1999 Annual Report

North Atlantic Energy Corporation

Index

Contents Page
- -------- ----

Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 1

Report of Independent Public Accountants.......................... 8-9

Statements of Income.............................................. 11

Balance Sheets.................................................... 12-13

Statements of Common Stockholder's Equity......................... 14

Statements of Cash Flows.......................................... 15

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

Selected Financial Data........................................... 30

Quarterly Financial Data (Unaudited).............................. 30

Statistics (Unaudited)............................................ 30

Preferred Stockholder and Bondholder Information.................. Back Cover

North Atlantic Energy Corporation

Management's Discussion and Analysis of Financial
Condition and Results of Operations

Financial Condition

Overview
North Atlantic Energy Corporation, (NAEC or the company), is a wholly owned
operating subsidiary of Northeast Utilities (NU) and is part of the Northeast
Utilities system (NU system). Public Service Company of New Hampshire (PSNH),
is another wholly owned subsidiary of NU. PSNH is obligated to purchase the
capacity and output from NAEC's 35.98 percent joint ownership interest in the
Seabrook Station (Seabrook) nuclear unit under the terms of two life-of-unit,
full cost recovery contracts (Seabrook Power Contracts).

The company's only assets are Seabrook and other Seabrook-related assets and
its only source of revenues are the Seabrook Power Contracts. PSNH's
obligations under the Seabrook Power Contracts are solely its own and have not
been guaranteed by NU. The Seabrook Power Contracts contain no provisions
entitling PSNH to terminate its obligations. If, however, PSNH were to fail
to perform its obligations under the Seabrook Power Contracts, the company
would be required to find other purchasers for Seabrook's power.

During 1999, NU made significant progress toward resolving restructuring issues
in the state of New Hampshire by negotiating a global restructuring settlement
that is still subject to regulatory approval. The "Agreement to Settle PSNH
Restructuring" (Settlement Agreement), among other things, requires PSNH to
sell its generation assets and certain power contracts, including PSNH's
current purchased-power contract with NAEC for the output from Seabrook. If
the Settlement Agreement is approved and implemented, NAEC and The Connecticut
Light and Power Company (CL&P), another NU affiliate which has a 4.06 percent
ownership interest in Seabrook, will sell their investments in Seabrook.

In 1999, NAEC's revenues increased to $287.4 million, up 3.9 percent from
revenues of $276.7 million in 1998. In 1999, NAEC had net income of $29.6
million, compared to $29.5 million in 1998.

Mergers

In 1998 and 1999, NU management concluded that the pace of deregulation was
accelerating throughout the northeastern United States and that shareholders
would benefit from NU not only remaining a major provider of electric
transmission and distribution service, but also becoming an unregulated
marketer of both electricity and natural gas. NU management also concluded
that as a result of the changes occurring in the highly competitive electric
utility industry, increased size would be crucial to achieve its objective
of being a leading provider of energy products and services in the Northeast.

On October 13, 1999, NU announced an agreement to merge with Consolidated
Edison, Inc. (Con Edison), a financially stronger utility based in New York.
The merger will create the nation's largest electric distribution system with
more than 5 million customers and one of the 15 largest natural gas
distribution systems with 1.4 million customers.

NU and Con Edison filed with various state and federal regulatory bodies in
January 2000 to secure approval of the merger. The two companies expect these
regulatory proceedings can be completed by the end of July 2000.

Also in 1999, NU management concluded that the NU system would be stronger and
customers could be better served if NU reentered the natural gas distribution
business that it had exited in 1989 and examined several potential businesses
in New England. By adding gas to NU's energy mix, NU will be able to broaden
its services to its existing customers and will have additional opportunities
for long-term growth. In June 1999, NU announced an agreement to merge with
Yankee Energy System, Inc. (Yankee). The merger will return to NU,
Connecticut's largest natural gas distribution system, as well as several
unregulated businesses involved in energy services, collections and other
areas. The Yankee merger received Yankee shareholder approval in October 1999,
final Connecticut Department of Public Utility Control approval in December
1999 and Securities and Exchange Commission (SEC) approval in January 2000.
The merger closed on March 1, 2000.

Liquidity

During 1999, net cash flows provided by operations were $181.4 million,
compared to $128.7 million in 1998 and $55.6 million in 1997. The increase in
1999 was primarily due to a decrease in tax payments.

Net cash flows used in financing activities were $130 million in 1999,
compared to $75 million in 1998 and $37.6 million in 1997. This included
$70 million to retire long-term debt, compared to $20 million paid in 1998 and
1997. Cash dividends on common shares paid in 1999 were $60 million, compared
to $45 million in 1998 and $25 million in 1997.

Including investments made in the NU System Money Pool, construction
expenditures and investments in nuclear decommissioning trusts, net cash flows
used in investing activities were $51.5 million in 1999, compared to $53.7
million in 1998 and $18.4 million in 1997.

Restructuring

In August 1999, NU, PSNH and the state of New Hampshire signed the Settlement
Agreement which, once approved and implemented, will resolve a number of
pending regulatory and court proceedings related to PSNH. The Settlement
Agreement is awaiting approval of the New Hampshire Public Utilities Commission
and is subject to legislative approval for the issuance of rate reduction bonds
(securitization). Some of the key components of the agreement for PSNH include
an after-tax write-off of $225 million of stranded costs by PSNH; the recovery
of the remaining stranded costs; the securitization of $725 million of approved
stranded costs; a reduction in rates of an average of 18.3 percent; the opening
of the New Hampshire electricity market to competition; and the sale of
generation assets and wholesale power entitlements with transition service
being available to customers for three years.

Upon the approval and implementation of the Settlement Agreement, NAEC and
PSNH will restructure the Seabrook Power Contracts to provide for the buydown
of the value of the Seabrook asset to $100 million. NAEC will utilize the
restructuring payments it receives from PSNH to significantly reduce its
capitalization. Subsequent to the contract buydown, NAEC will continue to
bill PSNH for recovery of the remaining Seabrook cost of $100 million.
NAEC's return on equity will be lowered to 7 percent. The Settlement
Agreement also requires NAEC to sell via public auction its share of Seabrook,
with the sale to occur no later than December 31, 2003. Upon a successful
sale of NAEC's share of Seabrook, the existing Seabrook Power Contracts with
PSNH and NAEC will be terminated. For further information regarding
commitments and contingencies related to restructuring, see Note 7A,
"Commitments and Contingencies - Restructuring," to the financial statements.

Nuclear Generation

Seabrook
Seabrook achieved an annual capacity factor of 86.4 percent in 1999. However,
since returning to service on May 13, 1999, after a 48-day refueling and
maintenance outage, Seabrook has achieved a 99 percent capacity factor through
December 31, 1999.

NAEC anticipates auctioning its 35.98 percent share of Seabrook, with the 4.06
percent owned by its affiliate, CL&P, after approval of the Settlement
Agreement.

Nuclear Decommissioning
The staff of the SEC has questioned certain of the current accounting practices
of the electric utility industry regarding the recognition, measurement and
classification of decommissioning costs for nuclear units in their financial
statements.

Currently, the Financial Accounting Standards Board plans to review the
accounting for obligations associated with the retirement of long-lived assets,
including the decommissioning of nuclear units. If current accounting
practices for nuclear decommissioning change, the annual provision for
decommissioning could increase relative to 1999, and the estimated cost for
decommissioning could be recorded as a liability with recognition of an
increase in the cost of the related nuclear unit. However, management does
not believe that such a change will have a material impact on NAEC's
financial statements.

Spent Nuclear Fuel Disposal Costs
The United States Department of Energy (DOE) originally was scheduled to begin
accepting delivery of spent fuel in 1998. However, delays in confirming the
suitability of a permanent storage site continually have postponed plans for
the DOE's long-term storage and disposal site. Extended delays or a default
by the DOE could lead to consideration of costly alternatives. NAEC has the
primary responsibility for the interim storage of its spent nuclear fuel.
Seabrook is expected to have spent fuel storage capacity until at least 2010.
Meeting spent fuel storage requirements beyond this period could require new
and separate storage facilities. For further information regarding spent
nuclear fuel disposal costs, see Note 7C, "Commitments and Contingencies -
Spent Nuclear Fuel Disposal Costs," to the financial statements.

Market Risk and Risk Management Instruments

NAEC uses swaps to manage its market risk exposures associated with changes in
variable interest rates. NAEC uses these instruments to reduce risk by
essentially creating offsetting market exposures. Based on the derivative
instruments which are currently being utilized by NAEC to hedge some of its
interest rate risks, there may be an impact on earnings upon adoption of
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which management has not
estimated at this time.

Interest Rate Risk Management Instruments
NAEC holds variable-rate, long-term debt, exposing the company to interest
rate risk. In order to hedge some of this risk, interest rate risk management
instruments have been entered into on NAEC's $200 million variable-rate note.
A 10 percent increase in market interest rates above the 1999 weighted average
variable rate during 2000 would result in an immaterial impact on interest
expense.

Other Matters

Environmental Matters
NAEC is subject to environmental laws and regulations structured to mitigate
or remove the effect of past operations and to improve or maintain the quality
of the environment. For further information regarding environmental matters,
see Note 7B, "Commitments and Contingencies - Environmental Matters," to the
financial statements.

Other Commitments and Contingencies
NAEC is subject to other commitments and contingencies primarily relating to
nuclear insurance contingencies, its Seabrook construction program and the
New England Power Pool generation pricing. For further information regarding
these other commitments and contingencies, see Note 7, "Commitments and
Contingencies," to the financial statements.

Year 2000 Issues
The transition into the year 2000 was a success for the NU system and NAEC.
Its mission to provide safe, reliable energy to its customers and to ensure
continued operability of critical business functions was not affected by any
year 2000 related issues.

The projected total cost of the year 2000 program is estimated at $21 million.
The total cost to date was funded through operating cash flows. The NU system
has incurred and expensed $20 million related to year 2000 readiness efforts.

Forward Looking Statements
This discussion and analysis includes forward looking statements, which are
statements of future expectations and not facts. Words such as estimates,
expects, anticipates, intends, plans, and similar expressions identify forward
looking statements. Actual results or outcomes could differ materially as a
result of further actions by state and federal regulatory bodies, competition
and industry restructuring, changes in economic conditions, changes in
historical weather patterns, changes in laws, developments in legal or public
policy doctrines, technological developments, and other presently unknown or
unforeseen factors.

RESULTS OF OPERATIONS

The components of significant income statement variances for the past two
years are provided in the table below.

Income Statement Variances
Millions of Dollars

1999 over/(under) 1998 1998 over/(under) 1997
---------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------

Operating Revenues $11 4% $ 84 44%

Operating Expenses:
Fuel 2 17 - -
Other operation and maintenance 10 19 (12) (20)
Depreciation 2 9 - -
Amortization of regulatory
assets, net - - 79 (a)
Federal and state income taxes (6) (28) 11 (a)
Taxes other than income
taxes 2 17 (1) (8)
Operating Income (4) (8) (3) (5)

Deferred Seabrook return
- other funds (2) (34) - -
Other, net 1 12 (8) (a)
Interest charges, net (1) (3) (1) (2)

Net Income - - - -

(a) Percent greater than 100.

Operating Revenues
Operating revenues represent amounts billed to PSNH under the terms of the
Seabrook Power Contracts and for decommissioning expense.

Operating revenues increased in 1999, primarily due to the higher operating
expenses related to the Seabrook refueling and maintenance outage in 1999.

Operating revenues increased in 1998, primarily due to amounts billed to PSNH
for the amortization of the Seabrook deferred return which began in December
1997.

Fuel
Fuel expense increased in 1999, primarily due to a higher fuel amortization
rate since the Seabrook refueling outage.

Other Operation and Maintenance
Other operation and maintenance (O&M) expenses increased in 1999, primarily
due to higher costs relating to the Seabrook refueling outage.

Other O&M expenses decreased in 1998, primarily due to lower costs associated
with Seabrook outages in 1998.

Depreciation
Depreciation increased in 1999 due to shorter useful lives for 1999 plant
asset additions.

Federal and State Income Taxes
Federal and state income taxes decreased in 1999, primarily due to lower
taxable income.

Federal and state income taxes increased in 1998, primarily due to higher
taxable income.

Taxes Other Than Income Taxes
Taxes other than income taxes increased in 1999, as the result of the New
Hampshire change to a statewide utility property tax in place of the nuclear
station tax.

The change in taxes other than income taxes in 1998 was not significant.

Deferred Seabrook Return - Other Funds
The deferred Seabrook return income decreased in 1999 as NAEC continues to
recover the Seabrook deferred return, reducing the outstanding balance.

Other, Net
Other, net increased in 1999, primarily due to higher interest income on
investments in the NU System Money Pool.

Other, net decreased in 1998, primarily due to the amortization of the taxes
associated with the Seabrook phase-in costs, which began in December 1997.

Interest Charges, Net
Interest charges, net decreased in 1999 and 1998, primarily due to lower
long-term debt outstanding.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of North Atlantic Energy Corporation:

We have audited the accompanying balance sheets of North Atlantic Energy
Corporation (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 1999 and 1998, and the related
statements of income, common stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North Atlantic Energy
Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 7A, Public
Service Company of New Hampshire (PSNH), Northeast Utilities, and the state
of New Hampshire are involved in litigation regarding the proposed
implementation of restructuring legislation. PSNH is the sole customer of
the company. The restructuring legislation as currently contemplated would
require the company to discontinue the application of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation." The discontinuance would result in the company being in
technical default under its current financial covenants, which would, if
not waived or renegotiated, give rise to the rights of lenders to accelerate
the payment of approximately $405 million of the company's indebtedness and
approximately $516 million of PSNH's indebtedness. Although a settlement
agreement on restructuring has been reached among the company, the state of
New Hampshire, and others, implementation is subject to significant
contingencies, including New Hampshire legislative, federal and state
regulatory, and financial lender approvals. These conditions raise substantial
doubt about the company's ability to continue as a going concern. The
financial statements referred to above do not include any adjustments that
might result from the outcome of this uncertainty.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Hartford, Connecticut
January 25, 2000

NORTH ATLANTIC ENERGY CORPORATION

STATEMENTS OF INCOME

- ------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
(Thousands of Dollars)

Operating Revenues................................. $ 287,369 $ 276,685 $ 192,381
---------- ---------- ----------
Operating Expenses:
Operation -
Fuel.......................................... 15,596 13,305 13,405
Other......................................... 41,727 36,763 39,091
Maintenance...................................... 19,030 14,120 24,146
Depreciation..................................... 27,576 25,381 25,170
Amortization of regulatory assets, net........... 85,488 85,464 6,270
Federal and state income taxes................... 34,854 36,194 14,845
Taxes other than income taxes.................... 13,370 11,401 12,393
---------- ---------- ----------
Total operating expenses................... 237,641 222,628 135,320
---------- ---------- ----------
Operating Income................................... 49,728 54,057 57,061
---------- ---------- ----------
Other Income:
Deferred Seabrook return - other funds........... 4,417 6,731 7,205
Other, net....................................... (7,432) (8,435) (747)
Income taxes..................................... 19,131 14,378 4,394
---------- ---------- ----------
Other income, net.......................... 16,116 12,674 10,852
---------- ---------- ----------
Income before interest charges............. 65,844 66,731 67,913
---------- ---------- ----------
Interest Charges:
Interest on long-term debt....................... 45,297 50,082 50,722
Other interest................................... (542) (676) 649
Deferred Seabrook return - borrowed funds........ (8,467) (12,169) (13,411)
---------- ---------- ----------
Interest charges, net...................... 36,288 37,237 37,960
---------- ---------- ----------

Net Income......................................... $ 29,556 $ 29,494 $ 29,953
========== ========== ==========

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

NORTH ATLANTIC ENERGY CORPORATION

BALANCE SHEETS

- -----------------------------------------------------------------------------------------
AT DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------
(Thousands of Dollars)

ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 736,472 $ 753,379

Less: Accumulated provision for depreciation......... 196,694 165,114
------------- -------------
539,778 588,265
Construction work in progress........................... 10,274 7,090
Nuclear fuel, net....................................... 21,149 23,644
------------- -------------
Total net utility plant............................. 571,201 618,999
------------- -------------

Other Property and Investments:
Nuclear decommissioning trusts, at market............... 43,667 35,210
------------- -------------
43,667 35,210
------------- -------------
Current Assets:
Cash.................................................... - 71
Special deposits........................................ 7 11,198
Notes receivable from affiliated companies.............. 56,400 30,350
Accounts receivable from affiliated companies........... 22,840 23,804
Taxes receivable........................................ 11,717 7,887
Materials and supplies, at average cost................. 13,088 12,812
Prepayments and other................................... 1,766 2,198
------------- -------------
105,818 88,320
------------- -------------
Deferred Charges:
Regulatory assets....................................... 129,641 199,882
Unamortized debt expense................................ 1,780 2,742
------------- -------------
131,421 202,624
------------- -------------

Total Assets........................................ $ 852,107 $ 945,153
============= =============

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

NORTH ATLANTIC ENERGY CORPORATION

BALANCE SHEETS

CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $1 par value - 1,000 shares
authorized and outstanding in 1999 and 1998............ $ 1 $ 1
Capital surplus, paid in................................ 160,999 160,999
Retained earnings....................................... 12,752 43,196
------------- -------------
Total common stockholder's equity.............. 173,752 204,196
Long-term debt.......................................... 135,000 405,000
------------- -------------
Total capitalization........................... 308,752 609,196
------------- -------------

Current Liabilities:
Long-term debt - current portion........................ 270,000 70,000
Accounts payable........................................ 11,694 5,924
Accounts payable to affiliated companies................ 806 867
Accrued taxes........................................... - 710
Accrued interest........................................ 2,340 2,987
Other................................................... 272 285
------------- -------------
285,112 80,773
------------- -------------

Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 222,601 209,634
Deferred obligation to affiliated company............... 12,984 22,728
Other................................................... 22,658 22,822
------------- -------------
258,243 255,184
------------- -------------

Total Capitalization and Liabilities........... $ 852,107 $ 945,153
============= =============

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

NORTH ATLANTIC ENERGY CORPORATION

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY

- -----------------------------------------------------------------------------------
Capital Retained
Common Surplus, Earnings
Stock Paid In (a) Total
- -----------------------------------------------------------------------------------
(Thousands of Dollars)

Balance at January 1, 1997 ............. $ 1 $ 160,999 $ 53,749 $ 214,749

Net income for 1997................. 29,953 29,953
Cash dividends on common stock...... (25,000) (25,000)
---------- ---------- --------- ----------
Balance at December 31, 1997............ 1 160,999 58,702 219,702

Net income for 1998................. 29,494 29,494
Cash dividends on common stock...... (45,000) (45,000)
---------- ---------- --------- ----------
Balance at December 31, 1998............ 1 160,999 43,196 204,196

Net income for 1999................. 29,556 29,556
Cash dividends on common stock...... (60,000) (60,000)
---------- ---------- --------- ----------
Balance at December 31, 1999............ $ 1 $ 160,999 $ 12,752 $ 173,752
========== ========== ========= ==========

(a) All retained earnings are available for distribution, plus an allowance of
$10 million.

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

NORTH ATLANTIC ENERGY CORPORATION

STATEMENTS OF CASH FLOWS

- --------------------------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars) 1999 1998 1997
- --------------------------------------------------------------------------------------------------

Operating Activities:
Net income.................................................. $ 29,556 $ 29,494 $ 29,953
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation.............................................. 27,576 25,381 25,170
Amortization of nuclear fuel.............................. 12,642 10,453 10,705
Deferred income taxes and investment tax credits, net..... 452 6,010 22,649
Deferred return - Seabrook................................ (12,884) (18,900) (20,616)
Amortization of regulatory assets, net.................... 85,488 85,464 6,270
Deferred obligation to affiliated company................. (9,744) (9,744) (812)
Other sources of cash..................................... 35,486 18,214 3,370
Changes in working capital:
Receivables............................................... 964 1,891 (9,273)
Materials and supplies.................................... (276) 191 90
Accounts payable.......................................... 5,709 (7,161) (11,835)
Accrued taxes............................................. (710) 710 (3,486)
Other working capital (excludes cash)..................... 7,133 (13,258) 3,429
----------- ----------- -----------
Net cash flows provided by operating activities............... 181,392 128,745 55,614
----------- ----------- -----------
Financing Activities:
Net (decrease)/increase in short-term debt.................. - (9,950) 7,450
Reacquisitions and retirements of long-term debt............ (70,000) (20,000) (20,000)
Cash dividends on common stock.............................. (60,000) (45,000) (25,000)
----------- ----------- -----------
Net cash flows used in financing activities................... (130,000) (74,950) (37,550)
----------- ----------- -----------
Investing Activities:
Investment in plant:
Electric utility plant.................................... (7,895) (9,028) (6,606)
Nuclear fuel.............................................. (9,934) (6,474) (6,147)
----------- ----------- -----------
Net cash flows used for investments in plant.............. (17,829) (15,502) (12,753)

Investment in NU system Money Pool.......................... (26,050) (30,350) -
Investment in nuclear decommissioning trusts................ (7,584) (7,885) (5,597)
----------- ----------- -----------
Net cash flows used in investing activities................... (51,463) (53,737) (18,350)
----------- ----------- -----------
Net (decrease)/increase in cash for the period................ (71) 58 (286)
Cash - beginning of period.................................... 71 13 299
----------- ----------- -----------
Cash - end of period.......................................... $ - $ 71 $ 13
=========== =========== ===========

Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized........................ $ 38,042 $ 42,498 $ 45,297
=========== =========== ===========
Income taxes................................................ $ 3,000 $ 22,136 $ -
=========== =========== ===========

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

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. About North Atlantic Energy Corporation
North Atlantic Energy Corporation (NAEC or the company) along with The
Connecticut Light and Power Company (CL&P), Public Service Company of
New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO),
and Holyoke Water Power Company (HWP) are the operating companies
comprising the Northeast Utilities system (NU system) and are wholly
owned by Northeast Utilities (NU). The NU system serves in excess of
30 percent of New England's electric needs and is one of the 20 largest
electric utility systems in the country as measured by revenues. The
NU system furnishes franchised retail electric service in New Hampshire,
Connecticut and western Massachusetts through PSNH, CL&P and WMECO.
NAEC owns 35.98 percent of the Seabrook Station (Seabrook) nuclear
unit and sells all of its entitlement to the capacity and output of
Seabrook to PSNH under the terms of two life-of-unit, full cost recovery
contracts (Seabrook Power Contracts). HWP, also is engaged in the
production and distribution of electric power.

NU is registered with the Securities and Exchange Commission (SEC) as a
holding company under the Public Utility Holding Company Act of 1935
(1935 Act) and the NU system, including NAEC, is subject to provisions
of the 1935 Act. Arrangements among the NU system companies, outside
agencies and other utilities covering interconnections, interchange of
electric power and sales of utility property are subject to regulation
by the Federal Energy Regulatory Commission (FERC) and/or the SEC.
NAEC is subject to further regulation for rates, accounting and other
matters by the FERC and/or applicable state regulatory commissions.

Several wholly owned subsidiaries of NU provide support services for
the NU system companies and, in some cases, for other New England
utilities. Northeast Utilities Service Company (NUSCO) provides
centralized accounting administrative, information resources,
engineering, financial, legal, operational, planning, purchasing, and
other services to the NU system companies. Northeast Nuclear Energy
Company acts as agent for the NU system companies and other New England
utilities in operating the Millstone nuclear units. North Atlantic
Energy Service Corporation (NAESCO) has operational responsibility for
Seabrook.

On October 13, 1999, NU and Consolidated Edison, Inc. (Con Edison)
announced that they have agreed to a merger to combine the two
companies. For further information, see Note 11, "Merger Agreement
with Con Edison."

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

Certain reclassifications of prior years' data have been made to conform
with the current year's presentation.

All transactions among affiliated companies are on a recovery of cost
basis which may include amounts representing a return on equity and are
subject to approval by various federal and state regulatory agencies.

C. New Accounting Standards
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and hedging activities. This statement will require
derivative instruments utilized by NAEC to be recognized as assets or
liabilities at fair value.

In June 1999, the FASB delayed the adoption date of SFAS No. 133 until
January 1, 2001.

Based on the derivative instruments which currently are being utilized
by NAEC to hedge some of its interest rate risk there may be an impact
on earnings upon adoption of SFAS No. 133 which management has not
estimated at this time.

D. Jointly Owned Electric Utility Plant
Seabrook: NAEC has a 35.98 percent ownership interest in Seabrook,
a 1,148 megawatt nuclear generating unit. NAEC sells all of its share
of the power generated by Seabrook to PSNH under the Seabrook Power
Contracts. NAEC expects to auction its investment in Seabrook upon the
resolution of the restructuring issues in the state of New Hampshire.

NAEC's share of Seabrook's plant-in-service as of December 31, 1999 and
1998, was $728 million and $721.2 million, respectively, and the
accumulated provision for depreciation was $153 million and $130.7
million, respectively.

E. Depreciation
The provision for depreciation is calculated using the straight-line
method based on estimated remaining lives of depreciable utility plant-
in-service, adjusted for salvage value and removal costs, as approved
by the appropriate regulatory agency. Except for major facilities,
depreciation rates are applied to the average plant-in-service during
the period. Major facilities are depreciated from the time they are
placed in service. When plant is retired from service, the original
cost of plant, including costs of removal, less salvage, is charged to
the accumulated provision for depreciation. The costs of closure and
removal of nonnuclear facilities are accrued over the life of the
plant as a component of depreciation. The depreciation rates for the
several classes of electric plant-in-service are equivalent to a
composite rate of 3.8 percent in 1999 and 3.5 percent in 1998 and 1997.

F. Seabrook Power Contracts
NAEC and PSNH have entered into two power contracts that obligate PSNH
to purchase NAEC's share of the capacity and output of Seabrook for the
term of Seabrook's operating license. Under the terms of the power
contracts, PSNH is obligated to pay NAEC's cost of service during this
period, regardless of whether Seabrook is operating. NAEC's cost of
service includes all of its Seabrook-related costs, including operation
and maintenance expenses, fuel expense, income and property tax expense,
depreciation expense, certain overhead and other costs, and a return on
its allowed investment.

The Seabrook Power Contracts established the value of the initial
investment in Seabrook at $700 million. As prescribed by the 1989 rate
agreement between NU, PSNH, and the state of New Hampshire (Rate
Agreement), as of May 1, 1996, NAEC phased into rates 100 percent of the
recoverable portion of its investment in Seabrook. From June 5, 1992
(the date NU acquired PSNH and NAEC acquired Seabrook from PSNH - the
Acquisition Date) through November 1997, NAEC recorded a $203.9 million
deferred return on its investment in Seabrook. At November 30, 1997,
NAEC's utility plant included $84.1 million of the deferred return that
was transferred as part of the Seabrook plant assets to NAEC on the
Acquisition Date.

Beginning on December 1, 1997, the deferred return, including the
portion transferred to NAEC, began to be billed through the Seabrook
Power Contracts to PSNH. The deferred return will be fully recovered
from customers by May 2001. NAEC is depreciating its initial investment
over the term of Seabrook's operating license (39 years), and any
subsequent plant additions are depreciated on a straight-line basis
over the remaining term of the Seabrook Power Contracts at the time
the subsequent additions are placed in service.

Under the current Seabrook Power Contracts, if Seabrook is shut down
prior to the expiration of its operating license, PSNH will be
unconditionally required to pay NAEC termination costs for 39 years,
less the period during which Seabrook has operated. These termination
costs will reimburse NAEC for its share of Seabrook shut-down and
decommissioning costs and will pay NAEC a return of and on any
undepreciated balance of its initial investment over the remaining term
of the Seabrook Power Contracts. In addition, PSNH will pay NAEC a
return of and on any capital additions to the plant made after the
Acquisition Date over a period of five years after shut down (net of
any tax benefits to NAEC attributable to the cancellation).

In August 1999, NU, PSNH and the state of New Hampshire signed the
"Agreement to Settle PSNH Restructuring" (Settlement Agreement) which,
once approved and implemented, will resolve a number of pending
regulatory and court proceedings related to PSNH. The Settlement
Agreement is awaiting approval of the New Hampshire Public Utilities
Commission (NHPUC) and is subject to legislative approval for the
issuance of rate reduction bonds (securitization). The Settlement
Agreement also requires NAEC to sell via public auction its share of
Seabrook, with the sale to occur no later than December 31, 2003.
Upon the approval and implementation of the Settlement Agreement,
NAEC and PSNH will restructure the power contracts to provide for the
buydown of the value of the Seabrook asset to $100 million. Upon a
successful sale of NAEC's share of Seabrook, the existing Seabrook Power
Contracts between NAEC and PSNH will be terminated. However, PSNH will
continue to be responsible for funding NAEC's ownership share of
Seabrook's decommissioning liability.

G. Regulatory Accounting and Assets
The accounting policies of NAEC and the accompanying financial
statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of
the rate-making process in accordance with SFAS No. 71, "Accounting
for the Effects of Certain Types of Regulation." Assuming a cost-of-
service based regulatory structure, regulators may permit incurred
costs, normally treated as expenses, to be deferred and recovered
through future revenues. Through their actions, regulators may also
reduce or eliminate the value of an asset, or create a liability.
If any portion of NAEC's operations were no longer subject to the
provisions of SFAS No. 71, the company would be required to write off
all of its related regulatory assets and liabilities unless there is a
formal transition plan that provides for the recovery, through
established rates, for the collection of these costs through a portion
of the business, which would remain regulated on a cost-of-service
basis. At the time of transition, NAEC would be required to determine
any impairment to the carrying costs of deregulated plant and
inventory assets.

Based on a current evaluation of the various factors and conditions
that are expected to impact future cost recovery, management continues
to believe it is probable that NAEC will recover its investments in
long-lived assets, including regulatory assets. In addition, all
material regulatory assets are earning a return. The components of
NAEC's regulatory assets are as follows:

------------------------------------------------------------------------
At December 31, 1999 1998
------------------------------------------------------------------------
(Millions of Dollars)
Deferred costs-Seabrook..................... $ 88.5 $147.1
Income taxes, net........................... 35.6 39.5
Recoverable energy costs.................... 1.7 1.9
Unamortized loss on reacquired debt......... 3.8 11.4
------ ------
$129.6 $199.9
====== ======
------------------------------------------------------------------------

At this time, management continues to believe that the application of
SFAS No. 71 remains appropriate. If the Settlement Agreement, as
filed, is approved by the NHPUC and implemented, then NAEC will
discontinue the application of SFAS No. 71. At that time, PSNH will
make a payment to NAEC to buydown the Seabrook Power Contracts. NAEC
will reduce the Seabrook asset to $100 million and will write off any
remaining regulatory assets.

H. Income Taxes
The tax effect of temporary differences (differences between the periods
in which transactions affect income in the financial statements and the
periods in which they affect the determination of taxable income) is
accounted for in accordance with the rate-making treatment of the
applicable regulatory commissions.

The tax effect of temporary differences, including timing differences
accrued under previously approved accounting standards, which give rise
to the accumulated deferred tax obligation is as follows:

------------------------------------------------------------------------
At December 31, 1999 1998
------------------------------------------------------------------------
(Millions of Dollars)
Accelerated depreciation and
other plant-related differences.......... $205.1 $182.2
Regulatory assets - income tax gross up.... 12.2 13.6
Other...................................... 5.3 13.8
------ ------
$222.6 $209.6
====== ======

------------------------------------------------------------------------
I. Recoverable Energy Costs
Under the Energy Policy Act of 1992 (Energy Act), NAEC is assessed for
its proportionate shares of the costs of decontaminating and
decommissioning uranium enrichment plants owned by the United States
Department of Energy (DOE) (D&D Assessment). The Energy Act requires
that regulators treat D&D Assessments as a reasonable and necessary
current cost of fuel, to be fully recovered in rates, like any other
fuel cost. NAEC is currently recovering these costs through the
Seabrook Power Contracts. As of December 31, 1999 and 1998, NAEC's
total D&D Assessment deferral was $1.7 million and $1.9 million,
respectively.

J. Deferred Cost - Seabrook
Under the Rate Agreement, the plant costs of Seabrook were phased into
rates over a 7-year period beginning May 15, 1991. Total costs deferred
under the phase-in plan were $288 million. Total deferred costs
outstanding at December 31, 1999 and 1998 were $88.5 million and $147.1
million, respectively. This plan is accounted for in compliance with
SFAS No. 92, "Regulated Enterprises - Accounting for Phase-In Plans."
The costs will be fully recovered from PSNH's customers by May 2001.

K. Interest Rate Risk Management Instruments
NAEC utilizes market risk management instruments to hedge well-defined
risks associated with variable interest rates. To qualify for hedge
treatment, the underlying hedged item must expose the company to risks
associated with market fluctuations and the market risk management
instrument used must be designated as a hedge and must reduce the
company's exposure to market fluctuations throughout the period.
Amounts receivable or payable under interest rate management instruments
are accrued and offset against interest expense.

2. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS
Seabrook: Under the terms of the Rate Agreement, PSNH is obligated to pay
NAEC's share of Seabrook's decommissioning costs, even if the unit is shut
down prior to the expiration of its operating license. Accordingly, NAEC
bills PSNH directly for its share of the costs of decommissioning Seabrook.
Under New Hampshire law, Seabrook decommissioning funding requirements are
set by the New Hampshire Nuclear Decommissioning Financing Committee
(NDFC). During April 1999, the NDFC issued an order that adjusted the
decommissioning collection period and funding levels assuming that
Seabrook's anticipated energy producing life was 25 years from the date
it went into commercial operation. Decommissioning collections are now
expected to be completed by October 2015. The cost of funding
decommissioning Seabrook is now being accrued over the estimated remaining
accelerated funding period that was ordered by the NDFC.

Upon retirement, Seabrook must be decommissioned. Current decommissioning
studies conclude that complete and immediate dismantlement as soon as
practical after retirement continues to be the most viable and economic
method of decommissioning a unit. These studies are reviewed and updated
periodically to reflect changes in decommissioning requirements, costs,
technology, and inflation. Changes in requirements or technology, the
timing of funding or dismantling or adoption of a decommissioning method
other than immediate dismantlement would change decommissioning cost
estimates and the amounts required to be recovered.

The estimated cost of decommissioning NAEC's share of Seabrook, in year
end 1999 dollars is $203.3 million. Nuclear decommissioning costs are
accrued over the expected service life of the unit and are included in
depreciation expense. Nuclear decommissioning expenses for the unit
amounted to $6.8 million in 1999, $4.7 million in 1998 and $4.5 million
in 1997. Nuclear decommissioning, as a cost of removal, is included in
the accumulated provision for depreciation.

Payments for NAEC's ownership share of the cost of decommissioning Seabrook
are paid to an independent decommissioning financing fund managed by the
state of New Hampshire. Funding of the estimated decommissioning costs
assumes escalated collections and after-tax earnings on the Seabrook
decommissioning fund of 6.5 percent.

As of December 31, 1999 and 1998, NAEC has paid $32.7 million and $25.6
million (including payments made prior to the Acquisition Date by PSNH),
into Seabrook's decommissioning financing fund. Earnings on the
decommissioning financing fund increase the decommissioning trust balance
and the accumulated reserve for depreciation. Unrealized gains and losses
associated with the decommissioning financing fund also impact the balance
of the trust and the accumulated reserve for depreciation. The fair
values of the amounts in the external decommissioning trust for NAEC were
$43.7 million and $35.2 million at December 31, 1999 and 1998,
respectively.

3. SHORT-TERM DEBT
Limits: The amount of short-term borrowings that may be incurred by NAEC
is subject to periodic approval by either the SEC under the 1935 Act or by
its state regulator. SEC authorization allowed NAEC, as of January 1,
1999, to incur short-term borrowings up to a maximum of $60 million.

Money Pool: Certain subsidiaries of NU, including NAEC, are members of the
Northeast Utilities System Money Pool (Pool). The Pool provides a more
efficient use of the cash resources of the NU system, and reduces outside
short-term borrowings. NUSCO administers the Pool as agent for the member
companies. Short-term borrowing needs of the member companies are first
met with available funds of other member companies, including funds
borrowed by NU parent. NU parent may lend to the Pool but may not borrow.
Funds may be withdrawn from or repaid to the Pool at any time without prior
notice. Investing and borrowing subsidiaries receive or pay interest
based on the average daily federal funds rate. Borrowings based on loans
from NU parent, however, bear interest at NU parent's cost and must be
repaid based upon the terms of NU parent's original borrowing. At
December 31, 1999 and 1998, NAEC had no borrowings outstanding from
the Pool.

4. LONG-TERM DEBT
Details of long-term debt outstanding are:

------------------------------------------------------------------------
At December 31, 1999 1998
------------------------------------------------------------------------
(Millions of Dollars)

First Mortgage Bonds:
9.05% Series A, due 2002.................... $205 $275
Notes:
Variable - Rate Facility, due 2000.......... 200 200

Less amounts due within one year............ 270 70
---- ----
Long-term debt, net........................... $135 $405
==== ====
------------------------------------------------------------------------

Long-term debt maturities and cash sinking fund requirements on debt
outstanding at December 31, 1999, for the years 2000 through 2004 are
$270 million, $70 million and $65 million for years 2000 through 2002,
respectively, and no requirements for 2003 and 2004.

Essentially all utility plant of NAEC is subject to the liens of the
company's first mortgage bond indenture.

Interest rate swaps effectively fix the interest rate of NAEC's $200
million variable-rate bank note at interest rates ranging from 5.81
percent to 6.07 percent.

5. INCOME TAX EXPENSE
The components of the federal and state income tax provisions were
charged/(credited) to operations as follows:

---------------------------------------------------------------------------
For the Years Ended December 31, 1999 1998 1997
---------------------------------------------------------------------------
(Millions of Dollars)
Current income taxes:
Federal.............................. $15.1 $15.2 $(11.9)
State................................ 0.2 0.6 (0.3)
----- ----- ------
Total current...................... 15.3 15.8 (12.2)
----- ----- ------
Deferred income taxes, net:
Federal.............................. 0.4 4.0 21.5
State................................ - 2.0 1.1
----- ----- ------
Total deferred..................... 0.4 6.0 22.6
----- ----- ------
Total income tax expense............... $15.7 $21.8 $ 10.4
===== ===== ======
---------------------------------------------------------------------------

The components of total income tax expense/(credit) are classified
as follows:

Deferred income taxes are comprised of the tax effects of temporary
differences as follows:

Depreciation........................... $ 19.5 $ 21.8 $20.8
Bond redemptions....................... (2.8) (2.8) (2.4)
Seabrook deferred return............... (15.7) (14.2) 3.4
Other.................................. (0.6) 1.2 0.8
------ ------ -----
Deferred income taxes, net........... $ 0.4 $ 6.0 $22.6
====== ====== =====
---------------------------------------------------------------------------

A reconciliation between income tax expense and the expected tax expense
at 35 percent of pretax income is as follows:

Expected federal income tax............ $15.8 $18.0 $14.1
Tax effect of differences:
Amortization of regulatory assets.... 7.0 7.1 (0.3)
Depreciation......................... (3.2) 1.6 (0.5)
Deferred Seabrook return............. (1.5) (2.4) (2.5)
State income taxes,
net of federal benefit 0.1 1.7 0.5
Allocation of Parent Company's loss.. (2.1) (3.9) (0.6)
Other, net........................... (0.4) (0.3) (0.3)
----- ----- -----
Total income tax expense............... $15.7 $21.8 $10.4
===== ===== =====
---------------------------------------------------------------------------

6. DEFERRED OBLIGATION TO AFFILIATED COMPANY
At the time PSNH emerged from bankruptcy on May 16, 1991, in accordance
with the phase-in under the Rate Agreement, it began to accrue a deferred
return on the unphased-in portion of its Seabrook investment. From May 16,
1991 to the Acquisition Date, PSNH accrued a deferred return of $50.9
million. On the Acquisition Date, PSNH transferred the $50.9 million
deferred return to NAEC as part of the Seabrook-related assets.

At the time PSNH transferred the deferred return to NAEC, it realized,
for income tax purposes, a gain that was deferred under the consolidated
income tax rules. Beginning December 1, 1997, the gain is being amortized
into income for income tax purposes as the deferred return of $50.9
million, and the associated income taxes of $33.2 million, are collected
by NAEC through the Seabrook Power Contracts scheduled to end in May 2001.
As NAEC recovers the $33.2 million in years eight through ten of the Rate
Agreement, corresponding payments are being made to PSNH. The balance of
the deferred obligation to PSNH at December 31, 1999 and 1998, was $13
million and $22.7 million, respectively.

7. COMMITMENTS AND CONTINGENCIES

A. Restructuring
In August 1999, NU, PSNH and the state of New Hampshire signed a
Settlement Agreement intended to settle a number of pending regulatory
and court proceedings related to PSNH. Parties to the agreement
included the governor of New Hampshire, the Governor's Office of Energy
and Community Service, the New Hampshire attorney general, certain
members of the staff of the NHPUC, PSNH, and NU. The Settlement
Agreement was submitted to the NHPUC on August 2, 1999, and is awaiting
approval. If approved by the NHPUC, the Settlement Agreement would
resolve 11 NHPUC dockets and PSNH's federal lawsuit which had enjoined
the state of New Hampshire from implementing its restructuring
legislation, would require PSNH to write off $225 million after-tax of
its stranded costs and would allow for the recovery of the remaining
amount. Also, implementation of the Settlement Agreement is contingent
upon securitization. Securitization requires the initial approval
of the NHPUC and final approval from the New Hampshire Legislature via
enactment of appropriate legislation. Other approvals are also required
from various federal and state regulatory agencies and financial
lenders.

The Settlement Agreement also requires NAEC to auction its Seabrook
investment. Once NAEC's share of Seabrook is sold, the existing
Seabrook Power Contracts between NAEC and PSNH will be terminated.
However, PSNH will continue to pay NAEC's ownership share of Seabrook's
decommissioning liability.

B. Environmental Matters
The NU system, including NAESCO on behalf of NAEC, is subject to
environmental laws and regulations intended to mitigate or remove
the effect of past operations and improve or maintain the quality
of our environment. As such, the NU system and NAESCO, have an
active environmental auditing and training program and believes it
is in compliance with the current laws and regulations.

However, the normal course of operations may necessarily involve
activities and substances that expose NAEC to potential liabilities of
which management cannot determine the outcome. Additionally, management
cannot determine the outcome for liabilities that may be imposed for
past acts, even though such past acts may have been lawful at the time
they occurred. Management does not believe, however, that this will
have a material impact on NAEC's financial statements.

C. Spent Nuclear Fuel Disposal Costs
Under the Nuclear Waste Policy Act of 1982, NAEC must pay the DOE for
the disposal of spent nuclear fuel and high-level radioactive waste.
The DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive
waste. Fees for nuclear fuel burned are billed currently to customers
and paid to the DOE on a quarterly basis.

D. Nuclear Insurance Contingencies
Insurance policies covering NAEC's ownership share of Seabrook have
been purchased for the primary cost of repair, replacement or
decontamination of utility property and certain extra costs for repair,
replacement or decontamination or premature decommissioning of utility
property.

NAEC is subject to retroactive assessments if losses under those
policies exceed the accumulated funds available to the insurer. The
maximum potential assessments against NAEC, including costs resulting
from PSNH's contracts with NAEC, with respect to losses arising during
the current policy year for the primary property insurance program and
the excess property damage policies are $2.1 million and $3.2 million,
respectively. In addition, insurance has been purchased by the NU
system in the aggregate amount of $200 million on an industry basis for
coverage of worker claims.

Under certain circumstances, in the event of a nuclear incident at one
of the nuclear facilities covered by the federal government's third-
party liability indemnification program, the NU system, including NAEC,
could be assessed liabilities in proportion to its ownership interest
in each of its nuclear units up to $83.9 million. The NU system's
payment of this assessment would be limited to, in proportion to its
ownership interest, $10 million in any one year per nuclear unit.
In addition, if the sum of all claims and costs from any one nuclear
incident exceeds the maximum amount of financial protection, the NU
system would be subject to an additional 5 percent or $4.2 million
liability, in proportion to its ownership interest in each of its
nuclear units. Under the terms of the Seabrook Power Contracts with
NAEC, PSNH could be obligated to pay for any assessment charged to NAEC
as a cost of service. Based upon NAEC's ownership interest in Seabrook,
PSNH's maximum liability, including any additional assessments, would
be $31.3 million per incident, of which payments would be limited to
$3.6 million per year.

E. Seabrook Construction Program
NAEC currently forecasts construction expenditures for its share of
Seabrook to be $9.7 million for the years 2000-2001, including
approximately $4.6 million for 2000. In addition, NAEC estimates that
its share of Seabrook nuclear fuel requirements will be $46.3 million
for the years 2000-2003, including $14.8 million for 2000.

F. New England Power Pool (NEPOOL) Generation Pricing
Disputes with respect to interpretation and implementation of the
NEPOOL market rules have arisen with respect to various competitive
product markets. In certain cases, NAEC stands to gain as a result of
resolution of such disputes. In other cases, NAEC could incur
additional costs as the result of resolution of the disputes. The
various disputes are in various stages of resolution through alternative
dispute resolution and regulatory review. It is too early to tell the
level of potential gain or loss that may result upon resolution
of these issues.

8. MARKET RISK AND MANAGEMENT INSTRUMENTS
Interest Rate Risk Management: NAEC uses swap instruments with financial
institutions to hedge against interest rate risk associated with its $200
million variable-rate bank note. Under the agreements, NAEC exchanges
quarterly payments based on a differential between a fixed contractual
interest rate and the 3-month LIBOR rate at a given time. As of
December 31, 1999 and 1998, NAEC had outstanding agreements with a total
notional value of $200 million and mark-to-market positions of positive
$0.5 million and negative $2.3 million, respectively.

Credit Risk: These agreements have been made with various financial
institutions, each of which is rated "A3" or better by Moody's Investors
Service rating group. NAEC is exposed to credit risk on its respective
market risk management instruments if the counterparties fail to perform
their obligations. Management anticipates that the counterparties will
fully satisfy their obligations under the agreements.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each of the following financial instruments:

Cash and cash equivalents: The carrying amounts approximate fair
value due to the short-term nature of cash and cash equivalents.

Nuclear decommissioning trust: The investments held in NAEC's nuclear
decommissioning fund were adjusted to market by $3.2 million as of
December 31, 1999, and by $2.3 million as of December 31, 1998, with
corresponding offsets to the accumulated provision for depreciation.
The amounts adjusted in 1999 and 1998 represent cumulative gross unrealized
holding gains. The cumulative gross unrealized holding losses were
immaterial for 1999 and 1998.

Long-term debt: The fair value of NAEC's fixed-rate security is based
upon the quoted market price for that issue or similar issue. The
adjustable rate security is assumed to have a fair value equal to its
carrying value.

The carrying amounts of NAEC's financial instruments and the estimated
fair values are as follows:

--------------------------------------------------------------------------
At December 31, 1999
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
First mortgage bonds....................... $205.0 $207.8
Other long-term debt....................... $200.0 $200.0
-------------------------------------------------------------------------

--------------------------------------------------------------------------
At December 31, 1998
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
First mortgage bonds....................... $275.0 $284.5
Other long-term debt....................... $200.0 $200.0
-------------------------------------------------------------------------

10. SEGMENT INFORMATION
Effective January 1, 1999, the NU system companies, including NAEC,
adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The NU system is organized between regulated
utilities and unregulated energy services. NAEC is included in the
regulated utilities segment of the NU system and has no other reportable
segments.

11. MERGER AGREEMENT WITH CON EDISON
On October 13, 1999, NU and Con Edison announced that they have agreed
to a merger to combine the two companies. The shareholders of NU will
receive $25 per share in a combination of cash and Con Edison common
stock.

NU shareholders also have the right to receive an additional $1 per share
if a definitive agreement to sell its interests (other than that now held
by PSNH) in Millstone 2 and 3 is entered into and recommended by the
Utility Operations and Management Unit of the Connecticut Department of
Public Utility Control on or prior to the later of December 31, 2000, or
the closing of the merger. Further, the value of the amount of cash or
common stock to be received by NU shareholders is subject to increase by
an amount of $0.0034 per share per day for each day that the transaction
does not close after August 5, 2000.

Upon completion of the merger, NU will become a wholly owned subsidiary of
Con Edison. The purchase is subject to the approval of the shareholders
of both companies and several regulatory agencies. The companies
anticipate that these regulatory procedures will be completed by July 2000.

North Atlantic Energy Corporation

- -----------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
(Thousands of Dollars)

Operating Revenues..................... $287,369 $276,685 $ 192,381 $ 162,152 $ 157,183

Operating Income....................... 49,728 54,057 57,061 54,889 51,394

Net Income............................. 29,556 29,494 29,953 32,072 24,441

Cash Dividends on Common Stock......... 60,000 45,000 25,000 38,000 24,000

Total Assets........................... 852,107 945,153 1,014,639 1,017,388 1,014,649

Long-Term Debt (a)..................... 405,000 475,000 495,000 515,000 560,000

- -----------------------------------------------------------------------------------------------------------
CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Quarter Ended
- -----------------------------------------------------------------------------------------------------------
1999 March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------
(Thousands of Dollars)

Operating Revenues..................... $70,289 $77,203 $69,779 $70,098
======= ======= ======= =======
Operating Income....................... $12,475 $12,303 $12,122 $12,828
======= ======= ======= =======
Net Income............................. $ 6,461 $ 6,243 $ 6,442 $10,410
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------
1998
- -----------------------------------------------------------------------------------------------------------
Operating Revenues..................... $68,169 $69,627 $69,087 $69,802
======= ======= ======= =======
Operating Income....................... $13,648 $13,365 $13,159 $13,885
======= ======= ======= =======
Net Income............................. $ 6,909 $ 8,303 $ 7,170 $ 7,112
======= ======= ======= =======

- -----------------------------------------------------------------------------------------------------------
STATISTICS (Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Gross Electric Utility
Plant at December 31,
(Thousands of Dollars)............... $767,895 $784,113 $811,140 $816,446 $806,892
======== ======== ======== ======== ========

kWh Sales (Millions) for the
year ended December 31,.............. $ 3,125 $ 3,018 $ 2,859 $ 3,542 $ 3,016
======== ======== ======== ======== ========

(a) Includes portion due within one year.