NSTAR Electric 10Q 2008 Q2 Quarterly report

NSTAR Electric (NSARO) 10-Q2008 Q2 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended June 30, 2008
		or
[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to


Commission File Number:	001-02301

NSTAR Electric Company

(Exact name of registrant as specified in its charter)


Massachusetts		04-1278810
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

800 Boylston Street, Boston, Massachusetts		02199
(Address of principal executive offices)		(Zip code)

(617) 424-2000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


	[X]	Yes		[ ]	No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).


Large accelerated filer	[ ]	Accelerated filer	[ ]

Non-accelerated filer	[ X ]	Smaller reporting company	[ ]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


	[ ]	Yes		[ X ]	No

The number of shares outstanding of the registrant's class of common stock was 100 Common Stock shares, par value $1 per share, as of August 1, 2008.

The Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

NSTAR Electric Company

Form 10-Q

Quarterly Period Ended June 30, 2008

Table of Contents


				Page No.
Glossary of Terms				2

Cautionary Statement Regarding Forward-Looking Information				3

Part I. Financial Information:
	Item 1.	Financial Statements
			Condensed Consolidated Statements of Income		4
			Condensed Consolidated Statements of Retained Earnings		5
			Condensed Consolidated Balance Sheets		6 - 7
			Condensed Consolidated Statements of Cash Flows		8
			Notes to Condensed Consolidated Financial Statements		9 -14
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		15 - 26
	Item 4.	Controls and Procedures		26 - 27

Part II. Other Information:

	Item 1.	Legal Proceedings		27
	Item 1A.	Risk Factors		27
	Item 5.	Other Information		27
	Item 6.	Exhibits		28

	Signature			29

	Exhibit 31.1	Section 302 CEO Certification
	Exhibit 31.2	Section 302 CFO Certification
	Exhibit 32.1	Section 906 CEO Certification
	Exhibit 32.2	Section 906 CFO Certification



Important Shareholder Information

NSTAR Electric files its Forms 10-K, 10-Q and 8-K reports and other information with the Securities and Exchange Commission (SEC). You may access materials NSTAR Electric has filed with the SEC on the SEC's website at www.sec.gov. As a wholly-owned subsidiary of NSTAR, NSTAR Electric is subject to the NSTAR Board of Trustees Corporate Guidelines on Significant Corporate Governance Issues, a Code of Ethics for the Principal Executive Officer, General Counsel, and Senior Financial Officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, and a Code of Ethics and Business Conduct for Directors, Officers and Employees. These codes and amendments to such codes which are applicable to NSTAR Electric's executive officers, senior officers, senior financial officers or directors and NSTAR Electric’s SEC filings by can be accessed on N STAR Electric's website at www.nstar.com. Copies of NSTAR Electric's SEC filings may also be obtained by writing or calling NSTAR's Investor Relations Department at One NSTAR Way, Westwood, MA 02090 or (781) 441-8338. The certifications of NSTAR Electric's Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed with this Quarterly Report on Form 10-Q as Exhibits 31.1, 31.2, 32.1 and 32.2.

Glossary of Terms

The following is a glossary of abbreviations or acronyms frequently used throughout this report.


NSTAR Companies
NSTAR		NSTAR (Parent company) or NSTAR and its subsidiaries (as the context requires)
NSTAR Electric		NSTAR Electric Company, f.k.a. Boston Edison Company
NSTAR Gas		NSTAR Gas Company
NSTAR Electric & Gas		NSTAR Electric & Gas Corporation

Regulatory and Other Authorities
AG		Attorney General of the Commonwealth of Massachusetts
DPU		Massachusetts Department of Public Utilities
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
IRS		U.S. Internal Revenue Service
ISO-NE		ISO (Independent System Operator) - New England, Inc
NECPUC		New England Conference of Public Utilities Commissioners, Inc.
PCAOB		Public Company Accounting Oversight Board (United States)
SEC		U.S. Securities and Exchange Commission

Other
AFUDC		Allowance for Funds Used During Construction
CPSL		Capital Projects Scheduling List
DSM		Demand-Side Management
FIN		FASB Interpretation Number
GAAP		Generally accepted accounting principles in the United States of America
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MWh		Megawatthour (equal to one million watthours)
PAM		Pension Adjustment Mechanism
RMR		Reliability Must Run
ROE		Return on Equity
RTO		Regional Transmission Organization
SFAS		Statement of Financial Accounting Standards
SIP		Simplified Incentive Plan
SQI		Service Quality Indicators

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains statements that are considered forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements may also be contained in other filings with the SEC, in press releases and oral statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are based on the current expectations, estimates or projections of management and are not guarantees of future performance. Some or all of these forward-looking statements may not turn out to be what NSTAR El ectric expected. Actual results could differ materially from these statements. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Examples of some important factors that could cause our actual results or outcomes to differ materially from those discussed in the forward-looking statements include, but are not limited to, the following:


·	financial market conditions including, but not limited to, changes in interest rates and the availability and cost of capital
·	weather conditions that directly influence the demand for electricity
·	future economic conditions in the regional and national markets
·	changes to prevailing local, state and federal governmental policies and regulatory actions (including those of the DPU and FERC) with respect to allowed rates of return, rate structure, continued recovery of regulatory assets and energy costs, financings, municipalization acquisition and disposition of assets, operation and construction of facilities, changes in tax laws and policies and changes in, and compliance with, environmental and safety laws and policies
·	new governmental regulations or changes to existing regulations that impose additional operating requirements or liabilities
·	changes in available information and circumstances regarding legal issues and the resulting impact on our estimated litigation costs
·	impact of continued cost control procedures on operating results
·	ability to maintain current credit ratings
·	impact of uninsured losses
·	impact of union contract negotiations
·	damage from major storms
·	impact of conservation measures and self-generation by our customers
·	changes in financial accounting and reporting standards
·	changes in specific hazardous waste site conditions and the specific cleanup technology
·	prices and availability of operating supplies
·	impact of terrorist acts, and
·	impact of service quality performance measures

Any forward-looking statement speaks only as of the date of this filing and NSTAR Electric undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult all further disclosures NSTAR Electric makes in its filings to the SEC. Other factors in addition to those listed here could also adversely affect NSTAR Electric. This Quarterly Report also describes material contingencies and critical accounting policies and estimates in the accompanyingMD&A and in the accompanyingNotes to Condensed Consolidated Financial Statements and NSTAR Electric encourages a review of these items.

Part I. Financial Information

Item 1. Financial Statements

NSTAR Electric Company

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands)


		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2008			2007			2008			2007

Operating revenues	$	607,865		$	594,709		$	1,229,095		$	1,292,041

Operating expenses:
Purchased power and transmission		291,659			290,765			616,683			701,641
Operations and maintenance		86,240			78,910			168,977			162,219
Depreciation and amortization		84,864			82,517			169,726			165,134
DSM and renewable energy programs		15,427			15,100			32,385			31,828
Property and other taxes		19,726			17,919			41,057			38,894
Income taxes		33,634			32,351			58,981			53,937

Total operating expenses		531,550			517,562			1,087,809			1,153,653

Operating income		76,315			77,147			141,286			138,388

Other income (deductions):
Other income, net		1,063			1,295			2,355			4,351
Other deductions, net		(257	)		(240	)		(534	)		(543	)
Total other income, net		806			1,055			1,821			3,808

Interest charges (income):
Long-term debt		19,682			15,413			39,385			30,857
Transition property securitization		7,127			9,158			15,108			19,145
Short-term debt and other, net		(2,602	)		2,114			(5,495	)		4,906
AFUDC		(586	)		(648	)		(987	)		(2,077	)
Total interest charges		23,621			26,037			48,011			52,831

Net income	$	53,500		$	52,165		$	95,096		$	89,365

Per share data is not relevant because NSTAR Electric Company's common stock is wholly owned by NSTAR.

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

NSTAR Electric Company

Condensed Consolidated Statements of Retained Earnings

(Unaudited)

(in thousands)


			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2008		2007		2008		2007

Balance at the beginning of the period, as
previously reported	$	849,724		$	832,386	$	836,918	$	816,399
Adoption of FIN 48		-			-		-		2,277
Adjusted balance at the beginning of the period		849,724			832,386		836,918		818,676

Add:
Net income		53,500			52,165		95,096		89,365
Subtotal		903,224			884,551		932,014		908,041

Deduct:
Common stock dividends declared to Parent		28,300			-		56,600		23,000
Preferred stock dividends declared		490			490		980		980
Subtotal		28,790			490		57,580		23,980
Balance at the end of the period	$	874,434		$	884,061	$	874,434	$	884,061

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

NSTAR Electric Company

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)


			June 30,		December 31,
			2008		2007

Assets

Utility plant:
	Electric plant in service, at original cost	$	4,761,471	$		4,671,613
	Less: accumulated depreciation and amortization		1,141,755			1,099,026
			3,619,716			3,572,587
	Construction work in progress		145,989			102,754
	Net utility plant		3,765,705			3,675,341

	Other property and investments:
	Equity investments		7,100			7,172
	Restricted cash		6,988			6,988
	Nonutility property, net		509			1,105
			14,597			15,265
	Current assets:
	Cash and cash equivalents		9,320			16,815
	Accounts receivable, net of allowance of $24,767 and $21,990, respectively		259,436			250,571
	Accrued unbilled revenues		54,825			44,443
	Regulatory assets		540,802			510,735
	Inventory, at average cost		29,767			36,588
	Other		296			3,361
	Total current assets		894,446			862,513

	Deferred debits:
	Regulatory assets		1,624,733			1,786,274
	Other		96,173			92,073
	Total deferred debits		1,720,906			1,878,347

	Refundable income taxes		128,340			128,340

	Total assets	$	6,523,994	$		6,559,806

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

NSTAR Electric Company

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)


				June 30,		December 31,
				2008		2007

Capitalization and Liabilities

Common equity:
	Common stock, par value $1 per share
	(100 shares issued and outstanding)			$	-	$	-
	Premium on common stock				992,613		992,613
	Retained earnings				874,434		836,918
	Total common equity				1,867,047		1,829,531

Cumulative non-mandatory redeemable preferred stock					43,000		43,000

Long-term debt:
Long-term debt					1,343,608		1,344,813
Transition property securitization					405,733		483,961
		Total long-term debt			1,749,341		1,828,774

Current liabilities:
		Transition property securitization			95,799		93,407
		Long-term debt			1,513		688
		Notes payable			351,000		257,000
		Power contract obligations			130,920		137,392
		Accounts payable			187,525		212,129
		Payable to affiliates			49,915		68,410
		Income taxes			87,166		89,276
		Accrued interest			14,440		14,282
		Dividends payable to Parent			28,300		-
		Other			53,854		46,686
		Total current liabilities			1,000,432		919,270


Deferred credits:
		Accumulated deferred income taxes and unamortized
		investment tax credits			1,084,048		1,105,859
		Power contract obligations			406,784		467,932
		Regulatory liability - cost of removal			217,926		214,352
		Payable to affiliates			60,210		60,210
		Other			95,206		90,878
Total deferred credits					1,864,174		1,939,231

Commitments and contingencies

			Total capitalization and liabilities	$	6,523,994	$	6,559,806

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

NSTAR Electric Company

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Six Months Ended June 30,
		2008			2007

Operating activities:
Net income	$	95,096		$	89,365
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		172,527			167,842
Deferred income taxes and investment tax credits		(6,299	)		(3,305	)
Purchase power contract buy-out payments		(78,870	)		(71,120	)
Premium paid on long-term debt redemption		-			(17,647	)
Net changes in:
Current assets and liabilities		(40,397	)		(5,210	)
Regulatory assets		34,863			49,197
Deferred debits and credits, net		(329	)		6,042
Net cash provided by operating activities		176,591			215,164

Investing activities:
Plant expenditures (including AFUDC)		(172,628	)		(150,912	)
Other investments		401			435
Net cash used in investing activities		(172,227	)		(150,477	)

Financing activities:
Transition property securitization redemptions		(75,836	)		(71,175	)
Long-term debt redemption		(743	)		(78,823	)
Net change in notes payable		94,000			104,800
Dividends paid		(29,280	)		(23,980	)
Net cash used in financing activities		(11,859	)		(69,178	)

Net decrease in cash and cash equivalents		(7,495	)		(4,491	)
Cash and cash equivalents at the beginning of the year		16,815			13,436
Cash and cash equivalents at the end of the period	$	9,320		$	8,945

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest, net of amounts capitalized	$	55,366		$	53,080
Income taxes	$	82,700		$	16,693
Non-cash investing activity:
Plant expenditures included in ending accounts payable	$	30,084		$	30,234

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

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The accompanying notes should be read in conjunction with Notes to Consolidated Financial Statements included in NSTAR Electric's 2007 Annual Report on Form 10-K.

Note A. Business Organization and Summary of Significant Accounting Policies

1. The Company

NSTAR Electric Company (“NSTAR Electric” or “the Company”) is a regulated public utility incorporated in 1886 under Massachusetts law and is a wholly owned subsidiary of NSTAR. NSTAR Electric serves approximately 1.1 million electric distribution customers in the City of Boston and 80 surrounding communities. NSTAR is a holding company engaged through its subsidiaries in the energy delivery business and serves approximately 1.4 million customers in Massachusetts, including NSTAR Electric’s distribution customers and approximately 300,000 natural gas distribution customers in 51 communities served by NSTAR's other retail utility subsidiary NSTAR Gas. NSTAR has a services company that provides management and support services to substantially all NSTAR subsidiaries – NSTAR Electric & Gas.

Harbor Electric Energy Company (HEEC), a wholly-owned subsidiary of NSTAR Electric, provides distribution service and ongoing support to its only customer, the Massachusetts Water Resources Authority's wastewater treatment facility located on Deer Island in Boston, Massachusetts. In addition, NSTAR Electric consolidates its three wholly-owned special-purpose subsidiaries, BEC Funding LLC (BEC Funding), BEC Funding II LLC (BEC Funding II) and CEC Funding LLC (CEC Funding), which were established to facilitate the sale of electric rate reduction certificates at public offerings. The certificates of these special-purpose subsidiaries are secured by a portion of the transition charge assessed on NSTAR Electric's retail customers as permitted by the 1997 Massachusetts Electric Restructuring Act and authorized by the DPU. These certificates are non-recourse to NSTAR Electric. These entities are included in the condensed consolidated financial stateme nts of NSTAR Electric.

2. Basis of Presentation and Accounting

Current Presentation

The accompanying financial information presented as of June 30, 2008 and for the three and six-month periods ended June 30, 2008 and 2007 has been prepared from NSTAR Electric's books and records without audit by an independent registered public accounting firm. However, NSTAR Electric's independent registered public accounting firm has performed a review of these interim financial statements in accordance with standards established by the PCAOB. The review report is filed as Exhibit 99.1 to this Form 10-Q. Financial information as of December 31, 2007 was derived from the audited consolidated financial statements of NSTAR Electric, but does not include all disclosures required by GAAP. In the opinion of NSTAR Electric's management, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial information for the periods indicated have been included. Certain immaterial reclassifications have b een made to the prior period amounts to conform to the current period’s presentation.

NSTAR Electric follows accounting policies prescribed by the FERC and the DPU. NSTAR Electric is subject to the accounting and reporting requirements of the SEC. In addition, NSTAR Electric is subject to SFAS No. 71,"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The application of SFAS 71 results in differences in the timing of recognition of certain revenues and expenses from those of other businesses and industries. The distribution and transmission businesses are subject to rate-regulation and meet the criteria for application of SFAS 71.

The preparation of financial statements in conformity with GAAP requires management of NSTAR Electric and its subsidiaries to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

The results of operations for the three and six-month periods ended June 30, 2008 and 2007 are not indicative of the results that may be expected for an entire year. The demand for electricity is primarily affected by seasonal weather conditions. Electric energy sales and revenues are typically higher in the winter and summer months than in the spring and fall months.

3. Pension and Other Postretirement Benefits

The net periodic pension benefit costs for the second quarter were based on the latest available participant census data. An annual actuarial valuation was completed during the second quarter and cost estimates were adjusted based on the actual results.

Pension

NSTAR Electric is the sponsor of the NSTAR Pension Plan (the Plan), which is a defined benefit funded retirement plan that covers substantially all employees of NSTAR Electric & Gas. As its sponsor, NSTAR Electric allocates the costs of the Plan to NSTAR Electric & Gas. NSTAR Electric & Gas charges all of its benefit costs to the NSTAR operating subsidiaries, including NSTAR Electric, based on the proportion of total direct labor charged to the Company. During the six months ended June 30, 2008, NSTAR contributed $7.5 million to the Plan. NSTAR contributed an additional $7.5 million to the Plan in July 2008. NSTAR also maintains nonqualified retirement plans for certain management employees who provide services to NSTAR Electric.

Components of NSTAR Electric’s net periodic pension benefit cost were as follows:


		Three Months Ended					Six Months Ended
		June 30,					June 30,
(in millions)		2008			2007			2008			2007
Service cost	$	4.9		$	4.8		$	10.2		$	10.4
Interest cost		15.2			14.2			30.5			29.8
Expected return on Plan assets		(21.7	)		(20.8	)		(43.1	)		(41.7	)
Recognized actuarial loss		3.7			4.5			7.6			10.0
Amortization of prior service cost		(0.2	)		(0.2	)		(0.4	)		(0.4	)
Net periodic pension benefits cost	$	1.9		$	2.5		$	4.8		$	8.1

The first quarter net periodic pension cost is typically estimated utilizing projections based on the previous year’s liability and asset levels. The net periodic pension costs for the six months ended June 30, 2008 and 2007 have been adjusted to reflect the final cost amounts for 2008 and 2007. This adjustment decreased the periodic pension benefit cost by approximately $0.5 million and $1.6 million, for the three and six month periods ended June 30, 2008 and 2007, respectively, and was recognized in the second quarter of each year.

Other Postretirement Benefits

NSTAR also provides health care and other benefits to retired employees who meet certain age and years of service eligibility requirements. Under certain circumstances, eligible retirees are required to make contributions for postretirement benefits.

To fund these postretirement benefits, NSTAR, on behalf of NSTAR Electric and other NSTAR subsidiaries, makes contributions to various VEBA trusts that were established pursuant to section 501(c)(9) of the Internal Revenue Code.

NSTAR Electric participates in the Plan trusts with other NSTAR subsidiaries. Plan assets are available to provide benefits for all Plan participants who are former employees of NSTAR Electric and other subsidiaries of NSTAR. During the six months ended June 30, 2008, NSTAR contributed $6.2 million to this plan and anticipates contributing an additional $8.8 million for the remainder of 2008.

The net periodic postretirement benefits cost allocated to NSTAR Electric for the six-month period ended June 30, 2008 was $8.7 million, as compared to $9.4 million, in the six-month period ended June 30, 2007.

4. New Accounting Standard

SFAS No. 161

On March 19, 2008, the FASB issued SFAS No. 161 (SFAS 161),“Disclosures about Derivative Instruments and Hedging Activities,” which is intended to improve financial reporting about derivatives and hedging activities by requiring enhanced disclosures. This standard will be effective on January 1, 2009. NSTAR Electric is currently evaluating the impact SFAS 161 will have on its current disclosures.

Note B. Cost of Removal

For NSTAR Electric, the ultimate cost to remove utility plant from service (cost of removal) is recognized as a component of depreciation expense in accordance with approved regulatory treatment. As of June 30, 2008 and December 31, 2007, the estimated amount of the cost of removal included in regulatory liabilities was approximately $217.9 million and $214.4 million, respectively, based on the cost of removal component in current depreciation rates.

Note C. Derivative Instruments

Energy Contracts

NSTAR Electric accounts for its energy contracts in accordance with SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities”(SFAS 133) and SFAS No. 149,"Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities" (SFAS 149). NSTAR Electric has determined that its electricity supply contracts qualify for, and NSTAR Electric has elected, the normal purchases and sales exception. As a result, these agreements are not reflected on the accompanying Condensed Consolidated Balance Sheets.

Note D. Service Quality Indicators

On March 1, 2007, NSTAR Electric filed its 2006 Service Quality Report with the DPU that demonstrated the Company achieved sufficient levels of reliability and performance. The report indicated that no penalty was assessable for 2006. The DPU has approved this filing without exception.

On February 29, 2008, NSTAR Electric filed its 2007 Service Quality Report with the DPU that demonstrated the Company achieved sufficient levels of reliability and performance. The report indicates that no penalty was assessable for 2007. This filing remains subject to final DPU approval.

The Rate Settlement Agreement established additional performance measures applicable to NSTAR Electric. The Rate Settlement Agreement establishes, for NSTAR Electric, a performance benchmark relating to its poor performing circuits, with a maximum penalty or incentive of $0.5 million. On May 16, 2008, the DPU issued an order clarifying that the performance periods applicable to this benchmark were prospective three-year periods commencing with the effective date of the Rate Settlement Agreement on January 1, 2006. Therefore, NSTAR Electric will not be able to determine its circuit performance results until the end of 2008.

On July 2, 2008, the Massachusetts Legislature passed the Green Communities Act, energy policy legislation that, among other things, increased the potential maximum service quality performance penalties provision from 2% to 2.5% of total transmission and distribution revenues.

Note E. Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109,"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the recognition of deferred tax assets and liabilities for the future tax effects of temporary differences between the carrying amounts and the tax basis of assets and liabilities. In accordance with SFAS 71 and SFAS 109, net regulatory assets of $31 million and $31.8 million and corresponding net increases in accumulated deferred income taxes were recorded as of June 30, 2008 and December 31, 2007, respectively. The regulatory assets represent the additional future revenues to be collected from customers for deferred income tax deficiencies at the adoption of SFAS 109.

NSTAR Electric is part of a consolidated tax group. As such, income tax payments are either due to or from NSTAR (Parent).

The following table reconciles the statutory federal income tax rate to the annual estimated effective income tax rate for 2008 and the actual effective income tax rate for the year ended December 31, 2007:

Uncertain Tax Positions

There were no changes to estimates of unrecognized tax benefits during the three and six-month periods ended June 30, 2008.

Note F. Fair Value Measurement

SFAS No. 157,"Fair Value Measurements”(SFAS 157), defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. While the standard does not expand the use of fair value in any new circumstance, it has applicability to several current accounting standards that require or permit measurement of assets and liabilities at fair value. The Company prospectively adopted SFAS 157 on January 1, 2008, with no impact to its results of operations, cash flows or financial position.

Note G. Commitments and Contingencies

1. Environmental Matters

NSTAR Electric faces possible liabilities as a result of involvement in several multi-party disposal sites, state-regulated sites or third party claims associated with contamination remediation. NSTAR Electric generally expects to have only a small percentage of the total potential liability for the majority of these sites. As of June 30, 2008 and December 31, 2007, NSTAR Electric had a liability of approximately $0.8 million for these environmental sites. This estimated recorded liability is based on an evaluation of all currently available facts with respect to these sites.

Estimates related to environmental remediation costs are reviewed and adjusted as further investigation and assignment of responsibility occurs and as either additional sites are identified or NSTAR Electric's responsibilities for such sites evolve or are resolved. NSTAR Electric's ultimate liability for future environmental remediation costs may vary from these estimates. Based on NSTAR Electric's current assessment of its environmental responsibilities, existing legal requirements and regulatory policies,

NSTAR Electric does not believe that these environmental remediation costs will have a material adverse effect on NSTAR Electric's consolidated financial position, results of operations or cash flows.

2. Regulatory Matters

Wholesale Power Cost Savings Initiatives

The Rate Settlement Agreement encourages for NSTAR Electric to continue its efforts to advocate on behalf of customers at the FERC to mitigate wholesale electricity cost inefficiencies that would be borne by regional customers. If NSTAR Electric's efforts to reduce customers’ costs are successful, the Company is allowed to retain a portion of those savings as an incentive, as well as recover related litigation costs. Under the terms of the Rate Settlement Agreement, NSTAR Electric was to share in 25% of the savings applicable to its customers. The recovery of NSTAR Electric's share of benefits is to be collected over three years. As a result of NSTAR's role in two RMR cases, NSTAR Electric had sought to collect $9.8 million annually for three years and began recognizing and collecting these incentive revenues from its customers effective January 1, 2007, subject to final DPU approval. Public hearings were held by the DPU in early 2007 to i nvestigate the basis and support for the incentive payments. After these hearings, NSTAR Electric began discussions with the staff of the newly elected AG and a revised Settlement Agreement was executed on July 23, 2007. This revised Settlement Agreement allowed NSTAR Electric to collect $6.3 million of the savings annually for three years effective January 1, 2007 and it stipulated that NSTAR Electric would share 12.5% of the savings applicable to its customers in its future efforts related to new wholesale energy cost savings cases. On February 29, 2008, the DPU issued an order that did not approve the revised Settlement Agreement. The DPU re-established a procedural schedule and final briefs were filed in early May.

NSTAR Electric is unable to predict the ultimate outcome of this proceeding. In the event an adverse decision is issued, it would not have a material impact on the Company's reported results of operations for the three or six month periods ended June 30, 2008. However, such a decision could have an impact on future results of operations and cash flows.

Basic Service Bad Debt Adder

On July 1, 2005, in response to a generic DPU order that required electric utilities to recover the energy-related portion of bad debt costs in their basic service rates, NSTAR Electric increased its basic service rates and reduced its distribution rates for those bad debt costs. In furtherance of this generic DPU order, NSTAR Electric included a bad debt cost recovery mechanism as a component of its Rate Settlement Agreement. This recovery mechanism (bad debt adder) allowed NSTAR Electric to recover its basic service bad debt costs on a fully reconciling basis. These rates were implemented, effective January 1, 2006, as part of NSTAR Electric’s Rate Settlement Agreement.

On February 7, 2007, NSTAR Electric filed its 2006 basic service reconciliation with the DPU proposing an adjustment related to the increase of its basic service bad debt charge-offs. This proposed rate adjustment was anticipated to be implemented effective July 1, 2007. On June 28, 2007, the DPU issued an order approving the implementation of a revised basic service rate. However, the DPU required NSTAR Electric to reduce distribution rates by the increase in its basic service bad debt charge-offs. Such action would result in a further reduction to distribution rates from the adjustment the Company made when it implemented the Settlement Agreement. This adjustment to the Company’s distribution rate would eliminate the fully reconciling nature of the basic service bad debt adder.

NSTAR Electric has not implemented the components of the June 28, 2007 DPU order. Implementation of this order would require NSTAR Electric to write-off a previously recorded regulatory asset related to its basic service bad debt costs. NSTAR Electric filed a Motion for Reconsideration of the DPU’s order on July 18, 2007. On December 14, 2007, the Motion for Reconsideration was granted and the DPU reopened the case to hear additional evidence. NSTAR Electric filed additional testimony in April 2008, an evidentiary hearing was held, and briefs were filed in June and early July 2008. NSTAR Electric believes its position is appropriate and that it is probable that it will ultimately prevail. However, in the

event that it does not, NSTAR Electric intends to pursue all legal options. As of June 30, 2008, the potential impact to earnings of eliminating the bad debt adder was approximately $14 million, pre-tax. NSTAR Electric cannot predict the timing or the ultimate outcome of this proceeding.

Regulatory Proceeding - FERC

On July 9, 2007, FERC issued an order that approved NSTAR Electric's 2007 proposed consolidated transmission rates as filed on February 14, 2007, subject to refund, pending the conclusion of subsequent proceedings. As a result of these proceedings, NSTAR reached an agreement in principle with the FERC staff, the AG and a wholesale customer. A final Settlement Agreement was filed on March 12, 2008 and approved by FERC on June 19, 2008. The implementation of this Settlement Agreement did not have an impact on the Company's results of operations, financial position or cash flows.

FERC Transmission ROE

On October 31, 2006, the FERC authorized, for the participating New England Transmission Owners, including NSTAR Electric, an ROE on transmission facilities of 10.2% plus a 50 basis point adder on regional facilities for joining a RTO from February 1, 2005 (the RTO effective date) through October 31, 2006, and an ROE of 11.4% thereafter. In addition, FERC granted a 100 basis point incentive adder to these ROEs for qualified investments made in new regional transmission facilities, that when combined with FERC's approved ROEs, provide 11.7% and 12.4% returns for the respective time frames. ISO-NE ratepayers benefit from this order because it responds to the need to enhance the New England transmission grid to alleviate congestion costs and reliability concerns. Transmission projects that are completed and in progress, including NSTAR Electric's 345kV project, have significantly reduced these congestion costs and enhanced reliability in the region. &nb sp;

The New England Transmission Owners accepted all but one of the terms of the October 31, 2006 FERC decision and filed a request for rehearing involving the calculation of the 10.2% base ROE. The New England Transmission Owners contended that the base ROE should be 10.5%. On March 24, 2008, the FERC issued an order approving, among other things, a 20 basis point increase, from 10.2% to 10.4%, to base ROE retroactive to February 1, 2005. As a result of implementing this order, NSTAR Electric recognized $3.0 million of transmission revenue and $0.9 million of interest income related to the applicable carrying charge in the first quarter of 2008. With this order, participating New England Transmission Owners, including NSTAR Electric, have the potential to earn an ROE of 12.64% on approved regional transmission facilities post-October 31, 2006.

On June 12, 2008, the New England Conference of Public Utilities Commissioners, Inc. (NECPUC) filed a complaint with the FERC against the New England Transmission Owners in which it asserts the 100 basis point incentive adder should only apply to original cost estimates for transmission projects and not to actual costs, unless actual costs are lower than original estimates. If ultimately approved by FERC, NSTAR Electric anticipates that any potential impact of this complaint would be prospective from the date the complaint is heard. The New England Transmission Owners filed a response requesting that FERC reject the complaint. NSTAR Electric cannot predict the timing or ultimate outcome of this complaint.

3. Legal Matters

In the normal course of its business, NSTAR Electric is involved in certain legal matters, including civil litigation. Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs ("legal liabilities") that would be in excess of amounts accrued and amounts covered by insurance. Based on the information currently available, NSTAR Electric does not believe that it is probable that any such legal liabilities will have a material impact on its consolidated financial position. However, it is reasonably possible that additional legal liabilities that may result from changes in circumstances could have a material impact on its results of operations, cash flows or financial condition.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

The accompanying MD&A focuses on factors that had a material effect on the financial condition, results of operations and cash flows of NSTAR Electric during the periods presented and should be read in conjunction with the accompanying condensed consolidated financial statements and related notes and with the MD&A in NSTAR Electric's 2007 Annual Report on Form 10-K.

Business Overview

NSTAR Electric Company ("NSTAR Electric" or "the Company") is a regulated public utility incorporated in 1886 under Massachusetts law and is a wholly-owned subsidiary of NSTAR. NSTAR Electric's wholly-owned subsidiaries are Harbor Electric Energy Company, BEC Funding LLC, BEC Funding II LLC and CEC Funding LLC. NSTAR Electric serves approximately 1.1 million electric distribution customers in the City of Boston and 80 surrounding communities. Harbor Electric Energy Company provides electric distribution service and ongoing support to its only customer, the Massachusetts Water Resources Authority's Wastewater treatment facility located on Deer Island in Boston, Massachusetts. BEC Funding LLC, BEC Funding II, LLC and CEC Funding LLC are consolidated special purpose entities created to facilitate the sale of electric rate reduction certificates to the public. NSTAR Electric's core business is its electric transmission and distributio n operations with a continued commitment for safe and reliable energy delivery to its customers. NSTAR Electric's strategy is to invest in transmission and distribution assets that will align with its core competencies.

Earnings. NSTAR Electric's earnings are impacted by fluctuations in unit sales of electric kWh, which directly determine the levels of retail distribution and transmission revenues recognized. In accordance with the regulatory rate structures in which NSTAR Electric operates, its recovery of energy and energy-related costs are fully reconciled with the level of energy revenues currently recorded and, therefore, do not have an impact on earnings.

Net income for the three and six-month periods ended June 30, 2008 amounted to $53.5 million and $95.1 million, respectively, as compared to $52.2 million and $89.4 million, respectively for the same periods in 2007, as further explained in this discussion.

Critical Accounting Policies and Estimates

For a complete discussion of critical accounting policies, refer to "Critical Accounting Policies and Estimates" in Item 7 of NSTAR Electric's 2007 Form 10-K. There have been no substantive changes to those policies and estimates.

Rate Structure

a. Rate Settlement Agreement

On December 30, 2005, the DPU approved a seven-year Rate Settlement Agreement ("Rate Settlement Agreement") between NSTAR, the AG, and several interveners. Beginning January 1, 2007 and continuing through 2012, the Rate Settlement Agreement establishes annual inflation-adjusted distribution rate increases (SIP of 2.68% effective January 1, 2008). These increases are generally offset by an equal and corresponding reduction in transition rates. Uncollected transition charges as a result of the reductions in transition rates are deferred and collected through future rates with a carrying charge of 10.88%.

b. Retail Electric Rates

Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers through basic service for those who choose not to buy energy from a competitive energy supplier. Basic service rates are reset every six months (every three months for large commercial and

industrial customers). The price of basic service is intended to reflect the average competitive market price for electric power. As of June 30, 2008 and December 31, 2007, customers of NSTAR Electric had approximately 45% and 47%, respectively, of their load requirements provided through basic service. NSTAR Electric fully recovers its energy costs through DPU-approved rate mechanisms. Though energy delivery charges vary slightly by region, the basic delivery service price for all residential customers increased an average of 3%, from $0.1084 to $0.1117 per kilowatt-hour effective January 1, 2008 and to $0.1255 per kilowatt-hour, or an average increase of 12.4%, effective July 1, 2008. Medium and large commercial and industrial customers’ rates increased an average of 17% from $0.0949 cents to $0.1106 cents per kilowatt-hour effective January 1, 2008 and decreased an average of 3% from $0.1106 cents to $0.1072 cents per kilowatt-hour effe ctive April 1, 2008. These customers’ rates were increased an average of 31.5% from $0.1072 to $0.1410 effective July 1, 2008.

c. Regulatory Matters

Massachusetts Regulatory Environment

On July 2, 2008, the Governor of Massachusetts signed into law The Green Communities Act (the “Act”), an energy bill establishing policies designed to substantially increase energy efficiency and the development of renewable energy resources in Massachusetts. The Act:


·	Creates a new Department of Energy Resources with expanded powers to oversee energy efficiency, renewable and alternative energy development, and other Green programs;
·	Mandates efficiency improvements in government buildings, and provides technical and financial assistance to communities that implement Green initiatives;
·	Requires electric and natural gas distribution companies to file three-year energy efficiency investment plans designed to implement all available cost-effective energy efficiency and demand reduction resources; the plans are to include fully reconciling funding mechanisms;
·	Requires utility distribution companies to undertake various Green programs, including the solicitation of bids for long-term renewable energy procurement contracts for which utilities would be allowed remuneration on certain contract commitments;
·	Establishes a “smart grid” pilot program;
·	Gives final approval to the State’s participation in the Regional Greenhouse Gas Initiative;
·	Increases the Renewable Portfolio Standard by 1% annually, requiring that by the year 2020 utilities and other electricity suppliers obtain 15% of the power they sell from renewable resources;
·	Authorizes electric distribution companies to construct, own and operate up to 50 megawatts of solar generating capacity; and
·	Modifies the service quality performance penalty provision (Refer to Note D of the accompanying Notes to Condensed Consolidated Financial Statements).

The Act provides for utilities to recover in rates the incremental costs associated with its various mandated programs.

Electric and Gas Rate Decoupling

On July 16, 2008, the DPU ordered all Massachusetts’ electric and gas distribution utility companies to develop plans to decouple their rates/revenues from sales volumes. This action is intended to encourage utility companies to help their customers reduce energy consumption. Decoupling of rates will allow utility companies to carry out the mandates of the Act and at the same time collect the adequate level of revenues to maintain the quality and reliability of electric and gas services. NSTAR Electric may continue to bill customers under its current approved Rate Settlement Agreement through its expiration in 2012. However, this Order allows companies to file for recovery of lost base revenues caused by incremental energy efficiency spending until their decoupling rate plans are approved. Once approved, revenues will be set at a level designed to recover the company’s incurred costs plus a return on their investment. This revenue level wil l be reconciled with actual revenues received from decoupled rates on an annual basis and any over or under collection will be refunded to or recovered from customers in the subsequent year.

NSTAR Electric expects to file for lost base revenues in 2009. NSTAR Electric currently does not expect to file for fully decoupled electric rates until after the Rate Settlement Agreement expires in 2012.

Wholesale Power Cost Savings Initiatives

The Rate Settlement Agreement encourages for NSTAR Electric to continue its efforts to advocate on behalf of customers at the FERC to mitigate wholesale electricity cost inefficiencies that would be borne by regional customers. If NSTAR Electric's efforts to reduce customers’ costs are successful, the Company is allowed to retain a portion of those savings as an incentive, as well as recover related litigation costs. Under the terms of the Rate Settlement Agreement, NSTAR Electric was to share in 25% of the savings applicable to its customers. The recovery of NSTAR Electric's share of benefits is to be collected over three years. As a result of NSTAR's role in two RMR cases, NSTAR Electric had sought to collect $9.8 million annually for three years and began recognizing and collecting these incentive revenues from its customers effective January 1, 2007, subject to final DPU approval. Public hearings were held by the DPU in early 200 7 to investigate the basis and support for the incentive payments. After these hearings, NSTAR Electric began discussions with the staff of the newly elected AG and a revised Settlement Agreement was executed on July 23, 2007. This revised Settlement Agreement allowed NSTAR Electric to collect $6.3 million of the savings annually for three years effective January 1, 2007 and it stipulated that NSTAR Electric would share 12.5% of the savings applicable to its customers in its future efforts related to new wholesale energy cost savings cases. On February 29, 2008, the DPU issued an order that did not approve the revised Settlement Agreement. The DPU re-established a procedural schedule and final briefs were filed in early May.

Basic Service Bad Debt Adder

potential impact to earnings of eliminating the bad debt adder was approximately $14 million, pre-tax. NSTAR Electric cannot predict the timing or the ultimate outcome of this proceeding.

Regulatory Proceeding - FERC

FERC Transmission ROE

Results of Operations

The following section of MD&A compares the results of operations for each of the three and six-month periods ended June 30, 2008 and 2007 and should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Three Months Ended June 30, 2008 compared to Three Months Ended June 30, 2007

Executive Summary

Net income was $53.5 million for the quarter ended June 30, 2008 compared to $52.2 million for the same period in 2007. Major factors (after-tax) that contributed to the $1.3 million, or 2.5% increase in 2008 earnings include:


·	Higher electric distribution revenues as a result of the Rate Settlement Agreement and an increase in energy sales of 0.2% ($4.3 million)
·	Higher transmission revenues as a result of increased transmission investment base ($5.0 million)

These increases in earnings factors were partially offset by:


·	Increased operation and maintenance expenses ($4.7 million) of which approximately $1.6 million relates to fluctuations in the fair value of deferred compensation liabilities and $1.5 million relates to the timing of maintenance and capital work. The remaining increase is primarily due to higher labor costs and storm costs. Higher labor costs are primarily a result of the timing of the Company’s planned attrition replacement program
·	Higher depreciation and amortization expense in 2008 relates to higher depreciable distribution plant in service ($1.4 million)
·	Higher property taxes due to higher plant in service ($1.1 million)

Significant cash flow events during the quarter include the following:


·	Cash flows from operating activities provided approximately $47 million, a decrease of $57 million as compared to the same period in 2007. The decrease primarily reflects a change in the timing of income tax payments. During the second quarter of 2008, a $64 million incremental estimated income tax payment was made as compared to the same period of 2007
·	NSTAR Electric invested approximately $74 million in capital projects to improve capacity and system reliability
·	NSTAR Electric retired approximately $36.5 million in long-term and securitized debt

Energy sales and weather

The following is a summary of retail electric energy sales for the periods indicated:


	Three Months Ended June 30,
	2008	2007	% Change Increase/(decrease)
Retail Electric Sales - mWh
Residential	1,470,217	1,452,034	1.3%
Commercial, Industrial and other	3,646,440	3,651,998	(0.2)%
Total retail sales	5,116,657	5,104,032	0.2%

The 0.2% or 12,625 MWh energy sales increase in the second quarter of 2008 reflects increased residential sector demand partially offset by conservation and weather conditions. NSTAR Electric’s retail sales are highly influenced by economic conditions and its residential sales are influenced by temperature changes. All customers are affected by conservation measures when utilized to reduce energy consumption. Refer to the"Operating revenues" section below for a more detailed discussion.

Weather conditions

NSTAR Electric customers’ demand for electricity is directly influenced by weather conditions. Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur (as further discussed below), particularly when weather patterns experienced are consistently cold or warm. Also, NSTAR Electric’s business is sensitive to variations in daily weather, is highly influenced by New England’s seasonal variations and is susceptible to severe storm-related disasters that could adversely affect the Company’s ability to provide energy.


	Three Months Ended		Normal
	June 30,		30-Year
	2008	2007	Average
Heating degree-days	721	817	784
Percentage (warmer) colder than prior year	(11.8)%	7.2%
Percentage (warmer) colder than 30-year average	(8.0)%	4.2%

Cooling degree-days	210	231	175
Percentage (cooler) warmer than prior year	(9.1)%	29.8%
Percentage warmer than 30-year average	20%	32%

Degree-Days measure changes in daily mean temperature levels. Weather conditions impact electric sales primarily during the summer in NSTAR Electric's service area. A degree-day is a unit measuring how much the outdoor daily mean temperature falls below (in the case of heating) or rises above (in the case of cooling) a base of 65 degrees.

Operating revenues

Operating revenues for the second quarter of 2008 increased $13.2 million, or 2.2%, from the same period in 2007 as follows:


(in millions)		Three Months Ended June 30,				Increase
		2008		2007		Amount	Percent

Retail distribution and transmission	$	232.1	$	221.0	$	11.1	5.0	%
Energy, transition and other		375.8		373.7		2.1	0.6	%
Total revenues	$	607.9	$	594.7	$	13.2	2.2	%

NSTAR Electric's largest earnings sources are the revenues derived from distribution and transmission rates approved by the DPU and FERC. Electric retail distribution revenues primarily represent charges to customers for recovery of the Company's capital investment, including a return component, and operation and maintenance related to its electric distribution infrastructure. The transmission revenue component represents charges to customers for the recovery of costs to move the electricity over high voltage lines from the generator to the Company's substations.

The increase of $11.1 million, or 5%, in retail distribution and transmission revenues primarily reflects:


·	Higher distribution revenues due to the impact of the annual inflation-adjustment to distribution rates and increased energy sales of 0.2% ($7.1 million). This annual inflation-adjustment is generally offset by an equal and corresponding reduction in transition rates
·	Increased transmission revenues primarily due to increased transmission investment base ($8.2 million)

These increases were partially offset by:


·	Decreased transmission revenues related to lower forecasted RMR payments to energy generators ($3.6 million)

Energy, transition and other revenues primarily represent charges to customers for the recovery of costs incurred by the Company in order to acquire the energy supply on behalf of its customers and a transition charge for recovery of the Company's prior investments in generating plants and the costs related to long-term power contracts. The energy revenues relate to customers being provided energy supply under basic service. These revenues are fully reconciled to the costs incurred and have no impact on the Company’s consolidated earnings. Energy, transition and other revenues also reflect revenues related to the Company's ability to effectively reduce stranded costs, rental revenue from electric property and annual cost reconciliation true-up adjustments. The $2.1 million increase in energy, transition and other revenues is primarily attributable to slightly higher basic service rates in the second quarter of 2008.

Operating expenses

Purchased power and transmission were $291.7 million in the second quarter of 2008 compared to $290.8 million in the same period of 2007, an increase of $0.9 million, or 0.3%. The increase in expense reflects higher transmission costs of $32.9 million primarily as a result of a $24.8 million increase in transmission-related congestion costs and higher regional network support costs of $8.2 million. This increase is partially offset by lower basic service energy supply costs of $32 million. This change in basic service costs is partially due to a higher proportion of customers receiving the energy portion of their service from competitive suppliers in 2008 than in 2007. NSTAR Electric adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis. Due to this rate adjustment mechanism, changes in the amount of NSTAR Electric’s energy supply expense have no impact on earnings. & nbsp;

Operations and maintenance expense was $86.2 million in the second quarter of 2008 compared to $78.9 million in the same period of 2007, an increase of $7.3 million, or 9.3%. This increase primarily relates to the impact of fluctuations in the fair value of deferred compensation liabilities of $2.7 million, the impact related to the timing of maintenance and capital work of approximately $3.1 million, increases in labor costs due to the timing of the Company’s planned attrition replacement program and increased storm related costs.

Depreciation and amortization expense was $84.9 million in the second quarter of 2008 compared to $82.5 million in the same period of 2007, an increase of $2.4 million, or 2.9%. The increase reflects higher depreciable distribution and transmission plant in service and higher software amortization costs.

DSM and renewable energy programs expense was $15.4 million in the second quarter of 2008 compared to $15.1 million in the same period of 2007, an increase of $0.3 million, or 2.0%, which is consistent with the collection of conservation and renewable energy revenues. These costs are in accordance with program guidelines established by the DPU and are collected from customers on a fully reconciling basis plus a small incentive return.

Property and other taxes were $19.7 million in the second quarter of 2008 compared to $17.9 million in the same period of 2007, an increase of $1.8 million, or 10.0%, reflecting higher assessments due to increased overall property investment.

Income taxes attributable to operations were $33.6 million in the second quarter of 2008 compared to $32.4 million in the same period of 2007, an increase of $1.2 million, or 3.7%, reflecting the impact of higher pre-tax operating income in 2008.

Interest charges (income)

Interest on long-term debt and transition property securitization certificates was $26.8 million in the second quarter of 2008 compared to $24.6 million in the same period of 2007, an increase of $2.2 million, or 8.9%. This increase in interest expense reflects:


·	$4.3 million in interest costs associated with NSTAR Electric's $300 million Debentures issued in November 2007

This increase was partially offset by:


·	Lower interest costs on transition property securitization debt of $2 million resulting from redemptions of these securities. Securitization interest represents interest on securitization certificates of BEC Funding, BEC Funding II and CEC Funding collateralized by the future income stream associated primarily with NSTAR Electric's stranded costs

Short-term and other interest (income)expensewas ($2.6 million) in the second quarter of 2008 compared to $2.1 million in the same period of 2007, a change of $4.7 million. This change reflects:


·	Lower short-term borrowing costs of $2.6 million resulting from an approximate 314 basis point decrease in the 2008 weighted average borrowing rate and, to a lesser extent, a lower average level of funds borrowed in 2008 as compared to the same period in 2007. The weighted average short-term interest rate including fees was 2.3% and 5.4% in the three-month periods ended June 30, 2008 and 2007, respectively
·	Increased interest income of $2.3 million related to the timing of the collection of regulatory assets

Six Months Ended June 30, 2008 compared to Six Months Ended June 30, 2007

Executive Summary

Net income was $95.1 million for the six-month period ended June 30, 2008 compared to $89.4 million for the same period in 2007. Major factors (after-tax) that contributed to the $5.7 million, or 6.4%, increase in 2008 earnings include:


·	Higher electric distribution revenues as a result of the Rate Settlement Agreement and increased energy sales of 0.7% ($9.0 million)
·	Higher transmission revenues as a result of increased transmission investment base ($7.7 million)
·	Non-recurring cumulative impact of implementing the March 2008 FERC order ($2.4 million)

These increases in earnings factors were partially offset by:


·	Higher operations and maintenance expenses ($9.8 million) due to the timing of maintenance and capital work, higher labor costs, higher bad debts and storm costs
·	Higher depreciation and amortization expense in 2008 related to higher depreciable electric distribution plant in service ($2.8 million)
·	The absence of executive life insurance proceeds recognized in 2007 ($1.5 million)

Significant cash flow events during the first half of 2008 include the following:


·	Cash flows from operating activities provided approximately $176.6 million, a decrease of $38.6 million, as compared to the same period in 2007. The decrease primarily reflects a change in the timing of income tax payments and an increase in regulatory deferrals when compared to the same period in 2007. $66 million of incremental estimated income tax payments were made during the period that were not made in 2007. These decreases were partially offset by the timing of payables and energy supply payments
·	NSTAR Electric invested approximately $173 million in capital projects to improve capacity and reliability
·	NSTAR Electric paid approximately $28 million in common share dividends to NSTAR and retired approximately $76.6 million in long-term and securitized debt

Energy sales

The following is a summary of retail electric energy sales for the periods indicated:


Retail Electric Sales - MWh	Six Months Ended June 30,
		2008	2007	% Change Increase

Residential		3,162,863	3,142,377	0.7%
Commercial, Industrial and other		7,378,533	7,322,684	0.8%
Total retail sales		10,541,396	10,465,061	0.7%

The 0.7% or 76,335 MWh energy sales increase in the first half of 2008 reflects the impact of an additional day from the leap year in 2008 and increased residential sector demand partially offset by conservation and weather conditions. NSTAR Electric’s retail sales are highly influenced by economic conditions and its residential sales are influenced by temperature changes. All customers are affected by conservation measures when utilized to reduce energy consumption. Refer to the"Operating revenues" section below for a more detailed discussion.

Weather Conditions

NSTAR Electric customers’ demand for electricity is directly influenced by weather conditions. Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur (as further discussed below), particularly when weather patterns experienced are consistently cold or warm. Also, NSTAR Electric’s electric business is sensitive to variations in daily weather, is highly influenced by New England’s seasonal variations and is susceptible to severe storm-related disasters that could adversely affect the Company’s ability to provide energy.


	Six Months Ended		Normal
	June 30,		30-Year
	2008	2007	Average

Heating Degree-Days	3,449	3,735	3,685
Percentage (warmer) colder than prior year	(7.7)%	9.9%
Percentage (warmer) colder than 30-year average	(6.4)%	2.2%

Cooling Degree-Days	210	231	176
Percentage (cooler) warmer than prior year	(9.1)%	29.8%
Percentage warmer than 30-year average	19.3%	31.3%

Degree-Days measure changes in daily mean temperature levels. Weather conditions impact electric sales primarily during the summer and in NSTAR Electric's service area. A degree-day is a unit measuring how much the outdoor daily mean temperature falls below (in the case of heating) or rises above (in the case of cooling) a base of 65 degrees.

Operating revenues

Operating revenues for the first half of 2008 decreased $62.9 million or 4.9% from the same period in 2007 as follows:


(in millions)	Six Months Ended June 30,						(Decrease)
			2008		2007	Amount			Percent

Retail distribution and transmission		$	446.7	$	450.5	$	(3.8	)		(0.8	)%
Energy, transition and other			782.4		841.5		(59.1	)		(7.0	)%
Total retail electric revenues		$	1,229.1	$	1,292.0	$	(62.9	)		(4.9	)%

NSTAR Electric's largest earnings sources are the revenues derived from distribution and transmission rates approved by the DPU and FERC. Electric retail distribution revenues primarily represent charges to customers for recovery of the Company's capital investment, including a return component, and operation and maintenance costs related to its electric distribution infrastructure. The transmission revenue component represents charges to customers for the recovery of costs to move the electricity over high voltage lines from the generator to the Company's substations.

The decrease of $3.8 million, or 0.8%, in retail distribution and transmission revenues primarily reflects:


·	Decreased transmission revenues related to lower forecasted RMR payments to energy generators ($30.4 million)

This decrease was partially offset by:


·	Higher distribution revenues due to the impact of the annual inflation-adjustment to distribution rates and increased energy sales of 0.7% ($14.8 million). This annual inflation-adjustment is generally offset by an equal and corresponding reduction in transition rates
·	Increased transmission revenues primarily due to increased transmission investment base ($12.7 million)

Energy, transition and other revenues primarily represent charges to customers for the recovery of costs incurred by the Company in order to acquire the energy supply on behalf of its customers and a transition charge for recovery of the Company's prior investments in generating plants and the costs related to long-term power contracts. The energy revenues relate to customers being provided energy supply under basic service. These revenues are fully reconciled to the costs incurred and have no impact on NSTAR Electric's consolidated net income. Energy, transition and other revenues also reflect revenues related to the Company's ability to effectively reduce stranded costs (incentive entitlements), rental revenue from electric property and annual cost reconciliation true-up adjustments. The $59.1 million decrease in energy, transition and other revenues is primarily attributable to the decrease in both energy supply costs and non-retail related regional transmission revenues. Uncollected transition charges as a result of the reductions in transition rates are being deferred and collected through future rates with a carrying charge at a rate of 10.88%.

Operating expenses

Purchased power and transmission were $616.7 million in the first half of 2008 compared to $701.6 million in the same period of 2007, a decrease of $84.9 million, or 12.1%. Despite higher energy sales of 0.7%, the decrease in expense reflects lower basic service energy supply costs of $105.9 million. This decrease is further impacted by a higher proportion of customers receiving the energy portion of their electric energy service from competitive suppliers in 2008 than in 2007. These decreases were partially offset by an increase in transmission costs of $20.9 million as a result of a $31.9 million increase in transmission-related congestion costs, offset by a decline in regional network support costs of $10.1 million. NSTAR Electric adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis. Due to this rate adjustment mechanism, changes in the amount of NSTAR Electric’s energy supply expense have no impact on earnings.

Operations and maintenance expense was $169 million in the first half of 2008 compared to $162.2 million in the same period of 2007, an increase of $6.8 million, or 4.2%. This increase primarily relates to in the timing of maintenance and capital work, higher labor and labor related costs, higher bad debts and higher storm related costs.

Depreciation and amortization expense was $169.7 million in the first half of 2008 compared to $165.1 million in the same period of 2007, an increase of $4.6 million or 2.8%. The increase primarily reflects higher depreciable distribution and transmission plant in service and higher software amortization costs.

DSM and renewable energy programs expense was $32.4 million in the first half of 2008 compared to $31.8 million in the same period of 2007, an increase of $0.6 million, or 1.9%, which is consistent with the collection of conservation and renewable energy revenues. These costs are in accordance with program guidelines established by the DPU and are collected from customers on a fully reconciling basis plus a small incentive return.

Property and other taxes were $41.1 million in the first half of 2008 compared to $38.9 million in the same period of 2007, a decrease of $2.2 million, or 5.7%, reflecting higher overall property investment.

Income tax expenseattributable to operations was $59 million in the first half of 2008 compared to $53.9 million in the same period of 2007, an increase of $5.1 million, or 9.5%, reflecting the impact of higher pre-tax operating income in 2008.

Other income, net

Other income, net was approximately $1.8 million in the first half of 2008 compared to $3.8 million in the same period of 2007, a decrease of $2 million. The decrease reflects the absence of executive life insurance proceeds received in 2007.

Interest charges

Interest on long-term debt and transition property securitization certificates was $54.5 million in the first half of 2008 compared to $50 million in the same period of 2007, an increase of $4.5 million, or 9%. This increase in interest expense reflects:


·	$8.6 million in interest costs associated with NSTAR Electric’s $300 million Debentures issued in November 2007.

This increase was partially offset by:


·	Lower interest costs on transition property securitization debt of $4 million resulting from redemptions of these securities. Securitization interest represents interest on securitization certificates of BEC Funding, BEC Funding II and CEC Funding collateralized by the future income stream associated primarily with NSTAR Electric's stranded costs

Short-term and other interest (income) expense was ($5.5 million) of interest income in the first half of 2008 compared to $4.9 million of expense in the same period of 2007, a change of $10.4 million. This change in the short-term and other interest expense reflects:


·	Lower short-term borrowing costs of $4.4 million resulting from an approximate 246 basis point decrease in the 2008 weighted average borrowing rate and, to a lesser extent, a lower average level of funds borrowed in 2008 as compared to the same period in 2007. The weighted average short-term interest rate including fees was 2.8% and 5.3% in the six-month periods ended June 30, 2008 and 2007, respectively.
·	Increased interest income of $5.5 million related to the timing of the collection of regulatory assets, including $0.9 million related to the implementation of the March 2008 FERC order

Item 4. Controls and Procedures

NSTAR Electric's disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

As of the end of the period covered by this Quarterly Report on Form 10-Q, NSTAR Electric carried out an evaluation, under the supervision and with the participation of NSTAR Electric's management, including NSTAR Electric's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of NSTAR Electric's disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that NSTAR Electric's disclosure controls and procedures were effective (1) to timely alert them to material information relating to NSTAR Electric's information required to be disclosed by NSTAR Electric in the reports that it files or submits under the Securities Exchange Act of 1934 and (2) to ensure that appropriate information is recorded, processed, summarized and reported within the time periods specified in the Secur ities and Exchange Commission's rules and forms.

There have been no changes in NSTAR Electric’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934) during NSTAR Electric's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, NSTAR Electric's internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

In the normal course of its business, NSTAR Electric and its subsidiaries are involved in certain legal matters, including civil litigation. Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs ("legal liabilities") that would be in excess of amounts accrued and amounts covered by insurance. Based on the information currently available, NSTAR Electric does not believe that it is probable that any such legal liability will have a material impact on its consolidated financial position. However, it is reasonably possible that additional legal liabilities that may result from changes in estimates could have a material impact on its results of operations, cash flows and financial condition for a reporting period.

Item 1A. Risk Factors

Investors or prospective investors should carefully consider the risk factors that were previously disclosed in NSTAR Electric's Annual Report on Form 10-K for the year ended December 31, 2007 and in other information in this Quarterly Report on Form 10-Q.

Item 5. Other Information

The following is furnished for informational purposes.

Ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred stock dividend requirements:


Twelve months ended June 30, 2008:
Ratio of earnings to fixed charges		4.32
Ratio of earnings to fixed charges and preferred stock dividend requirements		4.20

Item 6. Exhibits


a)	Exhibits:
		Exhibit	4	-	Instruments Defining the Rights of Security Holders, Including Indentures

				-	Management agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any agreement or instrument of NSTAR Electirc defining the rights of holders of any non-registered debt whose authorization does not exceed 10% of total assets.

		Exhibits filed herewith:
		Exhibit	12	-	Statement re Computation of Ratios

			12.1	-	Computation of Ratio of Earnings to Fixed Charges for the Twelve Months Ended June 30, 2008

			12.2	-	Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements for the Twelve Months Ended June 30, 2008

		Exhibit	15	-	Letter Re Unaudited Interim Financial Information

			15.1	-	PricewaterhouseCoopers LLP Awareness Letter

		Exhibit	31	-	Rule 13a – 14(a)/15d – 14(a) Certifications

			31.1	-	Certification Statement of Chief Executive Officer of NSTAR Electric pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

			31.2	-	Certification Statement of Chief Financial Officer of NSTAR Electric pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

		Exhibit	32	-	Section 1350 Certifications

			32.1	-	Certification Statement of Chief Executive Officer of NSTAR Electric pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

			32.2	-	Certification Statement of Chief Financial Officer of NSTAR Electric pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		Exhibit	99	-	Additional Exhibits

			99.1	-	Report of Independent Registered Public Accounting Firm *

				*	Rule 436(c) of the 1933 Act provides that a report on unaudited interim financial information shall not be considered part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Section 7 or 11 of the 1933 Act. Therefore, the accountant is not subject to the liability provisions of Section 11 of the 1933 Act.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		NSTAR Electric Company
		(Registrant)





Date: August 4, 2008		By: /s/ R. J. WEAFER, JR.
		Robert J. Weafer, Jr.
		Vice President, Controller and
		Chief Accounting Officer

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