2000 Annual Report

Western Massachusetts Electric Company and Subsidiary

Index

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

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

Report of Independent Public Accountants.......................... 10

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

Consolidated Statements of Comprehensive Income................... 11

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

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

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

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

Selected Consolidated Financial Data.............................. 38

Consolidated Quarterly Financial Data (Unaudited)................. 38

Consolidated Statistics (Unaudited)............................... 39

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

Western Massachusetts Electric Company and Subsidiary

- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------

FINANCIAL CONDITION
- -------------------

Overview
- --------

The Western Massachusetts Electric Company's (WMECO or the company) earnings
totaled $35.3 million in 2000, compared with $2.9 million in 1999 and a loss
of $9.6 million in 1998. WMECO is an operating company in the Northeast
Utilities system (NU system) and is wholly owned by Northeast Utilities (NU).
WMECO benefited from the return to service of the Millstone 2 unit in May 1999,
the strong performance of the Millstone 2 and 3 units in 2000 and the absence
of restructuring charges in 2000. Millstone 2 operated at a capacity factor
of 82 percent in 2000, while Millstone 3 operated at a capacity factor of
virtually 100 percent in 2000. In 2000, WMECO's revenues increased to $513.7
million, up 24 percent from $414.2 million in 1999, primarily due to higher
wholesale and retail revenues. Revenues were $393.3 million in 1998.

Consolidated Edison, Inc. Merger
- --------------------------------

In 2000, NU and Consolidated Edison, Inc. (Con Edison) received most of the
approvals needed to complete the merger announced in October 1999.
Shareholders from both companies approved the merger in April 2000, and all
state regulatory approvals were granted by the end of the year. Additionally,
the Federal Energy Regulatory Commission (FERC) approved the merger in May
2000, the Nuclear Regulatory Commission approved the transaction in August
2000, and the United States Department of Justice approved the merger in
February 2001. Necessary approval from the Securities and Exchange Commission
(SEC) was expected to be received in mid-March 2001.

On February 28, 2001, NU's Board of Trustees requested that Con Edison provide
reasonable assurance, in writing, that it intended to comply with the terms of
the definitive merger agreement between the two companies. This included
assurances that Con Edison would consummate the pending merger at the price set
forth in the agreement promptly following the receipt of SEC approval. The
original request for assurance was to be received by March 2, 2001, however,
that date was later extended to March 5, 2001. On March 5, 2001, Con Edison
advised NU that it was not willing to close the merger on the agreed terms.
NU notified Con Edison that it was treating its refusal to proceed on the terms
set forth in the merger agreement as a repudiation and breach of the merger
agreement, and that NU would file suit to obtain the benefits of the
transaction as negotiated for NU shareholders. On March 6, 2001, Con Edison
filed suit in the U.S. District Court for the Southern District of New York
(Southern District), seeking declaratory judgment that NU failed to satisfy
conditions precedent under the merger agreement. On March 12, 2001, NU filed
suit against Con Edison in the Southern District seeking damages in excess of
$1 billion arising from Con Edison's breach of the merger agreement. NU cannot
predict the outcome of this matter nor its effect on NU.

Liquidity
- ---------

WMECO's net cash flows provided by operating activities from operations
increased to $71.5 million in 2000 compared to $2.1 million in 1999 and $27.6
million in 1998. The increase in cash flows from operations is primarily
attributable to increased earnings and higher amortization of regulatory
assets, a noncash expense. Cash flows from operations were more than adequate
to meet the payment of WMECO's common and preferred dividends ($14.8 million)
and investments in electric utility plant, nuclear fuel and nuclear
decommissioning trusts ($38.6 million). The level of common dividends totaled
$12 million in 2000, as compared to no common dividends paid in 1999 and 1998.
WMECO currently forecasts construction expenditures of $26.6 million for the
year 2001.

The transfer of 1,289 megawatts (MW) of hydroelectric generation assets to
Northeast Generation Company, an affiliated company, from WMECO and The
Connecticut Light and Power Company (CL&P) in March 2000, produced a
significant source of cash for WMECO and CL&P. WMECO used this cash primarily
to retire long-term debt and to return equity capital to the parent company.
During 2000, $94.2 million of long-term debt was retired compared to $100.9
million in 1999 and $9.8 million in 1998.

In November 2000, WMECO and CL&P reduced their revolving credit agreement to
$350 million from $500 million to reflect lower borrowing needs post-
restructuring. This agreement was renewed with more favorable terms as a
result of the NU system's improving credit profile. In January 2001, Moody's
Investors Service and Standard and Poor's upgraded their credit ratings for
WMECO primarily as a result of the anticipated sale of the Millstone units
and NU's general financial recovery. In February 2001, Fitch IBCA upgraded
its credit ratings for WMECO. These upgrades return WMECO's unsecured debt
to investment grade ratings for the first time in five years and will save
the NU system in excess of $4.7 million annually in financing costs.

For further information regarding the WMECO's borrowing facilities, see
Note 2, "Short-Term Debt," to the consolidated financial statements.

In 2001, NU expects to reduce the capitalization of its regulated electric
operating companies significantly as a result of continued asset sales and
securitization of stranded costs. WMECO expects to receive gross proceeds
of $196.2 million as a result of the sale of its ownership interest in the
Millstone units to Dominion Resources, Inc. (Dominion). This sale is expected
to close as early as the end of March 2001. The cash proceeds are expected to
be used to repay subsidiary debt and capital lease obligations and to return
equity capital to the parent company.

During February 2001, the Massachusetts Department of Telecommunications and
Energy (DTE) approved the securitization of $155 million of stranded costs by
WMECO. A significant portion of those proceeds will be used to buyout a
purchased-power contract with the remainder used to retire WMECO's debt and to
return equity capital to the parent company. Securitization for WMECO is
expected to take place early in the second quarter of 2001.

Restructuring
- -------------

As a result of industry restructuring, WMECO stopped supplying power directly
to customers in 2000. Instead, WMECO became an energy delivery company,
delivering electricity to customers that is produced by other companies and
sometimes bought by customers through intermediaries. In 2000, customers in
Massachusetts had the option of choosing alternative power suppliers or relying
on WMECO to acquire the power for them through standard offer service.

WMECO continues to generate power through either direct ownership of generating
plants, such as Millstone 2 and 3, or through purchased-power contracts. WMECO
sold its share of the capacity associated with Millstone 2 and 3 to Select
Energy, Inc. and five unaffiliated companies. These contracts will expire on
December 31, 2001. The revenues generated from these contracts are expected to
recover WMECO's share of the nuclear operating costs through the divestiture
of the Millstone units.

In 2000, WMECO supplied power to standard offer customers at a rate of slightly
more than $0.045 per kilowatt-hour. As a result of new one-year standard offer
supply contracts signed in December 2000, that rate will increase significantly
in 2001 to approximately $0.073 per kilowatt-hour. In January 2001, the DTE
approved an average overall rate increase of approximately 17.4 percent for
WMECO standard offer customers, allowing WMECO to fully recover these increased
power procurement costs. A higher rate was also approved for customers who
take default service from WMECO. Under the new standard offer contracts, three
unaffiliated companies provide up to 630 MW of power to WMECO's standard offer
customers and one unaffiliated company serves WMECO's default load of up to
70 MW through December 31, 2001. WMECO renegotiates its standard offer supply
contracts on an annual basis.

For further information regarding commitments and contingencies related to
restructuring, see Note 9A, "Commitments and Contingencies - Restructuring,"
to the consolidated financial statements.

Regional Transmission Organization
- ----------------------------------

Pursuant to FERC Order 888 (issued in April 1996), the NU system companies,
including WMECO, operate their transmission system under an open access,
nondiscriminatory transmission tariff.

In December 1999, the FERC issued an order calling on all transmission owners
to voluntarily join Regional Transmission Organizations (RTOs) in order to
boost competition in electric markets. In general, each of these organizations
would be an independent operator over all transmission facilities, and would
perform, among other functions, tariff administration, construction planning
and reliability management for the particular regional transmission system.
NU's active voting interest in such an organization would be limited to 5
percent under the proposal.

The NU system companies, including WMECO, and other parties have appealed this
order. Of primary concern to NU is the ratemaking authority granted to RTOs
and its impact on the ability of transmission owners to earn appropriate
returns on their transmission investment under the organizational structure
and the minimum functions proposed in the order. The NU system companies,
including WMECO, were required to participate in a collaborative process
established by the FERC beginning in March of 2000. On January 16, 2001,
NU along with the Independent System Operator and five other New England
transmission owning utilities filed a proposal to establish a New England
RTO.

Nuclear Plant Performance And Divestiture
- -----------------------------------------

Millstone
The Millstone units completed one of their best years ever in 2000.
Millstone 2 operated at a capacity factor of 82 percent in 2000 and completed
a refueling outage in early June more than four days ahead of schedule. The
40-day, 21-hour outage set a world record for a refueling that included a
full generator rewind. Millstone 3 operated at virtually a 100 percent
capacity factor in 2000 and ran for 585 consecutive days before beginning a
scheduled refueling outage on February 3, 2001. Millstone 3 is expected to
return to service by the end of the first quarter of 2001.

On August 7, 2000, WMECO and certain other joint owners reached an agreement
to sell substantially all of the Millstone units, located in Waterford,
Connecticut, to Dominion, for approximately $1.3 billion, including
approximately $105 million for nuclear fuel. Dominion has also agreed to assume
responsibility for decommissioning the three units and NU will transfer to
Dominion all funds in the Millstone decommissioning trust. Additionally, NU is
obligated to top-off the decommissioning trust if its value does not equal an
agreed upon amount at closing. That amount is pursuant to the purchase and
sale agreement (PSA) with Dominion, subject to adjustment for delays in the
closing of the sale and Millstone 1 not meeting the "cold and dark" condition
specified in the PSA.

If the transaction is consummated as proposed, WMECO would receive gross
proceeds of approximately $196.2 million on a pretax basis for its respective
ownership interest. The proceeds from the sale of this interest will be used
to reduce the company's stranded costs under restructuring and the cash
proceeds will be used to repay subsidiary debt and capital lease obligations
and to return equity capital to the parent company.

In preparation for the divestiture of the Millstone units, it was discovered
that two full-length irradiated fuel rods are missing. NU believes that the
two rods remain stored in the Millstone 1 spent fuel pool or were shipped in
a shielded cask to a facility licensed to accept radioactive material. NU's
investigation into the location of the two rods is ongoing. NU is responsible
for any potential liabilities, which are not determinable at this time, related
to these missing fuel rods.

NU currently expects to close on the sale of Millstone as early as the end
of March 2001.

Yankee Companies
In 1999, the Vermont Yankee Nuclear Power Corporation (VYNPC) agreed to sell
its nuclear generating unit for $22 million to an unaffiliated company. Among
other commitments, the acquiring company agreed to assume the obligation to
decommission the unit after it is taken out of service, and the owners of VYNPC
(including WMECO) agreed to fund their shares of the decommissioning costs up
to a negotiated amount. Subsequent to the time that agreement was executed,
the original proposed acquiring company increased its purchase price and three
other unaffiliated companies have indicated their interest in buying VYNPC's
generating unit on terms that have not been disclosed. On February 14, 2001,
the Vermont Public Service Board dismissed the acquiring company's petition for
approval and VYNPC agreed to work with the Vermont regulators to develop an
auction process for the sale of the unit. At present, WMECO expects that the
unit will be sold, but the identity of the owner and the terms of sale,
including price, future decommissioning obligations and future power purchase
obligations, are not known.

Nuclear Decommissioning
In connection with the aforementioned sale of the Millstone units, Dominion has
agreed to assume responsibility for decommissioning the Millstone units.

For further information regarding nuclear decommissioning, see Note 10,
"Nuclear Decommissioning and Plant Closure Costs," to the consolidated
financial statements.

Spent Nuclear Fuel Disposal Costs
The United States Department of Energy (DOE) originally was scheduled to begin
accepting delivery of spent nuclear 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. WMECO has the primary responsibility for the interim storage of
its spent nuclear fuel prior to divestiture of its nuclear units.

For further information regarding spent nuclear fuel disposal costs, see
Note 9D, "Commitments and Contingencies - Spent Nuclear Fuel Disposal Costs,"
to the consolidated financial statements.

Other Matters
- -------------

Environmental Matters
WMECO 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 9C, "Commitments and Contingencies - Environmental Matters," to the
consolidated financial statements.

Other Commitments and Contingencies
For further information regarding other commitments and contingencies, see
Note 9, "Commitments and Contingencies," to the consolidated financial
statements.

Forward Looking Statements
This discussion and analysis includes forward looking statements, which are
statements of future expectations and not facts including, but not limited to,
statements regarding future earnings, refinancings, the use of proceeds from
restructuring, and the recovery of operating costs. 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)

2000 over/(under) 1999 1999 over/(under) 1998
-----------------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------

Operating Revenues $ 99 24% $ 21 5%

Operating Expenses:
Fuel, purchased and net
interchange power 95 62 21 16
Other operation (26) (25) (16) (13)
Maintenance (14) (30) (9) (16)
Depreciation (10) (36) (13) (32)
Amortization of
regulatory assets, net 21 80 20 (a)
Federal and state
income taxes 2 12 17 (a)
Taxes other than
income taxes (3) (14) 1 5
Gain on sale of
utility plant 22 100 (22) -
---- --- ---- ---
Total operating expenses 87 23 (1) -
---- --- ---- ---
Operating income 12 30 22 (a)
---- --- ---- ---

Other Income:
Equity in earnings of
regional nuclear
generating and
transmission companies 2 (a) (1) (76)
Nuclear related costs 15 84 (18) -
Other, net 5 (a) (2) (90)
Other income taxes (4) (39) 8 (a)
Net other income 18 (a) (13) (a)
Interest charges, net (2) (7) (4) (12)
---- --- ---- ---
Net income/(loss) $ 32 (a) $ 13 (a)
==== === ==== ===

(a) Percent greater than 100.

Operating Revenues
Operating revenues increased by $99 million or 24 percent in 2000, primarily
due to higher wholesale and retail revenues. Wholesale revenues increased
($82 million) as a result of the sale of output from Millstone 2 and 3, and
the amortization of the gain on the transfer of certain hydroelectric
generation assets ($6 million). Retail revenues increased by $11 million due
to retail rate increases in late 1999 and early 2000. Retail sales compared
to 1999 were flat.

Operating revenues increased by $21 million or 5 percent in 1999, primarily due
to higher wholesale and retail revenues. Wholesale revenues increased ($17
million) due to higher energy sales and related capacity and transmission
revenues. Retail revenues increased by $4 million due to the retail kilowatt-
hour sales increase of 3.6 percent which increased revenues by $16 million and
was partially offset by the retail rate decrease in 1998 ($12 million).

Fuel, Purchased and Net Interchange Power
Fuel, purchased and net interchange power expense increased in 2000, primarily
due to the transition, under industry restructuring, of purchasing full
requirements for customers from standard offer suppliers, in addition to the
remaining fuel costs of the nuclear units and cogenerators.

Fuel, purchased and net interchange power expense increased in 1999, primarily
due to a reversal of fuel expense deferrals which were recorded in other
operation and maintenance (O&M) expenses as a result of the WMECO restructuring
order, partially offset by lower replacement power costs.

Other Operation and Maintenance
Other O&M expenses decreased in 2000, primarily due to lower spending at the
nuclear units ($17 million), the decommissioning status of Millstone 1 ($7
million), lower administrative and general expenses ($14 million), lower fossil
and hydroelectric expenses due to the sale of certain fossil generation assets
and transfer of certain hydroelectric generation assets ($6 million), partially
offset by higher transmission expenses ($4 million).

Other O&M expenses decreased in 1999, primarily due to lower costs at the
Millstone units ($17 million), deferrals associated with the restructuring
order ($5 million), and lower fossil and hydroelectric O&M costs ($4 million),
partially offset by higher transmission expenses ($4 million).

Depreciation
Depreciation decreased in 2000, primarily due to the effect of discontinuing
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation," for the generation portion of the business and
the resulting reclassification of depreciable nuclear plant balances to
regulatory assets ($14 million), the sale of certain fossil generation assets
and the transfer of certain hydroelectric generation assets.

Depreciation decreased in 1999, primarily due to lower rates utilized in 1999
as a result of the 1999 restructuring orders and the retirement of Millstone 1.

Amortization of Regulatory Assets, Net
Amortization of regulatory assets, net increased in 2000, primarily due to
changes in amortization levels as a result of industry restructuring ($24
million) and higher amortization associated with the reclassified nuclear plant
balances ($14 million), partially offset by the amortization in 1999 of the
gain on the sale of the fossil plants ($12 million).

Amortization of regulatory assets, net increased in 1999, primarily due to
increased amortization associated with the gain on the sale of fossil and
hydroelectric generation assets ($13 million), the amortization of the
Millstone 1 investment ($5 million) and the reclassification of the
depreciation on the nuclear plants transferred to regulatory assets
($4 million).

Federal and State Income Taxes
Federal and state income taxes increased in 2000 and 1999, primarily due
to higher book taxable income.

Taxes Other Than Income Taxes
Taxes other than income taxes decreased in 2000, primarily due to a decrease
in local property taxes.

Gain on Sale of Utility Plant
WMECO recorded a gain on the sale of its fossil and hydroelectric generation
assets in 1999. A corresponding amount of amortization expense was recorded.

Nuclear Related Costs
Nuclear related costs in 2000 are comprised of a settlement of Millstone 3
joint owner litigation, net of insurance proceeds ($2 million), and a
regulatory settlement ($1 million).

In comparison, costs in 1999 are comprised of one-time charges related to the
return disallowed on Millstone 1 unrecovered plant from March 1998 forward
($11 million), the settlement of Millstone 3 owner litigation, net of insurance
proceeds ($5 million) and the disallowed Millstone 1 plant per the
Massachusetts restructuring order ($2 million).

Other, Net
Other, net, increased in 2000, primarily due to an environmental reserve
recorded in 1999 ($3 million).

Interest Charges, Net
Interest charges, net, decreased in 2000 and 1999, primarily due to
reacquisitions and retirements of long-term debt, partially offset by an
increase in interest charges related to short-term borrowings.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------

To the Board of Directors
of Western Massachusetts Electric Company:

We have audited the accompanying consolidated balance sheets of Western
Massachusetts Electric Company (a Massachusetts corporation and a wholly owned
subsidiary of Northeast Utilities) and subsidiary as of December 31, 2000 and
1999, and the related consolidated statements of income, comprehensive income,
common stockholder's equity and cash flows for each of the three years in the
period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. 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 Western Massachusetts
Electric Company and subsidiary as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Hartford, Connecticut
January 23, 2001 (except with
respect to the matter discussed
in Note 14, as to which the
date is March 13, 2001)

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

- ---------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998
- ---------------------------------------------------------------------------------
(Thousands of Dollars)

Operating Revenues............................. $ 513,678 $ 414,231 $ 393,322
---------- ---------- ----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power. 246,130 151,714 130,401
Other..................................... 75,940 101,842 117,663
Maintenance.................................. 33,111 47,586 56,622
Depreciation................................. 17,693 27,771 40,901
Amortization of regulatory assets............ 47,775 26,488 6,016
Federal and state income taxes............... 21,174 18,849 2,109
Taxes other than income taxes................ 17,759 20,677 19,756
Gain on sale of utility plant................ - (22,437) -
---------- ---------- ----------
Total operating expenses............... 459,582 372,490 373,468
---------- ---------- ----------
Operating Income............................... 54,096 41,741 19,854
---------- ---------- ----------

Other Income/(Loss):
Equity in earnings of regional nuclear
generating companies....................... 2,251 407 1,699
Nuclear related costs........................ (2,808) (18,035) -
Other, net................................... 1,242 (3,618) (1,905)
Income taxes................................. 6,029 9,906 2,198
---------- ---------- ----------
Other income/(loss), net............... 6,714 (11,340) 1,992
---------- ---------- ----------
Income before interest charges......... 60,810 30,401 21,846
---------- ---------- ----------
Interest Charges:
Interest on long-term debt................... 14,051 24,255 28,027
Other interest............................... 11,491 3,259 3,398
---------- ---------- ----------
Interest charges, net.................. 25,542 27,514 31,425
---------- ---------- ----------

Net Income/(Loss).............................. $ 35,268 $ 2,887 $ (9,579)
========== ========== ==========

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Net Income/(Loss).............................. $ 35,268 $ 2,887 $ (9,579)
---------- ---------- ----------
Other comprehensive income, net of tax:
Unrealized gains on securities............... 22 10 183
Minimum pension liability adjustments........ - - (33)
---------- ---------- ----------
Other comprehensive income, net of tax. 22 10 150
---------- ---------- ----------
Comprehensive Income/(Loss) $ 35,290 $ 2,897 $ (9,429)
========== ========== ==========

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

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

- ---------------------------------------------------------------------------------------
AT DECEMBER 31, 2000 1999
- ---------------------------------------------------------------------------------------
(Thousands of Dollars)

ASSETS
- ------

Utility Plant, at original cost:
Electric................................................ $ 1,112,405 $ 1,175,954

Less: Accumulated provision for depreciation......... 792,923 813,978
------------- ------------
319,482 361,976
Construction work in progress........................... 22,813 21,181
Nuclear fuel, net....................................... 18,296 18,880
------------- ------------
Total net utility plant.............................. 360,591 402,037
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 144,921 144,567
Investments in regional nuclear generating
companies, at equity................................... 11,117 14,723
Other, at cost.......................................... 6,249 6,232
------------- ------------
162,287 165,522
------------- ------------
Current Assets:
Cash.................................................... 985 950
Receivables less the accumulated provision for
uncollectible accounts of $1,886 in 2000 and
$1,640 in 1999......................................... 36,364 31,692
Accounts receivable from affiliated companies........... 16,146 3,918
Taxes receivable........................................ - 1,912
Accrued utility revenues................................ 21,222 13,485
Fuel, materials and supplies, at average cost........... 1,606 3,097
Prepayments and other................................... 4,817 3,640
------------- ------------
81,140 58,694
------------- ------------
Deferred Charges:
Regulatory assets....................................... 392,247 594,800
Unamortized debt expense................................ 1,822 1,926
Prepaid pension......................................... 45,473 26,479
Other................................................... 4,258 4,146
------------- ------------
443,800 627,351
------------- ------------

Total Assets.............................................. $ 1,047,818 $ 1,253,604
============= ============

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

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES
- ------------------------------

Capitalization:
Common stock, $25 par value - authorized
1,072,471 shares; 590,093 shares outstanding in 2000
and 1,072,471 shares outstanding in 1999............... $ 14,752 $ 26,812
Capital surplus, paid in................................ 94,010 171,691
Retained earnings....................................... 62,952 38,712
Accumulated other comprehensive income.................. 182 160
------------- ------------
Total common stockholder's equity.............. 171,896 237,375
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 15,000 16,500
Long-term debt.......................................... 139,425 290,279
------------- ------------
Total capitalization........................... 346,321 564,154
------------- ------------
Obligations Under Capital Leases.......................... 5,935 8,106
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 110,000 123,000
Notes payable to affiliated company..................... 600 9,400
Long-term debt and preferred stock - current portion.... 61,500 1,500
Obligations under capital leases - current portion...... 20,986 21,866
Accounts payable........................................ 25,298 12,974
Accounts payable to affiliated companies................ 8,611 3,208
Accrued taxes........................................... 8,471 589
Accrued interest........................................ 4,703 6,046
Other................................................... 7,671 14,384
------------- ------------
247,840 192,967
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 224,711 242,942
Accumulated deferred investment tax credits............. 17,580 19,765
Decommissioning obligation - Millstone 1................ 136,130 136,130
Deferred contractual obligations........................ 42,519 63,701
Other................................................... 26,782 25,839
------------- ------------
447,722 488,377
------------- ------------
Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities...................... $ 1,047,818 $ 1,253,604
============= ============

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

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY

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

Balance at January 1, 1998............... $ 26,812 $151,171 $ 58,608 $ - $236,591

Net loss for 1998.................... (9,579) (9,579)
Cash dividends on preferred stock.... (3,026) (3,026)
Capital stock expenses, net.......... 260 260
Other comprehensive income........... 150 150
--------- --------- --------- ------------- ---------
Balance at December 31, 1998............. 26,812 151,431 46,003 150 224,396

Net income for 1999.................. 2,887 2,887
Cash dividends on preferred stock.... (3,298) (3,298)
Capital stock expenses, net.......... 260 260
Allocation of benefits - ESOP........ (6,880) (6,880)
Capital contribution from
Northeast Utilities................ 20,000 20,000
Other comprehensive income........... 10 10
--------- --------- --------- ------------- ---------
Balance at December 31, 1999............. 26,812 171,691 38,712 160 237,375

Net income for 2000.................. 35,268 35,268
Cash dividends on preferred stock.... (2,798) (2,798)
Cash dividends on common stock....... (12,002) (12,002)
Repurchase of common stock........... (12,060) (77,940) (90,000)
Capital stock expenses, net.......... 259 259
Tax benefit for 1993-1999 from
reduction of NU parent losses(b)... 3,824 3,824
Allocation of benefits - ESOP........ (52) (52)
Other comprehensive income........... 22 22
--------- --------- --------- ------------- ---------
Balance at December 31, 2000............. $ 14,752 $ 94,010 $ 62,952 $ 182 $171,896
========= ========= ========= ============= =========

(a) The company has no dividend restrictions. However, the company has a
30% common equity test to meet and therefore, at December 31, 2000, cannot
pay out approximately $31.5 million in equity.

(b) In June 1999, WMECO paid NU parent $6.9 million for NU shares issued from
1992 through 1998 on behalf of its employees in accordance with NU's 401(k)
plan. This transaction resulted in a reduction of the NU parent loss and
a tax benefit to WMECO. The amount in 2000 represents the remaining
previously unallocated 1993 through 1999 NU parent losses.

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

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

- --------------------------------------------------------------------------------------------------
For the Years Ended December 31,
- --------------------------------------------------------------------------------------------------
(Thousands of Dollars) 2000 1999 1998
- --------------------------------------------------------------------------------------------------

Operating Activities:
Net income/(loss)........................................... $ 35,268 $ 2,887 $ (9,579)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation.............................................. 17,693 27,771 40,901
Deferred income taxes and investment tax credits, net..... (11,549) (6,544) 7,405
Amortization of recoverable energy costs, net............. 9,386 - -
Amortization of regulatory assets, net.................... 47,775 26,488 6,016
Tax benefit for 1993-1999 from
reduction of NU parent losses........................... 3,824 - -
Nuclear related costs..................................... 2,808 18,035 -
Allocation of ESOP benefits............................... (52) (6,880) -
Gain on sale of utility plant............................. - (22,437) -
Other uses of cash........................................ (28,834) (24,096) (6,553)
Changes in working capital:
Receivables and accrued utility revenues.................. (24,637) (44,045) 1,622
Fuel, materials and supplies.............................. 1,491 1,956 807
Accounts payable.......................................... 17,727 (14,636) (20,962)
Investments in securitizable assets....................... - 21,865 3,415
Accrued taxes............................................. 7,882 (675) 742
Other working capital (excludes cash)..................... (7,321) 22,368 3,748
----------- ----------- -----------
Net cash flows provided by operating activities............... 71,461 2,057 27,562
----------- ----------- -----------
Investing Activities:
Investments in plant:
Electric utility plant.................................... (27,267) (30,192) (19,895)
Nuclear fuel.............................................. (7,848) (5,817) (1,801)
----------- ----------- -----------
Net cash flows used for investments in plant.............. (35,115) (36,009) (21,696)

Investments in nuclear decommissioning trusts............... (3,437) (11,387) (12,918)
Other investment activities, net............................ 3,589 1,807 (171)
Net proceeds from the transfer/sale of utility plant........ 185,787 48,524 -
Capital contributions from Northeast Utilities.............. - 20,000 -
----------- ----------- -----------
Net cash flows provided by/(used in) investing activities..... 150,824 22,935 (34,785)
----------- ----------- -----------

Financing Activities:
Net (decrease)/increase in short-term debt.................. (21,800) 81,500 21,550
Reacquisitions and retirements of long-term debt............ (94,150) (100,850) (9,800)
Reacquisitions and retirements of preferred stock........... (1,500) (1,500) (1,500)
Repurchase of common shares................................. (90,000) - -
Cash dividends on preferred stock........................... (2,798) (3,298) (3,026)
Cash dividends on common stock.............................. (12,002) - -
----------- ----------- -----------
Net cash flows (used in)/provided by financing activities..... (222,250) (24,148) 7,224
----------- ----------- -----------

Net increase in cash for the period........................... 35 844 1
Cash - beginning of period.................................... 950 106 105
----------- ----------- -----------
Cash - end of period.......................................... $ 985 $ 950 $ 106
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid/(refunded) during the year for:
Interest, net of amounts capitalized........................ $ 26,055 $ 30,958 $ 22,902
=========== =========== ===========
Income taxes................................................ $ 18,554 $ (6,296) $ (2,624)
=========== =========== ===========
Increase in obligations:
Niantic Bay Fuel Trust...................................... $ 1,532 $ 1,112 $ 2,375
=========== =========== ===========

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. About Western Massachusetts Electric Company
Western Massachusetts Electric Company (WMECO or the company) along
with The Connecticut Light and Power Company (CL&P), Public Service
Company of New Hampshire (PSNH), North Atlantic Energy Corporation
(NAEC), 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 25 largest electric utility systems in the country as measured by
revenues. The NU system furnishes franchised retail electric service
in western Massachusetts, Connecticut and New Hampshire through WMECO,
CL&P and PSNH. NAEC sells all of its entitlement to the capacity and
output of the Seabrook Station nuclear unit (Seabrook) to PSNH under
the terms of two life-of-unit, full cost recovery contracts. HWP,
also is engaged in the production and distribution of electric power.

On March 1, 2000, NU completed its acquisition of Yankee Energy
System, Inc., the parent company of Yankee Gas Services Company,
Connecticut's largest natural gas distribution system.

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 WMECO, 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. WMECO is subject to further
regulation for rates, accounting and other matters by the FERC and
the Massachusetts Department of Telecommunications and Energy (DTE).

Several wholly owned subsidiaries of NU provide support services for
the NU system companies, including WMECO, 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, including
WMECO. 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
has operational responsibility for Seabrook.

B. Presentation
The consolidated financial statements of WMECO include the accounts of
its subsidiary. Intercompany transactions have been eliminated in
consolidation.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 and the DTE.

C. New Accounting Standards
Derivative Instruments: Effective January 1, 2001, WMECO adopted
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended. SFAS No. 133 requires that derivative instruments be
recorded as an asset or liability measured at its fair value and that
changes in the fair value of derivative instruments be recognized
currently in earnings unless specific hedge accounting criteria are
met.

In order to implement SFAS No. 133 by January 1, 2001, NU established
a cross-functional project team to identify all derivative
instruments, measure the fair value of those derivative instruments,
designate and document various hedge relationships, and evaluate the
effectiveness of those hedge relationships. NU has completed the
process of identifying all derivative instruments and has established
appropriate fair value measurements of those derivative instruments in
place at January 1, 2001. In addition, for those derivative
instruments which are hedging an identified risk, NU has designated
and documented all hedging relationships anew.

Management believes the adoption of this new standard will not have a
material impact on WMECO's financial position or results of
operations.

Revenue Recognition: In December 1999, the SEC issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." The
adoption of SAB No. 101, as amended, did not have a material impact
on WMECO's consolidated financial statements.

D. Investments and Jointly Owned Electric Utility Plant
Regional Nuclear Generating Companies: WMECO owns common stock in four
regional nuclear companies (Yankee Companies). WMECO's ownership
interests in the Yankee Companies at December 31, 2000 and 1999, which
are accounted for on the equity method due to WMECO's ability to
exercise significant influence over their operating and financial
policies are 9.5 percent of the Connecticut Yankee Atomic Power
Company (CYAPC), 7 percent of the Yankee Atomic Electric Company
(YAEC), 3 percent of the Maine Yankee Atomic Power Company (MYAPC),
and 2.5 percent of the Vermont Yankee Nuclear Power Corporation
(VYNPC). WMECO's total equity investment in the Yankee Companies at
December 31, 2000 and 1999, is $11.1 million and $14.7 million,
respectively. Each Yankee Company owns a single nuclear generating
unit. However, VYNPC is the only unit still in operation at
December 31, 2000.

Millstone: WMECO has a 19 percent joint ownership in both
Millstone 1, a 660 megawatt (MW) nuclear unit, which is currently in
decommissioning status, and Millstone 2, an 870 MW nuclear generating
unit. WMECO has a 12.24 percent joint ownership interest in
Millstone 3, a 1,154 MW nuclear generating unit. On August 7, 2000,
WMECO and certain other joint owners reached an agreement to sell
substantially all of the Millstone units to Dominion Resources, Inc.
(Dominion) for approximately $1.3 billion, including approximately
$105 million for nuclear fuel. NU currently expects to close on the
sale of Millstone as early as the end of March 2001.

Plant-in-service and the accumulated provision for depreciation for
WMECO's share of Millstone 2 and 3 are as follows:

----------------------------------------------------------------------
At December 31, 2000 1999
----------------------------------------------------------------------
(Millions of Dollars)

Plant-in-service
Millstone 2............................. $182.3 $180.4
Millstone 3............................. 382.7 380.5
Accumulated provision for depreciation
Millstone 2............................. $174.5 $166.7
Millstone 3............................. 357.3 358.7
----------------------------------------------------------------------

E. Depreciation
The provision for depreciation is calculated using the straight-line
method based on estimated remaining useful lives of depreciable
utility plant-in-service, adjusted for salvage value and removal
costs, as approved by the appropriate regulatory agency where
applicable. 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 the 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 2.2 percent in 2000, 2.3 percent in 1999 and 2.9 percent in
1998.

As a result of discontinuing the application of SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," for
WMECO's generation business in 1999, the company recorded a charge
to accumulated depreciation for the nuclear plant in excess of the
estimated fair market value at the time in the amount of $330 million
and a corresponding regulatory asset was created.

F. Revenues
Revenues are based on authorized rates applied to each customer's use
of electricity. In general, rates can be changed only through a
formal proceeding before the DTE. Regulatory commissions also have
authority over the terms and conditions of nontraditional rate-making
arrangements. At the end of each accounting period, WMECO accrues a
revenue estimate for the amount of energy delivered but unbilled.

G. Regulatory Accounting and Assets
The accounting policies of WMECO and the accompanying consolidated
financial statements conform to accounting principles generally
accepted in the United States applicable to rate-regulated enterprises
and historically reflect the effects of the rate-making process in
accordance with SFAS No. 71. As a result of final restructuring
orders issued in 1999, WMECO discontinued the application of SFAS
No. 71 for the generation portion of its business.

WMECO's transmission and distribution business will continue to be
cost-based and management believes the application of SFAS No. 71
continues to be appropriate. Management continues to believe it is
probable that WMECO will recover its investments in long-lived assets,
including regulatory assets through charges to their transmission and
distribution customers. The majority for WMECO will be recovered
through a transition charge over a 12-year period. In addition, all
material regulatory assets are earning a return. The components of
WMECO's regulatory assets are as follows:

----------------------------------------------------------------------
At December 31, 2000 1999
----------------------------------------------------------------------
(Millions of Dollars)

Recoverable nuclear costs............... $257.7 $428.9
Income taxes, net....................... 50.3 49.0
Unrecovered contractual obligations..... 42.5 63.7
Recoverable energy costs, net........... 6.9 16.3
Other................................... 34.8 36.9
------ ------
$392.2 $594.8
====== ======
----------------------------------------------------------------------

As a result of discontinuing the application of SFAS No. 71 in 1999
for WMECO's generation business, the company reclassified nuclear
plant in excess of its estimated fair market value from plant to
regulatory assets. As of December 31, 2000 and 1999, excluding the
impact of the transfer of generation assets to Northeast Generation
Company in 2000, the unamortized balance ($286.9 million and $316.1
million, respectively) is classified as recoverable nuclear costs.
Also included in that regulatory asset component for 2000 and 1999
are $104.9 million and $112.8 million, respectively, which includes
Millstone 1 recoverable nuclear costs relating to the recoverable
portion of the undepreciated plant and related assets ($39.6 million
and $43.8 million, respectively) and the decommissioning and closure
obligation ($65.3 million and $69 million, respectively).

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, that give rise
to the accumulated deferred tax obligation is as follows:

----------------------------------------------------------------------
At December 31, 2000 1999
----------------------------------------------------------------------
(Millions of Dollars)

Accelerated depreciation and
other plant-related differences....... $193.7 $213.4

Regulatory assets -
income tax gross up................... 19.5 19.0

Other................................... 11.5 10.5
------ ------
$224.7 $242.9
====== ======
----------------------------------------------------------------------

I. Unrecovered Contractual Obligations
Under the terms of contracts with the Yankee Companies, the
shareholder-sponsored companies, including WMECO, are responsible for
their proportionate share of the remaining costs of the units,
including decommissioning. As management expects that WMECO will be
allowed to recover these costs from its customers, WMECO has recorded
a regulatory asset, with a corresponding obligation, on its
consolidated balance sheet.

J. Recoverable Energy Costs
Under the Energy Policy Act of 1992 (Energy Act), WMECO is assessed
for its proportionate share 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. WMECO is currently recovering these costs through rates.
As of December 31, 2000 and 1999, WMECO's total D&D Assessment
deferrals were $8.6 million and $9.6 million, respectively.

2. SHORT-TERM DEBT
Limits: The amount of short-term borrowings that may be incurred by WMECO
is subject to periodic approval by either the SEC under the 1935 Act or by
state regulators. Currently, SEC authorization allows WMECO to incur
total short-term borrowings up to a maximum of $250 million. In addition,
the charter of WMECO contains preferred stock provisions restricting the
amount of unsecured debt the company may incur. As of December 31, 2000,
WMECO's charter permits WMECO to incur $94 million of additional
unsecured debt.

Credit Agreement: On November 17, 2000, WMECO and CL&P entered into a
364-day revolving credit facility for $350 million, replacing the previous
$500 million facility which was to expire on November 17, 2000. WMECO may
draw up to $150 million under the facility which, until the nuclear
divestiture, is secured by second mortgages on Millstone 2 and 3. Once
WMECO and CL&P receive the proceeds from securitization, the $350 million
revolving credit facility will be reduced to $250 million, with a $100
million limit for WMECO. Unless extended, the credit facility will expire
on November 16, 2001. At December 31, 2000 and 1999, there were $110
million and $123 million, respectively, in borrowings under these
facilities.

Under the aforementioned credit agreement, WMECO may borrow at fixed or
variable rates plus an applicable margin based upon certain debt ratings,
as rated by the lower of Standard and Poor's or Moody's Investors Service.
The weighted average interest rate on WMECO's notes payable to banks
outstanding on December 31, 2000 and 1999, was 8.05 percent and 7.70
percent, respectively. Maturities of short-term debt obligations were for
periods of three months or less.

This credit agreement provides that WMECO must comply with certain
financial and nonfinancial covenants as are customarily included in such
agreements, including, but not limited to, common equity ratios and
interest coverage ratios. WMECO currently is and expects to remain in
compliance with these covenants.

Money Pool: Certain subsidiaries of NU, including WMECO, 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, 2000 and 1999, WMECO had $0.6 million and $9.4 million,
respectively, of borrowings outstanding from the Pool. The interest rate
on borrowings from the Pool at December 31, 2000 and 1999, was 5.4 percent
and 4.9 percent, respectively.

3. LEASES
WMECO finances its respective shares of the nuclear fuel for Millstone 2
and 3 under the Niantic Bay Fuel Trust (NBFT) capital lease agreement.
This capital lease agreement has an expiration date of June 1, 2040. At
December 31, 2000 and 1999, the present value of WMECO's capital lease
obligation to the NBFT was $26.6 million and $29.8 million, respectively.
In connection with the planned nuclear divestiture, the NBFT capital lease
will be terminated, the nuclear fuel will be transferred to Dominion and
the related $180 million Series G Intermediate Term Note Agreement will be
extinguished with the divestiture proceeds.

WMECO makes quarterly lease payments for the cost of nuclear fuel consumed
in the reactors based on a units-of-production method at rates which
reflect estimated kilowatt-hours of energy provided plus financing costs
associated with the fuel in the reactors. Upon permanent discharge from
the reactors, WMECO's ownership interest in the nuclear fuel transfers to
WMECO.

WMECO also has entered into lease agreements, some of which are capital
leases, for the use of data processing and office equipment, vehicles,
nuclear control room simulators, and office space. The provisions of
these lease agreements generally provide for renewal options.

Capital lease rental payments charged to operating expense were $9.6
million in 2000, $2.6 million in 1999 and $4.1 million in 1998. Interest
included in capital lease rental payments was $2.8 million in 2000, $3.1
million in 1999 and $2.8 million in 1998. Operating lease rental payments
charged to expense were $3.2 million in 2000, $4.8 million in 1999 and
$5.8 million in 1998.

Future minimum rental payments, excluding annual nuclear fuel lease
payments and executory costs such as property taxes, state use taxes,
insurance, and maintenance, under long-term noncancelable leases, as
of December 31, 2000, are as follows:

--------------------------------------------------------------------------
Year Capital Leases Operating Leases
--------------------------------------------------------------------------
(Millions of Dollars)

2001................................ $ 0.1 $ 3.5
2002................................ 0.1 3.4
2003................................ 0.1 3.1
2004................................ - 2.8
2005................................ - 2.6
After 2005.......................... - 13.1
----- -----
Future minimum lease payments....... 0.3 $28.5
=====
Present value of future nuclear
fuel lease payments............... 26.6
-----
Present value of future minimum
lease payments.................... $26.9
=====
--------------------------------------------------------------------------

4. PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock not subject to mandatory redemption are as
follows:

--------------------------------------------------------------------------
December 31, Shares
2000 Outstanding December 31,
Redemption December 31, -------------
Description Price 2000 2000 1999
--------------------------------------------------------------------------
(Millions of Dollars)

7.72% Series B of 1971 $103.51 200,000 $20.0 $20.0
--------------------------------------------------------------------------

5. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
Details of preferred stock subject to mandatory redemption are as
follows:

7.60% Series of 1987 $25.26 660,000 $16.5 $18.0

Less preferred stock
to be redeemed
within one year 60,000 1.5 1.5
----- -----
$15.0 $16.5
===== =====
--------------------------------------------------------------------------

This series is subject to certain refunding limitations for the first five
years after issuance. The redemption price reduces in future years.

The minimum sinking fund requirements of the series subject to mandatory
redemption aggregate $1.5 million per year for each year for 2001 through
2005. In case of default on sinking fund payments, no payments may be
made on any junior stock by way of dividends or otherwise (other than in
shares of junior stock) so long as the default continues. If WMECO is in
arrears in the payment of dividends on any outstanding shares of preferred
stock, WMECO is prohibited from redeeming or purchasing less than all of
the outstanding preferred stock.

6. LONG-TERM DEBT
Details of long-term debt outstanding are as follows:

--------------------------------------------------------------------------
At December 31, 2000 1999
--------------------------------------------------------------------------
(Millions of Dollars)
First Mortgage Bonds:
7 3/8% Series B, due 2001................... $ 60.0 $ 60.0
7 3/4% Series V, due 2002................... 40.0 84.2
7 3/4% Series Y, due 2024................... - 50.0
------ ------
100.0 194.2
Pollution Control Notes:
Tax Exempt 1993 Series A, 5.85% due 2028.. 53.8 53.8
Fees and interest due for spent nuclear
fuel disposal costs....................... 45.6 43.0
Less amounts due within one year............ 60.0 -
Unamortized premium and discount, net....... - (0.7)
------ ------
Long-term debt, net......................... $139.4 $290.3
====== ======
--------------------------------------------------------------------------

Long-term debt maturities and cash sinking fund requirements, excluding
fees and interest due for spent nuclear fuel disposal costs, on debt
outstanding at December 31, 2000, for the years 2001 through 2005 are
$60 million, $40 million, and no requirements for 2003, 2004 and 2005.

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

WMECO has secured $53.8 million of pollution control notes with second
mortgage liens on Millstone 1, junior to the liens of its first mortgage
bond indenture.

7. 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, 2000 1999 1998
--------------------------------------------------------------------------
(Millions of Dollars)
Current income taxes:
Federal...................................... $ 15.8 $ 13.5 $ (7.4)
State........................................ 10.9 2.0 (0.1)
------ ------ ------
Total current.............................. 26.7 15.5 (7.5)
------ ------ ------
Deferred income taxes, net:
Federal.................................... (0.8) (3.5) 6.5
State...................................... (8.6) (0.9) 2.4
------ ------ ------
Total deferred........................... (9.4) (4.4) 8.9
------ ------ ------
Investment tax credits, net.................. (2.1) (2.2) (1.5)
------ ------ ------
Total income tax expense/(credit)............ $ 15.2 $ 8.9 $ (0.1)
====== ====== ======
--------------------------------------------------------------------------

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

Income taxes charged to operating expenses... $21.2 $18.8 $ 2.1
Other income taxes........................... (6.0) (9.9) (2.2)
----- ----- -----
Total income tax expense/(credit)............ $15.2 $ 8.9 $(0.1)
===== ===== =====
--------------------------------------------------------------------------

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

--------------------------------------------------------------------------
For the Years Ended December 31, 2000 1999 1998
--------------------------------------------------------------------------
(Millions of Dollars)
Depreciation, leased nuclear fuel,
settlement credits and disposal costs...... $ 0.9 $ (2.3) $ 5.8
Regulatory deferral.......................... (16.4) (1.4) 1.3
Regulatory disallowance...................... - (4.2) -
Pension accruals............................. 5.9 4.2 1.0
Other........................................ 0.2 (0.7) 0.8
----- ----- -----
Deferred income taxes, net................... $(9.4) $(4.4) $ 8.9
===== ===== =====
--------------------------------------------------------------------------

A reconciliation between income tax expense/(credit) and the expected tax
expense/(credit) at 35 percent of pretax income/(loss) is as follows:

--------------------------------------------------------------------------
For the Years Ended December 31, 2000 1999 1998
--------------------------------------------------------------------------
(Millions of Dollars)
Expected federal income tax.................. $17.6 $ 4.1 $(3.4)
Tax effect of differences:
Depreciation............................... (1.2) 0.2 2.2
Amortization of regulatory assets.......... 1.3 6.2 0.9
Investment tax credit amortization......... (2.1) (2.2) (1.5)
State income taxes, net of
federal benefit.......................... 1.5 0.7 1.5
Dividends received deduction............... (1.7) (0.4) (0.7)
Other, net................................. (0.2) 0.3 0.9
----- ----- -----
Total income tax expense/(credit)............ $15.2 $ 8.9 $(0.1)
===== ===== =====
--------------------------------------------------------------------------

8. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The NU system companies, including WMECO, participate in a uniform
noncontributory defined benefit retirement plan covering substantially
all regular NU system employees. Benefits are based on years of service
and the employees' highest eligible compensation during 60 consecutive
months of employment. WMECO's portion of the NU system's total pension
credit, part of which was credited to utility plant, was $19 million in
2000, $10.8 million in 1999 and $7.4 million in 1998.

Currently, WMECO's policy is to annually fund an amount at least equal
to that which will satisfy the requirements of the Employee Retirement
Income Security Act and Internal Revenue Code.

The NU system companies, including WMECO, also provide certain health
care benefits, primarily medical and dental, and life insurance benefits
through a benefit plan to retired employees. These benefits are available
for employees retiring from WMECO who have met specified service
requirements. For current employees and certain retirees, the total
benefit is limited to two times the 1993 per retiree health care cost.
These costs are charged to expense over the estimated work life of the
employee. WMECO annually funds postretirement costs through external
trusts with amounts that have been rate-recovered and which also are
tax deductible.

Pension and trust assets are invested primarily in domestic and
international equity securities and bonds.

The following table represents information on the plans' benefit
obligation, fair value of plan assets, and the respective plans' 7
funded status:

- -------------------------------------------------------------------------------
At December 31,
- -------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
- -------------------------------------------------------------------------------
(Millions of Dollars) 2000 1999 2000 1999
- -------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation
at beginning of year......... $(118.1) $(118.7) $(29.5) $(30.1)
Service cost................... (2.2) (2.4) (0.4) (0.5)
Interest cost.................. (8.9) (8.5) (2.2) (2.1)
Plan amendment................. - (7.3) - -
Transfers...................... 0.5 0.2 - -
Actuarial (loss)/gain.......... (3.0) 10.2 (0.5) 0.4
Benefits paid.................. 8.2 7.8 2.6 2.6
Settlements and other.......... 2.4 0.6 0.7 0.2
- -------------------------------------------------------------------------------
Benefit obligation
at end of year............... $(121.1) $(118.1) $(29.3) $(29.5)
- -------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year......... $ 223.9 $ 201.6 $ 16.6 $ 14.6
Actual return on plan assets... (0.9) 29.9 0.8 1.7
Employer contribution.......... - - 2.5 2.9
Benefits paid.................. (8.2) (7.8) (2.6) (2.6)
Transfers...................... (0.5) 0.2 - -
- -------------------------------------------------------------------------------
Fair value of plan assets
at end of year............... $ 214.3 $ 223.9 $ 17.3 $ 16.6
- -------------------------------------------------------------------------------
Funded status at December 31... $ 93.2 $ 105.8 $(12.0) $(12.9)
Unrecognized transition
(asset)/obligation........... (0.9) (1.2) 19.1 21.2
Unrecognized prior
service cost................. 6.6 7.6 - -
Unrecognized net gain.......... (53.4) (85.7) (6.6) (8.2)
- -------------------------------------------------------------------------------
Prepaid benefit cost........... $ 45.5 $ 26.5 $ 0.5 $ 0.1
- -------------------------------------------------------------------------------

The following actuarial assumptions were used in calculating the plans'
year end funded status:

-------------------------------------------------------------------------
At December 31,
-------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
-------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------
Discount rate............. 7.50% 7.75% 7.50% 7.75%
Compensation/progression
rate.................... 4.50 4.75 4.50 4.75
Health care cost
trend rate (a).......... N/A N/A 5.26 5.57
-------------------------------------------------------------------------

(a) The annual per capita cost of covered health care benefits was
assumed to decrease to 4.91 percent by 2001.

The components of net periodic benefit (credit)/cost are:

--------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
--------------------------------------------------------------------------
(Millions of Dollars) 2000 1999 1998 2000 1999 1998
--------------------------------------------------------------------------
Service cost......... $ 2.2 $ 2.4 $ 2.2 $ 0.4 $ 0.5 $ 0.5
Interest cost........ 8.9 8.5 7.9 2.2 2.1 2.1
Expected return
on plan assets..... (19.0) (16.9) (14.8) (1.3) (1.0) (0.9)
Amortization of
unrecognized net
transition (asset)/
obligation......... (0.2) (0.2) (0.2) 1.6 1.6 1.6
Amortization of prior
service cost....... 0.6 0.6 0.1 - - -
Amortization of
actuarial gain..... (4.9) (3.4) (2.6) - - -
Other
amortization, net.. - - - (0.4) (0.3) (0.4)
Settlements and
other.............. (6.6) (1.8) - - - -
--------------------------------------------------------------------------
Net periodic benefit
(credit)/cost....... $(19.0) $(10.8) $ (7.4) $ 2.5 $ 2.9 $ 2.9
--------------------------------------------------------------------------

For calculating pension and postretirement benefit costs, the following
assumptions were used:

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The effect of changing the
assumed health care cost trend rate by one percentage point in each year
would have the following effects:

--------------------------------------------------------------------------
One Percentage One Percentage
(Millions of Dollars) Point Increase Point Decrease
--------------------------------------------------------------------------
Effect on total service and
interest cost components $0.1 $(0.1)
Effect on postretirement
benefit obligation $1.4 $(1.3)
--------------------------------------------------------------------------

The trust holding the health plan assets is subject to federal income
taxes.

9. COMMITMENTS AND CONTINGENCIES

A. Restructuring
A settlement has been reached with the Massachusetts Attorney General
finalizing a $155 million securitization plan. WMECO expects to
receive approval of its securitization plan in February 2001.

B. Nuclear Generation Assets Divestiture
On August 7, 2000, WMECO and certain other joint owners reached an
agreement to sell substantially all of the Millstone units, located
in Waterford, Connecticut, to Dominion, for approximately $1.3
billion, including approximately $105 million for nuclear fuel.
Dominion has also agreed to assume responsibility for decommissioning
the three units and NU will transfer to Dominion all funds in the
Millstone decommissioning trust. Additionally, NU is obligated to
top-off the decommissioning trust if its value does not equal a
previously agreed upon level as defined. NU expects to close on the
sale of Millstone as early as the end of March 2001.

If the transaction is consummated as proposed, WMECO would receive
gross proceeds of approximately $196.2 million on a pretax basis for
its respective ownership interest. The proceeds from the sale of
this interest will be used to reduce the company's stranded costs
under restructuring and the cash proceeds will be used to repay
subsidiary debt and capital lease obligations and to return equity
capital to the parent company.

C. Environmental Matters
The NU system, including WMECO, 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, including WMECO, have active environmental
auditing and training programs and believe they are substantially in
compliance with the current laws and regulations.

However, the normal course of operations may involve activities and
substances that expose WMECO 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 WMECO's consolidated financial
statements.

Based upon currently available information for the estimated
remediation costs as of December 31, 2000 and 1999, the liability
recorded by WMECO for its estimated environmental remediation costs
amounted to $4.6 million and $4.2 million, respectively.

D. Spent Nuclear Fuel Disposal Costs
Under the Nuclear Waste Policy Act of 1982, WMECO 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. For nuclear fuel used to generate
electricity prior to April 7, 1983 (Prior Period Fuel), an accrual has
been recorded for the full liability and payment must be made prior to
the first delivery of spent fuel to the DOE. Until such payment is
made, the outstanding balance will continue to accrue interest at the
3-month treasury bill yield rate. As of December 31, 2000 and 1999,
fees due to the DOE for the disposal of Prior Period Fuel were $45.6
million and $43 million, respectively, including interest costs of
$30 million and $27.4 million, respectively.

Fees for nuclear fuel burned on or after April 7, 1983, are billed
currently to customers and paid to the DOE on a quarterly basis.
WMECO is responsible for fees to be paid for fuel burned until the
divestiture of the Millstone nuclear units.

E. Nuclear Insurance Contingencies
Insurance policies covering WMECO's ownership share of the NU system's
nuclear facilities have been purchased for the primary cost of repair,
replacement or decontamination of utility property, certain extra
costs incurred in obtaining replacement power during prolonged
accidental outages and the excess cost of repair, replacement or
decontamination or premature decommissioning of utility property.

WMECO is subject to retroactive assessments if losses under those
policies exceed the accumulated funds available to the insurer. The
maximum potential assessments with respect to losses arising during
the current policy year for the primary property insurance program,
the replacement power policies and the excess property damage policies
are $1.1 million, $0.6 million and $1.4 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 WMECO, 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 in each of its nuclear units,
$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, including
WMECO, would be subject to an additional 5 percent, or $4.2 million,
liability, in proportion to its ownership interests in each of its
nuclear units. Based upon its ownership interests in the Millstone
units, WMECO's maximum liability, including any additional
assessments, would be $44.3 million per incident, of which payments
would be limited to $5 million per year. In addition, through
purchased-power contracts with VYNPC, WMECO would be responsible for
up to an additional assessment of $2.2 million per incident, of which
payments would be limited to $0.3 million per year.

WMECO expects to terminate its nuclear insurance upon the divestiture
of its nuclear units.

F. Long-Term Contractual Arrangements
Yankee Companies: Under the terms of its agreement, WMECO paid its
ownership (or entitlement) shares of costs, which included
depreciation, operation and maintenance (O&M) expenses, taxes, the
estimated cost of decommissioning, and a return on invested capital.
These costs were recorded as purchased-power expenses. WMECO's cost
of purchases under its contract with VYNPC amounted to $4 million in
2000, $4.7 million in 1999 and $4.4 million in 1998. VYNPC is in the
process of selling its nuclear unit. Upon completion of the sale,
this long-term contract will be terminated.

Nonutility Generators (NUGs): WMECO has entered into various
arrangements for the purchase of capacity and energy from NUGs.
WMECO's total cost of purchases under these arrangements amounted to
$28.5 million in 2000, $28.2 million in 1999 and $29.9 million in
1998. The company is in the process of renegotiating the terms of
these contracts through either a contract buydown or buyout. WMECO
expects any payments to the NUGs as a result of these renegotiations
to be recovered from the company's customers.

Hydro-Quebec: Along with other New England utilities, WMECO has
entered into an agreement to support transmission and terminal
facilities to import electricity from the Hydro-Quebec system in
Canada. WMECO is obligated to pay, over a 30-year period ending in
2020, its proportionate share of the annual O&M expenses and capital
costs of those facilities.

Estimated Annual Costs: The estimated annual costs of WMECO's
significant long-term contractual arrangements, absent the effects
of any contract terminations, buydowns or buyouts are as follows:

---------------------------------------------------------------------
2001 2002 2003 2004 2005
---------------------------------------------------------------------
(Millions of Dollars)

VYNPC............. $ 4.8 $ 4.9 $ 5.0 $ 5.4 $ 5.1
NUGs.............. 29.5 30.4 31.2 31.9 32.6
Hydro-Quebec...... 3.2 3.1 3.0 2.9 2.8
---------------------------------------------------------------------

10. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS
Millstone: WMECO's operating nuclear power plants, Millstone 2 and 3,
have service lives that are expected to end in 2015 and 2025,
respectively, and upon retirement, must be decommissioned. Millstone 1's
expected service life was to end in 2010, however, in July 1998, restart
activities were discontinued and decommissioning of the unit began.
In connection with the sale of the Millstone units, Dominion has agreed to
assume responsibility for decommissioning. Until the divestiture, WMECO
recovers sufficient amounts through its allowed rates related to
decommissioning costs.

WMECO's ownership share of the estimated cost of decommissioning
Millstone 2 and 3, in year end 2000 dollars, is $81.8 million and $79.3
million, respectively. Nuclear decommissioning costs are accrued over the
expected service lives of the units and are included in depreciation
expense and the accumulated provision for depreciation. Nuclear
decommissioning expenses for these units amounted to $3.7 million in 2000,
1999 and 1998. Nuclear decommissioning expenses for Millstone 1 were
$2.5 million in 2000, $2.9 million in 1999 and $2.5 million in 1998.
Through December 31, 2000 and 1999, total decommissioning expenses of $43
million and $39.3 million, respectively, have been collected from
customers and are reflected in the accumulated provision for depreciation.

External decommissioning trusts have been established for the costs of
decommissioning the Millstone units. Funding of the estimated
decommissioning costs assumes after-tax earnings on the Millstone
decommissioning funds of 5.5 percent.

As of December 31, 2000 and 1999, $43 million and $39.3 million,
respectively, have been transferred to external decommissioning trusts.
Earnings on the decommissioning trusts increase the decommissioning trust
balances and the accumulated provisions for depreciation. Unrealized
gains and losses associated with the decommissioning trusts also impact
the balance of the trusts and the accumulated provisions for depreciation.
The fair values of the amounts in the external decommissioning trusts
were $82.4 million and $77.4 million at December 31, 2000 and 1999,
respectively. Upon divestiture, balances in the decommissioning trusts
will be transferred to the buyer. NU is obligated to top-off the
Millstone decommissioning trust if its value does not equal an agreed upon
amount at closing, pursuant to the conditions set forth in the purchase
and sale agreement.

Yankee Companies: VYNPC owns and operates a nuclear generating unit with
a service life that is expected to end in 2012. WMECO's ownership share
of estimated costs, in year end 2000 dollars, of decommissioning this unit
is $11.3 million. In 1999, VYNPC agreed to sell its nuclear generating
unit for $22 million to an unaffiliated company. Among other commitments,
the acquiring company agreed to assume the obligation to decommission the
unit after it is taken out of service, and the owners of VYNPC (including
WMECO) agreed to fund their shares of the decommissioning costs up to a
negotiated amount. Subsequent to the time that agreement was executed,
the original proposed acquiring company has increased the price it agreed
to pay and three other unaffiliated companies have indicated their
interest in buying VYNPC's generating unit on terms that have not been
disclosed. At present, WMECO expects that the unit will be sold, but the
identity of the owner and the terms of sale, including price, future
decommissioning obligations and future power purchase obligations, are not
known.

As of December 31, 2000 and 1999, WMECO's remaining estimated obligation,
including decommissioning for the units owned by CYAPC, YAEC and MYAPC,
which have been shut down was $42.5 million and $63.7 million,
respectively.

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

Nuclear Decommissioning Trusts: WMECO's portion of the investments held
in the NU system companies' nuclear decommissioning trusts were marked-
to-market by $32.3 million as of December 31, 2000, and $35.4 million as
of December 31, 1999, with corresponding offsets to the accumulated
provision for depreciation. The amounts adjusted in 2000 and in 1999
represent cumulative net unrealized gains. Cumulative gross unrealized
holding losses were immaterial for both 2000 and 1999.

Preferred stock and long-term debt: The fair value of WMECO's fixed-rate
securities is based upon the quoted market price for those issues or
similar issues. Adjustable rate securities are assumed to have a fair
value equal to their carrying value. The carrying amounts of WMECO's
financial instruments and the estimated fair values are as follows:

--------------------------------------------------------------------------
At December 31, 2000
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
Preferred stock not subject
to mandatory redemption............... $ 20.0 $ 20.2

Preferred stock subject to
mandatory redemption.................. 16.5 16.5

Long-term debt -
First mortgage bonds.................. 100.0 100.3

Other long-term debt.................. 99.4 93.7
--------------------------------------------------------------------------

--------------------------------------------------------------------------
At December 31, 1999
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
Preferred stock not subject
to mandatory redemption............... $ 20.0 $ 19.1

Preferred stock subject to
mandatory redemption.................. 18.0 18.0

Long-term debt -
First mortgage bonds.................. 194.2 196.3

Other long-term debt.................. 96.8 89.9
--------------------------------------------------------------------------

12. OTHER COMPREHENSIVE INCOME
The accumulated balance for each other comprehensive income item is as
follows:

--------------------------------------------------------------------------
Current
December 31, Period December 31,
1999 Change 2000
--------------------------------------------------------------------------
(Thousands of Dollars)
--------------------------------------------------------------------------
Unrealized gains
on securities................ $193 $22 $215
Minimum pension
liability adjustments........... (33) - (33)
--------------------------------------------------------------------------
Accumulated other
comprehensive income............ $160 $22 $182
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Current
December 31, Period December 31,
1998 Change 1999
--------------------------------------------------------------------------
(Thousands of Dollars)
--------------------------------------------------------------------------
Unrealized gains
on securities................... $183 $10 $193
Minimum pension
liability adjustments........... (33) - (33)
--------------------------------------------------------------------------
Accumulated other
comprehensive income............ $150 $10 $160
--------------------------------------------------------------------------

The changes in the components of other comprehensive income are reported
net of the following income tax effects:

--------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------
(Thousands of Dollars)
--------------------------------------------------------------------------
Unrealized gains on securities......... $(14) $(7) $(117)
Minimum pension liability adjustments.. - - 21
Other comprehensive income............. $(14) $(7) $ (96)
--------------------------------------------------------------------------

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

14. SUBSEQUENT EVENT
Merger Agreement With Consolidated Edison, Inc.: In 2000, NU and
Consolidated Edison, Inc. (Con Edison) received most of the approvals
needed to complete the merger announced in October 1999. Shareholders
from both companies approved the merger in April 2000, and all state
regulatory approvals were granted by the end of the year. Additionally,
the FERC approved the merger in May 2000, the Nuclear Regulatory
Commission approved the transaction in August 2000, and the United States
Department of Justice approved the merger in February 2001. Necessary
approval from the SEC was expected to be received in mid-March 2001.

On February 28, 2001, NU's Board of Trustees requested that Con Edison
provide reasonable assurance, in writing, that it intended to comply with
the terms of the definitive merger agreement between the two companies.
This included assurances that Con Edison would consummate the pending
merger at the price set forth in the agreement promptly following the
receipt of SEC approval. The original request for assurance was to be
received by March 2, 2001, however that date was later extended to
March 5, 2001. On March 5, 2001, Con Edison advised NU that it was not
willing to close the merger on the agreed terms. NU notified Con Edison
that it was treating its refusal to proceed on the terms set forth in the
merger agreement as a repudiation and breach of the merger agreement, and
that NU would file suit to obtain the benefits of the transaction as
negotiated for NU shareholders. On March 6, 2001, Con Edison filed suit
in the U.S. District Court for the Southern District of New York (Southern
District), seeking declaratory judgment that NU failed to satisfy
conditions precedent under the merger agreement. On March 12, 2001,
NU filed suit against Con Edison in the Southern District seeking damages
in excess of $1 billion arising from Con Edison's breach of the merger
agreement.

Western Massachusetts Electric Company and Subsidiary

- ----------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
(Thousands of Dollars)

Operating Revenues.................. $ 513,678 $ 414,231 $ 393,322 $ 426,447 $ 421,337

Operating Income.................... 54,096 41,741 19,854 251 33,190

Net Income/(Loss)................... 35,268 2,887 (9,579) (27,460) 11,089

Cash Dividends on Common Stock...... 12,002 - - 15,004 16,494

Total Assets........................ 1,047,818 1,253,604 1,287,682 1,179,128 1,191,915

Long-Term Debt (a).................. 199,425 290,279 389,314 396,649 349,442

Preferred Stock Not Subject
to Mandatory Redemption).......... 20,000 20,000 20,000 20,000 20,000

Preferred Stock Subject to
Mandatory Redemption (a).......... 16,500 18,000 19,500 21,000 21,000

Obligations Under Capital
Leases (a)........................ 26,921 29,972 34,093 32,887 32,234

- ----------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------
CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited)
- ------------------------------------------------------------------------------------------------
Quarter Ended
- ------------------------------------------------------------------------------------------------
2000 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------
(Thousands of Dollars)

Operating Revenues $129,410 $120,090 $130,400 $133,778
======== ======== ======== ========

Operating Income $ 14,782 $ 9,974 $ 13,940 $ 15,400
======== ======== ======== ========

Net Income $ 11,053 $ 2,956 $ 9,638 $ 11,621
======== ======== ======== ========
- ------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------

Operating Revenues $ 97,686 $108,829 $107,776 $ 99,940
======== ======== ======== ========

Operating Income/(Loss) $ 12,205 $ 8,812 $ 22,821 $ (2,097)
======== ======== ======== ========

Net Income/(Loss) $ 4,852 $ 4,183 $ 11,368 $(17,516)
======== ======== ======== ========

(a) Includes portion due within one year.

Western Massachusets Electric Company and Subsidiary

- -------------------------------------------------------------------------------
CONSOLIDATED STATISTICS (Unaudited)
- -------------------------------------------------------------------------------

Average
Gross Electric Annual
Utility Plant Use Per
December 31, kWh Residential Electric
(Thousands of Sales Customer Customers Employees
Dollars) (Millions) (kWh) (Average) December 31,
- -------------------------------------------------------------------------------

2000 $1,535,514 7,278 7,371 198,372 406
1999 1,216,015 4,654 7,423 198,012 482
1998 1,256,046 4,091 6,979 196,339 533
1997 1,334,233 4,300 7,121 195,324 507
1996 1,303,361 4,626 7,335 194,705 497