received hereunder
by the Authority for its own use. This Agreement does not create any debt of the
State of New Hampshire with respect to the Project Facilities other than a
special obligation of the Authority acting on behalf of the State of New
Hampshire pursuant to the Act. Nothing contained herein shall in any way
obligate the State of New Hampshire to raise any money by taxation or use other
public funds for any purpose in relation to the Project Facilities. Neither the
State of New Hampshire nor the Authority shall pay or promise to pay any debt or
meet any financial obligation to any person at any time in relation to the
Project Facilities except (i) from moneys received or to be received under the
provisions hereof or derived from the exercise of the Authority's right
hereunder, other than moneys received for its own purposes, or (ii) as may be
required by law other than the provisions of the Act. Nothing contained in this
Agreement shall be construed to require or authorize the Authority to operate
the Project Facilities itself or to conduct any business enterprise in
connection therewith.

      Section 802. Rights and Duties of the Authority.

      (a) Remedies of the Authority. Notwithstanding any contrary provision in
this Agreement, the Authority shall have the right to take any action or make
any decision with respect to proceedings for indemnity against the liability of
the Authority and for collection or reimbursement from sources other than moneys
or property held under this Agreement or subject to the lien hereof. The
Authority may enforce its rights under this Agreement which have not been
assigned to the Trustee by legal proceedings for the specific performance of any
obligation contained herein or for the enforcement of any other appropriate
legal or equitable remedy, and may recover damages caused by any breach by the
Company of its obligations to the Authority under this Agreement, including
court costs, reasonable attorney's fees and other costs and expenses incurred in
enforcing such obligations.

      (b) Limitations on Actions. The Authority shall not be required to monitor
the financial condition of the Company or the physical condition of the Project
Facilities and, unless otherwise expressly provided, shall not have any
responsibility with respect to notices, certificates or other documents filed
with it hereunder. The Authority shall not be required to take notice of any
breach or default except when given notice thereof by the Trustee. The Authority
shall not be responsible for the payment of any rebate to the United States
under IRC ss.148(f). The Authority shall not be required to take any action
unless indemnity reasonably satisfactory to it is furnished for expenses or
liability to be incurred therein (other than the giving of notice). The
Authority, upon written request of the Bondowners or the Trustee, and upon
receipt of reasonable indemnity for expenses or liability, shall cooperate to
the extent reasonably necessary to enable the Trustee to exercise any power
granted to the Trustee by this Agreement. The Authority shall be entitled to
reimbursement pursuant to Section 803 to the extent that it acts

                                       39
<PAGE>

without previously obtaining full indemnity.

      (c) Responsibility. The Authority shall be entitled to the advice of
counsel (who may be counsel for any party or for any Bondowner) and shall be
wholly protected as to any action taken or omitted to be taken in good faith in
reliance on such advice. The Authority may rely conclusively on any notice,
certificate or other document furnished to it under this Agreement and
reasonably believed by it to be genuine. The Authority shall not be liable for
any action taken by it in good faith and reasonably believed by it to be within
the discretion or power conferred upon it, or in good faith omitted to be taken
by it and reasonably believed to be beyond such discretion or power, or taken by
it pursuant to any direction or instruction by which it is governed under this
Agreement or omitted to be taken by it by reason of the lack of direction or
instruction required for such action under this Agreement, or be responsible for
the consequences of any error of judgment reasonably made by it. When any
payment, consent or other action by the Authority is called for by this
Agreement, the Authority may defer such action pending such investigation or
inquiry or receipt of such evidence, if any, as it may require in support
thereof. A permissive right or power to act shall not be construed as a
requirement to act, and no delay in the exercise of a right or power shall
affect the subsequent exercise thereof. The Authority shall in no event be
liable for the application or misapplication of funds, or for other acts or
defaults by any person or entity except by its own directors, officers and
employees. No recourse shall be had by the Company, the Trustee or any Bondowner
for any claim based on this Agreement or the Bonds against any director,
officer, employee or agent of the Authority unless such claim is based upon the
bad faith, fraud or deceit of such person. No covenant, obligation or agreement
of the Authority contained in this Agreement shall be deemed to be a covenant,
obligation or agreement of any present or future director, officer, employee or
agent of the Authority in his individual capacity, and no person executing a
Bond shall be liable personally thereon or be subject to any personal liability
or accountability by reason of the issuance thereof.

      Section 803. Expenses of the Authority. The Company shall pay when due the
Authority's Service Charge and shall prepay or reimburse the Authority within
thirty (30) days after notice for all expenses (including reasonable attorney's
fees) incurred by the Authority in connection with the issuance and carrying of
the Bonds and all expenses reasonably incurred or advances reasonably made in
the exercise of the Authority's rights or the performance of its obligations
hereunder. Any fees, expenses, reimbursements or other charges which the
Authority may be entitled to receive from the Company hereunder, if not paid
within ten (10) days of when they are due, shall bear a late charge equal to 5%
of the amount overdue, and if not paid within sixty (60) days, shall bear
interest at 12% per annum.

      Section 804. Matters to be Considered by Authority. In approving,
concurring in or consenting to action or in exercising any discretion or in
making any determination under this Agreement, the Authority may consider the
interests of the public, which shall include the anticipated effect of any
transaction on tax revenues and employment, as well as the interests of the
other parties hereto and the Bondowners; provided, however, nothing herein shall
be construed as conferring on any person other than the other parties and the
Bondowners any right to notice, hearing or participation in the Authority's
consideration, and nothing in this section shall be construed as conferring on
any of them any right additional to those conferred elsewhere

                                       40
<PAGE>

herein. Subject to the foregoing, the Authority will not unreasonably withhold
any approval or consent to be given by it hereunder.

      Section 805. Actions by Authority. Any action which may be taken by the
Authority hereunder shall be deemed sufficiently taken if taken on its behalf by
its Chairman, its Vice Chairman or its Executive Director or by any other
director, officer or agent whom it may designate from time to time.

                           ARTICLE IX. THE BONDOWNERS

      Section 901. Action by Bondowners. Subject to Subsections 311, 601(b),
602(a) and Section 1001 (as to the waivers and consents granted thereby),
Bondowners representing a majority in principal amount of the Bonds Outstanding
shall have the right at any time, by written notice to the Trustee and upon
offering it indemnity as provided in Subsection 702(e), to direct the Trustee
(i) in the granting of any consents, waivers or similar actions pertaining to
the Bonds, (ii) in the time, method and place of conducting all proceedings,
(iii) in the exercise of any rights or remedies available to the Trustee
hereunder, or (iv) in the exercise of any other right or power conferred upon
the Trustee for the protection of the Bondowners, provided that such direction
shall be in accordance with the provisions of law and this Agreement, and the
Trustee may take any other action determined proper by the Trustee which is not
inconsistent with such direction.

            Except with respect to the matters provided below, Bondowners
representing a majority in principal amount of the Bonds Outstanding shall have
the right, at any time, by written notice to the Trustee and the offering of
indemnity as provided in Subsection 702(e), to direct the Trustee, as holder of
all of the Series K First Mortgage Bonds, to exercise the rights available to it
as holder of such bonds under the First Mortgage Bond Indenture, including,
without limitation, as to rendering notice to the First Mortgage Bond Trustee of
the occurrence of a default thereunder, the institution of any suit, action or
proceeding to enforce payments on the Series K First Mortgage Bonds which were
not paid when due or other proceeding in respect of the First Mortgage Bond
Indenture which the Trustee, as holder of the Series K First Mortgage Bonds, is
entitled to institute, and as to the time, place and method of any such
proceeding for any remedy available to the Trustee, as holder of the Series K
First Mortgage Bonds, subject however to compliance with the applicable
provisions of the First Mortgage Bond Indenture.

      Where the First Mortgage Bond Trustee is required or permitted to take any
action under the First Mortgage Bond Indenture upon the direction,
authorization, consent, notice or request of the holders of a specified
percentage of principal amount of bonds outstanding thereunder or of outstanding
bonds thereunder which would be adversely affected by such action, including
with respect to acceleration of the maturity of such bonds under Section 10.1 of
the First Mortgage Bond Indenture, the time, method and place of proceedings and
waivers of events of default, as provided in Section 10.12 of the First Mortgage
Bond Indenture and amendments of the First Mortgage Bond Indenture under Article
15 thereof, each Bondowner shall be deemed the holder of its pro-rata portion of
the principal amount of Series K First Mortgage Bonds and shall have the right
to direct the Trustee whether or not to render such direction, authorization,
consent, notice or request under the First Mortgage Bond Indenture in respect of
such Bondowner's

                                       41
<PAGE>

pro-rata portion, whereupon the Trustee shall notify the First Mortgage Bond
Trustee of the action to be taken in respect of the applicable principal amount
of Series K First Mortgage Bonds.

      Any request, authorization, direction, notice, consent, waiver or other
action provided by this Agreement to be given or taken by Bondowners may be
contained in and evidenced by one or more writings of substantially the same
tenor signed by the Bondowners of the requisite percentage of principal amount
of Bonds Outstanding or their attorneys duly appointed in writing. Proof of the
execution of any such instrument, or of any instrument appointing any such
attorney, shall be sufficient for any purpose of this Agreement (except as
otherwise herein expressly provided) if made in the following manner, but the
Authority or the Trustee may nevertheless in its discretion require further or
other proof in cases where it deems the same desirable:

      The fact and date of the execution by any Bondowner or his or her attorney
of such instrument may be proved by the certificate, which need not be
acknowledged or verified, of an officer of a bank or trust company satisfactory
to the Authority or to the Trustee or of any notary public or other officer
authorized to take acknowledgements of the deeds to be recorded in the state in
which he purports to act, that the person signing such request or other
instrument acknowledged to him or her the execution thereof, or by an affidavit
of a witness of such execution, duly sworn to before such notary public or other
officer. The authority of the person or persons executing any such instrument on
behalf of a corporate Bondowner may be established without further proof if such
instrument is signed by a person purporting to be the president or a vice
president of such corporation with a corporate seal affixed and attested by a
person purporting to be its clerk or secretary or an assistant clerk or
assistant secretary.

      The ownership of Bonds and the amount, numbers and other identification,
and date of holding the same shall be proved by the registry books for the Bonds
maintained by the Trustee.

      Any request, consent or vote of the owner of any Bond shall bind all
future owners of such Bond. Bonds owned or held by or for the account of the
Authority, the Company, or any related person to the Company within the meaning
of Section 147(a) of the IRC shall not be deemed Outstanding Bonds for the
purpose of any consent or other action by Bondowners.

                                       42
<PAGE>

                    ARTICLE X. AMENDMENTS AND MISCELLANEOUS

      Section 1001. Amendments.

      (a) Without Bondowners' Consent. The parties may from time to time, with
the consent of the Bond Insurer but without the consent of any Bondowner, amend
this Agreement in order to (i) cure any ambiguity, defect or omission in the
Agreement that does not materially adversely affect the interests of the
Bondowners, (ii) grant additional rights or security to the Trustee for the
benefit of the Bondowners, (iii) add additional Events of Default as shall not
be inconsistent with the provisions of this Agreement and which shall not
materially adversely affect the interests of the Bondowners, (iv) qualify this
Agreement under the Trust Indenture Act of 1939, as amended, or corresponding
provisions of federal laws from time to time in effect, or (v) make such other
provisions in regard to matters or questions arising under this Agreement as
shall not be inconsistent with the provisions of this Agreement and which shall
not materially adversely affect the interests of the Bondowners.

      (b) With Bondowners' Consent. Except as set forth in Subsection 1001(a),
the parties may from time to time amend this Agreement with the consent of the
Bond Insurer and the owners of more than 50% in aggregate principal amount of
the Bonds Outstanding; provided, that no amendment shall be made which adversely
affects the rights of some but less than all the Bonds Outstanding without the
consent of the owners of more than 50% in aggregate principal amount of the
Bonds so affected; and provided further, that no amendment of this Agreement
shall be effective to (i) change the principal, premium or interest on any
Bonds, (ii) change the interest payment dates, maturity dates or redemption
provisions of any Bonds, (iii) reduce the percentage of Bondowners whose consent
is required for the amendment of this Agreement or (iv) modify the lien upon or
pledge of the payments and other revenues assigned and pledged hereunder,
without the consent, in each case, of the owner of each Bond which would be
affected by the action proposed to be taken. Any amendment of this Agreement
made under this or the preceding Subsection shall be accompanied by an opinion
of Bond Counsel reasonably satisfactory to the Trustee to the effect that the
amendment is permitted by this Agreement and that it will not affect the
exclusion of interest on the Bonds from gross income of the owners thereof for
federal income tax purposes. When the Trustee determines that the requisite
number of consents have been obtained for an amendment which requires Bondowner
consent, it shall, within ninety (90) days, file a certificate to that effect in
its records and give notice thereof to the Bondowners. No action or proceeding
to invalidate the amendment shall be instituted or maintained unless it is
commenced within sixty (60) days after such notice. The validity of the
amendment shall not be adversely affected by any failure to give notice or any
defect in the notice. A consent to an amendment may be revoked by a notice given
by the Bondowner and received by the Trustee prior to the Trustee's
certification that the requisite consents have been obtained.

      Section 1002. Notices. All notices to the Authority, the Trustee, the Bond
Insurer, the Company, or the Bondowners unless otherwise specified shall be in
writing and shall be deemed sufficiently given if delivered by registered or
certified mail, postage prepaid, or delivered during business hours as follows:
(i) to the Authority at 14 Dixon Avenue, Suite 101, Concord, New

                                       43
<PAGE>

Hampshire 03301, attention of the Executive Director, (ii) to the Trustee at 225
Asylum Street, 23rd Floor, Hartford, Connecticut 06103, attention of Corporate
Trust Department, (iii) to the Company at 1000 Elm Street, Manchester, New
Hampshire 03105, attention of Assistant Treasurer - Finance, with a copy to
Northeast Utilities Service Company, P.O. Box 270, Hartford, Connecticut
06141-0270 (if by U.S. Mail) and 107 Selden Street, Berlin, Connecticut 06037
(if by courier), attention of Assistant Treasurer - Finance, (iv) to the Bond
Insurer at 113 King Street, Arrmonk, New York 10504, Attention: IPM-PCF, or, as
to all of the foregoing, to such other address as the addressee shall have
indicated by prior written notice to the one giving notice. All notices to a
Bondowner shall be in writing and shall be deemed sufficiently given if sent by
first class mail, postage prepaid, to the Bondowner at the address shown on the
registration books for the Bonds maintained by the Trustee. A Bondowner may
direct the Trustee to change its address as shown on the registration books by
written notice to the Trustee. All notices to Bondowners shall identify the
Bonds by name, CUSIP number, date of original issuance, maturity date, and such
other descriptive information as may be needed to identify accurately the Bonds.

      All notices sent to Bondowners by the Trustee shall simultaneously be sent
by registered or certified mail, postage prepaid, to all registered securities
depositories that are registered owners of the Bonds, provided that the failure
to give such notice shall not affect the validity of any notice given to
Bondowners.

      Notice hereunder may be waived prospectively or retroactively by the
person entitled to the notice, but no waiver shall affect any notice requirement
as to other persons.

      Section 1003. Agreement Not for the Benefit of Other Parties. This
Agreement is not intended for the benefit of and shall not be construed to
create rights in parties other than the Authority, the Company, the Trustee, the
Bond Insurer, the Bondowners and the respective directors, members, officers,
employees and agents of the Authority and the Trustee to the extent specified in
Sections 702 and 802.

      Section 1004. Severability. In the event that any provision of this
Agreement shall be held to be invalid in any circumstance, such invalidity shall
not affect any other provisions or circumstances.

      Section 1005. Counterparts. This Agreement may be executed and delivered
in any number of counterparts, each of which shall be deemed to be an original;
but such counterparts together shall constitute one and the same instrument.

      Section 1006. Captions. The captions and table of contents of this
Agreement are for convenience only and shall not affect the construction hereof.

      Section 1007. Governing Law. This Agreement shall be governed by the laws
of the State of New Hampshire.

      Section 1008. Payment Date Not a Business Day. If any payment, redemption
or maturity

                                       44
<PAGE>

date for principal, premium or interest shall be (i) a Sunday or a legal
holiday, or (ii) a day on which banking institutions are authorized pursuant to
law to close and on which the corporate trust office of the Trustee or the First
Mortgage Bond Trustee is not open for business, then the payment thereof may be
made on the next succeeding day not a day specified in (i) or (ii) with the same
force and effect as if made on the specified payment date and no interest shall
accrue for the period after the specified payment date.

                                       45
<PAGE>

      IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed under seal all as of the date first above written.

                                        BUSINESS FINANCE AUTHORITY
                                        OF THE STATE OF NEW HAMPSHIRE
(Seal)

                                        By:_____________________________________
                                              Jack Donovan
                                              Executive Director

                                        PUBLIC SERVICE COMPANY OF NEW
                                        HAMPSHIRE
(Seal)

                                        By:_____________________________________
                                              Name: Randy A. Shoop
                                              Title: Assistant Treasurer -
                                                     Finance

                                        STATE STREET BANK AND TRUST
                                        COMPANY, as Trustee
(Seal)

                                        By:_____________________________________
                                              Name:
                                              Title:

                                       46
<PAGE>

                                   EXHIBIT A

                             THE PROJECT FACILITIES

      The Project Facilities to be refinanced by the Bonds consist of certain
air or water pollution control and sewage or solid waste disposal facilities at
the Seabrook Station Plant, Unit No. 1, in which Public Service Company of New
Hampshire had, at the time of issue of the 1991 Series B Bonds, a 35.56942
percent ownership interest. The Project Facilities include the following:

Waste Water Run-Off System

      The Waste Water Run-Off System collects and treats yard area drainage to
remove pollutants. The System includes catch basins, yard waste water drain
pipes, and a site settling pond.

Chemical and Oily Waste Treatment System

      The Chemical and Oily Waste Treatment System collects, stores, processes,
treats and disposes of non-radioactive chemical and oily wastes. The wastes
result from construction, start-up and operation of the Seabrook Station Plant.
The wastes are collected and treated to remove pollutants. The System includes
tanks, an acid and caustic handling system, waste lagoons, system flush piping,
and oil separator, curbs and drains, pipes, valves, transfer pumps, controls and
instrumentation and related support equipment.

Sanitary Waste System

      Sanitary waste is collected, treated and disposed of by the Sanitary Waste
System. The System includes sanitary drains, sumps and pumps, a holding tank, a
pump station, a sewage treatment plant, piping, transfer pumps and related
support equipment.

Radioactive Gaseous Waste System

      The Radioactive Gaseous Waste System collects, processes, stores and
treats radioactive gaseous waste produced during normal operations. The System
includes the following components: a main gas collection header, a waste gas
condenser with associated primary cooling water components, gas chiller
compressor units, iodine guard beds, a regeneration subsystem for dryers, waste
gas dryers, a waste gas compressor package, ambient carbon delay beds,
particulate filters, an after cooler, a hydrogen surge tank, a waste gas
radiation monitor, an equipment vent system, a hydrogenated vent header, and
associated piping, valves, controls and instrumentation.

Exhaust Filtration System

      The Exhaust Filtration System collects, filters and discharges exhaust
containing low level radioactive contamination resulting from normal operations.
The System includes exhaust filters, exhaust fans, exhaust ducts, plenums,
dampers, piping, flow control valves, and controls and instrumentation.

                                      A-1
<PAGE>

Liquid Radwaste System

      The Liquid Radwaste System collects, processes, treats, recycles and
disposes of low level radioactive liquid waste resulting from normal operations.
The System includes tanks, filters, strainers, pumps, a reboiler, an evaporator,
an evaporator distillate condenser, an evaporator distillate accumulator, an
evaporator distillate cooler, an evaporator bottoms cooler, a waste
demineralizer and filter, equipment drains, chemical drains, a radiation
monitor, and associated controls and instrumentation.

Boron Recycle System

      The Boron Recycle System collects, stores, treats, recycles and disposes
of reactor coolant letdown during normal operations. This System is required to
maintain reactor coolant letdown in accordance with federal pollution control
standards as to radioactivity. The System includes the following components:
Drain tanks, a degasifier, a preheater, a degasifier regenerative heat
exchanger, trim coolers, a degasifier prefilter, cesium removal ion exchangers,
recovery filters, waste storage tanks, recovery evaporator packages, recovery
test tanks, recovery demineralizers, recovery demineralizer filters, a letdown
rehead heat exchanger, a letdown chiller heat exchanger, a letdown moderating
heat exchanger, a chiller surge tank, a chiller, thermal regenerative
demineralizers, radiation monitors, associated pumps, piping and valves, and
controls and instrumentation.

Steam Generator Blowdown Treatment System

      The Steam Generator Blowdown Treatment System collects, processes, stores
and treats steam generator blowdown for discharge or recycle during normal
operation. This is necessary in compliance with pollution control requirements
which limit the discharge of untreated steam generator blowdown. The System
includes the following components: Blowdown evaporators, an evaporator
distillate condenser, an evaporator condensate accumulator, an evaporator
distillate pump, an evaporator condensate cooler, an evaporator bottoms pump, an
evaporator bottoms cooler, blowdown demineralizers, acid and caustic systems,
blowdown heat exchangers, and associated piping, controls and instrumentation.

Solid Radwaste System

      The Solid Radwaste System collects, stores, packages and prepares solid
radioactive waste for disposal. Radioactive solid wastes processed by this
System include spent demineralizer resins, expended filter cartridges,
evaporator concentrates as well as dry active waste consisting of rags,
clothing, paper and other trash. The System includes the following components: A
spent resin storage tank, an evaporator bottoms storage tank, associated
collection piping, pumps and valves, a dry waste compactor, a filter transfer
vehicle, and associated controls and instrumentation.

                                      A-2
<PAGE>

Waste Processing Building

      The Waste Processing Building is a reinforced concrete structure which
houses equipment used for exempt facilities. The purpose of this building is to
house the air and water pollution control facilities and the solid waste
disposal facilities.

Auxiliary Building

      The Auxiliary Building is a reinforced concrete structure which houses
both pollution control and production related equipment. Pollution control
facilities located in the Auxiliary Building include portions of the liquid
radwaste and gaseous radwaste systems. The cost of the Auxiliary Building and
general support equipment has been allocated to the exempt facilities according
to the ratio of space used for qualified equipment to the total space used in
the building for all equipment.

Spent Nuclear Fuel Facility

      The Spent Nuclear Fuel Facility is located in a separate building with
enclosed fuel handling equipment for production functions and for spent fuel
storage. The fuel handling facility includes a Seismic Category 1 structure
containing a spent fuel pool with racks, spent fuel cooling and purification
systems, a new fuel storage area, a spent fuel cask loading pit, and a cask
washdown area. Also included are cranes and equipment supporting the fuel
handling operations as well as the transfer canal leading the reactor
containment. The cost of the Spent Nuclear Fuel Facility is determined through
an allocation of the cost of the overall fuel facility between spent fuel
facilities and production facilities.

Circulating Water System

      The Circulating Water System will provide cooling water to the main
condensers of Seabrook Station. The Circulating Water System is a once-through
system using sea water from the Atlantic Ocean to remove the heat of
condensation from the steam cycle and to dispose of that heat in an
environmentally acceptable manner. The points of inlet and discharge of the
cooling water are offshore, east of Hampton Beach, New Hampshire.

      The System includes the following structures: Two 19-foot inside diameter
tunnels, lined with reinforced concrete, which connect the plant with the
offshore inlet and outlet structures; a pumphouse, located at the plant site
which encloses traveling screens and pumps for the circulating water and service
water systems; and a piping system at the plant site, for the most part
underground, interconnecting the tunnels, the pumphouse, and the condensers.

      The tunnels extend through the underlying rock in an east-west direction
at an elevation between 200 and 250 feet below sea level. They end at the plant
site with two 19-foot diameter vertical shafts, which reach above grade
transforming at the top into two transition boxes open to the atmosphere. At the
offshore end, the intake tunnel terminates with three 9-foot inside diameter
vertical shafts connecting to three submerged inlet heads. The discharge tunnel

                                      A-3
<PAGE>

terminates with eleven 5-foot inside diameter vertical shafts, each connecting
to a submerged bifurcated diffuser head.

Service Water Cooling Tower System

      The Service Water Cooling Tower System disposes of waste heat from the
plant service water system. Waste heat from equipment throughout the plant is
collected by the service water cooling system piping. The service water
transfers waste heat to the service water cooling tower, which discharges heat
to the atmosphere, thereby controlling discharge of waste heat to the natural
water resources adjacent to the station. The Service Water Cooling Tower System
components include the service water cooling tower, service water piping, pumps
and associated electrical service, mechanical equipment, controls and
instrumentation.

Screen Wash System

      The Screen Wash System collects, stores and disposes of debris removed
from the circulating and service water systems. This debris is solid waste with
no market or other value. After removal, the debris is transferred to a landfill
for final disposal. The components of the Screen Wash System include the screen
wash pumps, trash trough, trash container, piping and valves, associated
electrical service, mechanical equipment, controls and instrumentation

                                      A-4
<PAGE>

                                   EXHIBIT B

            SERIES C SEABROOK POLLUTION CONTROL FACILITIES AGREEMENT

      This Series C Seabrook Pollution Control Facilities Agreement (this
"Facilities Agreement") is entered into as of December 19, 2001 by the Business
Finance Authority of the State of New Hampshire (with its successors, the
"Authority"), a body corporate and politic created under New Hampshire Revised
Statutes Annotated 162-A:3; Public Service Company of New Hampshire (with its
successors, the "Company"), a New Hampshire corporation; North Atlantic Energy
Corporation (with its successors, "NAEC"), a New Hampshire corporation; and
State Street Bank and Trust Company, a Massachusetts trust company, as Trustee
(with its successors, the "Trustee"), under a Series C Loan and Trust Agreement
dated as of October 1, 2001 (the "LTA") among the Authority, the Company and the
Trustee, which secures the Authority's 5.45% $108,985,000 in aggregate principal
amount Pollution Control Revenue Bonds (Public Service Company of New Hampshire
Project - 2001 Tax-Exempt Series C) (the "Bonds"). Capitalized terms not
otherwise defined herein shall have the meaning given them in the LTA.

      This Facilities Agreement is entered into pursuant to Section 405 of the
LTA in connection with the issuance of the Bonds by the Authority on behalf of
the Company and the proposed transfer by NAEC of its interest in the Station
(including the Project Facilities) to an unaffiliated party. The purpose of this
Facilities Agreement is to ensure the continued exclusion of interest on the
Bonds from gross income of the owners thereof for federal income tax purposes
and to satisfy certain requirements of the Authority with respect to facilities
financed under the Act. This Facilities Agreement shall remain in effect so long
as NAEC owns the Project Facilities and until no Bonds remain Outstanding.

      In consideration of the mutual promises contained in this Facilities
Agreement, the rights conferred and the obligations assumed hereby, and other
good and valuable consideration, the receipt of which is hereby acknowledged,
each of the Company, NAEC, the Authority and the Trustee agree, assign,
covenant, grant, pledge, promise, represent and warrant as set forth herein for
their own benefit and for the benefit of the Bondowners.

      Section 1. Representations and Covenants of the Company. The Company
represents, warrants, covenants and agrees as follows:

      (a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Hampshire; is duly qualified to
do business and in good standing in each jurisdiction in which the failure so to
qualify would have a material adverse affect on its business or properties; and
has full corporate power to enter into this Facilities Agreement.

      (b) This Facilities Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company enforceable against the Company as provided herein and in the LTA,
subject to bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting creditors' rights and to the exercise of judicial discretion in
appropriate cases.

                                      B-1
<PAGE>

      (c) No Default or Event of Default exists under the LTA.

      (d) The Company has obtained all regulatory approvals necessary to enter
into this Facilities Agreement and all such approvals have become final.

      (e) The Company's execution and delivery of this Facilities Agreement does
not violate or constitute a default under the Company's charter or by-laws, any
applicable law, any order or decree of any court or governmental authority
having jurisdiction over the Company, or any agreement or instrument binding on
the Company or its properties.

      Section 2. Representations and Covenants of NAEC. NAEC represents,
warrants, covenants and agrees as follows:

      (a) NAEC is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Hampshire; is duly qualified to do
business and in good standing in the State of New Hampshire and in each
jurisdiction in which the failure so to qualify would have a material adverse
affect on its business or properties; and has full corporate power to enter into
this Facilities Agreement.

      (b) This Facilities Agreement has been duly authorized, executed and
delivered by NAEC and constitutes a valid and binding obligation of NAEC
enforceable against NAEC as provided herein, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
and to the exercise of judicial discretion in appropriate cases.

      (c) NAEC has obtained all regulatory approvals necessary to enter into
this Facilities Agreement and all such approvals have become final.

      (d) NAEC's execution and delivery of this Facilities Agreement does not
violate or constitute a default under NAEC's charter or by-laws, any applicable
law, any order or decree of any court or governmental authority having
jurisdiction over NAEC, or any agreement or instrument binding on NAEC or its
properties.

      (e) NAEC will maintain its corporate existence and its qualification to do
business and good standing under the laws of the State of New Hampshire and will
maintain itself as a foreign corporation duly qualified to do business and in
good standing, where applicable, in each jurisdiction in which the failure to so
qualify would have a material adverse effect upon its business or properties.
NAEC shall not merge or consolidate with or sell all or substantially all of its
assets to another entity, except that the NAEC may so merge or consolidate with
or sell all or substantially all of its assets to another corporation if (i) the
surviving or transferee corporation is qualified to do business in New
Hampshire, and (ii) the surviving or transferee corporation (if not NAEC) has
assumed in writing all of NAEC's obligations hereunder.

      Section 3. Use of the Project. (a) Notwithstanding any provision herein or
in the LTA to the contrary, NAEC will not operate the Project Facilities in any
manner, and will not take or omit any action or permit any action to be taken or
omitted with the result that interest on the

                                      B-2
<PAGE>

Bonds is included in the gross income of the owners thereof for federal income
tax purposes. NAEC's use of the Project Facilities (or facilities replacing the
same) shall be in furtherance of the purpose of air or water pollution control
or sewage or solid waste disposal and in compliance with the Act.

      (b) Notwithstanding any provision herein or in the LTA to the contrary,
NAEC shall not permit the Project Facilities to fail to qualify as (1)
"industrial facilities" under the Act, (2) a facility described in Section
1312(a) of the Tax Reform Act of 1986, or (3) "sewage or solid waste disposal
facilities" or "air or water pollution control facilities" within the meaning of
Section 103(b)(4)(E) or (F) of the 1954 Code. NAEC acknowledges that it is fully
familiar with the physical condition of the Project Facilities and that it is
not relying on any representation of any kind by the Authority or the Trustee
concerning the nature or condition thereof. Neither the Authority nor the
Trustee shall be liable to NAEC or any other person for any latent or patent
defect in the Project Facilities.

      (c) In the maintenance, improvement and operation of the Project
Facilities, NAEC will comply in all material respects with all applicable
building, subdivision, zoning and land use, environmental protection, sanitary
and safety and other laws, rules and regulations, and will not permit any
nuisance thereat and will, to the extent of its ownership and control, permit no
nuisance to be committed thereat by others while NAEC is, or is entitled to be,
in possession thereof. It shall not be a breach of this section if NAEC fails to
comply with such laws, rules and regulations during any period in which NAEC
shall in good faith be diligently contesting the validity thereof.

      (d) NAEC shall pay in a timely manner all costs of maintaining and
operating the Project Facilities, including without limitation all taxes,
excises and other governmental charges lawfully levied thereon or with respect
to its interests therein or use thereof to the extent of NAEC's interest
therein. It shall not be a breach of this section if NAEC fails to pay any such
costs, taxes or charges during any period in which NAEC shall in good faith be
contesting the validity or amount thereof and no foreclosure proceedings have
been commenced, unless the procedures applicable to such contest require payment
thereof and proceedings for their refund or abatement.

      (e) NAEC shall not sell, lease, transfer or otherwise dispose of the
Project Facilities (other than the grant of a mortgage pursuant to a financing
transaction) unless (i) it obtains the consent of the Authority, which consent
shall not be unreasonably withheld, provided, however, that no such consent
shall be required if such transaction has been approved by or consented to by
the New Hampshire Public Utilities Commission; (ii) it obtains an opinion of
Bond Counsel addressed to and reasonably satisfactory to the Trustee and the
Authority that such sale, lease, transfer or other disposition will not affect
the exclusion of the interest on the Bonds from the gross income of the owners
thereof for federal income tax purposes; and (iii) the sale, lease, transfer or
other disposition is made pursuant to a written agreement executed and delivered
by NAEC and the transferee, under which agreement the transferee agrees to be
bound by covenants substantially similar in all material respects to the
covenants set forth in Attachment 1 hereto.

      NAEC shall not make any material change in the purposes for which the
Project Facilities

                                      B-3
<PAGE>

are used without the consent of the Authority, which consent shall not be
unreasonably withheld. NAEC at its own expense may alter, remodel or improve the
Project Facilities and construct other facilities at the site of the Project
Facilities, provided such action shall not result in any substantial change in
the Project Facilities or the character of the activities conducted by NAEC at
the Project Facilities site without the consent of the Authority, which consent
shall not be unreasonably withheld.

      (f) The Authority and the Trustee and their respective duly authorized
agents shall have the right at all reasonable times and upon the furnishing of
reasonable notice under the circumstances to examine the books and records of
NAEC relating to the Project Facilities.

      (g) The undertakings of NAEC contained in Subsections 3(b), (c), (d) and
(e) are limited to those consistent with NAEC's undivided percentage interest in
the facilities of which the Project Facilities are a part.

      Section 4. Indemnification by NAEC. NAEC, regardless of any agreement to
maintain insurance, shall and does hereby indemnify the Authority and the
Trustee against (a) any and all claims by any person related to the
participation of the Authority or the Trustee in the financing of the Project
Facilities, including without limitation claims arising out of any condition of
the Project Facilities or Station or the construction, use, occupancy or
management thereof; any accident, injury or damage to any person occurring in or
about the Station; any breach by NAEC of its obligations under this Facilities
Agreement; any act or omission of NAEC or any of its agents, contractors,
servants, employees or licensees; and (b) all costs, counsel fees, expenses or
liabilities reasonably incurred in connection with any such claim or any action
or proceeding brought thereon. In case any action or proceeding is brought
against the Authority or the Trustee by reason of any such claim, NAEC will
defend the same at its expense upon notice from the Authority or the Trustee,
and the Authority or the Trustee, as the case may be, will cooperate with NAEC,
at the expense of NAEC, in connection therewith.

      Section 5. Failure to Comply. NAEC shall immediately notify the Authority,
the Company and the Trustee of any failure to observe or perform any of its
covenants or agreements contained herein, and thereafter shall keep the
Authority, the Company and the Trustee informed with respect to any curative
action instituted by NAEC in order to cure such failure.

      Section 6. Amendment. This Facilities Agreement may be amended by the
parties hereto, provided, however, that in connection with any amendment the
Company or NAEC shall furnish the Authority and the Trustee with an opinion of
Bond Counsel stating that the amendment will not impair the exclusion of
interest on the Bonds from gross income of the owners thereof for federal income
tax purposes.

      Section 7. Agreement Not for the Benefit of Other Parties. This Facilities
Agreement is not intended for the benefit of and shall not be construed to
create rights in parties other than the Authority, the Company, NAEC, the
Trustee and the Bondowners.

      Section 8. Severability. In the event that any provision of this
Facilities Agreement shall

                                      B-4
<PAGE>

be held to be invalid in any circumstance, such invalidity shall not affect any
other provisions or circumstances.

      Section 9. Counterparts. This Facilities Agreement may be executed and
delivered in any number of counterparts, each of which shall be deemed to be an
original; but such counterparts together shall constitute one and the same
instrument.

      Section 10. Governing Law. This Facilities Agreement shall be governed by
the laws of the State of New Hampshire.

      IN WITNESS WHEREOF, the parties have caused this Facilities Agreement to
be duly executed as of the date first above written.

                                        BUSINESS FINANCE AUTHORITY OF
                                        THE STATE OF NEW HAMPSHIRE

                                        By:_____________________________________
                                              Jack Donovan
                                              Executive Director

                                        PUBLIC SERVICE COMPANY OF NEW
                                        HAMPSHIRE

                                        By:_____________________________________
                                              Randy A. Shoop
                                              Assistant Treasurer-Finance

                                        NORTH ATLANTIC ENERGY CORPORATION

                                        By:_____________________________________

                                        STATE STREET BANK AND TRUST
                                        COMPANY, as Trustee

                                        By:_____________________________________

                                      B-5
<PAGE>

                                                                 ATTACHMENT 1 TO
                        SERIES C SEABROOK POLLUTION CONTROL FACILITIES AGREEMENT

  COVENANTS (SUBSTANTIALLY SIMILAR IN ALL MATERIAL RESPECTS) TO BE INCLUDED IN
                           PURCHASE AND SALE AGREEMENT

      Section 1.1. [Caption]

            (a) Pollution Control Revenue Bonds.

            (i) The Buyer acknowledges that:

            (A) The Pollution Control Facilities have been financed, and
      refinanced, in whole or in part, with proceeds of the issuance and sale of
      the Pollution Control Bonds;

            (B) The Company is the economic obligor and conduit borrower in
      respect of certain of the Pollution Control Bonds, as specified in
      Schedule _____;

            (C) The interest paid or accrued on the Pollution Control Bonds is
      not included in the gross income of the holders of the Pollution Control
      Bonds (the "PC Bondholders") for purposes of federal income taxation;

            (D) Pursuant to the Internal Revenue Code of 1954, as amended, and
      the Code, the basis for the federal income tax exclusion for interest
      payable to the PC Bondholders is the use of the Pollution Control
      Facilities for certain qualified purposes which include (I) the abatement
      or control of air or atmospheric pollution or contamination, (II) the
      abatement or control of water pollution or contamination, (III) sewage
      disposal and/or (IV) the disposal of solid waste;

            (E) The use of all or part of the Pollution Control Facilities for a
      purpose other than the qualifying purpose or purposes described in
      subclause (D) above for which the Pollution Control Bonds that financed or
      refinanced them were issued may cause (I) the interest payable on all or
      part of the Pollution Control Bonds to be includable in the federal gross
      income of the PC Bondholders possibly with retroactive effect, unless
      remedial action is promptly taken to redeem or defease the Pollution
      Control Bonds or a portion thereof, and/or (II) the deductibility of the
      interest payable by the Company on all or part of the Pollution Control
      Bonds to be disallowed by Section 150(b) of the Code; and

            (F) Any breach by the Buyer or any subsequent transferee of all or
      any part of the Pollution Control Facilities of its obligations under this
      Section 1.1(a) could result in the incurrence by the Company of additional
      costs and expenses, including, but not limited to, an increase in the rate
      of interest required to be paid to the PC Bondholders, liability to

                                      B-6
<PAGE>

      some or all of the PC Bondholders for their failure to include interest
      payable on the Pollution Control Bonds in their respective federal gross
      income in the event of a final determination of taxability by the IRS,
      loss of the interest deduction to the Company under Section 150(b) of the
      Code and transaction costs relating to any refinancing, redemption and/or
      defeasance of all or part of the Pollution Control Bonds.

      (ii) In order to avoid any or all of the consequences described in clauses
(E) and (F) above, the Buyer agrees that it will not use, or permit the use of,
all or part of the Pollution Control Facilities for any purpose except (x) the
current use of such Pollution Control Facilities or (y) as sewage or solid waste
disposal facilities or air or water pollution control facilities within the
meaning of Section 103(b)(4)(E) or (F) of the Internal Revenue Code of 1954, as
amended, as contemplated by the tax compliance documents or non-arbitrage
certificates for the Pollution Control Bonds that financed or refinanced such
Pollution Control Facilities (copies of which with respect to all of the
Pollution Control Facilities have been provided to the Buyer by NAEC or the
Company), unless the Buyer shall have obtained at its own expense an opinion of
nationally recognized bond counsel reasonably acceptable to NAEC or the Company
("Bond Counsel") addressed to and reasonably satisfactory to NAEC and the
Company that such proposed change in use of the Pollution Control Facilities or
part thereof will not impair (x) the exclusion from gross income of the interest
on any Pollution Control Bonds for federal income tax purposes or (y) the
deductibility of the interest payable on any Pollution Control Bonds by the
Company under Section 150(b) of the Code.

      (iii) The provisions of Section 1.1(a)(ii) shall not prohibit the Buyer
from ceasing to operate, maintain or repair any element or item of the Pollution
Control Facilities, suspending the operation of the Pollution Control Facilities
on a temporary basis, or terminating the operation of the Pollution Control
Facilities on a permanent basis and shutting down the Pollution Control
Facilities; provided, however, that the Pollution Control Facilities, in whole
or in part, shall not be maintained in such a manner as to prevent their being
reactivated and used for a purpose permitted by Section 1.1(a)(ii), nor be
retired and/or decommissioned, dismantled or sold as scrap, unless the Buyer has
obtained at its own expense an opinion of Bond Counsel addressed to and
reasonably satisfactory to NAEC and the Company that this action will not impair
either (x) the exclusion from gross income of the interest on any Pollution
Control Bonds for federal income tax purposes or (y) the deductibility of the
interest payable with respect to any Pollution Control Bonds by the Company
under Section 150(b) of the Code. The Buyer shall provide to NAEC and the
Company written notice at least thirty (30) days in advance of any permanent
shut-down, retirement, abandonment or decommissioning of Seabrook or the
Pollution Control Facilities in whole or in part and shall in good faith by
written notice to NAEC and the Company describe the affected property so that
NAEC and the Company can determine which issue or issues of Pollution Control
Bonds financed or refinanced such affected property.

      (iv) It is expressly understood and agreed that this Section 1.1(a) shall
not prohibit the use by the Buyer of tax-exempt bonds to finance or refinance
any improvements to the Pollution Control Facilities made on or after the
Closing Date or any assets other than the Pollution Control Facilities, provided
that no breach by the Buyer of its covenants in this Section 1.1(a) shall result
from such improvements.

                                      B-7
<PAGE>

      (v) The Buyer shall indemnify NAEC and the Company for any costs and
expenses incurred by NAEC or the Company, respectively, solely as a result of
any breach by the Buyer of its covenants in this Section 1.1(a).

      (vi) NAEC shall, or shall cause the Company to, notify the Buyer in
writing of the maturity or redemption of any issue of the Pollution Control
Bonds.

      (vii) If NAEC or the Company to shall have notified the Buyer that it has
refinanced any of the Pollution Control Bonds with new bonds, the provisions of
this Section 1.1(a), if applicable, shall apply with respect to such new bonds
as though they were the Pollution Control Bonds.

      (viii) The Buyer and any transferee or subsequent transferee will not sell
or otherwise transfer all or part of the Pollution Control Facilities unless its
transferee covenants in writing for the benefit of NAEC and the Company to
comply with and to satisfy the covenants of this Section 1.1(a) (including
without limitation the covenants of this clause (viii)) with respect to its
ownership and use of such Pollution Control Facilities.

      (ix) The covenants of this Section 1.1(a) shall survive Closing and shall
continue in effect and bind the Buyer and any transferee or subsequent
transferee of all or part of the Pollution Control Facilities so long as any of
the Pollution Control Bonds remain outstanding.

RELATED DEFINITIONS

      "Agreement" means this [Purchase and Sale Agreement], together with
Schedules and Exhibits hereto, as the same may be amended from time to time.

      "Bond Counsel" has the meaning set forth in Section 1.1(a)(ii).

      "Buyer" [define as the buyer under the Purchase and Sale Agreement].

      "Closing" means the closing of the transactions contemplated by this
Agreement.

      "Closing Date" means the date on which the Closing takes place.

      "Company" [define to mean the Company, as defined in the Facilities
Agreement].

      "Code" means the Internal Revenue Code of 1986, as amended.

      "Exhibit" means an exhibit to this Agreement.

      "Facilities Agreement" means the Series C Seabrook Pollution Control
Facilities Agreement to which this Attachment 1 is attached.

      "IRS" means the Internal Revenue Service or any successor agency.

                                      B-8
<PAGE>

      "LTA" means the LTA, as defined in the Facilities Agreement.

      "NAEC" [define to mean NAEC, as defined in the Facilities Agreement].

      "PC Bondholders" has the meaning set forth in Section 1.1(a)(i)(C).

      "Pollution Control Bonds" [define to include the Bonds, as defined in the
LTA.].

      "Pollution Control Facilities" [define to include the Project Facilities,
as defined in the LTA.].

      "Schedule" means a schedule to this Agreement.

      "Seabrook" [define to mean the Station, as defined in the LTA].

                                      B-9
<PAGE>

                               Table of Contents
                                  (continued)

--------------------------------------------------------------------------------
                                  |   -i-   |
--------------------------------------------------------------------------------<PAGE>
                                                                 Exhibit 10.15.1

                             STATE OF NEW HAMPSHIRE
                                   BEFORE THE
                           PUBLIC UTILITIES COMMISSION

                     AGREEMENT TO SETTLE PSNH RESTRUCTURING

                                 August 2, 1999
                    Revised and Conformed in Compliance with
                                Order No. 23,549
<PAGE>
AGREEMENT TO SETTLE PSNH RESTRUCTURING

I.   INTRODUCTION

This Settlement Agreement is entered into this 2nd day of August, 1999, (and
conformed as of June 23, 2000, to reflect changes and corrections made during
hearings before the New Hampshire Public Utilities Commission in Docket No. DE
99-099, the requirements of Chapter 249 of the Session Laws of 2000 and Order
No. 23,443 of the New Hampshire Public Utilities Commission) between the
Governor of New Hampshire, the Governor's Office of Energy and Community
Services, the Office of the Attorney General, Staff of the New Hampshire Public
Utilities Commission, Public Service Company of New Hampshire ("PSNH") and
Northeast Utilities ("NU") (collectively, the "Parties"). This Agreement is
designed to provide a resolution of all major issues pertaining to PSNH in the
electric industry restructuring proceeding of the New Hampshire Public Utilities
Commission ("PUC") Docket No. DR 96-150, as well as in the other dockets and
pending litigation described in Section XV of this Agreement. Implementation of
this Agreement requires the approval of the PUC, as well as passage of
securitization legislation by the New Hampshire Legislature. The enactment of
Chapter 249 of the Session Laws of 2000 meets this latter requirement. When
implemented, this Agreement will result in the restructuring of PSNH in
compliance with the competitive market structure objectives of both the
Legislature, as set forth in RSA Chapter 374-F, and the PUC, as set forth in
Docket No. DR 96-150, as well

Page 1
<PAGE>
as the legislation relative to electric rate reduction financing contained in
Chapter 289 of the Session Laws of 1999 and Chapter 249 of the Session Laws of
2000.

     The key components of this Agreement include:

     -    An initial 15.3% average rate reduction for PSNH's customers, followed
          by subsequent decreases through the life of this Agreement.

     -    Substantial burden sharing by PSNH in the form of a $225 million
          after-tax write-off that will reduce Stranded Costs by approximately
          $367 million.

     -    Sharing of the risks of Stranded Cost recovery.

     -    Retail choice for all of PSNH's customers.

     -    Resolution of all issues pertaining to the Rate Agreement in a manner
          that is balanced and equitable.

     -    Resolution of the Fuel and Purchased Power Adjustment Clause ("FPPAC")
          under-recovery that will exist as of Competition Day, and elimination
          of FPPAC in the future.

     -    Rate relief that is sustainable over the long-term.

     -    Refinancing that benefits customers through the issuance of low-cost
          Rate Reduction Bonds in an amount consistent with RSA Chapter 369-B
          ("securitization").

     -    Provision for low-income assistance and energy conservation programs
          for PSNH's customers.

     -    Transition Service that provides stable and predictable prices for all
          customers during the transition to competition.

     -    Divestiture of PSNH's generating assets and purchased power
          obligations, including its entitlement to power generated at the
          Seabrook Nuclear Plant under its contract with North Atlantic Energy
          Corporation ("NAEC").

     This Agreement is designed to be implemented on Competition Day, which is
the first day of the month following the month in which the conditions contained
in Section XVI are satisfied. Until the earlier of Competition Day or October 1,
2000, PSNH's existing temporary rates for bundled service, the existing FPPAC
rate of 0.383 cents/kWh, and the FPPAC BA amount of 6.281 cents/kWh will remain
in

Page 2
<PAGE>
effect, subject only to adjustment for future changes in Nuclear Decommissioning
Charges and new levels of public policy expenditures ordered by the PUC after
August 2, 1999. If Competition Day has not occurred by October 1, 2000, then
effective October 1, 2000 PSNH shall temporarily reduce its current effective
total rates (base rates plus FPPAC rates) by 5 percent across the board in the
same manner as was used to implement the temporary rate reduction ordered in
Docket No. DR 97-059 until either Competition Day or April 1, 2001, whichever
occurs earlier. On Competition Day, PSNH's rates will be unbundled and retail
customers will have the opportunity to choose an energy supplier. During the
first year following Competition Day, this Agreement will result in an average
retail rate of 10.985 cents per kWh for a customer taking Transition Service,
broken down as follows:

<TABLE>
<S>                                     <C>
     Transition Service Energy Charge   4.400 cents
     Delivery Charge                    2.800
     Hydro-Quebec Support Payments      0.130
     Stranded Cost Recovery Charge      3.400
     System Benefits Charge             0.200
     Consumption Tax                    0.055 cents
     Total                              10.985 cents/kWh
</TABLE>

     Customers may be able to obtain even lower overall electricity costs by
choosing a Competitive Supplier for energy.

     The Parties recognize and understand that their mutual undertakings, as
expressed in this Agreement, reflect their efforts to settle the issues raised
in Docket No. DR 96-150, settle all outstanding federal and state proceedings
involving PSNH restructuring, and lay to rest various other areas of dispute
between the Parties as provided herein. The Parties agree that their
understandings regarding securitization will require enactment of legislation by
the New Hampshire Legislature, in addition to the approval of the PUC. Chapter
249 of the Session Laws of 2000 meets the requirement for a legislative
enactment.

     The Parties believe the terms of this Agreement reflect a fair resolution
of all outstanding disputes that is in the public interest. More specifically,
this Agreement is substantially consistent with the restructuring goals set
forth in RSA Chapter 374-F and Chapter 289 of the Session Laws of 1999,
including, but not limited to, near-term rate relief, retail choice;
non-discriminatory open access to the electric system; unbundling of rates;
equitable benefits for all customer classes; electricity prices that narrow the
rate gap for New Hampshire customers; universal service and energy efficiency
commitments; risk sharing by PSNH; a substantial write-off of Stranded Costs;
limited Stranded Cost recovery that is appropriate, equitable and balanced; and,
issuance of Rate Reduction Bonds that are not an

Page 3
<PAGE>
obligation of the State, and that will provide equitable and extraordinary
benefits to PSNH's customers in the form of significant rate reductions. In
compliance with the requirements of RSA 369-A: 1,X(h), PSNH and the New
Hampshire Electric Cooperative, Inc. ("NHEC"), have entered into a FERC-approved
settlement of all issues.

II.  DEFINITIONS

Acquisition Premium: The Acquisition Premium referred to in paragraph 2(b) of
the Rate Agreement.

Agreement: This Settlement Agreement signed by the Parties on August 2, 1999,
including all appendices, and conformed as of June 23, 2000, to reflect changes
and corrections made during hearings before the New Hampshire Public Utilities
Commission in Docket No. DE 99-099, the requirements of Chapter 249 of the
Session Laws of 2000 and Order No. 23,443 of the New Hampshire Public Utilities
Commission.

All-In Cost: The cost of the RRBs, including the coupon rate, any discounts or
premiums, ongoing fees, the overcollateralization account, SPSE expenses, any
letter of credit costs, but excluding servicing fees.

California Code: The Code of Conduct adopted by the California Public Utilities
Commission, as set out in Appendix I and referred to in New Hampshire PUC Order
No 22,875 issued in Docket No. DR 96-150 dated March 20, 1998.

Capacity Transfer Agreements: The Capacity Transfer Agreements between PSNH and
the NU initial system referred to in paragraph 3 of the Rate Agreement.

Capital Subaccount: An account that will belong to the Special Purpose
Securitization Entity, and will hold the initial capital contribution to the
Special Purpose Securitization Entity and certain related amounts as described
in Section XIII(D) of this Agreement.

Competition Day: The date upon which all PSNH retail customers will be able to
choose a Competitive Supplier of energy. More specifically, Competition Day is
the first day of the month following the month in which the conditions contained
in Section XVI are satisfied and shall not be later than October 1, 2000, unless
the PUC finds due to circumstances beyond its control that further delay is in
the public interest.

Competitive Supplier: An "Electricity Supplier" as defined in RSA 374-F:2,II,
who meets all PUC requirements to sell energy to PSNH's customers.

Page 4
<PAGE>
Default Service: The source of electric energy for customers who are not
eligible for Transition Service and who are not receiving energy from a
Competitive Supplier. Default service is designed to provide a temporary safety
net for customers and to assure universal access and system integrity as set
forth in RSA 374-F:3,V(c).

Delivery Charge: The delivery portion of the unbundled retail distribution bill.

Demand-Side Management ("DSM"): Programs traditionally designed to reduce or
manage customer electricity usage as specified in Section V(E)(2).

Distribution: The portion of PSNH's delivery system subject to the regulatory
jurisdiction of the PUC.

Energy Consumption Tax: The tax specified in RSA 83-E:2.

Energy Efficiency Programs: Programs designed to improve the efficiency of, and
thus reduce, customer electricity usage as specified in Section V(E)(2).

Energy Efficiency Working Group ("EEWG"): A collaborative of interested parties
in PUC Docket No. DR 96-150 developing energy efficiency recommendations.

Environmental Remediation Expenditures: Costs of remediating the environmental
issues at the sites identified in Appendix B.

Environmental Reserve ("ER"): A reserve account established by PSNH on its books
to provide for environmental remediation expenditures, as provided in Section
V(A).

Exempt Wholesale Generator: Any entity who qualifies for Exempt Wholesale
Generator status under Section 32 of the Public Utility Holding Company Act of
1935.

Failed Auction: An asset auction that results in some or all of the assets
either not being bid upon at auction, or being bid at prices less than the
minimum prices established or approved by the PUC.

FERC: The Federal Energy Regulatory Commission.

Final Order: An order issued by the PUC pursuant to RSA-363: 17-b on the merits
of the Agreement, effective at the expiration of the rehearing period set forth
in RSA 541:3, or, if the order is subject to one or more motions for rehearing,
effective the date that the PUC acts on the last pending motion for rehearing
pursuant to RSA 54 1:5.

Page 5
<PAGE>
Fuel and Purchased Power Adjustment Clause ("FPPAC"): The Fuel and Purchased
Power Adjustment Clause referred to in paragraph 7 of the Rate Agreement.

Independent Power Producer ("IPP") costs: The costs to PSNH of purchasing energy
and/or capacity from PURPA qualifying facilities or LEEPA facilities.

Initial Delivery Charge Period: The first thirty-three months following
Competition Day during which delivery rates are set at 2.80 cents per
kilowatt-hour, exclusive of Hydro Quebec transmission support payments.

Initial Transition Service End Day: The date occurring nine months after
Competition Day.

LEEPA: The Limited Electrical Energy Producers Act, RSA Chapter 362-A.

Legislature: The General Court of the State of New Hampshire.

Low-Income Electric Assistance Program: A statewide payment assistance program
designed to enable low-income residential customers to manage and afford
essential electricity requirements, as provided in Section V(E)(1).

Major Storm Cost Reserve: An account to be established by PSNH to fund the costs
identified in Section V(A).

New Hampshire Code of Conduct: The Code of Conduct to be adopted by the PUC
pursuant to Order No. 22,875 issued in Docket No. DR 96-150 dated March 20,
1998, as provided in Section XI of this Agreement.

Non-Securitized Stranded Costs: The Stranded Costs for which recovery is allowed
under Part 3 of the Stranded Cost Recovery Charge as provided in Section V(B)(3)
of this Agreement.

Nuclear Decommissioning Charge: The ongoing expenses for nuclear decommissioning
for Seabrook, Millstone Unit 3 and Vermont Yankee.

Overcollateralization Subaccount: An account that will belong to the Special
Purpose Securitization Entity and will hold the Overcollateralization amount on
the RRBs as described in Section XIII(D) of this Agreement.

Parties: The Governor of New Hampshire, the Governor's Office of Energy and
Community Services, the Office of the Attorney General, Staff of the New
Hampshire Public Utilities Commission, Public Service Company of New

Page 6
<PAGE>
Hampshire and Northeast Utilities.

Present Value: Unless otherwise specified, the net present value that results
from applying the Stipulated Rate of Return.

Prudence: The standard of care which qualified utility management would be
expected to exercise under the circumstances that existed at the time the
decision in question had to be made. In determining whether a decision was
prudently made, only those facts known or knowable at the time of the decision
can be considered.

PSNH: Public Service Company of New Hampshire.

PUC: The New Hampshire Public Utilities Commission.

Purchased Power Obligation: A commitment created by contract, order or law for
PSNH to purchase power from a third party.

PURPA: The Public Utility Regulatory Policies Act of 1978. Generally, 16 U.S.
Code 2601, et seq.

Rate Agreement: The agreement dated November 22, 1989, as amended, executed by
and between the Governor and Attorney General of the State of New Hampshire,
acting on behalf of the State of New Hampshire, and Northeast Utilities Service
Company, acting on behalf of its parent Northeast Utilities. See RSA 362-C:2,I.

Rate Reduction Bonds ("RRBs"): Bonds, notes, certificates of participation or
beneficial interest, or other evidences of indebtedness or ownership, issued
pursuant to an executed indenture or other agreement of a financing entity, in
accordance with New Hampshire law, the proceeds of which are used, directly or
indirectly, to recover, finance, or refinance Stranded Costs, and which,
directly or indirectly, are secured by evidence of ownership interests in, or
are payable from, RRB property.

Recovery End Date: The risk sharing date established in Section V(C) at which
recovery by PSNH of its Non- Securitized Stranded Costs ends, even if all such
costs have not been recovered. The Recovery End Date may be different for
various customer classes.

Reserve Subaccount: An account of the Special Purpose Securitization Entity that
will hold any excess collections of RRB Charges beyond the amount needed to make
periodic allocations with respect to RRB Costs as described in Section XIII(D)
of this Agreement.

Retail Choice: The ability of retail electric customers to

Page 7
<PAGE>
choose a Competitive Supplier on or after Competition Day.

RRB Charge: Part 1 of the SCRC, which is dedicated to the payment of the RRBs.

RRB Costs: Principal, interest, credit enhancement costs, fees and expenses with
respect to RRBs.

RRB Property: An irrevocable property right to bill and collect nonbypassable
RRB Charges in amounts sufficient to recover the RRB Costs.

Seabrook Power Contract: The agreement between PSNH and North Atlantic Energy
Corporation referred to in paragraph 2 of the Rate Agreement.

Service Territory: The geographic area established by the PUC as the retail
electric service territory of PSNH, as such territory is depicted on the
"Electric Utilities Franchise Areas" map issued by the PUC, dated July 1, 1993,
together with any other geographic area in which PSNH actually provided retail
electric service on such date.

Sharing Agreement: The agreement referred to in paragraph 4 of the Rate
Agreement.

Special Purpose Securitization Entity ("SPSE"): Any special purpose trust,
limited liability company, or other entity that is authorized in accordance with
the terms of a finance order to issue Rate Reduction Bonds, acquire RRB
Property, or both.

Stipulated Rate of Return: A rate of return calculated assuming a return on
equity of 8% after tax, an equity ratio of 40%, and the weighted cost of PSNH's
non-securitized long-term debt. The Stipulated Rate of Return will be computed
as of two dates. The first calculation will occur on Competition Day, and will
take into account the reduction in long-term debt costs occasioned by the
issuance of the RRBs. The second calculation will occur as of the date of the
closing of the sale of all of PSNH's fossil and hydro assets, and will take into
account any additional reduction in long-term debt costs occasioned by the
proceeds from the sales of those assets.

Stranded Costs: Costs, liabilities, and investments that PSNH would reasonably
expect to recover if the existing regulatory structure with retail rates for the
bundled provision of electric service continued, but which would likely not be
recovered as a result of restructuring of the electric industry that allows
retail choice of electricity suppliers unless a specific mechanism for such cost
recovery is provided. See RSA 374-F:2,IV.

Page 8
<PAGE>
Stranded Cost Recovery Charge ("SCRC"): The portion of the unbundled retail
delivery service bill that is a non-bypassable charge as provided in RSA
Chapter 374-F:3 to recover the portion of PSNH's Stranded Costs that are allowed
by this Agreement. The SCRC includes the RRB Charge, nuclear decommissioning and
IPP costs, Non-Securitized Stranded Costs, and other costs and expenses allowed
by this Agreement.

System Benefits Charge: A nonbypassable charge authorized by RSA 374:F:3,VI,
which is designed to recover the costs of PUC-approved public benefits related
to the provision of electricity, including the Low-Income Electric Assistance
Program and Energy Efficiency Programs specified in this Agreement.

Tariff: The Electric Delivery Service Tariff pursuant to which PSNH will provide
service beginning on Competition Day. In the event of any conflicts between the
Tariff and this Agreement, the terms of this Agreement shall control.

Transition Service: Electricity supply to be made available for the time periods
set forth in RSA 369-B:3,IV,b,1 to all customers who have not chosen a
Competitive Supplier, or who in certain circumstances have left such a supplier.
Transition Service is designed to afford customers the option of stable and
predictable ceiling prices in accordance with RSA 374-F:3,V(b).

Transmission: The portion of PSNH's delivery system that is subject to the
regulatory jurisdiction of the Federal Energy Regulatory Commission.

Triple-A Rating: A determination by a majority of (a) Duff & Phelps Credit
Rating Co., Fitch Investors Service, L.P., Moody's Investors Service, and
Standard & Poor's Ratings Services, or (b) the ratings agencies in (a) that
actually rate the RRBs at issuance, that the RRBs are entitled to their highest
rating.

True-Up Mechanism: A periodic adjustment to the RRB Charge, which accounts for
any over or under-collections of the RRB Charge.

III. WRITE-OFF

     Subsequent to receipt of a Final Order from the PUC approving this
Settlement Agreement as submitted by the Parties and upon satisfaction of the
conditions contained in Section XVI, PSNH will write off $225 million after-tax
(approximately $367 million pre-tax as of January 1, 2000). Such write-off shall
take place on or before Competition

                                     Page 9
<PAGE>
Day. The write-off will be first taken against the Seabrook Deferred Return and
the Acquisition Premium in a manner that will maximize benefits for customers.
In addition to the write-off described above, PSNH will take an additional pre-
tax write-off of $6,200,000 on or before Competition Day resulting from the
settlement of issues pertaining to New Hampshire Electric Cooperative, Inc. and
will also reduce its Stranded Costs by an additional $10 million upon the
transfer of the following market-based wholesale contracts to an affiliate:

     Braintree                  Littleton Electric Light & Water Dept.
     Burlington Electric Dept.  Littleton, NH
     Central Maine Power        Mansfield
     Citizens Lehman            Middleton
     Citizens System            Reading
     Commonwealth Electric      Select Energy
     Danvers                    Sterling
     Fitchburg Gas & Electric   UNITIL
     Holyoke Gas & Electric     VT. Marble

IV.  RATE DESIGN

     The rate design principles to which the Parties have agreed are as
described below.

     All classes of customers are to be charged an equal cents per kilowatt-hour
amount for the System Benefits Charge and the Energy Consumption Tax (unless
modified by a revision to the legislation). Other than the specific items
referenced above, PSNH will recover its costs through customer, demand, meter,
and usage (kWh) charges, subject to the constraint that any change to rate
design will not result in a shifting of costs between the residential class and
all other classes. All rate design changes will be performed on a revenue
neutral basis. The average rate reduction for each class will be determined in
accordance with PUC Order No. 23,443 and Chapter 249 of the Session Laws of
2000.

     The average reduction for the limited number of optional rates that are
already discounted may be less than the average reduction for the class, or
there may be no reduction. If the percent decrease to certain optional rates is
lower or if there is no decrease, the decrease to the other rates within the
class will be higher in order to ensure that the class receives the overall
average percentage decrease as set forth in Appendix A. Because economic
development ("ED") and business retention ("BR") rates are already discounted,
the average rate reduction for ED and BR customers will be less than the average
reduction for the class into which ED and BR customers would ordinarily fall.

Page 10
<PAGE>
     The rate design will not result in a higher bill for any customer, when
comparing the customer's bill calculated as of the date of this Agreement to
that bill calculated as of Competition Day, assuming that customer receives
Transition Service. Having committed in this Agreement to address low-income
assistance and energy conservation in a more appropriately targeted fashion,
PSNH has eliminated the current "humped" design of the standard residential
rate, and it has also redesigned its general service rates (Rates G, GV and LG)
to provide for a smooth transition for customers who switch from one rate class
to another as a result of load changes.

     A table incorporating the foregoing Rate Design principles is contained in
Appendix A. PSNH is filing a proposed Tariff implementing these rates with its
supporting testimony. The other Parties reserve the right to file testimony
supporting or opposing PSNH's proposed rate design and Tariff filing.

D.   INDIVIDUAL RATE COMPONENTS

     a.   Delivery Charge

     In order to insure that customers will enjoy stable and predictable prices
through the transition to competition, PSNH will set the Delivery Charge at an
overall average level of 2.80 cents per kilowatt-hour for the first thirty-
three months following Competition Day (the "Initial Delivery Charge Period"),
exclusive of Hydro Quebec transmission support payments, unless adjusted as
provided herein. As discussed in Section IV of this Agreement, ("Rate Design"),
the Delivery Charge includes customer, demand, meter and usage (kWh) charges.
The average Delivery Charge reflects the amount necessary for that class to
receive the rate reduction provided by this Agreement, once all other rate
design changes have been incorporated and after taking into account all other
charges provided for by this Agreement, including the Stranded Cost Recovery
Charge.

     No later than thirty-two months following Competition Day, PSNH will file
with the PUC proposed new delivery rates, including supporting cost and rate
information and pro forma adjustments based on the four most recent calendar
quarters for which data are available, for effect after the end of the Initial
Delivery Charge Period.

     The new delivery rates shall take into account any revenues received by
PSNH for servicing of outstanding RRBs subsequent to the Initial Delivery Charge
Period. During the Initial Delivery Charge Period the revenues received from
servicing the RRBs will be reserved in a liability account

Page 11
<PAGE>
on PSNH's books and refunded with a return at the Stipulated

     Rate of Return when new delivery rates are determined, over such period as
may be ordered by the PUC.

     The new delivery rates will become effective after investigation and
hearings. If the new delivery rates are suspended by the PUC, any final rates
determined by the PUC will be calculated retrospectively on an aggregate basis
beginning as of the end of the Initial Delivery Charge Period, with an
appropriate refund or recoupment of costs made prospectively from the effective
date of the PUC's order. The 2.800 delivery rates proposed for the Initial
Delivery Charge Period (exclusive of Hydro Quebec transmission support payments)
shall not be considered a precedent for the establishment of the level of rates
subsequent to the Initial Delivery Charge Period.

     During the Initial Delivery Charge Period, a Major Storm Cost Reserve
("MSCR") shall be established by PSNH, and shall be funded at a rate of $3
million per year. Major storm costs shall be charged to the MSCR during that
period. A "major storm" shall be defined as any time that either: (a) 10% or
more of PSNH's retail customers lose power and there are more than 200 reported
troubles, or (b) there are 300 or more reported troubles. As part of the filing
for new delivery rates described above, PSNH will report the difference, if any,
between the actual costs charged to the MSCR and the funding of the MSCR. During
the Initial Delivery Charge Period, PSNH will defer any major storm costs which
exceed the funding of the MSCR, and PSNH will recover or refund (with a return
or interest at the Stipulated Rate of Return) during the subsequent twelve
months (or such other period ordered by the PUC) any difference between the
prudent costs properly charged to the MSCR and the amount of funding of the
MSCR.

     PSNH has established an Environmental Reserve ("ER") on its books of
account. The ER is for expenditures associated with the sites specified in
Appendix B and is expected to amount to $11.5 million as of January 1, 2000,
with the amount to be adjusted as may be necessary to reflect any reasonable and
prudent adjustments made to such books of account between the filing date of
this Agreement and Competition Day. During the Initial Delivery Charge Period,
PSNH will charge its actual environmental remediation expenditures for the
specifically identified sites to the ER. Subsequent to the Initial Delivery
Charge Period, PSNH will recover or refund (with a return or interest at the
Stipulated Rate of Return) any difference over a period not to exceed three
years, subject to a prudence finding for the costs charged thereto.

     Because the average Delivery Charge of 2.80 cents per

                                    Page 12
<PAGE>
kilowatt-hour does not recover any Environmental Remediation Expenditures,
during the Initial Delivery Charge Period PSNH will defer for future recovery
environmental expenses for any new site that is identified or for any increase
to estimated remediation costs for any existing sites. As part of the filing for
new delivery rates, PSNH will propose recovery of any such deferrals. The PUC
shall grant recovery of such costs that it determines to be prudent. If the PUC
grants recovery, such deferrals shall be amortized as they are recovered through
the new Delivery Charge. Any actual Environmental Remediation Expenditures will
decrease the ER.

     During the Initial Delivery Charge Period, the Delivery Charge shall, upon
request by PSNH or on a motion by the PUC, be adjusted to fully recover any
changes in PSNH's costs that the PUC determines have resulted from the
imposition or modification of any tax, program, service, or accounting change
resulting from an order by any regulatory agency or by the enactment or revision
of any law, or in the case of accounting changes, by the Financial Accounting
Standards Board ("FASB") or the Emerging Issues Task Force ("EITF"). Any such
adjustment of the Delivery Charge during the first 24 months following
Competition Day shall be applied as an equal change in the cost per kWh for all
rate classes to which such adjustment applies.

     The Delivery Charge of 2.80 cents per kilowatt-hour during the Initial
Delivery Charge Period (exclusive of Hydro Quebec transmission support payments)
will only apply to PSNH's customer, demand, meter, and usage (kWh) charges.
Changes to other fees and service charges (e.g., late payment charges, service
connection charges, line extension charges, and fees for services provided to
energy suppliers) will continue to be subject to PUC approval.

     In order to achieve the Delivery Charge specified above, the Parties agree
that a ten-year extension for depreciation lives is appropriate for PSNH's
Transmission and Distribution assets. The Parties hereby support PSNH's request
to make such an adjustment to the depreciation lives. When and if approved by
the PUC, PSNH will make corresponding adjustments to the book lives of the
affected assets.

     PSNH will fund PUC expenses during the Initial Delivery Charge Period that
are necessary to monitor Agreement compliance, to assure that Transmission and
Distribution system quality and reliability are maintained, to assure that PSNH
has prudently sold the output of its generating assets and entitlements prior to
divestiture, to assure that allocators utilized to assess charges among
affiliates are proper and timely, and for other matters deemed necessary by the
PUC. If the cost to PSNH of such funding exceeds the historical special
assessment of $350,000 per year, PSNH may

Page 13
<PAGE>
recover the incremental amount through an increase to the Delivery Charge during
the Initial Delivery Charge Period, pursuant to the provisions of this Section
allowing the Delivery Charge to be adjusted for changes in costs resulting from
the imposition or modification of any tax, program, service or accounting
change.

     Revenue received by PSNH from the provision of wheeling service across
PSNH's Transmission system or the Transmission system of its affiliates (except
for revenues received for usage of the Hydro Quebec line) will continue to be
credited on a pro-rata basis against Delivery Charge revenue requirements.
Revenue received by PSNH from the provision of wheeling service across PSNH's
Distribution facilities will also be credited against Delivery Charge revenue
requirements. Such credit shall not affect the level of the Delivery Charge
during the Initial Delivery Charge Period.

     In addition to the 2.80/kwh Delivery Charge, PSNH will be allowed to
recover Hydro Quebec transmission support payments. The cost of such
transmission support payments shall be included on customer bills as an increase
of 0.130/kWh in the Delivery Charge above the otherwise effective 2.80/kWh rate
during the Initial Delivery Charge Period. The offsetting credits for all
revenues received for usage of the line shall be credited to Part 3 Stranded
Costs pursuant to Section V.B.3 of this Agreement. Subsequent to the Initial
Delivery Charge Period, the level of Hydro Quebec transmission support payment
charges and related revenues included in rates shall be determined by the PUC as
part of the normal ratemaking process.

B.   Stranded Cost Recovery Charge

     The Stranded Cost Recovery Charge ("SCRC") will be a non-bypassable charge
as provided in RSA 374-F:3 and RSA 369-B:4, IV to recover the portion of PSNH's
Stranded Costs as well as other specified costs and expenses that are allowed by
this Agreement. Stranded costs to be recovered through the SCRC will consist of
securitized assets and Non-Securitized Stranded Costs, and the net of ongoing
expenses and/or revenue requirements (including decommissioning costs) for any
generating unit, entitlement or obligation that has not been sold or otherwise
divested as of Competition Day. The SCRC will recover the amortization of the
assets and the ongoing expenses, and will be reconciled with a return applied at
the Stipulated Rate of Return to any overrecoveries or underrecoveries of costs,
subject to the provisions of Section V(C), ("Risk Sharing"), except with respect
to the RRB Charge, for which reconciliations shall be calculated in accordance
with the True-Up Mechanism described in Section XIII. Appendix C shows the
estimated balance of the assets as of July 1, 2000, and Appendix D

                                    Page 14
<PAGE>
provides an illustrative amortization schedule for the assets. Appendices C and
D will be updated as required to reflect additional amortization of and/or
prudent capital additions to the listed assets as of Competition Day.

     For the purpose of establishing the SCRC, Stranded Costs will be divided
into three parts, as described below. Part 1 will be the RRB Charge, and is the
source of payment for Rate Reduction Bonds. Therefore, the right to receive all
collections in respect of the Part 1 charge will be sold to the Special Purpose
Securitization Entity (see Section XIII). Part 1 is expected to be billed until
the expected maturity date, which is 12 years from the date of issuance of RRBs,
but, in certain circumstances described herein, may be billed until the legal
maturity date of the RRBs as described more fully below. Part 2 will continue
for as long as there are Stranded Cost expense components in that part for which
PSNH is responsible for payment. Part 3 contains other miscellaneous Stranded
Costs, and recovery of Part 3 Stranded Costs by PSNH is time bounded and full
recovery of such costs is not guaranteed to PSNH.

     The SCRC shall be a non-bypassable charge pursuant to RSA 374-F:3 and RSA
Chapter 369-B. All currently existing opportunities shall be continued for
retail customers to generate or acquire electricity for their own use, other
than through retail electric service, without an exit fee. The SCRC contained in
Delivery Service Rate B of PSNH's tariff is just and reasonable, and does not
create a charge similar to or have the same effect as an exit fee. In the event
of the municipalization of a portion of PSNH's Service Territory, the PUC shall,
in matters over which the Federal Energy Regulatory Commission does not have
jurisdiction, or has jurisdiction but chooses to grant jurisdiction to the
state, determine, to a just and reasonable extent, the consequential damages
such as stranded investment in generation, storage, or supply arrangements
resulting from the purchase of plant and property from PSNH and RRB costs, and
shall establish an appropriate recovery mechanism for such damages. Any such
damages shall be established, and shall be allocated between the RRB charge and
other rates and charges, in a just and reasonable manner. Any municipality shall
be allowed to initiate or continue the process of establishment, acquisition and
expansion of plants according to RSA Chapter 38 as it exists upon the date of
this Agreement, as well as the provisions of Chapter 249 of the Session Laws of
2000.

1.   Part 1 - Securitized Assets

     E.   Part 1 of the SCRC (the "RRB Charge") consists of the amounts required
          to recover RRB Costs as more fully described in Section XIII. The
          proceeds from securitization

                                    Page 15
<PAGE>
          may be applied to the following assets: The difference between North
          Atlantic Energy Corporation's book value of Seabrook, determined as of
          Competition Day, and $100 million. This amount will be paid by PSNH to
          NAEC on or before Competition Day to buy down the value of the
          Seabrook Power Contract. This contract buy-down is subject to all
          required regulatory and lender approvals.

     -    The book value of Millstone Unit 3 as of the date that PSNH begins to
          separately account for its ownership of that unit pursuant to Section
          VIII(I) of this Agreement.

     -    Necessary and prudent costs associated with issuance of and closing on
          the securitization financing and any premiums associated with the
          retirement of debt and preferred stock from these proceeds up to a
          maximum of $15 million, such amount to include the first $700,000 of
          the costs of the office of the State Treasurer related to reviewing
          and issuing the RRBs.

     -    A portion of the Acquisition Premium and FAS 109 costs related
          thereto, which shall be measured as the difference between the
          proceeds of the RRBs and the total of the preceding Part 1 costs.

     The net book value of the assets that comprise Stranded Costs as of
Competition Day shall form the basis of the amounts to be recovered. Those
values as of the end of each month for calendar years 2000 and 2001, will be
agreed to by the Parties and expeditiously filed with the PUC. The values shall
be used to determine the levels of Part 1 and Part 3, with the exception that
any prudent capital additions or retirements at Seabrook and Millstone Unit 3
shall be added or subtracted from the stated amount.

     The Part 1 charge will be a discrete and segregated charge in order to meet
the requirements for the targeted Triple-A Rated securitization. Therefore, all
Part 1 collections will be allocated and remitted to the Special Purpose
Securitization Entity (described below in Section XIII). Cash collections of
Part 2 and Part 3 will not be made available to make payments on Rate Reduction
Bonds. Section XIII(D) of this Agreement discusses the relationship between Part
1 collections and Parts 2 and 3 of the SCRC.

2.   Part 2 - Nuclear Decommissioning Costs, IPP Costs and Going Forward Costs

     Part 2 of the SCRC will initially recover ongoing expenses for nuclear
decommissioning (for Seabrook, Millstone Unit 3 and Vermont Yankee) and for IPP
costs. After the earlier of the Recovery End Date or the date that

Page 16
<PAGE>
Non-Securitized Stranded Costs are fully amortized, Part 2 will also be credited
with a return on the accumulated deferred income taxes at the Stipulated Rate of
Return to the extent that PSNH is unable to divest any asset, entitlement, or
obligation, and the PUC has not exercised its authority to divest under Section
VIII(L), after the earlier of the Recovery End Date or the date that the Non-
Securitized Stranded Costs are fully amortized, such going forward costs related
to those assets, entitlements, or obligations shall thereafter become Part 2
costs with continued recovery. Such costs shall exclude any previously deferred
amounts. The Part 2 amount to be recovered through the SCRC each month will be
the expenses incurred by PSNH for the items listed above, less associated
revenues and the revenue from the sale of the IPP power on the wholesale market,
adjusted by the prudent costs incurred by PSNH to mitigate these IPP costs via
buyouts, buydowns, or other methods. Pursuant to Chapter 249 of the Session Laws
of 2000, PSNH shall be allowed to retain up to 20 percent of the savings
resulting from such buyouts, buydowns, or other methods of mitigating IPP costs,
subject to order of the PUC.

     In the event that there is insufficient SCRC revenue to meet both Part 1
and Part 2 SCRC requirements, the unrecovered Part 2 amounts will be deferred
for future Part 2 recovery with a return at the Stipulated Rate of Return.

3.   Part 3 - Non-Securitized Stranded Costs

     Part 3 of the SCRC will be Non-Securitized Stranded Costs not otherwise
included in Parts 1 or 2, above, offset by a return on related accumulated
deferred income taxes. Non-Securitized Stranded Costs will be recovered through
the SCRC in accordance with the time frame specified in the Risk Sharing
provision set forth below. Non-Securitized Stranded Costs to be recovered will
be the following:

     -    Any remaining amount of the Acquisition Premium on PSNH's books as of
          Competition Day that has not been securitized.

     -    FAS 109 costs on PSNH's books as of Competition Day related to the
          non-securitized portion of the Acquisition Premium.

     -    The value of unrecovered obligations for retired nuclear power plants
          (Connecticut Yankee, Maine Yankee and Yankee Rowe) on PSNH's books as
          of Competition Day.

     -    The balance on PSNH's books as of Competition Day of deferred costs
          associated with Independent Power Producers.

Page 17
<PAGE>
     -    The balance on PSNH's books as of Competition Day of deferred retail
          FPPAC costs.

     -    The value of the Vermont Yankee contract buyout payment.

     -    Necessary and prudent unamortized loss on reacquired debt and other
          costs associated with the accelerated payoff of PSNH and/or NAEC debt,
          exclusive of any amounts included in Part 1.

     The balance of the Non-Securitized Stranded Costs will be reduced by the
following amounts:

     -    The net proceeds (sale price less book value less prudent sales
          expenses and all associated taxes not otherwise provided for in this
          Agreement) from the sales of PSNH's fossil and hydro assets as of the
          date that each sale closes. (If the sale price is less than the book
          value, the balance of the Non-Securitized Stranded Costs will be
          increased by the residual balance of the fossil and hydro assets after
          subtracting the net proceeds received from the sales of the assets.)

     -    The net proceeds from the sale of NAEC's ownership interest in the
          Seabrook Nuclear Plant. (If the sale price is less than the book
          value, the balance of the Non-Securitized Stranded Costs will be
          increased by the residual balance after subtracting the net proceeds
          received from the sale of NAEC's ownership interest.)

     -    $10 million upon transfer of PSNH's market-based wholesale contracts
          to an affiliate as described in Section III, the "Write-Off' section
          of this Agreement.

     -    Any net payment received by PSNH resulting from the termination of any
          wholesale requirements contract other than the Amended Partial
          Requirements Agreement with the New Hampshire Electric Cooperative,
          Inc.

     -    The present value of the incremental payments for the All-In Cost of
          Rate Reduction Bonds if that cost exceeds the interest rate guarantee
          made by PSNH (i.e., 6.25% if the Rate Reduction Bonds are issued on or
          before December 31, 1999; 7.25% if the Rate Reduction Bonds are issued
          during the time period of January 1, 2000 through and including June
          30, 2000). If the Rate Reduction Bonds are issued on or after July 1,
          2000, or if such Bonds do not achieve a Triple-A Rating, this
          provision does not apply.

Page 18
<PAGE>
     -    During the Initial Delivery Charge Period, all proceeds received from
          PSNH's entitlement to the Hydro Quebec transmission line.

     The Part 3 amount recovered through the SCRC each month for Non-Securitized
Stranded Costs will be equal to the amount of Non-Securitized Stranded Costs
amortized each month (assuming a seven year amortization schedule), plus a
return on the balance (net of related accumulated deferred income taxes) of the
Non-Securitized Stranded Costs, plus any underrecovery or any accelerated
amortization as described in Section V(B)(4), the Rate Calculation and
Reconciliation section below, subject to the provisions of Section V(C) (Risk
Sharing). The return applied to the balance of the Non-Securitized Stranded
Costs will be the Stipulated Rate of Return. Other expenses and obligations
recovered through or credited to Part 3 of the SCRC will be the following:

     -    The revenue requirement associated with any generating asset,
          entitlement, and purchased power obligation (other than Part 2 costs
          related to nuclear decommissioning or IPP's) prior to the divestiture
          of such asset, entitlement or obligation.

     -    The difference between the expense incurred for the purchase of power
          to supply Transition Service and the revenue received from customers
          for Transition Service. However, PSNH shall absorb the first
          $7,000,000 of any such difference during the 12 months following the
          Initial Transition Service End Day.

     -    Any positive difference between the expense incurred for the purchase
          of power to supply Default Service and the revenue received from
          customers for such service.

     -    Return on the accumulated deferred income taxes associated with the
          securitized assets at a rate equal to the Stipulated Rate of Return.

     Other expenses and obligations will be reduced by the revenue from the sale
of power from any generating asset, entitlement or purchased power obligation
(other than IPP's) prior to the divestiture of such asset, entitlement or
obligation.

     Part 3 of the SCRC will cease as of the earlier of (a) the Recovery End
Date described in Section V(C), the Risk Sharing section of this Agreement, or
(b) the date that the Non-Securitized Stranded Costs are fully amortized.
However, to

Page 19
<PAGE>
the extent that PSNH is unable to divest any asset, entitlement or obligation
and the PUC has not exercised its authority to divest under Section VIII(L),
after the earlier of (a) or (b) above any such going forward costs related to
those assets, entitlements, or obligations shall thereafter become Part 2 costs
with continued recovery. Such costs shall exclude any previously deferred
amounts. In addition, at the earlier of (a) or (b) above, the accumulated
deferred income taxes associated with the securitized assets and a return
thereon, will become Part 2 credits.

4.   Rate Calculation and Reconciliation

     a.  Prior to Recovery End Date

     The overall average level of the SCRC will be 3.40 cents per kilowatt-hour
for the period from Competition Day until the earlier of the date that the
Non-Securitized Stranded Costs are fully amortized or the Recovery End Date
described in Section V(C), the Risk Sharing section of this Agreement. During
that time, PSNH will compare the amount to be recovered through Parts 1, 2 and 3
of the SCRC during each six-month period with the revenue received from the
billing of the SCRC. If the Part 3 amounts to be recovered exceed the amount of
revenue received through the billing of the SCRC, the difference will be
deferred with a return for possible future recovery as a Part 3 amount during
the next six-month period. The return will equal the Stipulated Rate of Return.
In no event shall such Part 3 deferral extend beyond the Recovery End Date. If
the Part 3 amounts to be recovered are less than the amount of revenue received
through the billing of the SCRC, the difference will be used to accelerate the
amortization of the Non-Securitized Stranded Costs, thereby shortening the
recovery period for such assets. Nothing described in this paragraph will affect
the RRB Charge or its True-Up Mechanism.

     As described in Section XIII, "Securitization of Stranded Costs," the RRB
Charge may be increased or decreased pursuant to its True-Up Mechanism; however,
the total average SCRC will be 3.40 cents/kWh prior to the earlier of the
Recovery End Date or the date when the Non-Securitized Stranded Costs have been
fully amortized. Thus, prior to such date, any increase in the RRB Charge will
result in a decrease in recovery of Part 3. To the extent such increase in the
RRB Charge is greater than the amount to be collected via Part 3, recovery of
Part 2 will also be reduced, such that the total average SCRC remains 3.40
cents/kWh. To the extent recovery of Part 1 is decreased pursuant to the True-Up
Mechanism prior to the Recovery End Date, recovery of Part 3 will increase such
that the total average SCRC remains 3.40 cents/kWh.

     b.  Upon Recovery End Date

Page 20
<PAGE>
     Upon the Recovery End Date any remaining Part 3 Non-Securitized Stranded
Cost balances shall be written off.

     c.  After the Recovery End Date

     After the earlier of the Recovery End Date or the date that the
Non-Securitized Stranded Costs are fully amortized, the SCRC will no longer be
capped at 3.400/kWh, but is expected to drop significantly, thus providing
additional customer savings. Thereafter, any increases or decreases in Part 1
pursuant to the True-Up Mechanism will result in corresponding increases or
decreases in the SCRC charged to customers.

     After the earlier of the Recovery End Date or the date that the
Non-Securitized Stranded Costs are fully amortized, PSNH will calculate Part 2
to be billed upon PUC approval during each prospective six-month period. Any
difference between the amounts to be recovered through Part 2 during any
six-month period and the revenue received through the application of Part 2
during that period will be refunded or recovered with a return during the
subsequent six-month period by reducing or increasing Part 2 for the subsequent
six-month period. The return will be the Stipulated Rate of Return.

C.   Risk Sharing

     The recovery of Non-Securitized Stranded Costs in Part 3 of the SCRC
described above shall be subject to the following risk sharing provision.
Specifically, PSNH shall forego the right to recover all such Non-Securitized
Stranded Costs that remain unrecovered as of the Recovery End Date. The Recovery
End Date will initially be October 31, 2007, but shall be revised within 30 days
following the closing on the sale of all fossil/hydro assets described in
Section VIII ("Divestiture") by the following durations:

     1) The Recovery End Date shall be 20 days earlier for each month beyond
July 1, 2000 that Competition Day occurs.

     2) For purposes of computing the Stranded Cost Recovery Charge in this
Agreement, the Parties have assumed that $360 million will be the net proceeds
realized from the sale of the fossil and hydro assets at auction. After the
latter of the fossil or hydro asset sales, the Recovery End Date shall be
adjusted to be 30 days earlier for every $10 million by which the net sale
proceeds of the fossil and hydro assets exceeds $360 million, or made later by
30 days for every $10 million by which the net sale proceeds of the fossil/hydro
assets is less than $360 million. An adjustment of less than 30 days will be
made on a pro-rata basis for

Page 21
<PAGE>
residual increments, or decrements, less than $10 million.

     3) For purposes of computing the Stranded Cost Recovery Charge, the Parties
have assigned a 7.25% All-In Cost to the RRBs. If the Rate Reduction Bonds are
issued prior to July 1, 2000, and achieve a Triple-A Rating, the Recovery End
Date shall be 20 days earlier for each 25 basis points (0.25 percentage points)
by which the All-In Cost of the Rate Reduction Bonds is less than 7.25%.

     4) The Recovery End Date shall be adjusted for Transition Service pricing
in two groups: one for residential, General Delivery Service Rate G and outdoor
lighting customers and the second for all other customers, as follows:

     a) During the period from Competition Day through the Initial Transition
Service End Day, the Recovery End Date for the two customer groups shall be
adjusted separately, based upon each group's kWh consumption of Transition
Service. The residential, General Delivery Service Rate G and outdoor lighting
customers' Recovery End Date shall be 30 days earlier for every $5.5 million of
incremental revenue received from that group, such incremental revenue to be
determined by multiplying that group's total kWh of Transition Service
consumption for the period by 0.4 cents/kWh. The Recovery End Date for all other
customers shall be 30 days earlier for every $4.5 million of incremental revenue
received from that group, such incremental revenue to be determined by
multiplying that group's total kWh of Transition Service consumption for the
period by 0.4 cents/kWh. For each group, an adjustment of less than 30 days will
be made on a pro-rata basis for residual increments of less than the amounts
specified above.

     b) During the first twelve-month period following the Initial Transition
Service End Day, the Recovery End Date applicable to residential, General
Delivery Service Rate G and outdoor lighting customers shall be 20 days later
for every 0.1 cents/kWh that the actual weighted average cost of Transition
Service exceeds the price of Transition Service for these customers by more than
0.2 cents/kWh. During the second twelve-month period following the Initial
Transition Service End Day, the Recovery End Date applicable to residential,
General Delivery Service Rate G and outdoor lighting customers shall be 20 days
later for every 0.1 cents/kWh that the actual weighted average cost of
Transition Service exceeds the price of Transition Service for these customers.

     5) The provisions of this paragraph shall only apply after the Initial
Transition Service End Day. In the case of the output of nuclear and IPP
entitlements, the Recovery End

Page 22
<PAGE>
Date shall be adjusted for the difference between the wholesale market prices
estimated for purposes of this Agreement and (a) the actual wholesale price for
the sale of output of such entitlements prior to the closing of the sale of all
fossil/hydro assets that are intended to be sold at auction and (b) a proxy for
the actual wholesale price for the sale of the output of such entitlements after
the closing of the sale of the fossil/hydro assets. For nuclear and IPP
entitlements, the proxy wholesale price shall be determined based on the average
price realized from the sale (under the RFP process approved by the Connecticut
Department of Public Utility Control) of the output of The Connecticut Light and
Power Company's and Western Massachusetts Electric Company's shares of Millstone
2, Millstone 3 and Seabrook, adjusted for differences in capacity factors. After
the Initial Delivery Charge Period, the proxy prices will be escalated by 3% per
year. The Recovery End Date will be adjusted for these factors as follows:

     a) The Recovery End Date shall be 30 days earlier for every $10 million by
which the sum of the (a) actual revenue obtained for the period following the
Initial Transition Service End Day and before the closing of both the fossil and
hydro asset sales and (b) projected revenue, after such closing and as defined
below, received from the sale of power from PSNH's Independent Power Producer
("IPP") entitlements for the period following the Initial Transition Service End
Day and ending on October 31, 2007 exceeds the estimated revenue, or made later
by 30 days for every $10 million by which the sum of such actual and projected
revenue is less than the estimated revenue. The estimated revenue shall be
computed as $171,272,000 plus the product of $98,700 times the number of days
following the Initial Transition Service End Day and ending on December 31,
2002. An adjustment of less than 30 days will be made on a pro-rata basis for
residual increments of less than $10 million. The projected revenue from the
sale of power from IPP entitlements shall be computed using the proxy wholesale
market prices described above, and, in order to translate the proxy wholesale
price into a cents per kilowatt-hour number, an annual IPP capacity factor of
95%, and the yearly megawatt-hour values listed below. The values for the years
2001 or 2002, as applicable, shall be pro-rated for the actual period following
the Initial Transition Service End Day through the end of that calendar year.

<TABLE>
<CAPTION>
     Year     MWh
<S>           <C>
     2001     1,126,000
     2002     1,126,000
     2003     1,119,000
     2004     1,122,000
     2005     1,095,000
     2006       964,000
     2007       608,300   Through Oct. 31, 2007
</TABLE>

Page 23
<PAGE>
     b) The Recovery End Date shall be 30 days earlier for every $10 million by
which the sum of the (a) actual revenue obtained following the Initial
Transition Service End Day and before the closing of both the fossil and hydro
asset sales and (b) projected revenue received from the sale of power from
PSNH's Seabrook Power Contract entitlement for the period following the Initial
Transition Service End Day and ending on December 31, 2003 exceeds the estimated
revenue, or made later by 30 days for every $10 million by which the sum of such
actual and projected revenue is less than the estimated revenue. The estimated
revenue shall be computed as $107,488,000 plus the product of $263,400 times the
number of days beginning after the Initial Transition Service End Day and ending
on December 31, 2002. An adjustment of less than 30 days will be made on a
pro-rata basis for residual increments of less than $10 million. The projected
revenue from the sale of power from PSNH's Seabrook entitlement shall be
computed using the proxy wholesale market prices described above, an annual
Seabrook capacity factor of 82%, and the yearly megawatt-hour values listed
below. The value for the years 2001 or 2002, as applicable, shall be pro-rated
for the actual period following the Initial Transition Service End Day through
the end of that calendar year.

<TABLE>
<CAPTION>
     Year       MWh
<S>             <C>
     2001       2,851,000
     2002       2,852,000
     2003       3,154,000
</TABLE>

     6) The Recovery End Date shall be 30 days earlier (or later) for each $50
million by which the amount of RRBs issued by PSNH pursuant hereto exceeds (or
is less than) $575 million.

     D.   Energy Charges

     On and after Competition Day, except for Transition Service and Default
Service obligations established by this Agreement and obligations to purchase
power from IPPs, PSNH will no longer have any obligation to build, provide, plan
for, or buy energy, capacity, or other generation related services for its
retail customers. Following Competition Day, three options will be available to
customers for energy service: a Competitive Supplier of the customer's choice,
Transition Service, or Default Service. Transition Service will be available for
the time periods set forth in RSA Chapter 369-B for those customers who have not
chosen a Competitive Supplier, or as otherwise provided below, thus providing
stable and predictable prices during the transition to a fully competitive
market. Default Service will provide a safety net and assure universal access
for

                                    Page 24
<PAGE>
customers who are not receiving energy from a Competitive Supplier and who are
not eligible for Transition Service.

1.   Competitive Energy Service

On and after Competition Day, customers may be able to obtain even greater rate
reductions by choosing from among authorized Competitive Suppliers.

2.   Transition Service

Transition Service will be available for the time periods set forth in RSA
Chapter 369-B for those customers who have not chosen a Competitive Supplier, or
as otherwise provided below, thus providing stable and predictable prices during
the transition to a fully competitive market. Transition Service will be secured
in accordance with the requirements of RSA 369-B, with the costs of
administering such acquisition to be considered an administrative cost of
Transition Service. Provisions under this Agreement regarding the sale of output
into the market from PSNH's generating plants, power purchase obligations and
entitlements are subject to the use of such power to provide Transition and
Default Service in accordance with the provisions of RSA Chapter 369-B. All
authorized energy suppliers, as limited by RSA Chapter 369-B, will be permitted
to bid to provide Transition Service. The possibility of dividing the Transition
Service market among the energy suppliers with the lowest bids will be
considered after bid receipt and analysis, in which case a subsequent round of
bidding, at the discretion of the PUC, may be used to assess its benefits.
Transition Service shall be procured in such time blocks as shall prove
efficient and effective after analysis of the bids is made. PSNH will offer
branding to the successful bidder(s), including use of name identification on
bills or bill inserts.

     The retail price of Transition Service will be as set forth in RSA Chapter
369-B. If the price obtained through competitive bids is higher than the
Transition Service price, the excess will be deferred and collected through the
non-securitized portion of the SCRC, subject to the limitation on recovery of
any such deferral as set forth in RSA Chapter 369-B, and the Recovery End Date
shall be adjusted pursuant to Section V(C)(4).

     Customers will be free to terminate Transition Service as of the end of any
billing cycle to purchase from a Competitive Supplier in the market, without
cost or penalty. PSNH shall be notified of such change by the Competitive
Supplier pursuant to the terms of PSNH's Tariff PSNH will make customers aware
of their right to terminate Transition Service by prominently displaying a
message to that effect on each customer's bill.

Page 25
<PAGE>
     An election to terminate Transition Service by customers served under
Tariff rates GV, LG or B will be final. After an election to terminate, such
customers will qualify for Default Service, but not Transition Service.
Remaining customers who choose to terminate Transition Service will be allowed
to return to Transition Service at any time during the first year following
Competition Day. Low-Income customers (as defined in Section V(E)(1), the Low-
Income Electric Assistance Program section of this Agreement) will be allowed to
return to Transition Service at any time during the Transition Service period.
At the end of the Transition Service period at least 75 percent of customers who
have not selected a Competitive Supplier will be assigned to one of the entities
that have provided transition power and that qualifies as a Competitive
Supplier. These assignments will be based on the ratio of transition power
provided by each such supplier who is a Competitive Supplier during the period.
Any Transition Service customer subject to such assignment shall be notified in
advance of the assignment in a form and manner determined by the PUC. Any
customers not so assigned to such an entity that has provided transition power
shall be randomly assigned to other Competitive Suppliers pursuant to RSA
369-B:3, IV,b,(1),(B),(ii). The administrative cost of acquiring, billing and
managing Transition Service will be recovered through the Delivery Charge for
all customers.

3.   Default Service

     Electricity is an essential service, and there is a risk in a competitive
market that some customers will find themselves unable to secure a Competitive
Supplier or they may temporarily be between suppliers. To assure universal
service and system integrity, Default Service will be available to customers who
are not receiving energy from a Competitive Supplier and who are not eligible
for Transition Service. Default Service shall be acquired in accordance with RSA
Chapter 369-B for the period of time that Transition Service is available to any
customer class; thereafter, auctions to procure service for subsequent periods
will be conducted at such times and on such terms and conditions as the PUC may
require. Default Service shall be provided pursuant to terms and conditions
established by the PUC. The administrative cost to acquire, bill and manage
Default Service will be recovered as provided by statute. The price of Default
Service shall be the weighted average of all successful bids. However, during
the period when Transition Service is available, in no event shall the price of
Default Service to the customer be less than the Transition Service prices,
unless otherwise ordered by the PUC, and any differential will be used to defray
Non-Securitized Stranded Costs as provided in Part 3 of the SCRC.

Page 26
<PAGE>
     E.   System Benefits and Energy Consumption Tax

     The System Benefits Charge will be a cents per kilowatt-hour charge
designed to fund PUC-approved public benefit programs, including but not
necessarily limited to the Low-Income Electric Assistance Program and the
Energy Efficiency Programs specified below. The initial System Benefits Charge
will be 0.20/kWh as required by RSA Chapter 369-B. The accounting for the System
Benefits Charge by PSNH shall be subject to the approval of the PUC and RSA
374-F:3,VI and 374-F:4,VIII(b), as applicable. The System Benefits Charge shall
be applied equally to all classes of customers and to all kilowatt-hours billed
to customers taking delivery service from PSNH. The Energy Consumption Tax shall
be the amount specified by RSA 83-E:2.

1.   The Low-Income Electric Assistance Program

     The Parties recognize that electric service is essential, and that programs
and mechanisms that enable low-income residential customers to manage and
afford essential electricity requirements will be necessary, in accordance with
RSA 374-F:3,V(a). To accomplish this, PSNH agrees to implement a "percentage of
income" payment program on Competition Day, consistent with the statewide
low-income Electric Assistance Program proposed by the Low-Income Working Group
and approved by the PUC during oral deliberations on May 10, 1999, as part of
Docket No. DR 96-150.

     The Low-Income Electric Assistance Program shall provide service to
low-income residential customers on the basis of an affordable percentage of the
customer's income. Individuals or families whose annual income is less than 150%
of the federal poverty level shall be eligible for the low-income program,
subject to funding limitations and such eligibility requirements as may be
established under the PUC-approved guidelines of the Low-Income Working Group.
This program will be funded by a charge assessed uniformly on all kilowatt-hours
billed by PSNH as part of the System Benefits Charge.

     If it appears that the statewide Low-Income Electric Assistance Program
will not be ready for implementation by Competition Day, PSNH shall file with
the PUC, and seek approval for an interim low-income program or discount rate to
be in place from Competition Day until the implementation of the statewide
program. The interim low-income program or rate will take effect on Competition
Day or upon such other date as may be specified by the PUC. This interim
low-income program or rate shall provide aggregate rate relief to low-income
customers that is reasonably equivalent to the percentage of income payment

Page 27
<PAGE>
program described above.

2.   Energy Efficiency Programs

     The Parties recognize that cost-effective energy conservation measures are
an important means to reduce energy usage and, in conjunction with lower rates,
to reduce customers' energy bills. Consistent with the legislative directive at
RSA 374-F:3,X that restructuring should include utility-sponsored energy
efficiency programs targeting cost-effective opportunities which may otherwise
be lost due to market barriers, the Parties understand that the PUC will decide
the appropriate level of future funding for energy efficiency, informed by
recommendations of the Energy Efficiency Working Group ("EEWG"). PSNH agrees to
support increased energy efficiency program budgets in the EEWG and before the
PUC, consistent with the System Benefits Charge.

     Prior to Competition Day, PSNH will spend amounts ordered by the PUC for
energy efficiency and DSM programs, as established in Docket No. DR 98-174 (the
1999 PSNH Conservation and Load Management proceeding) and in any subsequent
proceeding. If, prior to Competition Day, the PUC has rendered a decision on the
recommendations of the EEWG, the Energy Efficiency Program portion of the System
Benefits Charge implemented on Competition Day shall reflect the results of that
decision. Any changes in the authorized expenditures covered by this paragraph
shall be subject to the rate adjustment provisions for public policy changes set
forth in Section V(F)(1) of this Agreement.

     H.   Other Rate Issues

1.   Changes in Nuclear Decommissioning and Public Policy Charges

     Prior to Competition Day, any interested person may petition the PUC to
adjust PSNH's bundled rates to reflect changes in the Nuclear Decommissioning
Charge made after August 2, 1999 and/or any new level of public policy
expenditures ordered by the PUC after August 2, 1999. The other Parties to this
Agreement agree to support any such substantiated petition for an increase or
decrease by PSNH.

2.   Fuel and Purchased Power Adjustment Clause ("FPPAC")

     The FPPAC rate will be frozen at the currently effective amount of
0.3830/kWh and an FPPAC BA amount of 6.281 0/kWh until Competition Day, except
as provided for special contracts in Section VII. On Competition Day, the FPPAC
will be eliminated. Any unrecovered FPPAC balances as determined by the PUC
(including deferred FPPAC charges) will be eligible for recovery as allowed
under Part 3 of the SCRC. Inasmuch as the write-off that PSNH has taken under
this Agreement reflects adjustments to historical FPPAC

                                    Page 28
<PAGE>
balances, the recovery of PSNH's FPPAC balance as of August 2, 1999 shall not be
subject to a prudence determination. However, the recovery of any FPPAC accruals
that occur after August 2, 1999 shall be subject to the prudence standard of
this Agreement.

3.   Sharing Agreement.

     The Sharing Agreement and the Capacity Transfer Agreements between PSNH and
the NU initial system will be terminated, effective as of December 31, 1999,
with no financial compensation due either party, except for capacity and
transmission payments for November and December, 1999, which are estimated to be
$8.4 million, and final reconciliation as determined pursuant to FERC contract
requirements for amounts due with respect to entitlements or transactions
occurring before this termination date.

4.   The Rate Agreement and the Seabrook Power Contract.

     As a condition precedent to Competition Day, NU must have obtained the
consent of the New Hampshire Attorney General, and all other necessary
regulatory and lender approvals, to cancel the November 22, 1989 Rate Agreement
between NU and the State and the November 22, 1989 Seabrook Power Contract
between PSNH and NAEC. The Attorney General hereby consents to such
cancellations, contingent on implementation of this Agreement.

     G.   Avoided Costs for IPPs

     PSNH's responsibilities and avoided cost rates on and after Competition Day
for short-term purchases of IPP power pursuant to the federal Public Utility
Regulatory Policies Act and the New Hampshire Limited Electrical Energy
Producers Act shall be equal to the market price for sales into the ISO-New
England power exchange, adjusted for line losses, wheeling costs, and
administrative costs. This Agreement is not intended to impair existing rate
orders or contracts.

     H.   Termination of Pilot Program

     To allow PSNH to prepare for the implementation of this Agreement, PSNH's
participation in the New Hampshire Retail Competition Pilot Program (Docket No.
DR 95-250) shall terminate as of pilot customer meter readings during the month
following receipt of a Final Order.

     I.   TRANSMISSION AND DISTRIBUTION ISSUES

     A. Classification of transmission and distribution facilities

Page 29
<PAGE>
     PSNH has functionally classified its Transmission and Distribution using a
similar method to that proposed by PSNH in PUC Docket No. DR97-059. The proposed
allocations are subject to PUC approval. The Parties agree that the allocations
satisfy the FERC 7 Factor Test. The line of demarcation between Transmission and
Distribution is at the high side of the facilities that interconnect with
facilities rated 69 kV and above and that step-down to facilities rated at or
below 34.5 kV. Following PUC approval, PSNH shall file and the Parties shall
support a notification of such reclassification with FERC.

     To the maximum extent allowed by federal law, non-discriminatory, open
access to PSNH's transmission system shall be available to customers,
electricity suppliers, marketers, aggregators, and municipal electric utilities,
with charges based only on rates set by federal regulations, plus the actual
cost of service for any services not subject to federal price regulation plus,
for retail customers, applicable stranded cost recovery charges, RRB charges,
systems benefit charges, and taxes.

     B.   White Lake Power Plant

     Pursuant to RSA 374-F:3,III, the White Lake Combustion Turbine plant will
be retained by PSNH, and run as needed to maintain reliability and stability on
PSNH's electrical delivery system. Any energy produced by this plant and the
capacity represented by this plant will be sold on the wholesale market or sold
to the New England Independent System Operator ("ISO") at the ISO market
clearing prices in a prudent manner designed to maximize net revenues. The cost
and revenue associated with this plant shall be reflected in the determination
of PSNH's Delivery Charge.

     In the event the White Lake power plant is rendered inoperable, the Parties
agree that PSNH shall have the right, subject to PUC approval, to either repair
or replace the unit with another unit of similar capabilities or seek to modify,
upgrade or construct new facilities on the PSNH Transmission and Distribution
system in order to maintain system integrity, if prudent and consistent with
least-cost planning principles. PSNH may, at its discretion, initiate a request
for the siting of a new merchant generator in this geographical area to support
the reliability needs of the PSNH's electrical system.

VII. SPECIAL CONTRACT, ECONOMIC DEVELOPMENT AND BUSINESS RETENTION CUSTOMERS

     As of Competition Day, PSNH will no longer be a retail

                                    Page 30
<PAGE>
energy supplier. Accordingly, it will be necessary as of that date to modify the
special contracts it has with certain customers for the supply of electric
energy. To accomplish this end, all customers served under special contracts in
existence as of Competition Day may elect one of the following three options.
Customers will be informed by PSNH of their option rights at least 60 days prior
to Competition Day. To the extent practicable, Economic Development and Business
Retention customers shall have the same options.

          Option 1. The customer may retain the special contract. The prices
will be dictated by the special contract, and the customer will receive energy
under Transition Service and thereafter Default Service with no additional
payments for energy. If the customer's special contract refers to the terms
"FPPAC" and "FPPAC BA," those terms will equal the values established in Order
No 23,139 in Docket No. DR 98-139 of 0.383 cents per kilowatt-hour for FPPAC and
4.955 cents per kilowatt-hour for FPPAC BA. All electrical power must be
delivered through the PSNH meter except for any self-generation or co-generation
currently permitted under terms of the customer's special contract; or

          Option 2. The customer may have the special contract partially
unbundled. The energy charges under the contract will be reduced by 4.4 cents
per kilowatt-hour. The customer may contract with and receive power from any
Competitive Supplier for the remaining term of the special contract. All other
provisions of the special contract shall remain in effect except for the
provision for PSNH as sole supplier. All electrical power must be delivered
through the PSNH meter except for any self-generation or co-generation currently
permitted under the terms of the customer's special contract. Once this Option 2
is elected, the customer may not return to Option 1; or

          Option 3. Provided there is a termination or cancellation clause in
the special contract, the customer may at any time cancel the remainder of the
special contract and pay whatever termination charges are provided in the
contract. Upon termination the customer will receive market energy and take
other services under tariffed rates, as any other similarly situated customer.
The proceeds of all termination charge payments will be used to offset Stranded
Costs.

     If a special contract customer makes no election on or before Competition
Day, Option 1, above, will be the terms under which the customer will be served.
Upon termination by the expiration of the special contract term or by the
exercise of any termination provision of the special contract, the customer will
receive market energy and take other services under Tariff rates.

Page 31
<PAGE>
     A portion of the revenue received from special contract, ED and BR
customers will contribute to the payment of Rate Reduction Bonds. Such portion
shall be calculated in a manner similar to the determination of RRB cost
recovery for Tariff customers. Any revenue from those customers in excess of the
sum of the RRB Charge, the System Benefits Charge, the Energy Consumption Tax,
the overall average Delivery Charge, and the Transition Service charge (if
applicable) shall be applied to the recovery of Parts 2 and 3 of the SCRC.

J.   DIVESTITURE

     A.   General

     PSNH will divest itself of its power generation assets and power purchase
agreements as a result of this Agreement. This divestiture will take place
through several processes including the sale of its existing power generation
facilities at auction. This is in keeping with other divestitures that have been
accomplished throughout New England as restructuring has taken place. The goals
of the asset auctions are to maximize the net proceeds realized from the sale in
order to mitigate Stranded Costs, to provide a market-based determination of
Stranded Costs, and to help establish a competitive energy market, while at the
same time providing certain employee protections as set forth herein.

     It is likely that a time lag will exist between Competition Day, when
customers are free to choose their own Competitive Supplier, and the actual
closing on the sale of any or all of the power generation assets and power
purchase agreements. During this period, the power produced by these assets and
obtained from the power purchase agreements will be used to provide Transition
Service and/or Default Service pursuant to RSA Chapter 369-B or sold in the
marketplace in accordance with Section IX, the "Marketing of Energy" section of
this Agreement.

     The sale of generating assets will be administered by the PUC pursuant to
RSA Chapter 369-B.

     B.   Timing and Details of the Fossil/Hydro Auctions

     Unless otherwise directed by the PUC, the fossil and hydro auction
processes will consist of an initial non-binding bid phase ("First Round")
during which time interested parties may bid for the entire portfolio or
specified subsets. In the First Round, interested parties will be given access
to the data room, invited to ask preliminary questions, and conduct initial due
diligence. Following the First Round, a group of the most qualified

Page 32
<PAGE>
bidders will be selected and offered the opportunity to participate in the
Second Round of bidding. During the Second Round, these bidders will be given
the opportunity to conduct detailed due diligence, ask detailed questions,
participate in management interviews, visit the principal sites and submit
binding bids. At the time of the initiation of the Second Round of bidding, the
selected participants will be advised as to any mandatory groupings of the
assets, on which they will be required to bid. The decision to group assets for
final bidding will be based upon the results of the First Round of bids and
other information that is known immediately prior to the Second Round.

     As described in Section VIII(E) of this Agreement, municipalities which
have expressed interest in purchasing hydroelectric generating assets, and which
have not reached satisfactory terms with PSNH to purchase such assets in private
sales outside the auction process, will be included in the Second Round bidding
process.

     Following receipt of the binding Second Round bids, PSNH may, with PUC
oversight, elect to conduct an additional round of bidding, in real-time,
including selected finalists, to further improve the prices that will be
realized by PSNH and to improve the terms and conditions of the sale.

     Pursuant to RSA Chapter 369-B, affiliates or subsidiaries of NU and
Consolidated Edison, Inc. may not bid on PSNH's generating assets. A secure
internet web site will be used to provide data room information and transaction
documents related to the sale to interested parties and a designated financial
advisor will serve as the intermediary for all communications between bidders
and PSNH throughout the bidding process.

     The divestiture of PSNH's fossil assets shall be separated from the sale of
its hydro assets. The divestiture of the fossil assets shall occur first and the
sale of the hydro assets shall occur between six months and one year following
Competition Day to accommodate the special timing needs of municipalities. PSNH
acknowledges that the conduct of the auction is subject to administration by the
PUC, and that the personnel designated by the PUC to assist in such
administration will have the right and opportunity to inquire and consult with
PSNH on any aspect of the auction process, on a timely basis.

     C.   Facility Descriptions

     The PSNH fossil/hydro generating assets to be divested via auction are
described in Appendix G.

Page 33
<PAGE>
     D.   Approvals

     The following approvals have been identified as being required prior to the
closing of any sale resulting from the fossil and hydro auctions or other sale
process:

1.   Federal

     Federal approvals will be required from FERC for the transfer to the buyer
of any jurisdictional facilities, the jurisdictional hydroelectric projects and
FERC licenses, and the Interconnection and Operation Agreement.

     Securities and Exchange Commission ("SEC") approval will be required
because PSNH is a wholly-owned subsidiary of Northeast Utilities, a registered
holding company under the Public Utility Company Holding Company Act of 1935.

     The pre-merger notification requirements of the Hart-Scott-Rodino Act will
require PSNH and the buyer to file notification regarding the intended sale.

2.   State

     In addition to approvals required from the PUC, the following State
approvals will also be required:

     Approval will be required by the Connecticut Department of Public Utility
Control under Conn. Gen. Stat. Section 16-43 for the sale of any utility asset
by PSNH.

     Approval will be required by the Vermont Public Service Board under Vt.
Stat. tit. 30, Section 109 for the sale of PSNH's generating plant located in
Canaan, Vermont.

     Approval may be required from the Maine Public Utilities Commission under
Me. Rev. Stat. tit. 35-A, Section 1101 for the sale of PSNH's minority interest
in the Wyman 4 generating station located in Maine.

     Approvals and appropriate findings from New Hampshire, Massachusetts and
Connecticut regulators under Section 32(c) of the Public Utility Holding Company
Act of 1935 will be required.

3.   Other

     The asset sales may require prior consent of certain lenders under PSNH's
existing credit agreements. In addition, the sales may require additional
regulatory approvals that will be based on the identity and regulatory
requirements applicable to the selected buyer(s) of the divested assets. PSNH
will diligently seek to obtain all necessary approvals.

Page 34
<PAGE>
     E.   Municipal Interest in Purchasing Hydroelectric Generating Assets

     Prior to the commencement of the hydro asset auction, PSNH may enter into
agreements for the sale of hydroelectric generating assets to any interested
municipality, subject to PUC administration and approval. Any such assets sold
in this manner will be excluded from the hydro auction. If no such agreements
are reached, all interested municipalities will be able to participate in the
auction process, subject to the same confidentiality, financial qualification
and other requirements that will be imposed on non-municipal participants in the
auction. A municipality may also petition the PUC for a valuation of a
hydroelectric generating asset pursuant to Chapter 249, Section 5 of the Session
Laws of 2000.

     It will be necessary that any arrangements with municipalities for purchase
of a hydroelectric asset satisfy the following requirements:

     1. In order to be considered, the proposal from the municipality must
conform to the following offer criteria:

     (a) the offer must be for a specific purchase price, not subject to
qualification (except ratification under the provisions of RSA 38:13), and
payable in full at closing.

     (b) the offer must clearly demonstrate the existence of adequate funding in
place, or binding commitment to provide such funding at closing, sufficient to
pay the price in full at closing.

     (c) the offer must be to purchase the same hydroelectric generating asset,
adjacent lands, grant the same employment protections and benefits and other
requirements as PSNH is proposing to establish in the fossil and hydro auctions.

     (d) the offer must not contain any major contingencies other than (i)
approval of the price term by the PUC, and (ii) for FERC licensed facilities,
approval by FERC of the transfer of the hydro license to the buyer.

     2. PSNH will have the absolute right to reject any offer which does not
promise to meet or exceed the price which PSNH could reasonably anticipate
receiving for the asset if the asset were to be sold as part of the auction
process.

     F.   Hydro Quebec

Page 35
<PAGE>
     The purchase and sale of electricity from Hydro-Quebec ("HQ") is part of a
series of agreements among HQ and certain New England utilities (collectively,
the "HQ Participants") governing the interconnection and sale of energy between
NEPOOL and the HQ power systems. PSNH is a HQ Participant.

     The purchase and sale between the HQ Participants and HQ is governed by the
following agreements:

1.   HQ Phase II Energy Contract or Firm Energy Contract

     This contract, dated October 14, 1985, requires NEPOOL members to purchase
7,000 GWh of energy from HQ each year through August 2000. In the event that
this allotment has not been fulfilled, the contract may be extended until August
2004 to allow NEPOOL members to meet their energy purchase obligation. This
contract enables PSNH to buy firm energy utilizing its entitlement in the
transmission facility through August 2000. Based on PSNH's firm transmission
facility entitlements, its purchase entitlement under this agreement is on
average 140 MW. Purchases of energy through this entitlement are based on the
Average Fossil Fuel Cost index, which has reflected regional energy market
values.

2.   HQ Energy Banking Agreement

     This agreement, executed on March 21, 1983, allows NEPOOL participants to
deliver energy to HQ in periods of low NEPOOL incremental cost and receive it
back (less any losses) in periods of high incremental cost. The energy banking
agreement expires in October 2001.

3.   HQ Support Agreements

     The participating New England utilities, including PSNH, also share in the
cost of service associated with the New England HQ transmission facilities, as
specified in the HQ support agreements. The agreements to which PSNH is a party
include: (1) Terminal Facility Support Agreement; (2) Vermont Transmission Line
Support Agreement; (3) New Hampshire DC Facilities Support Agreement; (4)
Massachusetts DC Facilities Support Agreement; and (5) New England Power AC
Facilities Support Agreements. The first two agreements were executed on
December 1981 and are scheduled to terminate on the same date as Phase II
support agreements. The remaining three agreements were executed on June 1,
1985, extend 30 years from the date of initial payments, and are scheduled to
terminate on October 31, 2019. These agreements may be extended for an
additional 20 years beyond the scheduled termination date. The annual cost of
these support payments is approximately $10 million for PSNH. Because

Page 36
<PAGE>
support payments are based on cost of service, they may fluctuate from year to
year.

     G.   Wyman Unit 4

     PSNH may sell its ownership interest in Wyman Unit 4, located in Yarmouth,
Maine, outside of the auction process. Should there not be an executed purchase
and sales agreement for the sale of PSNH's ownership interest in Wyman Unit 4
prior to there being a Final Order approving this Agreement, then that ownership
interest will be included in the fossil asset auction.

     H.   Other Potential Generation Sites

     PSNH has identified three parcels of land that may have significant
potential for use as generation sites. These sites have been previously
disclosed within PSNH's 1996 Long-Range Plans for Bulk Power Supply Facilities
filings. These sites are the Rollins Farm site in Newington, NH; the "Ball
Field" adjacent to Merrimack Station in Bow, NH; and the Garvins Falls Road site
in Concord, NH.

     PSNH will develop a sales strategy for soliciting interest and selling
these properties no later than 30 days following the selection of a winning
bidder or bidders in the later of the fossil and hydro asset auctions. The sales
strategy will include a determination of the highest and best use for the
properties, which will determine the maximized values and identify the
appropriate target markets for these properties. The City of Concord shall be
able to provide input in the development of the auction criteria for the Garvins
Falls Road site. At the time that the sales process begins, PSNH will identify
prospective purchasers, including all potential bidders in the initial
solicitation of interest in the fossil and hydro auctions, as well as other
parties who indicate an interest in these properties.

     For parcels of land that are accounted for below-the-line as of April 19,
2000, PSNH shall apply 50% of the amount by which the net proceeds exceed the
net book value as a credit against Stranded Costs and may retain the balance of
such amount for the benefit of its shareholder. For any parcels of land that are
accounted for above-the-line, 100% of the net proceeds shall be used as a
credit against Stranded Costs.

     I.   Millstone 3

     On or before Competition Day PSNH will separately account for its 2.8475%
ownership share of Millstone 3 such that the costs and revenues of such
ownership do not impact PSNH's retail customers. The amount of PSNH's net book
investment in Millstone 3 immediately prior to such separate

                                    Page 37
<PAGE>
accounting will be eligible for securitization, the cost of which will be
recoverable from PSNH's customers via Part 1 of the SCRC. If PSNH's share of
Millstone 3 is sold or auctioned after such separate accounting, any net
proceeds may be paid as a dividend to PSNH's shareholder and PSNH's customers
shall have no claim to any such proceeds.

     Subsequent to such separate accounting, PSNH shall continue to be
responsible for funding its pro rata share of the site-specific decommissioning
cost estimate, calculated on the basis of fully funding the decommissioning
trust by December 31, 2026. PSNH may enter into a contract to provide for the
payment of these nuclear decommissioning costs, with full recovery of the costs
of that contract being provided from PSNH's customers via Part 2 of the SCRC.
PSNH's obligation thereunder may be assignable to any future owner of such share
of Millstone 3. PSNH's customers shall have no responsibility for increases in
decommissioning funding above the amount calculated based upon the foregoing
payment schedule at Competition Day.

     If for any reason the separate accounting for PSNH's share of Millstone 3
is delayed beyond Competition Day, beginning on Competition Day and continuing
until such time as PSNH's ownership share of Millstone 3 is so transferred, its
output will be sold into the market pursuant to Section IX and all net proceeds
will be applied to Stranded Costs.

     J.   Vermont Yankee

     PSNH is a 4.0% shareholder and sponsor company of the Vermont Yankee
Nuclear Power Corporation ("Vermont Yankee"), a Vermont corporation that owns
and operates a nuclear generating unit ("Unit") having a net capability of
approximately 510 megawatts electric, at a site in Vernon, Vermont. Pursuant to
a Power Contract dated as of February 1, 1968, as amended, and an Additional
Power Contract, dated as of February 1, 1984, each of which have been approved
by the Federal Energy Regulatory Commission, PSNH is entitled to its pro rata
share of the net capacity and electrical output during the Unit's operating life
and is obligated to pay its respective entitlement percentage of Vermont
Yankee's cost of service, including future decommissioning costs.

     PSNH, in conjunction with the other sponsor companies, is seeking to cause
Vermont Yankee to sell via private negotiations the Unit and related assets,
including the decommissioning trust. The terms of any such sale will be set
forth in a definitive agreement that provides for a closing that is subject to
receipt of all required regulatory approvals, including that of the PUC. In such
a transaction, PSNH may be obligated to prefund or fund its share of the future
decommissioning costs of the Unit, with

Page 38
<PAGE>
full recovery of such decommissioning costs from PSNH's customers via Part 2 of
the SCRC. PSNH agrees to exercise reasonable efforts to negotiate the buyout or
buydown of any contractual obligations that survive the sale of the Unit. If
approved by the PUC, PSNH shall be entitled to full recovery of such buyout or
buydown payments (exclusive of the decommissioning costs recoverable under Part
2 of the SCRC) from PSNH's customers via Part 3 of the SCRC. Further, PSNH
agrees to pursue sales terms that limit its responsibility to no more than its
pro-rata share of the site-specific decommissioning cost estimate that exists at
the time of closing and that make any future changes to the estimate the express
responsibility of the buyer.

     Unless otherwise ordered by the PUC, if the above transaction does not
close, PSNH will offer for sale through a public auction process its interest in
Vermont Yankee, including its associated contractual interests and obligations.
Any sale pursuant to such auction process shall be subject to a confidential
minimum price condition in an amount that will be established, in advance, by
the PUC and designed to stimulate participation in the auction and to maximize
proceeds. The PUC shall administer the process and approve any resulting
transaction prior to the closing. Such transaction shall also be subject to the
receipt of any other necessary regulatory and lender approvals.

     If for any reason PSNH continues to have power entitlements from Vermont
Yankee, beginning on Competition Day and continuing until such time as PSNH's
entitlements to power from Vermont Yankee end, such entitlements will be sold in
the marketplace in accordance with Section IX, the "Marketing of Energy" section
of this Agreement.

     K.   Seabrook

     PSNH's overmarket obligations under the Seabrook Power Contract with North
Atlantic Energy Corporation ("NAEC") will be securitized and the costs thereof
recovered from PSNH's customers under Part 1 of the SCRC. PSNH will use such
proceeds of securitization to restructure the Seabrook Power Contract effective
as of Competition Day, subject to necessary regulatory approvals, to provide for
the buydown of the value of the Seabrook asset to $100 million, thereby reducing
PSNH's monthly charges under the contract. NAEC may, subject to PUC approval,
apply the restructuring payments it receives from PSNH to repay capital in a
manner designed to most efficiently reduce its costs.

     Subsequent to Competition Day, NAEC will seek PUC approval of a definitive
plan to sell via public auction its share of Seabrook, with such sale to occur
no later than December 31, 2003. The public auction shall be subject to PUC
administration and to the requirements, if any, of the

Page 39
<PAGE>
Seabrook Joint Owners Agreement. NAEC will submit a plan for the sale to the
PUC. The PUC shall determine prior to the auction a confidential minimum bid for
this sale, designed to stimulate participation in the auction and to maximize
proceeds. NAEC shall make all reasonable efforts to include minority ownership
shares (including that of The Connecticut Light and Power Company) in the sale
of Seabrook, so that a controlling interest may be offered. Concurrent auctions,
including ones that may be subject to regulatory oversight other than by the
PUC, may be required to aggregate a controlling shares.

     Subject to approval of FERC, on Competition Day NAEC will lower its overall
ROE to 7%, but in the event that the PUC either rejects a proposed sale of
Seabrook, or fails to act on such application within 180 days after NAEC's
proposed sale application is filed with the PUC, NAEC's return on equity shall
be increased from 7 percent to 150 basis points more than the average 10-year
Treasury bond yield for the preceding 6 months, but not less than 7 percent nor
more than 11 percent, and then readjusted accordingly at the end of every 6
month period. The increase in ROE is only applicable if the failure of the sale
is through no fault of NU or PSNH.

     Upon a successful sale of NAEC's share of Seabrook, the existing Seabrook
Power Contract between PSNH and NAEC shall be terminated. However, subsequent to
such sale, PSNH shall continue to be responsible for funding NAEC's former
ownership share of decommissioning liability, calculated on the basis of full
funding by December 31, 2015, using an estimated decommissioning date of 2015 or
as otherwise determined by the Nuclear Decommissioning Finance Committee. PSNH
may enter into a new contract to provide for the payment of Seabrook nuclear
decommissioning costs, with full recovery of the costs of that contract to be
recoverable from PSNH's customers via Part 2 of the SCRC. Under no circumstances
will PSNH's customers have any responsibility for increases in decommissioning
funding above the amount calculated based upon the foregoing payment schedule as
of the sale date.

     Beginning on Competition Day and continuing until such time as NAEC's
ownership share of Seabrook is sold and the closing on such sale occurs, its
output will be sold into the market pursuant to Section IX and all net proceeds
will be applied to Stranded Costs.

     L.   Failed Auction

     PSNH will make every reasonable effort to assure that a "failed auction"
does not occur, resulting in some or all of its fossil/hydro generating
stations, Seabrook, or Vermont Yankee not being sold. Steps to minimize the risk
of a

Page 40
<PAGE>
failed auction include the bundling of various assets as "must bid" groupings at
the commencement of the Second Round of the auction process, and dedicated
marketing of the assets throughout the auction process.

     Should assets be left unsold as a result of the auction process, the PUC
shall have the authority to order the divestiture of the asset or obligation.
This may be accomplished by awarding the asset, entitlement, or obligation to
the highest bidder; requiring a PSNH affiliate to pay the minimum auction price
in the case of Seabrook or Vermont Yankee; requiring a PSNH affiliate to pay the
net book value for fossil/hydro generating stations; conducting an absolute
auction; or by such other means as the PUC deems appropriate. If there is no
final sale, PSNH will retain the assets, entitlements, or obligations and bid
their output into the market with the net of costs and revenues included in Part
2 of the SCRC after the earlier of the Recovery End Date or the date that the
Non-Securitized Stranded Costs are fully amortized.

IX.  MARKETING OF ENERGY

     A.   Prudent Operation of PSNH Generating Assets

     Notwithstanding any other provisions of this Agreement, PSNH will be
responsible for prudently operating its fossil/hydro generating assets, and for
prudently managing the generation-related entitlements and purchase obligations
in which it retains an interest until such time as they are sold or transferred
to another entity, or a purchase obligation terminates.

     B.   Marketing of PSNH Power

     1. Fossil Steam, Hydroelectric, Internal Combustion and Nuclear Ownership,
Entitlements or Purchase Obligations

     Notwithstanding any other provision of this Agreement, PSNH will be
responsible for the prudent marketing of the output of any generating assets,
entitlements, or purchase obligations which it owns or in which it retains an
interest. Revenues from these sales will include the full capacity and energy
revenue and the revenue from ancillary services related to PSNH's generating
stations and entitlements, and the revenues from the resale of power purchased
under purchase obligations shall include the full revenue derived from the sale
of energy, capacity or other products. All revenue from these sales shall be
used to reduce Non-Securitized Stranded Costs in the order and manner prescribed
in the Stranded Cost Recovery Charge section of this Agreement.

Page 41
<PAGE>
     2. Purchases from Qualifying Facilities ("IPPs") at Short Term Avoided Cost
Rates

     For so long as PSNH is required to purchase the output from IPPs under
short term avoided cost rates, it shall be deemed prudent for PSNH to sell or
bid IPP power into the pool at the ISO New England market clearing price.

     3. Purchases from Qualifying Facilities ("IPPs") under Long-Term Contracts
or PUC-Approved, Long-Term Rate Orders

     PSNH will auction its power obtained from IPPs under long-term contracts
or under PUC approved long-term rate orders. Said auctions will be conducted
under PUC oversight and will occur no more often than once every six months. The
auctions may include all IPPs under long-term contracts and long-term rate
orders or the auctions may include combinations thereof. PSNH may establish
reasonable minimum bids for said auctions. If the actual bids submitted in these
auctions do not meet or exceed PSNH's minimum bids or, for good reason, some
IPPs are not included in the auction, PSNH may sell the output from these IPPs
into the pool at a price no less than the ISO New England market clearing price
until the next semiannual auction. The PUC retains jurisdiction to determine
whether the minimum bid and/or the decision to exclude certain IPPs from the
auction was prudent. Revenues derived from the marketing of power purchased from
IPPs under long-term avoided cost rate orders and long-term contracts shall be
included as a credit to Part 2 of the SCRC.

     C. Procedure for Review of Plant Operation and Marketing of Power

     PSNH shall annually file a report and such other information as the PUC
shall require for review by the PUC supporting PSNH's plant operations and the
results of the sale of the output from PSNH's plants, entitlements and purchase
obligations. Such filings shall be made on a time schedule to be determined by
the PUC.

X.   EMPLOYEE PROTECTION

     As part of the plan to divest generating assets, certain commitments have
been made to represented and non-represented employees. PSNH believes that
those commitments are comparable to commitments made by other New England
utilities that have divested their generation. Such commitments have been made
to PSNH's fossil/hydro employees and to North Atlantic Energy Service
Corporation's ("NAESCO") nuclear employees.

Page 42
<PAGE>
     A.   PSNH Fossil/Hydro Represented Employees

     PSNH is a party to a Collective Bargaining Agreement ("CBA") with the
International Brotherhood of Electrical Workers ("IBEW"), Local 1837 in New
Hampshire. The purchaser will be required to assume PSNH's obligations under the
IBEW-PSNH Fossil/Hydro CBA at the closing of the asset sale. PSNH has also
agreed to provide certain employment protections for non-represented employees,
which the purchaser will also be obligated to assume at the closing. In each
case, the employee commitments to be undertaken by the purchaser will also be
binding upon any successor or assigns or any other entity acquirer of the
purchaser. Costs associated with subsequent workforce restructuring activities
will be borne solely by the purchaser.

     IBEW Local No. 1837 represents the bargaining unit employees serving
fossil/hydro, including PSNH Fossil/Hydro Engineering and Operations ("FHEO")
Stores and Production Maintenance. The purchaser will be required to assume and
perform the CBA in the form in place on the closing date. The current agreement
with the IBEW local was effective as of March 21, 1999 and is expected to expire
on May 31, 2002. Key provisions of the CBA include a 3 year wage and benefits
package, a memorandum of understanding dated March 12, 1999 regarding the
separation of the FHEO agreement from the larger PSNH-wide Retail Business Group
agreement, and an addendum to the agreement covering issues related to the sale
and subsequent transfer of fossil/hydro assets to a purchaser.

     B.   NAESCO Represented Employees

     NAEC will require that any purchaser of a controlling interest in the
facility provide certain assurances to employees at the time of closing.
Specifically, the buyer will commit to become a party to and honor the
collective bargaining agreement with Local Union Number 555 of the Utility
Workers Union of America that is in effect at the time of closing.

     Further, NAEC will propose to require that the buyer offer continued
employment for a period of twelve months (except as describe below) following
the closing to persons who were employed in represented positions during the
three months prior to the closing. In addition, NAEC will work with union
leadership on other negotiable benefits similar to those offered to
non-represented employees.

     C.   PSNH and NAESCO Non-Represented Employees

     The purchaser will be required to offer all non-represented fossil/hydro
and nuclear employees a minimum of

Page 43
<PAGE>
twelve months of employment (except as describe below) following the closing at
a level of wages and benefits in the aggregate not less than such employees are
receiving immediately prior to the closing. The purchaser will also be required
to provide out-placement assistance workshops and tuition reimbursement of up to
$3,000 per employee for job-related education courses or training to
non-represented employees whose employment is involuntarily terminated during
the six months following the twelve month employment period.

     If the employment of non-represented employees is terminated during the
first twelve months of employment with the purchaser, for reasons other than
cause, those employees shall be entitled to a severance benefit from the
purchaser. The severance benefit shall include but not be limited to;
out-placement assistance workshops, a lump sum $3,000 payment for retraining
assistance; a one-time payment equal to six months of company contributions for
health care for the employee and the employee's family members covered under the
Northeast Utilities Service Company group insurance plan at the time of
termination; access to an Employee Assistance Program equivalent to that offered
to PSNHINAESCO employees, for a period consistent with the term of the health
benefits. Additionally, the purchaser shall provide a cash severance benefit
which is the greater of either a) the remainder of pay and benefits due the
employee as a result of the minimum one-year employment clause or b) a severance
payment calculated at two weeks of straight time pay for each full year of
continuous credited service up to a maximum of 52 weeks of pay, with a minimum
of 4 weeks pay.

     D.   Retirement Benefits for Represented and Non-Represented Employees of
          PSNH or NAESCO

1.   Pension

     The purchaser will be obligated to provide a defined benefit plan that
provides at least a minimum level of pension benefits to any of the PSNH/NAESCO
employees who are employed by the purchaser as of the closing and subsequently
leave employment with the purchaser or subsequent purchasers. The minimum level
of pension benefits that the purchaser will be obligated to provide will be
calculated using the pension benefit formula applicable to the employee under
the PSNH/NAESCO plans as of the closing. The purchaser's obligation with regards
to this pension benefit will be calculated as the difference between (a) the
employee's total pension benefit as calculated utilizing the pension benefit
under PSNH's/NAESCO's plan applicable to the employee as of the closing, the
employee's final average earnings (as so defined in such plan) with purchaser,
and the employee's total years of service with PSNH and/or

Page 44
<PAGE>
NAESCO and the purchaser and, (b) the pension benefit the employee receives from
PSNH or NAESCO, (or any successor or assign). The PSNH/NAESCO portion of the
employee's pension benefit will be calculated by PSNH/NAESCO as of the closing,
based upon the pension benefit formula, years of credited service and final
average earnings applicable to the employee as of the closing.

2.   Pension Rule 85

     Effective January 1, 2000, PSNH and NAESCO employees
are eligible to receive full pension benefits beginning at
age 55 if they have combined age and years of service
totaling at least 85 (the "Rule of 85").

3.   Pension Plan Modification

     Any employee who is age 50 to 54 on the date of the announcement of the
winning bidder(s) and whose age plus credited years of service equals or exceeds
65 years and who is subsequently involuntarily separated from employment by the
purchaser, will be eligible for the following additional retirement benefits: 1)
retiree life insurance equivalent to that provided to NU system retirees,
beginning at separation; 2) continuation of health care benefits at COBRA rates
until age 55, after which retiree health care benefits and contributions apply;
and 3) the option to begin pension payments before age 55.

     An employee eligible to begin receiving pension benefits before age 55 will
be entitled to receive the following percentages of the total pension benefit to
which the employee would be entitled at or after age 55:

<TABLE>
<CAPTION>
                Employee Benefits Eligibility
     Age when benefits begin       Percent of accrued age 65 benefit
<S>                               <C>
          55                       75%
          54                       71%
          53                       67%
          52                       63%
          51                       59%
          50                       55%
</TABLE>

4.   Pension Benefits - General

     The pension benefit must be guaranteed and protected from forfeiture to the
same extent as any ERISA retirement plan benefit. If such benefit should be
subject to Social Security or Medicare taxes that do not apply to ERISA
retirement plan benefits, such benefits will be grossed up to offset any
additional tax liability to the employee.

5.   Vesting and Years of Credited Service

Page 45
<PAGE>
     The purchaser will apply each employee's prior service with the NU system
companies and service recognition/credited service which was recognized by NU
towards any eligibility, vesting or other waiting period requirements under the
purchaser's employee benefit plans (including, but not limited to, pension
benefits, life insurance, health care benefits, and vacation and sick time),
will waive any pre-existing medical condition provisions under the purchaser's
health care plans in which the employees participate, and will give the
employees credit for any moneys paid toward the annual deductible under such
plans as of the closing. All employees who are vested in the NU plans as of the
closing shall be vested as of the closing in the purchaser's plans.

E.   Fossil/Hydro and Nuclear Employees generally

     PSNH and NAESCO will consider offering an early retirement program to all
eligible fossil/hydro and nuclear personnel. The cost of this program will be
the responsibility of PSNH.

F.   PSNH Retail Business Group (T&D Company) commitments to Union Workers

     PSNH will honor all existing collective bargaining agreements for
non-fossil/hydro employees, including T&D employees.

XI.  CODE OF CONDUCT

     In PUC Order No 22,875 issued in Docket No. DR 96-150 dated March 20, 1998,
the PUC permitted retail-marketing companies affiliated with jurisdictional
utilities to compete for retail customers in their affiliated distribution
utility's Service Territory, subject to an appropriate Code of Conduct to
protect against anti-competitive behavior. In that same order, the PUC stated
that, prior to the final implementation of a Code of Conduct, the equivalent
Code of Conduct enacted in California should govern. The California Code is set
out in Appendix I. PSNH agrees to abide by the California Code, as interpreted
by the "New Hampshire Affiliate Transaction Rules Applicable to PSNH and NU"
attached hereto as Appendix H until such time as the PUC adopts a New Hampshire
Code of Conduct. The Parties will recommend that the Code of Conduct to be
adopted by the PUC address issues such as, but not limited to, physical
separation, restrictions on common management or directors, contractual or
financial relationships and preferential treatment.

     Regardless of the final PUC order implementing a New Hampshire Code of
Conduct, PSNH agrees: that it will not use

Page 46
<PAGE>
its utility status to favor any affiliated companies, that any customer and/or
marketing data provided to any affiliated company will be simultaneously
provided to all other Competitive Suppliers, that its generating and marketing
affiliates will not share office space or personnel, that its marketing
affiliates will not use the name Public Service of New Hampshire or any similar
name, that its affiliates may not otherwise trade on the name or status of PSNH
in marketing efforts, that its affiliates' books and accounts will be open to
inspection by the PUC in accordance with the provisions of paragraph 11 of
Appendix H of this Agreement, and that it and NU will cooperate to establish
market power measurements and benchmarks that will be effective to monitor how
the ISO-NE power marketplace is operating. The Parties agree to recommend that
resolution of disputes under any market power provisions adopted by the PUC
should be performed in a manner consistent with the arbitration procedures now
in place under the Telecommunications Act of 1996.

XII. EXEMPT WHOLESALE GENERATOR STATUS

     Should any entity to whom PSNH sells its generating assets be qualified to
seek Exempt Wholesale Generator status under Section 32 of the Public Utility
Holding Company Act of 1935 and other federal law, rules and regulations, the
Parties agree that they will support the purchaser's efforts to obtain any
necessary approvals and findings from the PUC.

XIII. SECURITIZATION OF STRANDED COSTS

     A.   Role of Securitization in Settlement

     The Parties recognize that securitization is a useful tool for lowering
customers' bills and maximizing customer benefits. The issuance of RRBs will
allow PSNH to reduce its cost of capital, thereby significantly reducing rates
for customers. Securitization is expected to account for a material portion of
the 15.3% average rate reduction that will be achieved when this Agreement is
implemented. The Parties acknowledge that securitization of Stranded Costs is a
pivotal element of the settlement, and that passage of acceptable legislation
and the successful completion of the proposed bond issue are conditions to
implementing this Agreement.

     B.   Legislation

     Securitization of Stranded Costs may be considered by the PUC under Chapter
289 of the Session Laws of 1999,

Page 47
<PAGE>
Section 3 and Chapter 249 of the Session Laws of 2000. The Parties hereby commit
to make all reasonable efforts to issue the RRBs as expeditiously as possible.

     Such legislation authorizes, among other things, the creation by the PUC of
an irrevocable property right to bill and collect nonbypassable RRB Charges in
amounts sufficient to recover RRB Costs associated with the RRBs. Such
irrevocable property right will be referred to as "RRB Property."

     Pursuant to RSA Chapter 369-B, the State of New Hampshire has pledged,
contracted, and agreed that neither the State nor any agency thereof, including
the PUC, will limit or alter the RRB Charge, securitized Stranded Costs, RRB
Property, or the finance order and all rights thereunder, until the RRBs and any
interest, fees and expenses associated therewith are fully discharged, unless
adequate provision is made for the protection of the owners or holders. The
legislation also provides that RRB Property may be sold in a true sale
transaction to a SPSE in order to facilitate the issuance of RRBs and directs
the PUC to adjust the RRB Charges periodically in order to ensure the timely
recovery of RRB Costs (see the description of the True-Up Mechanism herein).

     The RRB Charges will be non-bypassable pursuant to RSA 374-F:3 and RSA
Chapter 369-B, and as provided in Section V(B).

     C.   PUC Order

     Securitization will require the prior approval by the PUC in the form of a
finance order which includes the transaction description, certain findings,
orders and approvals. PSNH will request findings that will maximize the
likelihood of achieving a Triple-A Rating on the RRBs and the marketability of
the RRB issuance.

     The PUC will be requested, among other things, to: (i) approve the issuance
of RRBs in an amount consistent with RSA Chapter 369-B, (ii) approve the
organization and capitalization of the SPSE to which the RRB Property will be
sold, (iii) establish the RRB Property and the RRB Charge, (iv) provide for the
periodic adjustment of the RRB Charge via the True-Up Mechanism described
herein, (v) approve the general structure and terms of the RRBs (as summarized
below), (vi) approve the servicing of the RRB Charge by PSNH, as provided in
Section XIII.D.3, as the initial servicer for the RRB Property (the "Servicer"),
or any successor Servicer, under a servicing agreement (the "Servicing
Agreement") and (vii) declare the finance order irrevocable pursuant to the
legislation.

Page 48
<PAGE>
     D.   RRB Transaction Overview

     The finance order sought by PSNH will, among other
things, require approval of the following aspects of the RRB
transaction, finding that they are consistent with achieving
the highest rating and therefore the lowest cost on the
RRBs.

1.   Sale of RRB Property

     a.   PSNH will form a bankruptcy-remote, wholly owned SPSE.

     b.   PSNH will capitalize the SPSE in an amount anticipated to be at least
0.50% of the initial principal balance of RRBs. These funds will be deposited in
the Capital Subaccount (see Section XIII(D)(5)(b)). This capitalization is
required in order that PSNH may treat the RRB issuance by the SPSE as debt for
tax purposes.

     c.   An overcollateralization subaccount will be established up to the
level required to achieve the highest credit rating. The amount will be
finalized prior to the issuance of the RRBs and will depend primarily on rating
agency requirements and tax considerations. Collections of RRB Charges with
respect to overcollateralization will be deposited in the Overcollateralization
Subaccount such that the amount therein will accumulate over time in accordance
with a schedule set forth at issuance (see Section XIII(D)(5)(c)).

     d.   PSNH will sell the RRB Property to the SPSE in a transaction which
will be intended and treated as a legal true sale and absolute transfer to the
SPSE. A true sale of RRB Property to a bankruptcy-remote SPSE provides that, in
the event of a PSNH bankruptcy, the RRB Property owned by the SPSE will not
become a part of the PSNH bankruptcy estate and PSNH creditors will have no
recourse to the RRB Property or RRB Charges.

2.   Issuance of RRBs

     a.   The SPSE will issue RRBs in one or more series, each of which may be
offered in one or more classes having a different principal amount, term,
interest rate and amortization schedule, and reasonably consistent with the
forecast amortization schedule contained in Appendix D. To the extent allowed by
the PUC in the financing order, the form, term, interest rate (whether fixed or
variable), repayment schedule, classes, number and determination of credit
ratings and other characteristics of RRBs will be determined at the time of
pricing based on then-current market conditions, in order to achieve the all-in
lowest cost financing possible. Under certain circumstances, the RRBs may be
subject to call provisions and may be refinanced

Page 49
<PAGE>
through a subsequent issuance of RRBs to the extent such refinancing would
result in a lower interest cost associated with the RRBs refinanced. At least 3
business days in advance of RRB issuance, PSNH will make an informational filing
with the PUC consisting of an "Issuance Advice Letter" setting forth the final
terms of the RRBs.

     b.   RRBs will be non-recourse to PSNH and its assets and will not be
secured by a pledge of the general credit, full faith or taxing power of the
State of New Hampshire or any agency or subdivision of the State of New
Hampshire.

     c.   The targeted rating on the RRBs will be Triple-A.

     d.   The RRB Charge is anticipated to be billed until the expected maturity
date of the RRBs, which is 12 years from their date of issuance. However, to the
extent the RRBs have not been fully amortized by such date, the RRB Charge may
continue to be billed until the RRBs are fully amortized and all costs related
thereto have been paid; provided, however, that in no event will the RRB Charge
be billed beyond the legal maturity date of the RRBs which will not be longer
than 14 years from their date of issuance.

     e.   RRBs will be secured by all of the assets of the SPSE, including
without limitation (i) the RRB Property, (ii) the rights of the SPSE under all
transaction documents such as the purchase agreement by which the SPSE acquires
all rights in the RRB Property (and including any swap agreements in place with
respect to floating rate RRBs), (iii) the Servicing Agreement by which PSNH, or
any successor servicer, acts as Servicer for the RRB Property, (iv) the
Collection Account (as summarized below), (v) certain investment earnings on
amounts held by the SPSE and (vi) the capital of the SPSE.

     f.   RRBs will be repaid through the collection of the RRB Charge as
described in Section V(B).

     g.   The RRB Charges will be non-bypassable as provided in Section V(B).

3.   Servicing of RRBs

     a.   On behalf of the SPSE, PSNH will initially act as the Servicer for the
RRB Property, and PSNH, or any successor Servicer, will be responsible for
calculating, billing, collecting, and remitting the RRB Charge.

     b.   In consideration for its servicing responsibilities, PSNH or any
successor Servicer will receive a periodic servicing fee which will be recovered
through the RRB Charge. In the event of a failure of any customer to pay the RRB
Charge, PSNH, as Servicer, or any

Page 50
<PAGE>
utility successor to PSNH, is authorized to disconnect service to such customer
to the same extent that a public utility may, under applicable law and
regulations, disconnect service to a customer who fails to pay any charge. If
PSNH is replaced as Servicer due to its imprudence, the PUC may consider such
lost periodic servicing fees when determining new delivery rates.

     c.   In the event that the PUC decides to allow billing, collection, and
remittance of RRB Charges by a third party supplier within the PSNH Service
Territory, such authorization must be consistent with the rating agencies'
requirements necessary for the RRBs to receive and maintain the targeted
Triple-A Rating.

     d.   PSNH or any successor Servicer will periodically remit (as frequently
as required by the rating agencies) collections of RRB Charges to the SPSE. The
SPSE will use the RRB Charge remittances to make payments of interest,
principal, fees and expenses on the RRBs and to fund certain credit enhancement
reserves (the application of such remittances is described further herein). PSNH
may be required to obtain a letter of credit or other credit enhancement to
protect against any cash collection losses resulting from the temporary
commingling of funds.

     e.   Depending upon the capability of PSNH's systems at the time of
issuance, PSNH may utilize some type of estimation methodology to determine the
amount of RRB Charges to remit to the SPSE; provided, however, that PSNH will
remain liable to remit the amount of RRB Charges that it actually collects.

4.   RRB Charge

     a.   The RRB Charge will be established at levels intended to provide for
the full recovery of RRB Costs, based upon assumptions including sales
forecasts, payment and charge-off patterns, and lags between SCRC billing and
collection by the Servicer.

     b.   So that the RRB Charge may recover interest payments on the RRBs, it
will be calculated to reflect the coupon on the RRBs as determined by market
conditions at the time of issuance. If the RRBs are Triple-A Rated and are
issued prior to December 31, 1999, the coupon rate on the RRBs will be
determined by market conditions at the time of pricing, but PSNH guarantees an
All-In Cost of 6.25%. If the RRBs are Triple-A Rated and are issued between
January 1, 2000 and July 1, 2000, the coupon rate on the RRBs will be determined
by market conditions at the time of pricing but PSNH guarantees an All-In Cost
of 7.25%, (see Section V(B)(3) above).

Page 51

<PAGE>
     c. The RRB Charge will be billed so long as RRBs are outstanding, but in no
event after the legal final maturity.

5.   Credit Enhancement; Overcollateralization and True-Up Mechanism

     a. In order for the RRBs to receive a Triple-A rating, the exposure to
losses due to, among other things, shortfalls in projected sales of energy,
longer-than-expected delays in bill collections, and higher-than-estimated
uncollectable accounts must be minimized. This will be accomplished with various
forms of credit enhancement described in the finance order, including the
various components of the Collection Account and the True-Up Mechanism described
below.

     b. The RRB Charge collections will be deposited into an interest bearing
Collection Account, which will consist of a General Subaccount (which will hold
the collections with respect to principal, interest, fees, and expenses) and at
least three other interest bearing subaccounts: the Overcollateralization
Subaccount (which will hold collections with respect to Overcollateralization
(see Section XIII(D)( 1 )(c)), the Capital Subaccount (which will hold PSNH's
initial capital contribution to the SPSE) and the Reserve Subaccount (which will
hold any excess collections of RRB Charge as described below). RRB Charge
collections in excess of scheduled payments of interest, principal, fees and
expenses on RRBs will be allocated to: (i) the Capital Subaccount to the extent
the amount therein has been reduced to below the initial capital contribution,
(ii) the Overcollateralization Subaccount up to the required level set forth for
such date at issuance by the rating agencies and (iii) the Reserve Subaccount
any remaining amounts. To the extent that RRB Charges are insufficient to make
scheduled payments of interest, principal, fees and expenses on RRBs during any
period, the accounts will be drawn upon in the following order (i) the Reserve
Subaccount, (ii) the Overcollateralization Subaccount and (iii) the Capital
Subaccount.

     c. The RRB Charge will be calculated (both initially and as a result of the
True-Up Mechanism) to recover an amount in excess of the amounts needed to make
payments of principal, interest, fees and expenses on RRBs (such excess,
"Overcollateralization"). The actual amount of Overcollateralization required to
achieve the highest credit rating will be finalized prior to the issuance of the
RRBs and will depend primarily on rating agency requirements and tax
considerations. The Overcollateralization will be collected over time and
deposited to the Overcollateralization Subaccount such that the amount therein
will accumulate over time in accordance with a schedule set forth at issuance.

Page 52
<PAGE>
     d. The RRB Charge will be adjusted up or down pursuant to the True-Up
Mechanism in accordance with the specific methodology described in the finance
order. At the times specified in the order and as approved by the PUC, an RRB
Charge adjustment will be requested such that, during the period for which that
RRB Charge will be billed, RRB Charge collections will be sufficient to: (i) pay
principal and interest on the RRBs in accordance with the expected amortization
schedule, (ii) pay fees and expenses related to RRBs, (iii) maintain the
Overcollateralization Subaccount balance at the required levels and (iv) restore
the capital contribution to the Capital Subaccount to the extent it has been
drawn upon to make payments on RRBs, and (v) reduce the balance in the Reserve
Subaccount to zero. When PSNH anticipates that the Recovery End Date will occur
in six months, it may, at its option, initiate monthly True-Up Mechanism
reconciliations. Similarly, during the twelve months prior to the expected
maturity date and thereafter until the legal maturity date, PSNH may, at its
option, initiate quarterly or monthly True-Up Mechanism reconciliations. When
the RRBs are paid off, any balances in the Overcollateralization and Reserve
will be used to reduce the Part 2 Stranded Costs.

     E. Use of Proceeds

     The SPSE will transfer the proceeds it received from the issuance of the
RRBs to PSNH as consideration for the RRB Property. PSNH may use the proceeds of
securitization in such manner as the PUC shall approve in the finance order.

     F. State Oversight

     The New Hampshire State Treasurer, or other State official designated by
the State Treasurer, shall have oversight over the terms and conditions of the
RRB issue, including but not limited to tax aspects and such other arrangements
to which the Parties may mutually agree, to assure that PSNH exercises fiscal
prudence, and achieves the lowest overall cost for the RRBs.

XIV. OTHER PSNH COMMITMENTS

     A. Bankruptcy of NU or Other Affiliates

     PSNH and NU agree to take all possible steps to insure that the State,
acting on behalf of PSNH's customers, will be entitled to participate as a party
in any bankruptcy of NU, PSNH or any current or future affiliate during the term
in which any Rate Reduction Bonds remain outstanding.

     B. Dividend

Page 53
<PAGE>
     Except for the issuance of a dividend pursuant to 2000 N.H. Laws 249:8,
PSNH agrees that it will not make dividend payments to its parent, NU, until the
earliest of the date that the write-off associated with this Agreement has been
taken; or the date that this Agreement is either terminated pursuant to Section
XVI or disapproved by the PUC.

     C.   Sale of PSNH or NU

     If PSNH's T&D assets are sold within five years of Competition Day, for a
premium above 1.5 times the net book value of those assets, less liabilities and
obligations assumed by the purchaser ("Excess Premium"), 1/3 of the Excess
Premium will be credited to Non-Securitized Stranded Costs. If NU itself is
acquired or otherwise sold or merged during that same time period, it agrees
that notwithstanding any contrary provision of law, the merger, acquisition or
sale shall be subject to the jurisdiction of the PUC under RSA Chapters 369,
374, 378 or other relevant provisions, and that the merger, acquisition or sale
shall be approved only if it be shown to be in the public interest. A merger of
NU that is subject to this section shall not include acquisitions by NU of other
entities.

XV.  PROCEEDINGS TO BE TERMINATED UPON IMPLEMENTATION OF SETTLEMENT

     A.   Federal Court Litigation

     On Competition Day, PSNH agrees to dismiss with prejudice the suit it
brought in Federal District Court on the issuance by the PUC of its February 28,
1997 Final Plan for restructuring (D.N.H. 97-97/ D.R.I. 97-121). Due to the fact
that there are other utility plaintiffs involved in the litigation, the Parties
understand that the case may not be dismissed in its entirety.

     B.   Public Utilities Commission Proceedings

     PSNH has sought to stay the following proceedings during the pendency of
the approval process for this Agreement, and those proceedings shall be
dismissed with prejudice upon PUC approval and adoption of legislation
authorizing implementation of the Agreement.

     1.   DR 96-148

     This proceeding was brought by the PUC to determine whether PSNH had used
its `best efforts' to negotiate with IPPs.

     2.   DR 96-149

Page 54
<PAGE>
     This proceeding was brought by the PUC to investigate whether FERC's "light
loading" rules applied to PSNH's purchases from IPPs.

     3.   DR 96-424

     This proceeding was brought to explore whether a commercial customer should
be able to self generate without any obligation to support system costs.

     4.   DR 97-014 and DR 98-014

     These proceedings were brought to consider PSNH's recovery of fuel and
purchased power expenses.

     5.   DR 97-059

     This proceeding was brought to determine new base rates for PSNH.

     6.   DE 97-167

     This proceeding was brought to investigate whether PSNH should have joined
the suit brought by other utilities against NU to recover losses alleged to have
resulted from NU's management of Millstone 3.

     7.   DF 97-185

     This proceeding was brought to allow the PUC to conduct a management audit
of PSNH in relation to the ongoing rate case.

     8.   DR 98-006 and DR 98-071

     These proceedings were brought to evaluate the Least Cost Integrated
Resource Plan ("LCIRP") filing by PSNH.

     9.   DSF 99-066 and DE 00-092

     These proceedings were brought to complete the annual reviews of PSNH's
proposed bulk power projects.

XVI. CONDITIONS FOR IMPLEMENTING THE SETTLEMENT

     All conditions set forth in this section must be met to the satisfaction of
all Parties as a condition precedent to implementation of this Agreement, and
the Parties hereby agree to take all reasonable measures to ensure fulfillment
of these conditions. The failure of any of these conditions to be fulfilled will
result in termination of the Agreement, subject to the provisions of Section
XVII(D).

Page 55
<PAGE>
     A. The PUC must approve this Agreement by a Final Order, without condition
or modification, unless otherwise agreed to by the Parties as provided in
Section XVII(D).

     B. PSNH and NAEC must receive approval from the appropriate lenders
pursuant to existing credit agreements.

     C. Legislation must be enacted allowing the securitization of assets and
the issuance of Rate Reduction Bonds in a manner fully consistent with the terms
of this Agreement. This condition has been met by the enactment of Chapter 249
of the Session Laws of 2000.

     D. PSNH must close on the issuance of the Rate Reduction Bonds.

     E. PSNH must have entered into agreements to sell power from any remaining
entitlements; or there must be an arrangement in place for PSNH to sell such
entitlements into the wholesale market.

     F. All necessary final approvals, without condition or modification, for
other jurisdictional matters must be obtained, as required, from the Federal
Energy Regulatory Commission, the Securities and Exchange Commission, the
Nuclear Regulatory Commission, and the Connecticut Department of Public Utility
Control.

XVII.   MISCELLANEOUS

     A. Applicable Law

     This Agreement shall be governed by the laws of the State of New Hampshire.
The Parties agree that any disputes regarding this Agreement will be subject to
the jurisdiction of the PUC and the appellate jurisdiction of the New Hampshire
Supreme Court.

     B. Successors and Assigns

     The rights conferred and obligations imposed on the Parties to this
Agreement shall be binding on or inure to the benefit of their successors in
interest or assignees as if such successor or assignee was itself a Signatory
hereto.

     C. Entire Agreement

     This Agreement contains the entire agreement among the Parties respecting
the subject matter herein and supersedes all prior agreements and understandings
between them, including the Memorandum of Understanding among the Parties dated
June 14, 1999. The agreements contained herein are

Page 56
<PAGE>
interdependent and not severable, and they shall not be binding upon, or deemed
to represent positions of, the Parties if they are not approved in full and
without modification or condition by the Commission subject to subsection D of
this section, below.

     D. General Provisions

     If the PUC does not approve this Agreement in its entirety and without
modification or condition, the Parties shall have an opportunity to amend or
terminate this Agreement. If terminated, this Agreement shall be deemed
withdrawn and shall not constitute a part of the record in any proceeding or be
used for any purpose.

     This Agreement is the product of settlement negotiations. The content of
those negotiations shall be privileged and all offers of settlement shall be
without prejudice to the position of any party or participant presenting such
offer.

     Acceptance of this Agreement by the PUC shall not be deemed to restrain the
PUC's exercise of its authority to promulgate future orders, regulations or
rules which resolve similar matters affecting other parties in a different
fashion.

     The PUC's approval of this Agreement shall endure so long as necessary to
fulfill the express objectives of this Agreement to the extent indicated in
Chapter 249 of the Laws of 2000.

     The approvals contemplated by this Agreement shall not be construed as
requiring the PUC to relinquish its authority to develop new policies and issue
orders or to initiate investigations when it deems such actions are in the
public good.

     As described below, this Settlement Agreement does not affect the
jurisdiction of the PUC. To the extent that there is a dispute among parties in
Docket No. DR 96-150 regarding the jurisdiction of the PUC and the FERC over the
determination and recovery of Stranded Costs caused by state-mandated retail
access policies, the Parties intend that nothing in this Settlement Agreement
should resolve that dispute, affect the authority of either regulatory body over
this issue, or limit the ability of the Parties to raise arguments or defenses
relating to this jurisdictional issue. Notwithstanding any other provision of
this Agreement, no provision herein shall be deemed to determine this
jurisdictional issue. Accordingly, the Parties view this Agreement as a
negotiated resolution of the issues presented by the restructuring of PSNH in
the context of the PUC's electric utility restructuring proceeding.

Page 57
<PAGE>
     The Parties agree to support this Agreement before the PUC and in any
related legal proceedings or legislative inquiries or hearings, and to take all
such action as is necessary to secure approval and implementation of the
provisions of this Agreement.

Signed this 22nd day of September, 2000

/s/ Jeanne Shaheen                          /s/  Michael G. Morris
Jeanne Shaheen                              Michael G. Morris
Governor of the State of New Hampshire      Chairman, President and Chief
State House                                 Executive Officer
Concord, NH 03301                           Northeast Utilities
                                            107 Selden Street
                                            Berlin, CT  06037

/s/  Philip T. McLaughlin                   /s/ Gary A. Long
Philip T. McLaughlin                        Gary A. Long
Attorney General                            President and Chief
of the State of New Hampshire               Operating Officer
33 Capitol Street                           Public Service Company of New
Concord, NH 03301                           Hampshire
                                            1000 Elm Street
                                            P.O. Box 330
                                            Manchester, NH  03105

/s/  Thomas B. Getz
Thomas B. Getz
Executive Director and Secretary
New Hampshire Public Utilities Commission
8 Old Suncook Road
Concord, NH  03301

/s/ Deborah J. Schachter
Deborah J. Schachter
Director
Governor's Office of Energy and Community Services
57 Regional Drive
Concord, NH 03301

Page 58
<PAGE>
APPENDIX A - SUMMARY OF PROPOSED RATES

APPENDIX A - SUMMARY OF PROPOSED RATES

                     Public Service Company of New Hampshire

                       Current and Target Revenue by Class

<TABLE>
<CAPTION>
                                                Total Revenue                             Revenue, cents/kWh
                                Billed
Rate Class                       KWH               Current                          Current                 Percentage
                                Sales (1)          Rate (2)        Target (3)        Rates        Target     Decrease
<S>                          <C>                <C>               <C>               <C>           <C>       <C>
Residential Service          2,294,071,493      $ 333,425,361     $276,917,370      $ 14.534       12.071      16.9%
General Service              1,421,780,341        182,776,854      156,452,709        12.855       11.004      14.4%
Primary General Service      1,219,154,700        133,906,224      115,563,674        10.984        9.479      13.7%
Large General Service          559,072,437         57,205,610       50,299,747        10.232        8.997      12.1%
Outdoor Lighting Service        40,858,107         10,553,509        8,780,816        25.830       21.491      16.8%
Total Retail                 5,534,937,078      $ 717,867,558     $608,014,316      $ 12.970       10.985      15.3%
</TABLE>

Note: all amounts are based on the 9/98 test year as proformed, excluding
special pricing.

(1) Sales for the Outdoor Lighting class have been recalculated based on the new
    kWh amounts shown in the Delivery Service Tariff.

(2) Represents revenues for the 9/98 test year, proformed to the level of Tariff
    38 temporary) base rates with an FPPAC rate of 0.383 cents/kWh.

(3) Includes a Transition Service energy charge of 4.400 cents/kWh.

Page 59
<PAGE>
APPENDIX B - ENVIRONMENTAL RESERVE FUND IDENTIFIED SITES

      Messer Street former Manufactured Gas Plant ("MGP")(Laconia, NH)
      Keene former MGP (Keene, NH)
      Nashua former MGP (Nashua, NH)
      Dover former MGP(Dover, NH)
      Franklin former MGP (Franklin, NH)
      Calcutt Landfill (Dover, NH)

      Coakley Landfill Superfund Site (Greenland & North Hampton, NH)
      Port Refinery Superfund Site (Ryebrook, NY)
      Portland - Bangor Disposal Site(Portland, ME)
      Manchester Steam former Generating Plant (Manchester, NH)
      Cocheco former Generating Plant (Dover, NH)
      Seabrook Station former Landfill (Hampton, NH)

Page 60
<PAGE>
APPENDIX C - ESTIMATED BALANCE OF THE ASSETS AS OF JUNE 30, 2000

APPENDIX C - ESTIMATED BALANCE OF THE STRANDABLE ASSETS AS OF JUNE 30, 2000

                              (Millions of Dollars)

<TABLE>
<CAPTION>
                                                06/30/00   06/30/00     06/30/00
                                                  Book      Market     Strandable      2000          6/30/00                 Amort.
                                                Balance     Value        Assets     Written-Off    Securitized   Amortized   Years
<S>                                             <C>        <C>         <C>          <C>            <C>           <C>        <C>
Seabrook Over-Market Generation Assets          $   594     $ 100        $  494       $    -         $ 494         $   -    $    12
MP3 Over-Market Generation assets                    82         -            82            -            64            18         12
Fossil Over-Market Generation assets (12/00)        178       290          (112)           -             -          (112)      11.5
Hydro Over-Market Generation assets (12/01)          24        70           (46)           -             -           (46)      10.5
Seabrook Deferred Return - NAEC                      90         -            90           90             -             -
Seabrook Deferred Return - PSNH                      15         -            15           15             -             -
Acquisition Premiums                                310         -           310          162             -           148         12
Acquisition Premiums  - F109                        185         -           185           97             -            88         12
Unrecovered Obligation - YAEC, CY, MY                50         -            50            -             -            50          8
Deferred SPP Costs                                  102         -           102            -             -           102         12
Deferred FPPAC Costs                                107         -           107            -             -           107         12
Deferred VY Contract Termination Payments             -        (9)            9            -             -             9         12
Market Value of Wholesale Power Contracts             -        10           (10)           -             -           (10)        12
Reserves for NHEC Settlement                        (24)        -           (24)           -             -           (24)        12
Deferred NOx Allowance Credits (12/00)               (5)        -            (5)           -             -            (5)     11.25
Unamortized Loss on Reacq. Debt (6/00)                3         -            23            3            15             5         12
Unamortized Loss on Reacq. Debt (12/00)               -         -            11            -             -            11       11.5
Unamortized Loss on Reacq. Debt (12/01)               -         -             3            -             -             3       10.5
Total Assets                                    $ 1,711     $ 461        $1,284       $  366         $ 573         $ 345
</TABLE>

Page 61
<PAGE>
APPENDIX D - FORECAST AMORTIZATION SCHEDULE FOR STRANDABLE ASSETS

<TABLE>
<CAPTION>
                                                                   (Thousands of Dollars)
                                           Year Ending 12/31:

                                  7/00 -    2001     2002     2003     2004     2005     2006     2007     2008     2009     2010
                         6/30/00  12/00
<S>                      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Seabrook Over-Market
  Generation Assets
    Securitized               --  13,170   27,813   29,897    2,138   34,547   37,137   39,920   42,913   46,130   49,588   53,305
MP-3 Over-Market
  Generation Assets
    Securitized               --   1,703    3,597    3,867    4,156    4,468    4,803    5,163    5,550    5,966    6,413    6,894
    Amortized                 --     762    1,524    1,524    1,524    1,524    1,524    1,524    1,524    1,524    1,524    1,524
Fossil Over-Market
  Generation
   Assets (12/00)             --      --   (9,781)  (9,781)  (9,781)  (9,781)  (9,781)  (9,781)  (9,781)  (9,781)  (9,781)  (9,781)
Hydro Over-Market
  Generation
   Assets (12/01)             --  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)  (4,401)
Seabrook Deferred
  Return-NAEC
  Written-off             89,892      --       --       --       --       --       --       --       --       --       --       --
Seabrook Deferred
  Return - PSNH
  Written-off             15,169      --       --       --       --       --       --       --       --       --       --       --
Acquisition Premiums
  Written-off            161,963      --       --       --       --       --       --       --       --       --       --       --
  Amortized                6,178  12,356   12,356   12,356   12,356   12,356   12,356   12,356   12,356   12,356   12,356   12,356
Acquisition
  Premiums - F109
  Written-off             96,788      --       --       --       --       --       --       --       --       --       --       --
  Amortized                3,692   7,384    7,384    7,384    7,384    7,384    7,384    7,384    7,384    7,384    7,384    7,384
Unrecovered
Obligation - YAEC,
  CY, MY                      --   3,538    7,048    6,901    6,718    6,700    6,229    5,992    4,850    2,440       --       --
Deferred DOE
  Assessment                  --       9       18       18       18       18       18       18       18       18       18       18
Deferred SPP Costs            --   4,240    8,481    8,481    8,481    8,481    8,481    8,481    8,481    8,481    8,481    8,481
Deferred FPPAC Costs          --   4,458    8,917    8,917    8,917    8,917    8,917    8,917    8,917    8,917    8,917    8,917
VY Contract
  Termination Payment         --     392      783      783      783      783      783      783      783      783      783      783
Market Value of
   Wholesale Power
   Contracts                  --    (417)    (833)    (833)    (833)    (833)    (833)    (833)    (833)    (833)    (833)    (833)
Reserves for NHEC
   Settlement                 --  (1,008)  (2,017)  (2,017)  (2,017)  (2,017)  (2,017)  (2,017)  (2,017)  (2,017)  (2,017)  (2,017)
Deferred NOx Allowance
   Credits                    --      --     (391)    (391)    (391)    (391)    (391)    (391)    (391)    (391)    (391)    (391)
Unamort. Loss on Reacq
   Debt - Exist               --     124      249      249      249      249      249      249      249      249      249      249
Unamort. Loss on Reacq
   Debt - 6/00                --      90      181      181      181      181      181      181      181      181      181      181
Unamort. Loss on Reacq
   Debt - 12/00               --      --      953      953      953      953      953      953      953      953      953      953
Unamort. Loss on  Reacq
   Debt - 12/01               --      --      248      248      248      248      248      248      248      248      248      248
Financing Costs - 6/00
    Written-off            2,599      --       --       --       --       --       --       --       --       --       --       --
    Securitized               --     400      844      908      976    1,049    1,127    1,212    1,303    1,400    1,505    1,618
     Total               366,411  37,332   67,123   65,240   67,656   70,432   72,964   75,955   78,284   79,604   81,174   85,485
</TABLE>

APPENDIX D - FORECAST AMORTIZATION SCHEDULE FOR STRANDABLE ASSETS

<TABLE>
<CAPTION>
                            (Thousands of Dollars)

                           2011     2012        Total
<S>                       <C>      <C>       <C>

Seabrook Over-Market
  Generation Assets
    Securitized           57,300   30,242      494,099
MP-3 Over-Market
  Generation Assets
    Securitized            7,411    3,911       63,901
    Amortized              1,524      762       18,285
Fossil Over-Market
  Generation
   Assets (12/00)         (9,781)  (4,891)    (112,487)
Hydro Over-Market
  Generation
  Assets (12/01)          (4,401)  (2,200)     (46,209)
Seabrook Deferred
  Return-NAEC
  Written-off                 --       --       89,892
Seabrook Deferred
  Return - PSNH
  Written-off                 --       --       15,169
Acquisition Premiums
  Written-off                 --       --      161,963
  Amortized               12,356    6,178      148,269
Acquisition
  Premiums - F109
  Written-off                 --       --       96,788
  Amortized                7,384    3,692       88,603
Unrecovered
Obligation - YAEC,
 CY, MY                       --       --       50,416
Deferred DOE
  Assessment                  18        9          215
Deferred SPP Costs         8,481    4,240      101,771
Deferred FPPAC Costs       8,917    4,458      107,000
VY Contract
  Termination Payment        783      392        9,400
Market Value of
   Wholesale Power
   Contracts                (833)    (417)     (10,000)
Reserves for NHEC
   Settlement             (2,017)  (1,008)     (24,200)
Deferred NOx Allowance
   Credits                  (391)    (196)      (4,500)
Unamort. Loss on Reacq
   Debt - Exist              249      124        2,982
Unamort. Loss on Reacq
   Debt - 6/00               181       90        2,167
Unamort. Loss on Reacq
   Debt - 12/00              953      476       10,955
Unamort. Loss on  Reacq
   Debt - 12/01              248      124        2,604
Financing Costs - 6/00
    Written-off               --       --        2,599
    Securitized            1,740      918       15,000
     Total                90,118   46,905    1,284,682
</TABLE>

Page 62
<PAGE>
<TABLE>
<CAPTION>
                                                      (Thousands of Dollars)
                                        Year Ending 12/31:
                                                    12/00
                              7/00 -     2001     2002     2003     2004     2005     2006     2007      2008    2009     2010
                     6/30/00   12/00
<S>                  <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>

Total Write-Off      366,411       --       --       --       --       --       --       --       --       --       --       --
Total Securitized         --   15,273   32,254   34,671   37,270   40,064   43,067   46,295   49,766   53,496   57,506   61,817
Total Amortization        --   22,059   34,869   30,569   30,386   30,368   29,897   29,660   28,518   26,108   23,668   23,668
            Total    366,411   37,332   67,123   65,240   67,656   70,432   72,964   75,955   78,284   79,604   81,174   85,485

Balance of Total
  Stranded Assets    918,271  880,940  813,817  748,577  680,921  610,489  537,525  461,570  383,286  303,682  222,508  137,023
</TABLE>

<TABLE>
<CAPTION>
Securitization:      6/30/00    2000     2001     2002     2003     2004     2005     2006     2007     2008     2009     2010
<S>                  <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Total Payment         35,816   71,631   71,631   71,631   71,631   71,631   71,631   71,631   71,631   71,631   71,631
Interest Payment
  (at 7.25%)          20,543   39,377   36,960   34,361   31,567   28,564   25,336   21,865   18,135   14,125    9,814
Principal Payment     15,273   32,254   34,671   37,270   40,064   43,067   46,295   49,766   53,496   57,506   61,817
Principal Balance    573,000  557,727  490,802  453,532  413,468  370,401  324,106  274,340  220,844  163,338  101,521
   EOY

</TABLE>

<TABLE>
<CAPTION>
                      (Thousands of Dollars)

                      Year Ending 12/31:

                       2011      2012      Total
<S>                  <C>       <C>       <C>

Total Write-Off       -         -          366,411
Total Securitized     66,450    35,071     573,000
Total Amortization    23,668    11,834     345,271
            Total     90,118    46,905   1,284,682

Balance of Total
  Stranded Assets     46,905
</TABLE>

<TABLE>
<CAPTION>
Securitization:        2010      2011       2012
<S>                  <C>       <C>       <C>
Total Payment         71,631    71,631    35,816
Interest Payment       9,814     5,181       745
Principal Payment     61,817    66,450    35,071
Principal Balance    101,521    35,071       -
   EOY
</TABLE>

Page 63
<PAGE>
APPENDIX E - TRANSITION SERVICE / DEFAULT SERVICE PROTOCOL

Transition Service and Default Service shall be procured in accordance with the
provisions of

RSA Chapter 369-B.

Page 64
<PAGE>
APPENDIX F - FOSSIL/HYDRO ASSET AUCTION

ILLUSTRATIVE TIMELINE AND SEQUENCE OF EVENTS FOR FOSSIL/HYDRO

ASSET AUCTION:

<TABLE>
<CAPTION>
            Week
          Beginning      Action
<S>                      <C>
          4-Jan-00       Receive PUC approval of Agreement

          E.             Revise Descriptive Memorandum (DM) to conform to PUC
                         approval

          17

          F.             Finalize revisions to DM

          3-Feb-00       PUC Appeal Period concludes

          7-Feb-00

          14             Launch Auction with press release, invitations to bid
                         - Round 1 begins

          21

          G.             Distribution of DM's complete

          6-Mar-00       Schedule Data Room visits (if needed), respond to
                         bidder questions

          13             Schedule Data Room visits (if needed), respond to
                         bidder questions

          H.             Schedule Data Room visits (if needed), respond to
                         bidder questions

          27             Respond to Bidder Questions

          3-Apr-00       Indicative bids due

          10             Evaluate bids and select Round 2 participants

          I.             Round 2 Bidders notified and scheduled

          24             Site visits and management presentations

          1-May-00       Site visits and management presentations
</TABLE>

Page 65
<PAGE>
<TABLE>
<S>                      <C>
          8              Site visits and management presentations

          15             Site visits and management presentations

          22             Site visits and management presentations

          29             Site visits and management presentations

          5-Jun-00       Site visits and management presentations

          12

          19

          26             Final bids due

          3-Jul-00       Bids reviewed and winners selected

          10             Asset Purchase Negotiations conducted

          17             Winners announced

          24

          31             Start state and federal regulatory approval process

Prior to 12/31/2000      Complete Financial Closing on all transactions
</TABLE>

PSNH reserves the right after consultation with the Commission, to alter or
modify this schedule as necessary, before or during the auction process to best
satisfy the goals of the auction.

Page 66
<PAGE>
           APPENDIX G - DESCRIPTION OF PSNH FOSSIL/HYDRO ASSETS TO BE
                              DIVESTED VIA AUCTION

     1.   Thermal Facilities:

     a.   Merrimack Station

Merrimack Station is located south of the Garvins Falls Hydroelectric Project,
along the Merrimack River in Bow, New Hampshire.

Merrimack Station Generating Facilities:

<TABLE>
<CAPTION>
                                         Seasonal
                                         claimed                   Year
Unit          Load role        Fuel      capability(winter)(MW)    Installed
<S>           <C>              <C>       <C>                       <C>
Unit 1        Base load        Coal      122.3                     1960

Unit 2        Base load        Coal      353.5                     1968

CT-1          Peaking          Jet        21.1                     1968

CT-2          Peaking          Jet        21.1                     1969

Total                                    518.0
</TABLE>

     Merrimack Station is PSNH's prime base load facility with combined
generating capacity from the two coal-fired steam units and two jet fuel-fired
Combustion Turbine units of 518.0 MW. The two coal-fired units are operated by
personnel onsite 24 hours a day, seven days a week. While the units operate in
the base load role most of the time, they can be reduced in load during off-peak
hours. With this capability, these units can provide capacity, energy and
reserve products transacted at the ISO New England power markets.

     The two combustion turbine units mainly serve a peaking role, operating
during periods of highest seasonal peak demand or when generation is needed
quickly to maintain electrical system stability. These units typically serve the
capacity and reserve markets, and not the energy market. In addition to these
units, the Merrimack site includes numerous outbuildings, including the Coal
Unloading System and Coal Crusher House, office and storage facilities, as well
as a fly ash disposal area.

     b.   Newington Station

     Newington Station is located on a site of more that 50 acres Thermal
Facility, along the banks of the Piscataqua River in Newington, New Hampshire.
The Newington and the Schiller Station are within a quarter mile of each other,
separated by a public road that ends at the Schiller plant. The marine terminal
and the bulk fuel oil storage, and oil transfer lines for Newington Station are
located on the Schiller site.

Page 67
<PAGE>
Newington Station Generating Facilities

<TABLE>
<CAPTION>
                                          Seasonal
                                          claimed                     Year
Unit       Load role       Fuel           capability (winter)(MW)     Installed
<S>        <C>             <C>            <C>                         <C>

Unit 1     Intermediate    Oil and gas    415.0                       1974
</TABLE>

     Newington Station is PSNH's prime intermediate load facility, operating as
required by the ISO to meet base, intermediate or peaking demand requirements.
It is the largest single unit in the fossil/hydro system with capability of
415.0 maximum net MW.

     Newington Station can burn a variety of fossil fuels including oil and
natural gas making it adaptable to changing fuel markets.

     c.   Schiller Station

     The Schiller Station Thermal Plant is located east of the Newington Thermal
Facility, on the southerly shore of the Piscataqua River in Portsmouth, New
Hampshire. All of the #6 oil and coal for Schiller Station, all of the #6 oil
for Newington Station, and ocean transported

Page 68
<PAGE>
coal for Merrimack Station is received by ship or barge at the main dock at
Schiller Station.

Schiller Station Generating Facilities

<TABLE>
<CAPTION>
                                                  Seasonal
                                                  claimed
Unit                                              capability
Installed     Load role            Fuel           (winter)(MW)      Year
<S>           <C>                  <C>            <C>               <C>

Unit 4        Base/intermediate    Coal or oil     48.0             1952

Unit 5        Base/intermediate    Coal or oil     49.6             1955

Unit 6        Base/intermediate    Coal or oil     49.0             1957

CT-1          Peaking              Jet or gas      18.0             1970

Total                                             164.6
</TABLE>

     Schiller' s steam units have historically served a base load or
intermediate load role for NEPOOL. The units have the capability of starting up
and shutting down daily if needed, but as experienced in 1997, can also
effectively serve in the base load role. Schiller's low cost of fuel and deep
water docks make it an attractive site for generation.

     Completed in 1949, Schiller Station is PSNH's third largest generating
plant. The four generating units combine for a total output of 164.6 net MW.
Units 4 and 5 were originally designed to burn coal, and did so for the first
six months of their operation. Both were then converted to burn oil as the
primary fuel. Unit 6 was designed to burn oil originally.

     In 1984, Units 4,5 and 6 were converted to coal. Now all three units can
burn coal and/or oil as boiler fuel, making them adaptable to changing fuel
markets. In addition to the steam units, Schiller also has a separate combustion
turbine (CT-1) capable of producing 18 net MW. CT-1 is a jet engine capable of
burning either A V Jet Kero II or natural gas.

     2.   Hydro Facilities:

     a.   Smith Station

     Smith Station is located on the Androscoggin River in Berlin, Coos County,
New Hampshire near the confluence of the Dead River and the Androscoggin River.
The Station operates one unit with a rated capacity of 14.2 MW.

Page 69
<PAGE>
Smith Station Generating Facilities

<TABLE>
<CAPTION>
                                                  Seasonal
                                                  claimed
                                                  capability        Year
Unit          Load role            Fuel           (winter) (MW)     Installed
<S>           <C>                  <C>            <C>               <C>

Smith         Run-of-river         14.2           1                 1948
</TABLE>

     The project operates in a run-of-river mode. High capacity factors are
achieved at Smith Station due to large upstream reservoirs which maintain
consistent water flows to the station throughout the year. Pond level is
maintained within a narrow band by using a float control mechanism to control
generator output.

     b.   Gorham Station

     Gorham Station is located on the Androscoggin River in the Town of Gorham,
Coos County, New Hampshire, near the confluence of the Peabody River and the
Androscoggin River. The unmanned Station operates four units with an aggregate
rated capacity of 2.1 MW.

Gorham Station Generating Facilities

<TABLE>
<CAPTION>
                                                  Seasonal
                                                  claimed
                                                  capability        Year
Unit          Load role            Fuel           (winter) (MW)     Installed
<S>           <C>                  <C>            <C>               <C>

Gorham        Run-of-river         2.1            4                 1923
</TABLE>

     This run-of-river plant operates automatically as a base load station
generating power from any combination of its units to match river flows. Gorham
benefits from the same reservoir system that supplies water to the upstream
Smith Station. Gorham Station consists of a dam and adjacent canal gatehouse, a
power canal and a four-unit powerhouse. Limited ponding capability exists.
Gorham Station employs an automatic pond level control system to maximize
generator output and maintain pond level within a narrow band.

     c.   Androscoggin Reservoir Company (ARCO)

     Smith and Gorham Stations on the Androscoggin River receive headwater
benefits from the Union Water Power Company (UWPCO) and ARCO. PSNH is a 12.5
percent owner in ARCO and PSNH's ownership share in ARCO will be transferred to
the Buyer with the purchase of the Upper Hydro Group Hydroelectric Facilities.
PSNH has no ownership share in UWPCO, which has been transferred in ownership to
FPL Group as a result of FPL's purchase of assets from Central Maine Power.

     ARCO was created in order to develop an additional

Page 70
<PAGE>
storage reservoir for the Androscoggin Reservoir system, the Aziscohos Lake in
Maine. UWPCO serves as operator for ARCO as well as the Union Water Power
storage sites, managing river flows to maximize utilization of the water for
electrical generation downstream.

     Through this managed operation of headwater, PSNH facilities at Smith and
Gorham are targeted to receive a minimum flow of 1,550 cfs throughout the year,
except in rare circumstances during exceptionally dry weather.

     d.   Canaan Station

     Canaan Station is located on the northern Connecticut River in the towns of
Canaan, Vermont and Stewartstown, (West Stewartstown Village) New Hampshire. It
is located 10 miles below the large Murphy Dam at Lake Francis and 82 miles
above Moore Dam, at river mile 370. The plant was built in 1927 and operates one
unit with a rated capacity of 1.1 MW.

Canaan Station Generating Facilities

<TABLE>
<CAPTION>
                                                  Seasonal
                                                  claimed
                                                  capability        Year
Unit          Load role            Fuel           (winter) (MW)     Installed
<S>           <C>                  <C>            <C>               <C>

Canaan        Run-of-river         1.1            1                 1927
</TABLE>

     The unmanned Station is operated as a run-of-river plant and is operated
automatically as a base load unit. The original unit is still in service. Pond
level is maintained within a narrow band by using a float control mechanism to
control generation.

     e.   Ayers Island Station

     Ayers Island Station is located on the Pemigewasset River approximately 12
miles upstream from the U.S. Army Corps of Engineers' Franklin Falls Flood
Control Dam in the Towns of Bristol, Bridgewater, Ashland and New Hampton, New
Hampshire. Small land rights associated with the station are in the towns of
Ashland and Bridgewater. The station operates three units with an aggregate
rated capacity of 9.08 MW. The plant was originally constructed in 1924 and
redeveloped in 1931.

Ayers Island Station Generating Facilities

<TABLE>
<CAPTION>
                                   Seasonal
                                   claimed                         Year
                                   capability                      Last Unit
Station         Load role          (winter) (MW)      Units        Installed
<S>             <C>                <C>                <C>          <C>

Ayers Island    Run-of-river       9.1                3            1931
</TABLE>

Page 71
<PAGE>
     Ayers Island Station operates as a run-of-river facility with a daily
ponding capability. Pond level is maintained within a narrow band by using a
float control mechanism to control generator output, automatically.

     f.   Eastman Falls Station

     Eastman Falls Station is on the Pemigewasett River in Franklin, New
Hampshire. The station operates two units with an aggregate rated capacity of
6.5 MW. The project was originally constructed in 1901 and redeveloped in 1937
and 1983.

Eastman Falls Stations Generating Facilities

<TABLE>
<CAPTION>
                                   Seasonal
                                   claimed                         Year
                                   capability                      Last Unit
Station         Load role          (winter) (MW)      Units        Installed
<S>             <C>                <C>                <C>          <C>

Eastman Falls   Run-of-river       6.5                 2           1983
</TABLE>

     Eastman Falls Station is operated as an unmanned run-of-the-river plant in
times of higher water flow and as a daily peaking facility at other times taking
advantage of upstream storage capability at Ayers Island. Pond level is
maintained within a narrow band by using a float control mechanism to control
generator output.

     g.   Amoskeag Station

     Amoskeag Station is the southernmost of the three sites comprising the
Merrimack River Project. The station is located on the Merrimack River in
Manchester, New Hampshire, downstream from Hooksett Station. Amoskeag operates
three units with an aggregate rated capacity of 17.5 MW.

Amoskeag Station Generating Facilities

<TABLE>
<CAPTION>
                                   Seasonal
                                   claimed                         Year
                                   capability                      Last Unit
Station         Load role          (winter) (MW)      Units        Installed
<S>             <C>                <C>                <C>          <C>

Amoskeag        Run-of-river       17.5               3            1924
</TABLE>

     Amoskeag Station is operated as a run-of-the river plant in times of higher
water flow and as a daily peaking facility at other times. Pond level is
maintained automatically within a narrow band by using a float control mechanism
to control generator output.

Page 72
<PAGE>
     h.   Hooksett Station

     Hooksett Station is located on the east side of the Merrimack River in
Hooksett, New Hampshire, downstream from the Garvins Falls Station and Merrimack
Station, and upstream from Amoskeag Station. The Station operates one unit with
a rated capacity of 1.9 MW.

Hooksett Station Generating Facilities

<TABLE>
<CAPTION>
                                   Seasonal
                                   claimed                         Year
                                   capability                      Last Unit
Station          Load role         (winter) (MW)      Units        Installed
<S>              <C>               <C>                <C>          <C>

Hooksett         Run-of-river      1.9                1            1927
</TABLE>

     The Hooksett Station is an automated site and is operated as a run-of
the-river facility. In addition to providing power to the NEPOOL transmission
grid, Hooksett provides a reservoir from which water is taken for condenser
cooling at Merrimack Station located a few miles upstream.

     i.   Garvins Falls Station

     Garvins Falls is located on the Merrimack River in Bow, New Hampshire. The
Station operates four units with an aggregate rated capacity of 12.1 MW.

Garvins Falls Station Generating Facilities

<TABLE>
<CAPTION>
                                   Seasonal
                                   claimed                         Year
                                   capability                      Last Unit
Station          Load role         (winter) (MW)      Units        Installed
<S>              <C>               <C>                <C>          <C>

Garvins Falls    Run-of-river      12.1               4            1981
</TABLE>

     The discharge capability of the headgate structure is sufficient to operate
all four units at full load. For high flows, the units are operated so as to
utilize as much of the available water as possible. During times of moderate and
low flows, operation is scheduled to obtain the maximum on-peak energy based on
available head and relative overall unit efficiency. The newly installed Units 1
and 2 are operated for as long as possible to take advantage of their greater
efficiency, while Units 3 and 4 are operated at times of higher flow.

     j.   Jackman Station

     Jackman Station consists of a dam, located on Franklin Pierce Lake, and a
penstock, surge tank and powerhouse, located in Hillsborough, New Hampshire. The
lake and project are fed from the North Branch of the Contoocook River. This

Page 73
<PAGE>
project is not subject to FERC jurisdiction because it is not classified as a
navigable waterway. The Station was constructed in 1926 and operates one turbine
with a rated capacity of 3.6 MW.

Jackman Station Generating Facilities

<TABLE>
<CAPTION>
                                   Seasonal
                                   claimed                         Year
                                   capability                      Last Unit
Station          Load role         (winter) (MW)      Units        Installed
<S>              <C>               <C>                <C>          <C>

Jackman          Run-of-river      3.6                1            1926
</TABLE>

     Jackman Station is operated in an essentially run-of-river mode,
automatically by a float or pond level control mechanism at the dam. The Station
operates as a base load unit whenever adequate water flows are available.

     3.   Remote Combustion Turbines:

     Lost Nation Combustion Turbine

     The Lost Nation Combustion Turbine is located in the town of
Northumberland, in northern New Hampshire. Lost Nation serves primarily as a
peaking unit, operating during the periods of highest seasonal peak demand.
Additionally this unit is called upon when a quick response is needed for
additional generation to maintain electrical system stability. While capable of
providing several NEPOOL products, the unit typically serves the capacity and
reserve markets, but not the energy market.

Lost Nation CT Generating Facilities

<TABLE>
<CAPTION>
                                        Seasonal
                                        claimed                     Year
                                        capability                  Last Unit
Station       Load role      Fuel       (winter) (MW)     Units     Installed
<S>           <C>            <C>        <C>               <C>       <C>

Lost Nation   Peaking        Oil        19.1              1         1969
</TABLE>

Page 74
<PAGE>
        APPENDIX H -New Hampshire Affiliate Transaction Rules Applicable
                                 to PSNH and NU

Introduction:

     Northeast Utilities ("NU") is a registered holding company system which
provides centralized services to its affiliated companies. NU believes that
these integrated, centralized services increase efficiency through economies of
scale which translate to lower prices to all customers and are particularly
significant for NU because of the relative size of the NU system.

     The Commission has not yet undertaken a rulemaking to establish final rules
regarding affiliate separation and codes of conduct for New Hampshire utility
companies. However, the Commission indicated in Order No. 22,875 in Docket No.
DR 96-150, that utilities should operate in the interim period prior to adoption
of final rules in accordance with the California Affiliate Transaction Rules.
The California Affiliate Transaction Rules are attached as Appendix I hereto.
Based upon an analysis of these rules and the interpretation provided below, the
Parties, as an element of the settlement of which this document is a part, agree
that NU will comply with the California rules in this interim period. The
Parties agree to the interpretation provided below as an integral element of
this Settlement Agreement.

Specific Provisions:

     PSNH and NU's unregulated competitive marketing affiliates agree to abide
by the following provisions regarding separation of activities and services in
accordance with the California Affiliate Transaction Rules.

1.   NU will maintain distinct corporations with separate books and records, for
its distribution operations and its competitive marketing activities. PSNH shall
not share employees, facilities, space or services with NU's unregulated
competitive marketing affiliates, except as allowed herein. PSNH will not
provide services to NU's unregulated competitive marketing affiliates unless it
also provides the same on a comparable basis to all competitors pursuant to a
tariff on file with the Commission.

2.   NU will continue to maintain its management services company, Northeast
Utilities Service Company ("NUSCO") providing shared services to its various
affiliates as they require and in accordance with the regulations of the
Securities and Exchange Commission ("SEC") pursuant to the Public Utility
Holding Company Act of 1935. SEC regulations require NUSCO to charge affiliates
for services at cost in accordance with SEC approved allocation procedures.
Resulting costs charged to the distribution companies by NUSCO will continue to
be subject to review and verification by the Commission in accordance with its
authority over regulated retail utility rates and operations.

3.   NUSCO will continue to provide corporate services on a shared basis in the
areas of accounting, billing, financial, administrative, regulatory, legal,
information technology, communication and executive services.

Page 75
<PAGE>
4.   NU's unregulated competitive marketing affiliates will hire its own
employees to conduct competitive sales and marketing, including customer
service, and will not utilize employees of NUSCO for such activities.

5.   NU's unregulated competitive marketing affiliates staff may utilize shared
corporate facilities of NUSCO along with other NUSCO personnel, but will be
physically separated from PSNH and NUSCO staff engaged in customer service,
customer account management and similar functions for PSNH. (For purposes of
these provisions, physically separate shall be defined as being located on a
separate floor of NU's facilities.)

6.   NU's unregulated competitive marketing affiliates staff may use the same
computer and telephone networks as other NUSCO and distribution company staff;
but will not have access to the proprietary customer information of NU's
distribution companies, such as customer databases or other competitively
sensitive information, unless such information has been made available
previously to nonaffiliated suppliers. Password protection for sensitive
information will be maintained to ensure confidentiality.

7.   Power procurement functions for the distribution company are limited to the
selection of suppliers and administration of Transition and Default Service in
accordance with the provisions of the Settlement Agreement and the requirements
of the Commission. In addition, NU has in place a code of conduct approved by
the Federal Energy Regulatory Commission ("FERC") governing the restrictions on
sharing of information between affiliates involved in wholesale power
transactions. This FERC-approved code of conduct, and the filing of open access
wholesale transmission tariffs, were prerequisites to FERC's approval of tariffs
for market-based wholesale rates filed by the NU companies.

8.   NUSCO will ensure that its provision of services in accordance with the
above provisions does not allow for any preferences to be given to NU's
unregulated competitive marketing affiliates or to allow other activities
proscribed under the rules to occur.

9.   NU will conduct formal training for all employees relative to the need for
internal barriers to information sharing in advance of Competition Day.

10.  None of NU's unregulated competitive marketing affiliates will use the name
"Public Service of New Hampshire" or any similar name, nor may such affiliates
otherwise trade on the name or status of PSNH in marketing efforts.

11.  The books and accounts of NU's unregulated competitive marketing affiliates
which conduct business in the New Hampshire competitive electric market will be
open to inspection by the Commission. The NU affiliate providing such books and
accounts may seek to have them declared "Trade Secrets" pursuant to RSA Chapter
350B and "confidential, commercial, or financial information" pursuant to RSA
Chapter 91A, and thus be accorded confidential treatment by the Commission and
exempted from disclosure pursuant to these laws and Rule PUC 204.04(a)(4). The
decision to provide confidential treatment will be subject to the ongoing
jurisdiction of the PUC.

Page 76
<PAGE>
             APPENDIX I - THE CALIFORNIA AFFILIATE TRANSACTION RULES

California Affiliate Transaction Rules

I.   Definitions

Unless the context otherwise requires, the following definitions govern the
construction of these Rules:

     A.   "Affiliate" means any person, corporation, utility, partnership, or
          other entity 5 per cent or more of whose outstanding securities are
          owned, controlled, or held with power to vote, directly or indirectly
          either by a utility or any of its subsidiaries, or by that utility's
          controlling corporation and/or any of its subsidiaries as well as any
          company in which the utility, its controlling corporation, or any of
          the utility's affiliates exert substantial control over the operation
          of the company and/or indirectly have substantial financial interests
          in the company exercised through means other than ownership. For
          purposes of these Rules, "substantial control" includes, but is not
          limited to, the possession, directly or indirectly and whether acting
          alone or in conjunction with others, of the authority to direct or
          cause the direction of the management or policies of a company. A
          direct or indirect voting interest of 5% or more by the utility in an
          entity's company creates a rebuttable presumption of control.

          For purposes of this Rule, "affiliate" shall include the utility's
          parent or holding company, or any company which directly or indirectly
          owns, controls, or holds the power to vote 10% or more of the
          outstanding voting securities of a utility (holding company), to the
          extent the holding

Page 77
<PAGE>
          company is engaged in the provision of products or services as set out
          in Rule II B. However, in its compliance plan filed pursuant to Rule
          VI, the utility shall demonstrate both the specific mechanism and
          procedures that the utility and holding company have in place to
          assure that the utility is not utilizing the holding company or any of
          its affiliates not covered by these Rules as a conduit to circumvent
          any of these Rules. Examples include but are not limited to specific
          mechanisms and procedures to assure the Commission that the utility
          will not use the holding company or another utility affiliate not
          covered by these Rules as a vehicle to (1) disseminate information
          transferred to them by the utility to an affiliate covered by these
          Rules in contravention of these Rules, (2) provide services to its
          affiliates covered by these Rules in contravention of these Rules or
          (3) to transfer employees to its affiliates covered by these Rules in
          contravention of these Rules. In the compliance plan, a corporate
          officer from the utility and holding company shall verify the adequacy
          of these specific mechanisms and procedures to ensure that the utility
          is not utilizing the holding company or any of its affiliates not
          covered by these Rules as a conduit to circumvent any of these Rules.

          Regulated subsidiaries of a utility, defined as subsidiaries of a
          utility, the revenues and expenses of which are subject to regulation
          by the Commission and are included by the Commission in establishing
          rates for the utility, are not included within the definition of
          affiliate. However, these Rules apply to all interactions any
          regulated subsidiary has with other affiliated entities covered by
          these rules.

     B.   "Commission" means the California Public Utilities Commission or its
          succeeding state regulatory body.

     C.   "Customer" means any person or corporation, as defined in Sections
          204, 205 and 206 of the California Public Utilities Code, that is the
          ultimate consumer of goods and services.

     D.   "Customer Information" means non-public information and data specific
          to a utility customer which the utility acquired or developed in the
          course of its provision of utility services.

Page 78
<PAGE>
     E.   "FERC" means the Federal Energy Regulatory Commission.

     F.   "Fully Loaded Cost" means the direct cost of good or service plus all
          applicable indirect charges and overheads.

     G.   "Utility" means any public utility subject to the jurisdiction of the
          Commission as an Electrical Corporation or Gas Corporation, as defined
          in California Public Utilities Code Sections 218 and 222.

II.  Applicability

     A.   These Rules shall apply to California public utility gas corporations
          and California public utility electrical corporations, subject to
          regulation by the California Public Utilities Commission.

     B.   For purposes of a combined gas and electric utility, these Rules apply
          to all utility transactions with affiliates engaging in the provision
          of a product that uses gas or electricity or the provision of services
          that relate to the use of gas or electricity, unless specifically
          exempted below. For purposes of an electric utility, these Rules apply
          to all utility transactions with affiliates engaging in the provision
          of a product that uses electricity or the provision of services that
          relate to the use of electricity. For purposes of a gas utility, these
          Rules apply to all utility transactions with affiliates engaging in
          the provision of a product that uses gas or the provision of services
          that relate to the use of gas.

     C.   These Rules apply to transactions between a Commission-regulated
          utility and another affiliated utility, unless specifically modified
          by the Commission in addressing a separate application to merge or
          otherwise conduct joint ventures related to regulated services.

     D.   These rules do not apply to the exchange of operating information,
          including the disclosure of customer information to its FERC-regulated
          affiliate to the extent such information is required by the affiliate
          to schedule and confirm nominations for the interstate transportation
          of natural gas, between a utility and its FERC-regulated affiliate,
          to the extent that the affiliate operates an interstate natural gas

Page 79
<PAGE>
          pipeline.

     E.   Existing Rules: Existing Commission rules for each utility and its
          parent holding company shall continue to apply except to the extent
          they conflict with these Rules. In such cases, these Rules shall
          supersede prior rules and guidelines, provided that nothing herein
          shall preclude (1) the Commission from adopting other utility-
          specific guidelines; or (2) a utility or its parent holding company
          from adopting other utility-specific guidelines, with advance
          Commission approval.

     F.   Civil Relief: These Rules shall not preclude or stay any form of civil
          relief, or rights or defenses thereto, that may be available under
          state or federal law.

     G.   Exemption (Advice Letter): A Commission-jurisdictional utility may be
          exempted from these Rules if it files an advice letter with the
          Commission requesting exemption. The utility shall file the advice
          letter within 30 days after the effective date of this decision
          adopting these Rules and shall serve it on all parties to this
          proceeding. In the advice letter filing, the utility shall:

          1.   Attest that no affiliate of the utility provides services as
               defined by Rule II B above; and

          2.   Attest that if an affiliate is subsequently created which
               provides services as defined by Rule II B above, then the utility
               shall:

               a.   Notify the Commission, at least 30 days before the affiliate
                    begins to provide services as defined by Rule II B above,
                    that such an affiliate has been created; notification shall
                    be accomplished by means of a letter to the Executive
                    Director, served on all parties to this proceeding; and

               b.   Agree in this notice to comply with the Rules in their
                    entirety.

     H.   Limited Exemption (Application): A California utility which is also a
          multi-state utility and subject to the jurisdiction of other state
          regulatory commissions, may file an application, served on all parties
          to this proceeding,

Page 80
<PAGE>
          requesting a limited exemption from these Rules or a part thereof, for
          transactions between the utility solely in its capacity serving its
          jurisdictional areas wholly outside of California, and its affiliates.
          The applicant has the burden of proof

     I.   These Rules should be interpreted broadly, to effectuate our stated
          objectives of fostering competition and protecting consumer interests.
          If any provision of these Rules, or the application thereof to any
          person, company, or circumstance, is held invalid, the remainder of
          the Rules, or the application of such provision to other persons,
          companies, or circumstances, shall not be affected thereby.

III. Nondiscrimination

     A.   No Preferential Treatment Regarding Services Provided by the Utility:
          Unless otherwise authorized by the Commission or the FERC, or
          permitted by these Rules, a utility shall not:

          1.   represent that, as a result of the affiliation with the utility,
               its affiliates or customers of its affiliates will receive any
               different treatment by the utility than the treatment the utility
               provides to other, unaffiliated companies or their customers; or

          2.   provide its affiliates, or customers of its affiliates, any
               preference (including but not limited to terms and conditions,
               pricing, or timing) over non-affiliated suppliers or their
               customers in the provision of services provided by the utility.

     B.   Affiliate Transactions: Transactions between a utility and its
          affiliates shall be limited to tariffed products and services, the
          sale or purchase of goods, property, products or services made
          generally available by the utility or affiliate to all market
          participants through an open, competitive bidding process, or as
          provided for in Sections V D and V E (joint purchases and corporate
          support) and Section VII (new products and services) below, provided
          the transactions provided for in Section VII comply with all of the
          other adopted Rules.

     C.   Provision of Supply, Capacity, Services or Information: Except as
          provided for in Sections V

Page 81
<PAGE>
          D, V E, and VII, provided the transactions provided for in Section VII
          comply with all of the other adopted Rules, a utility shall provide
          access to utility information, services, and unused capacity or supply
          on the same terms for all similarly situated market participants. If a
          utility provides supply, capacity, services, or information to its
          affiliate(s), it shall contemporaneously make the offering available
          to all similarly situated market participants, which include all
          competitors serving the same market as the utility's affiliates.

          1.   Offering of Discounts: Except when made generally available by
               the utility through an open, competitive bidding process, if a
               utility offers a discount or waives all or any part of any other
               charge or fee to its affiliates, or offers a discount or waiver
               for a transaction in which its affiliates are involved, the
               utility shall contemporaneously make such discount or waiver
               available to all similarly situated market participants. The
               utilities should not use the "similarly situated" qualification
               to create such a unique discount arrangement with their
               affiliates such that no competitor could be considered similarly
               situated. All competitors serving the same market as the
               utility's affiliates should be offered the same discount as the
               discount received by the affiliates. A utility shall document the
               cost differential underlying the discount to its affiliates in
               the affiliate discount report described in Rule III F 7 below.

          2.   Tariff Discretion: If a tariff provision allows for discretion in
               its application, a utility shall apply that tariff provision in
               the same manner to its affiliates and other market participants
               and their respective customers.

          3.   No Tariff Discretion: If a utility has no discretion in the
               application of a tariff provision, the utility shall strictly
               enforce that tariff provision.

          4.   Processing Requests for Services Provided by the Utility: A
               utility shall process requests for similar services provided by
               the utility in the same manner and within the same time for its
               affiliates and for all other market participants and their
               respective customers.

Page 82
<PAGE>
     D.   Tying of Services Provided by a Utility Prohibited: A utility shall
          not condition or otherwise tie the provision of any services provided
          by the utility, nor the availability of discounts of rates or other
          charges or fees, rebates, or waivers of terms and conditions of any
          services provided by the utility, to the taking of any goods or
          services from its affiliates.

     E.   No Assignment of Customers: A utility shall not assign customers to
          which it currently provides services to any of its affiliates, whether
          by default, direct assignment, option or by any other means, unless
          that means is equally available to all competitors.

     F.   Business Development and Customer Relations: Except as otherwise
          provided by these Rules, a utility shall not:

          1.   provide leads to its affiliates;

          2.   solicit business on behalf of its affiliates;

          3.   acquire information on behalf of or to provide to its affiliates;

          4.   share market analysis reports or any other types of proprietary
               or non-publicly available reports, including but not limited to
               market, forecast, planning or strategic reports, with its
               affiliates;

          5.   request authorization from its customers to pass on customer
               information exclusively to its affiliates;

          6.   give the appearance that the utility speaks on behalf of its
               affiliates or that the customer will receive preferential
               treatment as a consequence of conducting business with the
               affiliates; or

          7.   give any appearance that the affiliate speaks on behalf of the
               utility.

     G.   Affiliate Discount Reports: If a utility provides its affiliates a
          discount, rebate, or other waiver of any charge or fee associated with
          services provided by the utility, the utility shall, within 24 hours
          of the time at which the service provided by the utility is so
          provided, post a notice on its electronic bulletin board providing the

Page 83
<PAGE>
          following information:

          1.   the name of the affiliate involved in the transaction;

          2.   the rate charged;

          3.   the maximum rate;

          4.   the time period for which the discount or waiver applies;

          5.   the quantities involved in the transaction;

          6.   the delivery points involved in the transaction;

          7.   any conditions or requirements applicable to the discount or
               waiver, and a documentation of the cost differential underlying
               the discount as required in Rule III B 2 above; and

          8.   procedures by which a nonaffiliated entity may request a
               comparable offer.

A utility that provides an affiliate a discounted rate, rebate, or other waiver
of a charge or fee associated with services provided by the utility shall
maintain, for each billing period, the following information:

          9.   the name of the entity being provided services provided by the
               utility in the transaction;

          10.  the affiliate's role in the transaction (i.e., shipper, marketer,
               supplier, seller);

          11.  the duration of the discount or waiver;

          12.  the maximum rate;

          13.  the rate or fee actually charged during the billing period; and

          14.  the quantity of products or services scheduled at the discounted
               rate during the billing period for each delivery point.

All records maintained pursuant to this provision shall also conform to FERC
rules where applicable.

IV.  Disclosure and Information

     A.   Customer Information: A utility shall provide

Page 84
<PAGE>
          customer information to its affiliates and unaffiliated entities on a
          strictly non-discriminatory basis, and only with prior affirmative
          customer written consent.

     B.   Non-Customer Specific Non-Public Information: A utility shall make
          non-customer specific non-public information, including but not
          limited to information about a utility's natural gas or electricity
          purchases, sales, or operations or about the utility's gas-related
          goods or services, electricity-related goods or services, available to
          the utility's affiliates only if the utility makes that information
          contemporaneously available to all other service providers on the same
          terms and conditions, and keeps the information open to public
          inspection. Unless otherwise provided by these Rules, a utility
          continues to be bound by all Commission-adopted pricing and reporting
          guidelines for such transactions. Utilities are also permitted to
          exchange proprietary information on an exclusive basis with their
          affiliates, provided the utility follows all Commission-adopted
          pricing and reporting guidelines for such transactions, and it is
          necessary to exchange this information in the provision of the
          corporate support services permitted by Rule V E below. The
          affiliate's use of such proprietary information is limited to use in
          conjunction with the permitted corporate support services, and is not
          permitted for any other use. Nothing in this Rule precludes the
          exchange of information pursuant to D.97-10-031.

     C.   Service Provider Information:

          1.   Except upon request by a customer or as otherwise authorized by
               the Commission, a utility shall not provide its customers with
               any list of service providers, which includes or identifies the
               utility's affiliates, regardless of whether such list also
               includes or identifies the names of unaffiliated entities.

          2.   If a customer requests information about any affiliated service
               provider, the utility shall provide a list of all providers of
               gas-related, electricity-related, or other utility-related goods
               and services operating in its service territory, including its
               affiliates. The Commission shall authorize,

Page 85
<PAGE>
               by semi-annual utility advice letter filing, and either the
               utility, the Commission, or a Commission-authorized third party
               provider shall maintain on file with the Commission a copy of the
               most updated lists of service providers which have been created
               to disseminate to a customer upon a customer's request. Any
               service provider may request that it be included on such list,
               and, barring Commission direction, the utility shall honor such
               request. Where maintenance of such list would be unduly
               burdensome due to the number of service providers, subject to
               Commission approval by advice letter filing, the utility shall
               direct the customer to a generally available listing of service
               providers (e.g., the Yellow Pages). In such cases, no list shall
               be provided. The list of service providers should make clear that
               the Commission does not guarantee the financial stability or
               service quality of the service providers listed by the act of
               approving this list.

     D.   Supplier Information: A utility may provide non-public information and
          data which has been received from unaffiliated suppliers to its
          affiliates or non-affiliated entities only if the utility first
          obtains written affirmative authorization to do so from the supplier.
          A utility shall not actively solicit the release of such information
          exclusively to its own affiliate in an effort to keep such information
          from other unaffiliated entities.

     E.   Affiliate-Related Advice or Assistance: Except as otherwise provided
          in these Rules, a utility shall not offer or provide customers advice
          or assistance with regard to its affiliates or other service
          providers.

     F.   Record-Keeping: A utility shall maintain contemporaneous records
          documenting all tariffed and nontariffed transactions with its
          affiliates, including but not limited to, all waivers of tariff or
          contract provisions and all discounts. A utility shall maintain such
          records for a minimum of three years and longer if this Commission or
          another government agency so requires. The utility shall make such
          records available for third party review upon 72 hours' notice, or at
          a time mutually agreeable to the utility and

Page 86
<PAGE>
          third party.

          If D.97-06-110 is applicable to the information the utility seeks to
          protect, the utility should follow the procedure set forth in
          D.97-06-110, except that the utility should serve the third party
          making the request in a manner that the third party receives the
          utility's D.97-06-110 request for confidentiality within 24 hours of
          service.

     G.   Maintenance of Affiliate Contracts and Related Bids: A utility shall
          maintain a record of all contracts and related bids for the provision
          of work, products or services to and from the utility to its
          affiliates for no less than a period of three years, and longer if
          this Commission or another government agency so requires.

     H.   FERC Reporting Requirements: To the extent that reporting rules
          imposed by the FERC require more detailed information or more
          expeditious reporting, nothing in these Rules shall be construed as
          modifying the FERC rules.

V.   Separation

     A.   Corporate Entities: A utility and its affiliates shall be separate
          corporate entities.

     B.   Books and Records: A utility and its affiliates shall keep separate
          books and records.

          1.   Utility books and records shall be kept in accordance with
               applicable Uniform System of Accounts (USOA) and Generally
               Accepted Accounting Procedures (GAAP).

          2.   The books and records of affiliates shall be open for examination
               by the Commission and its staff consistent with the provisions of
               Public Utilities Code Section 314.

     C.   Sharing of Plant, Facilities, Equipment or Costs: A utility shall not
          share office space, office equipment, services, and systems with its
          affiliates, nor shall a utility access the computer or information
          systems of its affiliates or allow its affiliates to access its
          computer or information systems, except to the extent appropriate to
          perform shared corporate support

Page 87
<PAGE>
          functions permitted under Section V E of these Rules. Physical
          separation required by this rule shall be accomplished preferably by
          having office space in a separate building, or, in the alternative,
          through the use of separate elevator banks and/or security-controlled
          access. This provision does not preclude a utility from offering a
          joint service provided this service is authorized by the Commission
          and is available to all non-affiliated service providers on the same
          terms and conditions (e.g., joint billing services pursuant to
          D.97-05-039).

     D.   Joint Purchases: To the extent not precluded by any other Rule, the
          utilities and their affiliates may make joint purchases of good and
          services, but not those associated with the traditional utility
          merchant function. For purpose of these Rules, to the extent that a
          utility is engaged in the marketing of the commodity of electricity or
          natural gas to customers, as opposed to the marketing of transmission
          and distribution services, it is engaging in merchant functions.
          Examples of permissible joint purchases include joint purchases of
          office supplies and telephone services. Examples of joint purchases
          not permitted include gas and electric purchasing for resale,
          purchasing of gas transportation and storage capacity, purchasing of
          electric transmission, systems operations, and marketing. The utility
          must insure that all joint purchases are priced, reported, and
          conducted in a manner that permits clear identification of the utility
          and affiliate portions of such purchases, and in accordance with
          applicable Commission allocation and reporting rules.

     E.   Corporate Support: As a general principle, a utility, its parent
          holding company, or a separate affiliate created solely to perform
          corporate support services may share with its affiliates joint
          corporate oversight, governance, support systems and personnel. Any
          shared support shall be priced, reported and conducted in accordance
          with the Separation and Information Standards set forth herein, as
          well as other applicable Commission pricing and reporting
          requirements.

          As a general principle, such joint utilization shall not allow or
          provide a means for the transfer of confidential information from the
          utility to the affiliate, create the opportunity for preferential
          treatment or unfair competitive advantage, lead to customer confusion,
          or create

Page 88
<PAGE>
          significant opportunities for cross-subsidization of affiliates. In
          the compliance plan, a corporate officer from the utility and holding
          company shall verify the adequacy of the specific mechanisms and
          procedures in place to ensure the utility follows the mandates of this
          paragraph, and to ensure the utility is not utilizing joint corporate
          support services as a conduit to circumvent these Rules.

          Examples of services that may be shared include: payroll, taxes,
          shareholder services, insurance, financial reporting, financial
          planning and analysis, corporate accounting, corporate security, human
          resources (compensation, benefits, employment policies), employee
          records, regulatory affairs, lobbying, legal, and pension management.

          Examples of services that may not be shared include: employee
          recruiting, engineering, hedging and financial derivatives and
          arbitrage services, gas and electric purchasing for resale, purchasing
          of gas transportation and storage capacity, purchasing of electric
          transmission, system operations, and marketing.

     F.   Corporate Identification and Advertising:

          1.   A utility shall not trade upon, promote, or advertise its
               affiliate's affiliation with the utility, nor allow the utility
               name or logo to be used by the affiliate or in any material
               circulated by the affiliate, unless it discloses in plain legible
               or audible language, on the first page or at the first point
               where the utility name or logo appears that:

               a.   the affiliate "is not the same company as [i.e. PG&E,
                    Edison, the Gas Company, etc.], the utility,";

               b.   the affiliate is not regulated by the California Public
                    Utilities Commission; and

               c.   "you do not have to buy [the affiliate's] products in order
                    to continue to receive quality regulated services from the
                    utility."

               The application of the name/logo disclaimer is limited to the use
               of the name or logo in California.

Page 89
<PAGE>
          2.   A utility, through action or words, shall not represent that, as
               a result of the affiliate's affiliation with the utility, its
               affiliates will receive any different treatment than other
               service providers.

          3.   A utility shall not offer or provide to its affiliates
               advertising space in utility billing envelopes or any other form
               of utility customer written communication unless it provides
               access to all other unaffiliated service providers on the same
               terms and conditions.

          4.   A utility shall not participate in joint advertising or joint
               marketing with its affiliates. This prohibition means that
               utilities may not engage in activities which include, but are not
               limited to the following:

               a.   A utility shall not participate with its affiliates in joint
                    sales calls, through joint call centers or otherwise, or
                    joint proposals (including responses to requests for
                    proposals (RFPs)) to existing or potential customers. At a
                    customer's unsolicited request, a utility may participate,
                    on a nondiscriminatory basis, in non-sales meetings with its
                    affiliates or any other market participant to discuss
                    technical or operational subjects regarding the utility's
                    provision of transportation service to the customer;

               b.   Except as otherwise provided for by these Rules, a utility
                    shall not participate in any joint activity with its
                    affiliates. The term "joint activities" includes, but is not
                    limited to, advertising, sales, marketing, communications
                    and correspondence with any existing or potential customer;

               c.   A utility shall not participate with its affiliates in trade
                    shows, conferences, or other information or marketing events
                    held in California.

          5.   A utility shall not share or subsidize costs, fees, or payments
               with its affiliates associated with research and development

Page 90
<PAGE>
               activities or investment in advanced technology research.

     G.   Employees:

          1.   Except as permitted in Section V E (corporate support), a utility
               and its affiliates shall not jointly employ the same employees.
               This Rule prohibiting joint employees also applies to Board
               Directors and corporate officers, except for the following
               circumstances: In instances when this Rule is applicable to
               holding companies, any board member or corporate officer may
               serve on the holding company and with either the utility or
               affiliate (but not both). Where the utility is a multi-state
               utility, is not a member of a holding company structure, and
               assumes the corporate governance functions for the affiliates,
               the prohibition against any board member or corporate officer of
               the utility also serving as a board member or corporate officer
               of an affiliate shall only apply to affiliates that operate
               within California. In the case of shared directors and officers,
               a corporate officer from the utility and holding company shall
               verify in the utility's compliance plan the adequacy of the
               specific mechanisms and procedures in place to ensure that the
               utility is not utilizing shared officers and directors as a
               conduit to circumvent any of these Rules.

          2.   All employee movement between a utility and its affiliates shall
               be consistent with the following provisions:

               a.   A utility shall track and report to the Commission all
                    employee movement between the utility and affiliates. The
                    utility shall report this information annually pursuant to
                    our Affiliate Transaction Reporting Decision, D.93-02-016,
                    48 CPUC2d 163, 171-172 and 180 (Appendix A, Section I and
                    Section II H.).

               b.   Once an employee of a utility becomes an employee of an
                    affiliate, the employee may not return to the utility for a
                    period of one year. This Rule is inapplicable if the
                    affiliate to which the employee transfers goes out of
                    business during the one-year period. In the event that such
                    an employee returns

Page 91
<PAGE>
                    to the utility, such employee cannot be retransferred,
                    reassigned, or otherwise employed by the affiliate for a
                    period of two years. Employees transferring from the utility
                    to the affiliate are expressly prohibited from using
                    information gained from the utility in a discriminatory or
                    exclusive fashion, to the benefit of the affiliate or to the
                    detriment of other unaffiliated service providers.

               c.   When an employee of a utility is transferred, assigned, or
                    otherwise employed by the affiliate, the affiliate shall
                    make a one-time payment to the utility in an amount
                    equivalent to 25% of the employee's base annual
                    compensation, unless the utility can demonstrate that some
                    lesser percentage (equal to at least 15%) is appropriate for
                    the class of employee included. All such fees paid to the
                    utility shall be accounted for in a separate memorandum
                    account to track them for future ratemaking treatment (i.e.
                    credited to the Electric Revenue Adjustment Account or the
                    Core and Non-core Gas Fixed Cost Accounts, or other
                    ratemaking treatment, as appropriate), on an annual basis,
                    or as otherwise necessary to ensure that the utility's
                    ratepayers receive the fees. This transfer payment provision
                    will not apply to clerical workers. Nor will it apply to the
                    initial transfer of employees to the utility's holding
                    company to perform corporate support functions or to a
                    separate affiliate performing corporate support functions,
                    provided that that transfer is made during the initial
                    implementation period of these rules or pursuant to a
                    Section 851 application or other Commission proceeding.
                    However, the rule will apply to any subsequent transfers or
                    assignments between a utility and its affiliates of all
                    covered employees at a later time.

               d.   Any utility employee hired by an affiliate shall not remove
                    or otherwise provide information to the affiliate which the
                    affiliate would otherwise be precluded from having pursuant
                    to these

Page 92
<PAGE>
                    Rules.

               e.   A utility shall not make temporary or intermittent
                    assignments, or rotations to its affiliates.

     H.   Transfer of Goods and Services: To the extent that these Rules do not
          prohibit transfers of goods and services between a utility and its
          affiliates, all such transfers shall be subject to the following
          pricing provisions:

          1.   Transfers from the utility to its affiliates of goods and
               services produced, purchased or developed for sale on the open
               market by the utility will be priced at fair market value.
               Transfers from an affiliate to the utility of goods and services
               produced, purchased or developed for sale on the open market by
               the affiliate shall be priced at no more than fair market value.

          2.   For goods or services for which the price is regulated by a state
               or federal agency, that price shall be deemed to be the fair
               market value, except that in cases where more than one state
               commission regulates the price of goods or services, this
               Commission's pricing provisions govern.

          3.   Goods and services produced, purchased or developed for sale on
               the open market by the utility will be provided to its affiliates
               and unaffiliated companies on a nondiscriminatory basis, except
               as otherwise required or permitted by these Rules or applicable
               law.

          4.   Transfers from the utility to its affiliates of goods and
               services not produced, purchased or developed for sale by the
               utility will be priced at fully loaded cost plus 5% of direct
               labor cost.

          5.   Transfers from an affiliate to the utility of goods and services
               not produced, purchased or developed for sale by the affiliate
               will be priced at the lower of fully loaded cost or fair

Page 93
<PAGE>
               market value.

VI.  Regulatory Oversight

     A.   Compliance Plans: No later than December 31, 1997, each utility shall
          file a compliance plan demonstrating to the Commission that there are
          adequate procedures in place that will preclude the sharing of
          information with its affiliates that is prohibited by these Rules. The
          utility should file its compliance plan as an advice letter with the
          Commission's Energy Division and serve it on the parties to this
          proceeding. The utility's compliance plan shall be in effect between
          the filing and a Commission determination of the advice letter. A
          utility shall file a compliance plan annually thereafter by advice
          letter served on all parties to this proceeding where there is some
          change in the compliance plan (i.e., when a new affiliate has been
          created, or the utility has changed the compliance plan for any other
          reason).

     B.   New Affiliate Compliance Plans: Upon the creation of a new affiliate
          which is addressed by these Rules, the utility shall immediately
          notify the Commission of the creation of the new affiliate, as well as
          posting notice on its electronic bulletin board. No later than 60 days
          after the creation of this affiliate, the utility shall file an advice
          letter with the Energy Division of the Commission, served on the
          parties to this proceeding. The advice letter shall demonstrate how
          the utility will implement these Rules with respect to the new
          affiliate.

     C.   Affiliate Audit: No later than December 31, 1998, and every year
          thereafter, the utility shall have audits prepared by independent
          auditors that verify that the utility is in compliance with the Rules
          set forth herein. The utilities shall file this audit with the
          Commission's Energy Division beginning no later than December 31,
          1998, and serve it on all parties to this proceeding. The audits shall
          be at shareholder expense.

     D.   Witness Availability: Affiliate officers and employees shall be made
          available to testify before the Commission as necessary or required,
          without subpoena, consistent with the provisions of Public Utilities
          Code Section 314.

VII. Utility Products and Services

Page 94
<PAGE>
     A.   General Rule: Except as provided for in these Rules, new products and
          services shall be offered through affiliates.

     B.   Definitions: The following definitions apply for the purposes of this
          section (Section VII) of these Rules:

          1.   "Category" refers to a factually similar group of products and
               services that use the same type of utility assets or capacity.
               For example, "leases of land under utility transmission lines" or
               "use of a utility repair shop for third party equipment repair"
               would each constitute a separate product or service category.

          2.   "Existing" products and services are those which a utility is
               offering on the effective date of these Rules.

          3.   "Products" include use of property, both real and intellectual,
               other than those uses authorized under General Order 69-C.

          4.   "Tariff" or "tariffed" refers to rates, terms and conditions of
               services as approved by this Commission or the Federal Energy
               Regulatory Commission (FERC), whether by traditional tariff,
               approved contract or other such approval process as the
               Commission or the FERC may deem appropriate.

     C.   Utility Products and Services: Except as provided in these Rules, a
          utility shall not offer nontariffed products and services. In no event
          shall a utility offer natural gas or electricity commodity service on
          a nontariffed basis. A utility may only offer for sale the following
          products and services:

          1.   Existing products and services offered by the utility pursuant to
               tariff;

          2.   Unbundled versions of existing utility products and services,
               with the unbundled versions being offered on a tariffed basis;

          3.   New products and services that are offered on a tariffed basis;
               and

          4.   Products and services which are offered on a nontariffed basis
               and which meet the

Page 95
<PAGE>
               following conditions:

               a.   The nontariffed product or service utilizes a portion of a
                    utility asset or capacity;

               b.   such asset or capacity has been acquired for the purpose of
                    and is necessary and useful in providing tariffed utility
                    services;

               c.   the involved portion of such asset or capacity may be used
                    to offer the product or service on a nontariffed basis
                    without adversely affecting the cost, quality or reliability
                    of tariffed utility products and services;

               d.   the products and services can be marketed with minimal or no
                    incremental capital, minimal or no new forms of liability or
                    business risk being incurred by the utility, and minimal or
                    no direct management control; and

               e.   the utility offering is restricted to less than 1% of the
                    number of customers in its customer base.

     D.   Conditions Precedent to Offering New Products and Services: This Rule
          does not represent an endorsement by the Commission of any particular
          nontariffed utility product or service. A utility may offer new
          nontariffed products and services only if the Commission has adopted
          and the utility has established:

          1.   A mechanism or accounting standard for allocating costs to each
               new product or service to prevent cross-subsidization between
               services a utility would continue to provide on a tariffed basis
               and those it would provide on a nontariffed basis;

          2.   A reasonable mechanism for treatment of benefits and revenues
               derived from offering such products and services, except that in
               the event the Commission has already approved a performance-based
               ratemaking mechanism for the utility and the utility seeks a
               different sharing mechanism, the utility should petition to
               modify the performance-based ratemaking decision if it wishes to
               alter the

Page 96
<PAGE>
               sharing mechanism, or clearly justify why this procedure is
               inappropriate, rather than doing so by application or other
               vehicle.

          3.   Periodic reporting requirements regarding pertinent information
               related to nontariffed products and services; and

          4.   Periodic auditing of the costs allocated to and the revenues
               derived from nontariffed products and services.

     E.   Requirement to File an Advice Letter: Prior to offering a new category
          of nontariffed products or services as set forth in Section VII C
          above, a utility shall file an advice letter in compliance with the
          following provisions of this paragraph.

          1.   The advice letter shall:

               a.   demonstrate compliance with these rules;

               b.   address the amount of utility assets dedicated to the
                    non-utility venture, in order to ensure that a given product
                    or service does not threaten the provision of utility
                    service, and show that the new product or service will not
                    result in a degradation of cost, quality, or reliability of
                    tariffed goods and services;

               c.   demonstrate that the utility has not received recovery in
                    the Transition Cost Proceeding, A.96-08-001, or other
                    applicable Commission proceeding, for the portion of the
                    utility asset dedicated to the non-utility venture; and

               d.   address the potential impact of the new product or service
                    on competition in the relevant market.

          2.   In the absence of a protest alleging non-compliance with these
               Rules or any law, regulation, decision, or Commission policy, or
               allegations of harm, the utility may commence offering the
               product or service 30 days after submission of the advice letter.

          3.   A protest of an advice letter filed in accordance with this
               paragraph shall include:

Page 97
<PAGE>
               a.   An explanation of the specific Rules, or any law,
                    regulation, decision, or Commission policy the utility will
                    allegedly violate by offering the proposed product or
                    service, with reasonable factual detail; or

               b.   An explanation of the specific harm the protestant will
                    allegedly suffer.

          4.   If such a protest is filed, the utility may file a motion to
               dismiss the protest within 5 working days if it believes the
               protestant has failed to provide the minimum grounds for protest
               required above. The protestant has 5 working days to respond to
               the motion.

          5.   The intention of the Commission is to make its best reasonable
               efforts to rule on such a motion to dismiss promptly. Absent a
               ruling granting a motion to dismiss, the utility shall begin
               offering that category of products and services only after
               Commission approval through the normal advice letter process.

     F.   Existing Offerings: Unless and until further Commission order to the
          contrary as a result of the advice letter filing or otherwise, a
          utility that is offering tariffed or nontariffed products and
          services, as of the effective date of this decision, may continue to
          offer such products and services, provided that the utility complies
          with the cost allocation and reporting requirements in this rule. No
          later than January 30, 1998, each utility shall submit an advice
          letter describing the existing products and services (both tariffed
          and nontariffed) currently being offered by the utility and the number
          of the Commission decision or advice letter approving this offering,
          if any, and requesting authorization or continuing authorization for
          the utility's continued provision of this product or service in
          compliance with the criteria set forth in Rule VII. This requirement
          applies to both existing products and services explicitly approved and
          not explicitly approved by the Commission.

     G.   Section 851 Application: A utility must continue to comply fully with
          the provisions of Public Utilities Code Section 851 when necessary or
          useful utility property is sold, leased, assigned, mortgaged, disposed
          of, or otherwise encumbered as

Page 98
<PAGE>
          part of a nontariffed product or service offering by the utility. If
          an application pursuant to Section 851 is submitted, the utility need
          not file a separate advice letter, but shall include in the
          application those items which would otherwise appear in the advice
          letter as required in this Rule.

     H.   Periodic Reporting of Nontariffed Products and Services: Any utility
          offering nontariffed products and services shall file periodic reports
          with the Commission's Energy Division twice annually for the first two
          years following the effective date of these Rules, then annually
          thereafter unless otherwise directed by the Commission. The utility
          shall serve periodic reports on the service list of this proceeding.
          The periodic reports shall contain the following information:

          1.   A description of each existing or new category of nontariffed
               products and services and the authority under which it is
               offered;

          2.   A description of the types and quantities of products and
               services contained within each category (so that, for example,
               "leases for agricultural nurseries at 15 sites" might be listed
               under the category "leases of land under utility transmission
               lines," although the utility would not be required to provide the
               details regarding each individual lease);

          3.   The costs allocated to and revenues derived from each category;
               and

          4.   Current information on the proportion of relevant utility assets
               used to offer each category of product and service.

     I.   Offering of Nontariffed Products and Services to Affiliates:
          Nontariffed products and services which are allowed by this Rule may
          be offered to utility affiliates only in compliance with all other
          provisions of these Affiliate Rules. Similarly, this Rule does not
          prohibit affiliate transactions which are otherwise allowed by all
          other provisions of these Affiliate Rules.

Page 99

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00035-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00035-of-00352.parquet"}]]