2000 Annual Report

Public Service Company of New Hampshire

Index

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

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

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

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

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

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

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

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

Notes to Financial Statements..................................... 16-38

Selected Financial Data........................................... 39

Quarterly Financial Data (Unaudited).............................. 39

Statistics (Unaudited)............................................ 40

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

Public Service Company of New Hampshire

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

Financial Condition
- -------------------

Overview
- --------

Public Service Company of New Hampshire (PSNH or the company) is a wholly owned
operating subsidiary of Northeast Utilities (NU) and is part of the Northeast
Utilities system (NU system). PSNH earned $67.6 million before extraordinary
charges in 2000. Earnings before extraordinary charges declined $16.6 million
from 1999, primarily as a result of a rate decrease on October 1, 2000, and
lower wholesale revenues. Because of extraordinary charges totaling $214.2
million, PSNH had a net loss of $146.7 million in 2000, compared with $84.2
million in 1999 and $91.7 million in 1998. These extraordinary charges are a
result of the "Agreement to Settle PSNH Restructuring" (Settlement Agreement)
with the State of New Hampshire and the discontinuation of Statement of
Financial Accounting Standard (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation."

During 2000, PSNH and the State of New Hampshire were able to reach a
settlement regarding restructuring in the state. This agreement ended several
years of uncertainty related to restructuring for PSNH and the State of New
Hampshire. PSNH expects to implement the settlement agreement in 2001.

Increases in sales pushed total PSNH revenues to $1.29 billion in 2000, up
11.2 percent from $1.16 billion in 1999. The growth in competitive energy
revenues more than offset a 5 percent rate reduction on October 1, 2000 for
PSNH retail customers. Revenues were $1.09 billion in 1998. Operating
earnings at PSNH are expected to decline significantly after the first quarter
of 2001, as a result of the retail rate reductions that will accompany the
introduction of industry restructuring in New Hampshire.

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 a 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
- ---------

During 2000, net cash flows provided by PSNH's operations were $190.3 million,
compared to $199.1 million in 1999 and $217.6 million in 1998. The decrease
in 2000 is primarily related to a decrease in net income and an increase in
amortization of recoverable energy costs.

Net cash flows used in financing activities were $188.9 million in 2000,
compared to $31.6 million in 1999 and $204.3 million in 1998. This included
approximately $135 million paid in 2000 to retire long-term debt and
preferred stock, compared to $25 million in 1999 and $195 million in 1998.
Payments made for preferred stock dividends were $4 million, $6.6 million
and $9.3 million for 2000, 1999 and 1998, respectively. For the first time
since March 1997, PSNH paid a cash dividend on common shares. In October
2000, a cash dividend of $50 million was paid in 2000.

Including construction expenditures and investments in nuclear decommissioning
trusts, net cash flows used in investing activities were $68.9 million in
2000, compared to $45.8 million in 1999 and $46.9 million in 1998. PSNH
currently forecasts construction expenditures of $78.7 million for the
year 2001.

In April 2000, Moody's Investors Service (Moody's) upgraded its credit ratings
for PSNH, and in October 2000, Fitch IBCA (Fitch) upgraded its credit ratings
for PSNH. In January 2001, Moody's and Standard and Poor's upgraded their
credit ratings for PSNH, primarily as a result of the New Hampshire Supreme
Court's decision to uphold the state's restructuring plan, the anticipated
sale of Millstone and NU's general financial recovery. These upgrades return
NU and PSNH 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.

PSNH terminated its $75 million revolving credit agreement in April 1999 and
continues to fund its operations and capital program with cash on hand and
operating cash flows. In August and September 2000, PSNH repaid $109.2
million of variable-rate taxable pollution control bonds from cash on hand.
PSNH also paid a $50 million common dividend to NU on October 2, 2000, PSNH's
first common dividend to NU since February 1997. Despite those cash outflows,
PSNH maintained $115.1 million of cash on hand as of December 31, 2000.

PSNH expects to receive gross proceeds of $26 million as a result of the
sale of their 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, in addition to those anticipated from securitization
and the future sale of the Seabrook Station nuclear unit (Seabrook), are
expected to be used to repay subsidiary debt and capital lease obligations
and to return equity capital to the parent company.

By the end of 2002, PSNH expects to complete the auction of approximately 1,200
MW of fossil and hydroelectric generation assets, as well as CL&P's and NAEC's
share of Seabrook. PSNH's restructuring settlement was predicated upon
receiving approximately $400 million of net proceeds from those sales. Cash
proceeds will be used to retire debt and to return equity capital to the
parent company.

In September 2000, the New Hampshire Public Utilities Commission (NHPUC)
approved a comprehensive restructuring settlement that allows PSNH to
securitize up to $670 million of stranded costs. In January 2001, the New
Hampshire Supreme Court upheld this restructuring order on appeal. However,
one of the appellants indicated publicly it would request a review of the
New Hampshire Supreme Court decision by the United States Supreme Court.
Such a request must be filed by May 1, 2001. Management believes that such
an appeal would have a low probability of success, but cannot determine what
effect it might have on the timing of the issuance of securitization bonds
and the implementation of customer choice in New Hampshire. PSNH currently
expects to work with the State of New Hampshire to issue securitization bonds
early in the second quarter of 2001. Cash proceeds would be combined with
cash on hand and used primarily to buydown the power contract between PSNH
and NAEC, retire debt at the two companies of approximately $300 million and
to return equity capital to the parent company from PSNH and NAEC of
another $375 million.

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

Because of delays in implementing restructuring, PSNH remained a vertically
integrated utility in 2000 with a fuel and purchased-power adjustment charge.
For the first nine months following restructuring, PSNH will meet the load
requirements of those customers who do not choose an alternative supplier
(transition service or standard offer service) through its own generation
assets and purchased-power obligations. Because PSNH's generation assets
are heavily weighted toward coal and nuclear generation, PSNH is somewhat
insulated from rising oil and natural gas prices. Following that initial
nine-month period, PSNH expects to sell its generation assets and acquire power
for up to two years from third-party suppliers for customers who remain on
transition service. Under the restructuring statute and the conforming
Settlement Agreement, PSNH will utilize its own generation capability to
provide Transition Service and Default Service for the Initial Transition
Service Period (ITSP, the first nine months after competition day) as defined
in the agreement. At the conclusion of the ITSP, PSNH will be required to
contract for Transition Service for the remaining 24-month Transition Service
period with third-party suppliers through a competitive bidding process
administered by the NHPUC. As part of its negotiation with the state
legislature, PSNH has agreed to absorb the first $7 million of costs for
the first 12-month period following the ITSP, if the cost of acquiring
Transition Service exceeds the rate charged to customers. PSNH will be
permitted to defer and recover, as unsecuritized stranded costs, all
Transition Service costs in excess of the initial $7 million.

Provisions for Transition Service are but one element of the Settlement
Agreement which during 2000 was approved by the New Hampshire House and Senate,
signed into law by the Governor of New Hampshire and approved by the NHPUC.
Other provisions allow for issuing rate reduction bonds to securitize stranded
costs; implementing a rate decrease of approximately 15.5 percent, 5 percent
of which was implemented on a temporary basis on October 1, 2000; an after-tax
write-off of stranded costs in excess of $200 million, which was recorded in
the fourth quarter; selling NAEC's share of Seabrook no later than December 31,
2003, and; fixing PSNH's delivery rates at $0.028 per kilowatt-hour for the
first 33 months after the Settlement Agreement takes effect. PSNH and NAEC
will also terminate the Seabrook Power Contracts upon the sale of Seabrook.
Restructuring is expected to take effect the first day of the month after
PSNH issues rate reduction bonds, which is anticipated to be May 1, 2001.

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

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

Pursuant to FERC Order 888 (issued in April 1996), the NU system companies,
including PSNH, 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 PSNH, 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
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
- -----------------------------------------

Seabrook
North Atlantic Energy Corporation (NAEC) is another wholly owned subsidiary of
NU. PSNH is obligated to purchase the capacity and output from NAEC's 35.98
percent joint ownership interest in the Seabrook Station nuclear unit
(Seabrook) under the terms of two life-of-unit, full cost recovery contracts
(Seabrook Power Contracts). Seabrook operated at a capacity factor of 78
percent in 2000. The unit began a scheduled refueling outage on October 21,
2000. The outage was extended by approximately two months as a result of the
need to repair extensive problems with a back-up diesel generator. Seabrook
returned to service on January 29, 2001.

On December 15, 2000, PSNH filed its divestiture plan for Seabrook with the
NHPUC and DPUC. PSNH hopes to complete the sale in 2002.

Millstone 3
PSNH has a 2.85 percent ownership of the Millstone 3 unit. 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
2001.

On August 7, 2000, CL&P, WMECO and certain other joint owners including PSNH
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, PSNH will receive $26 million on
a pretax basis, which will be reflected as a gain in accordance with the
Settlement Agreement.

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

Yankee Companies
PSNH is a 4 percent shareholder and sponsor company of the Vermont Yankee
Nuclear Power Corporation (VYNPC). 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 PSNH) agreed to fund their shares of the decommissioning costs up to
a negotiated amount. Subsequent to the time that the 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, PSNH 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 financial statements.

Spent Nuclear Fuel Disposal Costs
The United States Department of Energy (DOE) originally was scheduled to begin
accepting delivery of spent fuel in 1998. However, delays in confirming the
suitability of a permanent storage site continually have postponed plans for
the DOE's long-term storage and disposal site. Extended delays or a default by
the DOE could lead to consideration of costly alternatives. PSNH has the
primary responsibility for the interim storage of its share of spent nuclear
fuel prior to the divestiture of Millstone 3.

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

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

Environmental Matters
PSNH 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
financial statements.

Other Commitments and Contingencies
For further information regarding other commitments and contingencies, see
Note 9, "Commitments and Contingencies," to the 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, refinancing, 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 $ 131 11% $ 73 7%

Operating Expenses:
Fuel, purchased and net
interchange power 162 23 86 14
Other operation and
maintenance (11) (6) 11 7
Depreciation (4) (8) 2 5
Amortization of regulatory
assets, net 11 31 8 30
Federal and state income taxes 8 22 (28) (43)
Taxes other than income taxes (1) (3) - 1
----- --- ----- ---
Total operating expenses 165 16 80 8
----- --- ----- ---
Operating Income: (35) (28) (7) (5)
----- --- ----- ---
Equity in earnings of
regional nuclear
generating companies 1 71 (2) (58)
Other, net 8 (a) (4) (38)
Other income taxes 4 (a) 4 (a)
----- --- ----- ---
Net other income 12 (a) (2) (35)
Interest charges (6) (13) (1) (1)
----- --- ----- ---
Income before
extraordinary items (17) (20) (7) (8)
----- --- ----- ---
Extraordinary loss (214) (a) - -
----- --- ----- ---
Net Income/(Loss) $(231) (a) $ (7) (8)

(a) Percent greater than 100.

Operating Revenues
Operating revenues increased by $131 million or 11 percent in 2000, primarily
due to higher wholesale and retail revenues. Wholesale revenues increased by
$128 million primarily due to higher wholesale energy and capacity sales.
Retail revenues were higher primarily due to higher retail sales ($12 million),
partially offset by a rate decrease as part of PSNH restructuring ($8 million).
Retail kilowatt-hour sales increased by 2.1 percent.

Operating revenues increased by $73 million or 7 percent in 1999, primarily due
to higher retail revenues ($43 million), higher wholesale energy and capacity
sales and transmission revenues ($30 million). Retail kilowatt-hour sales
increased by 5.3 percent.

Fuel, Purchased and Interchange Power, Net
Fuel, purchased and net interchange power expense increased in 2000, primarily
due to higher wholesale energy sales.

Fuel, purchased and net interchange power expense increased in 1999, primarily
due to higher purchased-power expenses ($48 million)and higher deferred
expenses ($25 million) associated with the company's fuel clause and higher
capacity costs for Seabrook ($8 million). Seabrook's capacity costs are higher
due to costs associated with the refueling outage in 1999 and the amortization
of the deferred return that was deferred by PSNH through November 1998.

Other Operation and Maintenance Expense
Other operation and maintenance (O&M) expense increased in 2000, primarily due
to lower transmission and distribution expense ($6 million) and lower fossil
maintenance expenses($5 million).

Other O&M expense increased in 1999, primarily due to the recognition of
environmental insurance proceeds which reduced O&M expense in 1998 ($12
million), higher fossil maintenance expenses ($3 million) and higher
transmission expense ($2 million), partially offset by lower storm cost
in 1999 ($6 million).

Amortization of Regulatory Assets
Amortization of regulatory assets net increased in 2000, primarily due to the
completion of, in 1999, the amortization of regulatory obligations related to
net operating loss carryforwards as a result of the Global Settlement.

Amortization of regulatory assets, net increased in 1999, primarily due to
an increase in the amortization of the Seabrook deferred return which began
in June 1998. The reduction of the acquisition premium amortization ($21
million) was offset by the completion in 1999, of the amortization of a
regulatory obligation related to net operating loss carryforwards ($21 million)
as a result of the Global Settlement.

Federal and State Income Taxes
Federal and state income taxes increased in 2000, primarily due to the 1999
utilization of net operating loss carryforwards.

Federal and state income taxes decreased in 1999, primarily due to the
utilization of net operating loss carryforwards.

Equity Earnings of Regional Nuclear Generating Companies
Equity in earnings of regional nuclear generating and transmission companies
was relatively unchanged in 2000.

Equity in earnings of regional nuclear generating and transmission companies
decreased in 1999, primarily due to lower earnings from Connecticut Yankee.

Other, Net
Other, net increased in 2000, primarily due to the 1999 settlement with the
New Hampshire Electric Cooperative (NHEC) which was recognized in a $6.2
million write-off in 1999.

Other, net decreased in 1999, primarily due to the settlement with the NHEC
which required a $6.2 million write-off.

Interest Charges, Net
Interest charges, net decreased in 2000, primarily due to the redemption of
long-term debt bonds in 2000.

The change in interest charges, net in 1999, was not significant compared
to 1998.

Extraordinary Loss
The extraordinary loss is due to an after-tax write-off by PSNH of
approximately $225 million of stranded costs under an industry restructuring
settlement with the state of New Hampshire, combined with other positive
effects relating to the discontinuation of SFAS 71 ($11 million).

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

To the Board of Directors
of Public Service Company of New Hampshire:

We have audited the accompanying balance sheets of Public Service Company of
New Hampshire (a New Hampshire corporation and a wholly owned subsidiary of
Northeast Utilities) as of December 31, 2000 and 1999, and the related
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 Public Service Company of
New Hampshire as of December 31, 2000 and 1999, and the results of its
operations and its 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)

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF INCOME

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

Operating Revenues................................. $1,291,280 $1,160,572 $1,087,247
----------- ----------- -----------
Operating Expenses:
Operation -
Fuel, purchased and net interchange power...... 853,563 691,743 605,518
Other.......................................... 123,337 129,041 118,565
Maintenance...................................... 47,429 52,481 51,734
Depreciation..................................... 43,873 47,695 45,342
Amortization of regulatory assets, net........... 45,874 34,915 26,758
Federal and state income taxes................... 45,080 36,810 65,079
Taxes other than income taxes.................... 42,194 43,282 43,052
----------- ----------- -----------
Total operating expenses................... 1,201,350 1,035,967 956,048
----------- ----------- -----------
Operating Income................................... 89,930 124,605 131,199
----------- ----------- -----------

Other Income/(Loss):
Equity in earnings of regional nuclear
generating companies and subsidiary company.... 1,896 1,112 2,649
Other, net....................................... 13,214 5,681 9,222
Income taxes..................................... 68 (3,914) (7,473)
----------- ----------- -----------
Other income, net.......................... 15,178 2,879 4,398
----------- ----------- -----------
Income before interest charges............. 105,108 127,484 135,597
----------- ----------- -----------

Interest Charges:
Interest on long-term debt....................... 37,510 42,728 43,317
Other interest................................... 47 547 594
----------- ----------- -----------
Interest charges, net...................... 37,557 43,275 43,911
----------- ----------- -----------
Income before extraordinary loss,
net of tax benefit............................... 67,551 84,209 91,686

Extraordinary loss, net of tax benefit
of $155,783...................................... (214,217) - -
----------- ----------- -----------
Net (Loss)/Income.................................. $ (146,666) $ 84,209 $ 91,686
=========== =========== ===========

STATEMENTS OF COMPREHENSIVE INCOME

Net (Loss)/Income.................................. $ (146,666) $ 84,209 $ 91,686
----------- ----------- -----------
Other comprehensive income, net of tax:
Unrealized gains on securities..................... 133 70 1,198
Minimum pension liability adjustments.............. - - (194)
----------- ----------- -----------
Other comprehensive income, net of tax........... 133 70 1,004
----------- ----------- -----------
Comprehensive (Loss)/Income........................ $ (146,533) $ 84,279 $ 92,690
=========== =========== ===========

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

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS

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

ASSETS
- ------

Utility Plant, at cost:
Electric................................................ $ 1,505,967 $ 1,939,856

Less: Accumulated provision for depreciation......... 711,340 674,155
------------- -------------
794,627 1,265,701
Unamortized acquisition costs........................... - 324,437
Construction work in progress........................... 27,251 17,160
Nuclear fuel, net....................................... 1,924 1,734
------------- -------------
Total net utility plant.............................. 823,802 1,609,032
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 7,362 6,880
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 16,293 18,855
Other, at cost.......................................... 3,225 3,149
------------- -------------
26,880 28,884
------------- -------------
Current Assets:
Cash and cash equivalents............................... 115,135 182,588
Receivables, less the accumulated provision for
uncollectible accounts of $1,869 in 2000 and
$1,359 in 1999......................................... 71,992 79,290
Accounts receivable from affiliated companies........... 2,798 9,091
Taxes receivable from affiliated companies.............. 9,983 11,661
Accrued utility revenues................................ 41,844 48,822
Fuel, materials and supplies, at average cost........... 28,760 38,076
Recoverable energy costs - current portion.............. - 73,721
Prepayments and other................................... 14,750 18,121
------------- -------------
285,262 461,370
------------- -------------
Deferred Charges:

Regulatory assets....................................... 924,847 490,921
Deferred receivable from affiliated company............. 3,240 12,984
Unamortized debt expense................................ 9,067 11,896
Other................................................... 9,096 7,346
------------- -------------
946,250 523,147
------------- -------------

Total Assets.............................................. $ 2,082,194 $ 2,622,433
============= =============

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

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

BALANCE SHEETS

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

Capitalization:
Common stock, $1 par value - authorized
100,000,000 shares; 1,000 shares outstanding
in 2000 and 1999....................................... $ 1 $ 1
Capital surplus, paid in................................ 424,909 424,654
Retained earnings....................................... 123,177 319,938
Accumulated other comprehensive income.................. 1,207 1,074
------------- -------------
Total common stockholder's equity.............. 549,294 745,667
Preferred stock subject to mandatory redemption......... - 25,000
Long-term debt.......................................... 407,285 516,485
------------- -------------
Total capitalization........................... 956,579 1,287,152
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 91,702 624,477
------------- -------------
Current Liabilities:
Preferred stock - current portion....................... 24,268 25,000
Obligations under Seabrook Power Contracts and other
capital leases - current portion....................... 537,528 101,676
Accounts payable........................................ 45,847 38,685
Accounts payable to affiliated companies................ 54,157 38,229
Accrued taxes........................................... 656 33,443
Accrued interest........................................ 4,962 6,294
Other................................................... 13,112 10,184
------------- -------------
680,530 253,511
------------- -------------

Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 179,723 266,644
Accumulated deferred investment tax credits............. 27,348 12,532
Deferred contractual obligations........................ 41,499 56,544
Deferred revenue from affiliated company................ 3,240 12,984
Deferred pension costs.................................. 41,216 45,504
Other................................................... 60,357 63,085
------------- -------------
353,383 457,293
------------- -------------
Commitments and Contingencies (Note 9)

Total Capitalization and Liabilities...................... $ 2,082,194 $ 2,622,433
============= =============

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

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF COMMON STOCKHOLDER'S EQUITY

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

Balance at January 1, 1998............... $ 1 $423,713 $ 170,501 $ - $ 594,215

Net income for 1998.................. 91,686 91,686
Cash dividends on preferred stock.... (9,275) (9,275)
Capital stock expenses, net.......... 537 537
Other comprehensive income........... 1,004 1,004
-------- --------- ---------- ------------- ----------
Balance at December 31, 1998............. 1 424,250 252,912 1,004 678,167

Net income for 1999.................. 84,209 84,209
Cash dividends on preferred stock.... (6,625) (6,625)
Capital stock expenses, net.......... 404 404
Allocation of benefits - ESOP........ (10,558) (10,558)
Other comprehensive income........... 70 70
-------- --------- ---------- ------------- ----------
Balance at December 31, 1999............. 1 424,654 319,938 1,074 745,667

Net loss for 2000.................... (146,666) (146,666)
Cash dividends on preferred stock.... (3,962) (3,962)
Cash dividends on common stock....... (50,000) (50,000)
Capital stock expenses, net.......... 255 255
Tax benefit for 1993-1999 from
reduction of NU parent losses (a).. 3,952 3,952
Allocation of benefits - ESOP........ (85) (85)
Other comprehensive income........... 133 133
-------- --------- ---------- ------------- ----------
Balance at December 31, 2000............. $ 1 $424,909 $ 123,177 $ 1,207 $ 549,294
======== ========= ========== ============= ==========

(a) In June 1999, PSNH paid NU parent $10.6 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 PSNH. The amount in 2000 represents the remaining
previously allocated 1993 through 1999 NU parent losses.

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

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE

STATEMENTS OF CASH FLOWS

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

Operating Activities:
Net income before extraordinary loss........................ $ 67,551 $ 84,209 $ 91,686
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation.............................................. 43,873 47,695 45,342
Deferred income taxes and investment tax credits, net..... (512) (5,297) 78,366
Net (deferral)/amortization of recoverable energy costs... (35,886) 27,065 2,065
Amortization of regulatory assets, net.................... 45,874 34,915 26,758
Tax benefit for 1993-1999 from
reduction of NU parent losses........................... 3,952 - -
Allocation of ESOP benefits............................... (85) (10,558) -
Net other sources/(uses) of cash.......................... 38,694 48,537 (52,004)
Changes in working capital:
Receivables and accrued utility revenues.................. 20,569 6,004 21,536
Fuel, materials and supplies.............................. 9,316 (1,434) 3,519
Accounts payable.......................................... 23,090 22,277 729
Accrued taxes............................................. (32,787) (49,300) 13,298
Other working capital (excludes cash)..................... 6,645 (4,994) (13,653)
----------- ----------- -----------
Net cash flows provided by operating activities............... 190,294 199,119 217,642
----------- ----------- -----------
Investing Activities:
Investments in plant:
Electric utility plant.................................... (69,500) (46,096) (43,780)
Nuclear fuel.............................................. (1,153) (1,168) (307)
----------- ----------- -----------
Net cash flows used for investments in plant.............. (70,653) (47,264) (44,087)

Investment in nuclear decommissioning trusts................ (686) (678) (641)
Other investment activities, net............................ 2,486 2,151 (2,213)
----------- ----------- -----------
Net cash flows used in investing activities................... (68,853) (45,791) (46,941)
----------- ----------- -----------

Financing Activities:
Reacquisitions and retirements of long-term debt............ (109,200) - (170,000)
Reacquisitions and retirements of preferred stock........... (25,732) (25,000) (25,000)
Cash dividends on preferred stock........................... (3,962) (6,625) (9,275)
Cash dividends on common stock.............................. (50,000) - -
----------- ----------- -----------
Net cash flows used in financing activities................... (188,894) (31,625) (204,275)
----------- ----------- -----------

Net (decrease)/increase in cash for the period................ (67,453) 121,703 (33,574)
Cash and cash equivalents - beginning of period............... 182,588 60,885 94,459
----------- ----------- -----------
Cash and cash equivalents - end of period..................... $ 115,135 $ 182,588 $ 60,885
=========== =========== ===========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized........................ $ 38,819 $ 39,895 $ 42,677
=========== =========== ===========
Income taxes................................................ $ 22,070 $ 38,511 $ 18,948
=========== =========== ===========
(Decrease)/increase in obligations:
Seabrook Power Contracts.................................... $ (96,208) $ (115,065) $ (78,939)
=========== =========== ===========

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

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. About Public Service Company of New Hampshire Public Service Company
of New Hampshire (PSNH or the company) along with The Connecticut
Light and Power Company (CL&P), Western Massachusetts Electric Company
(WMECO), 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 New
Hampshire, Connecticut, and western Massachusetts through PSNH, CL&P
and WMECO. NAEC sells all of its entitlement to the capacity and
output of Seabrook Station nuclear unit (Seabrook) to PSNH under the
terms of two life-of-unit, full cost recovery contracts (Seabrook
Power Contacts). HWP, also is engaged in the production and
distribution of electric power.

NU is registered with the Securities and Exchange Commission (SEC) as
a holding company under the Public Utility Holding Company Act of 1935
(1935 Act) and the NU system, including PSNH, 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.
PSNH is subject to further regulation for rates, accounting and other
matters by the FERC and/or applicable state regulatory commissions.

Several wholly owned subsidiaries of NU provide support services for
the NU system companies including PSNH, 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
PSNH. 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 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.

C. New Accounting Standards
Derivative Instruments: Effective January 1, 2001, PSNH 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 be
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 PSNH'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 PSNH's financial statements.

D. Investments and Jointly Owned Electric Utility Plant
Regional Nuclear Generating Companies: PSNH owns common stock in four
regional nuclear companies (Yankee Companies). PSNH's ownership
interests in the Yankee Companies at December 31, 2000 and 1999, which
are accounted for on the equity method due to PSNH's ability to
exercise significant influence over their operating and financial
policies are 5 percent of the Connecticut Yankee Atomic Power Company
(CYAPC), 7 percent of the Yankee Atomic Electric Company (YAEC), 5
percent of Maine Yankee Atomic Power Company (MYAPC), and 4 percent of
Vermont Yankee Nuclear Power Corporation (VYNPC). PSNH's total equity
investment in the Yankee Companies at December 31, 2000 and 1999 is
$10 million and $12.3 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: PSNH has a 2.85 percent joint ownership interest in
Millstone 3, a 1,154 megawatt (MW) nuclear generating unit. At
December 31, 2000 and 1999, plant-in-service included $119.8 million
and $119.3 million, respectively, and the accumulated provision for
depreciation included $42 million and $39 million, respectively,
related to PSNH's share of Millstone 3.

Wyman Unit 4: PSNH has a 3.14 percent ownership interest in Wyman
Unit 4, a 632 MW oil-fired generating unit. At December 31, 2000 and
1999, plant-in-service included $6.1 million in each year and the
accumulated provision for depreciation included $4.3 million and
$4.2 million, respectively.

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 plant,
including costs of removal less salvage, is charged to the
accumulated provision for depreciation. The costs of closure and
removal of nonnuclear facilities are accrued over the life of the
plant as a component of depreciation. The depreciation rates for the
several classes of electric plant-in-service are equivalent to a
composite rate of 3.2 percent in 2000, 3.7 percent in 1999 and 3.6
percent in 1998.

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 New Hampshire Public Utility Commission
(NHPUC). Regulatory commissions also have authority over the terms
and conditions of nontraditional rate-making arrangements. At the end
of each accounting period, PSNH accrues a revenue estimate for the
amount of energy delivered but unbilled.

G. PSNH Acquisition Costs
PSNH acquisition costs represent the aggregate value placed by the
1989 rate agreement with the state of New Hampshire (Rate Agreement)
on PSNH's assets in excess of the net book value of PSNH's non-
Seabrook assets, plus the $700 million value assigned to Seabrook by
the Rate Agreement as part of the bankruptcy resolution on June 5,
1992. The Rate Agreement provided for the recovery through rates,
with a return, of the PSNH acquisition costs. In connection with
the Settlement Agreement approximately $219.4 million was written off
and the balance of $76.6 million has been reclassified as a regulatory
asset.

H. Regulatory Accounting and Assets
The accounting policies of PSNH and the accompanying 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, "Accounting for the Effects of Certain
Types of regulation." During the fourth quarter of 2000, the
"Agreement to Settle PSNH Restructuring," (Settlement Agreement)
became probable of implementation, therefore, PSNH discontinued the
application of SFAS No. 71 for the generation portion of its business.

PSNH'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 PSNH will recover their investments in long-lived
assets, including regulatory assets through charges to their
transmission and distribution customers. PSNH will recover
securitized assets over a 12-year period. Nuclear decommissioning and
IPP costs will be recovered over the period PSNH is responsible for
these costs. The third type of PSNH stranded costs are non-
securitized regulatory assets (type three regulatory assets). Any
type three regulatory assets not collected by the recovery end date
will be written off. Based on current projections, PSNH expects to
fully recover all of its type three regulatory assets by the recovery
end date stipulated in the Settlement Agreement. In addition, all
material regulatory assets are earning a return. The components of
PSNH's regulatory assets are as follows:

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

Recoverable nuclear costs............... $484.7 $ -
Income taxes, net....................... 68.1 166.2
Unrecovered contractual obligations..... 41.5 56.5
Recoverable energy costs, net........... 230.3 120.7
Other................................... 100.2 147.5
------ ------
$924.8 $490.9
====== ======
----------------------------------------------------------------------

As a result of discontinuing the application of SFAS No. 71 in 2000
for PSNH's generation business, PSNH recorded an after-tax charge of
$214.2 million in the fourth quarter of 2000. In addition, a
regulatory asset was created for the Seabrook over market generation
in the amount of $484.7 million, which is classified as recoverable
nuclear costs. It is anticipated this regulatory asset will be
securitized.

I. 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....... $ 93.8 $102.4

Regulatory assets -
income tax gross up................... 25.1 62.0

Other................................... 60.8 102.2
------ ------
$179.7 $266.6
====== ======
----------------------------------------------------------------------

PSNH had an Investment Tax Credit (ITC) carryforward of $23 million
which expires in 2004. It is anticipated that this carryforward will
be fully utilized when filing the 2000 income tax return.

J. Recoverable Energy Costs
Under the Energy Policy Act of 1992 (Energy Act), PSNH 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. PSNH is currently recovering these costs through rates.
As of December 31, 2000 and 1999, PSNH's total D&D deferrals were
approximately $.2 million in each year.

The Rate Agreement includes a fuel and purchased-power adjustment
clause (FPPAC) permitting PSNH to pass through to retail customers,
for a 10-year period that began in May 1991, the retail portion of
differences between the fuel and purchased-power costs assumed in
the Rate Agreement and PSNH's actual costs, which include the costs
related to the Seabrook Power Contracts and the Clean Air Act
Amendment. The cost components of the FPPAC are subject to a prudence
review by the NHPUC. At December 31, 2000 and 1999, PSNH had $230.1
million and $120.5 million, respectively, of recoverable energy costs
deferred under the FPPAC. Under the Settlement Agreement, the FPPAC
will be recovered as a type three regulatory asset through a
transition charge.

In addition, under the Rate Agreement, charges made by NAEC through
the Seabrook Power Contracts, including the deferred Seabrook capital
expenses, are to be collected by PSNH through the FPPAC. Beginning on
June 1, 1998, the Seabrook deferred capital expenses began to be
recovered over a 36-month period. Included within the restructuring
settlement write-off is the write-off of any deferred capital
expenses.

K. Unrecovered Contractual Obligations
Under the terms of contracts with the Yankee companies, the
shareholder-sponsor companies, including PSNH, are each responsible
for their proportionate share of the remaining costs of the units,
including decommissioning. The Settlement Agreement allows for
recovery of these costs, therefore, PSNH has recorded a regulatory
asset, with a corresponding obligation on its balance sheet.

L. Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term cash
investments which are highly liquid in nature and have original
maturities of three months or less.

2. SEABROOK POWER CONTRACTS
PSNH and NAEC have entered into two power contracts that obligate PSNH
to purchase NAEC's 35.98 percent ownership of the capacity and output
of Seabrook for the term of Seabrook's operating license. Under these
power contracts, PSNH is obligated to pay NAEC's cost of service during
this period, regardless of whether Seabrook is operating. NAEC's cost
of service includes all of its Seabrook-related costs, including operation
and maintenance (O&M) expenses, fuel expense, income and property tax
expense, depreciation expense, certain overhead and other costs, and a
return on its allowed investment.

With the implementation of the Settlement Agreement, PSNH and NAEC will
restructure the power contracts to provide for the buydown of the value
of the Seabrook asset to $100 million. The Settlement Agreement also
requires NAEC to sell via public auction its share of Seabrook, with
the sale to occur no later than December 31, 2003. Upon a successful
sale of NAEC's share of Seabrook, the existing Seabrook Power Contracts
between PSNH and NAEC will be terminated.

PSNH has included its right to buy power from NAEC on its balance sheet
as part of utility plant and regulatory assets with a corresponding
obligation. At December 31, 2000, this right to buy power was valued
at $626.9 million.

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

Contract payments charged to operating expenses in 2000, 1999 and 1998
were $268 million, $280 million and $272 million, respectively. Interest
included in the contract payments in 2000, 1999 and 1998 was $44 million,
$49 million and $54 million, respectively.

Future minimum payments, excluding executory costs, such as property
taxes, state use taxes, insurance and maintenance, under the terms of the
contracts, as of December 31, 2000, were approximately:

Year Seabrook Power Contracts
---- ------------------------
(Millions of Dollars)

2001........................... $ 116.8
2002........................... 77.5
2003........................... 75.2
2004........................... 72.9
2005........................... 70.5
After 2005..................... 936.2
--------

Future minimum payments........ 1,349.1

Less amount representing
interest..................... 722.2
--------
Present value of Seabrook
Power Contracts payments..... $ 626.9
========
--------------------------------------------------------------------------

3. SHORT-TERM DEBT
Limits: The amount of short-term borrowings that may be incurred by NU
and the NU system operating companies, including PSNH, is subject to
periodic approval by either the SEC under the 1935 Act or by the
respective state regulators. PSNH is authorized by the NHPUC to incur
short-term borrowings up to a maximum of $71.3 million.

Money Pool: Certain subsidiaries of NU, including PSNH, 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, PSNH had no outstanding borrowings from
the Pool in 2000. Due to the conditions placed on PSNH by the NHPUC
during March 2000, PSNH was restricted from lending money to the Pool
until the restructuring write-off was recorded. Maturities of short-
term debt obligations were for periods of three months or less.

4. LEASES
PSNH has entered into lease agreements, some of which are capital leases,
for the use of data processing and office equipment, vehicles and office
space. The provisions of these lease agreements generally provide for
renewal options.

Capital lease rental payments charged to operating expense were $1 million
in 2000, $1.5 million in 1999 and $1.6 million in 1998. Interest included
in capital lease rental payments was $0.3 million in 2000, $0.4 million in
1999 and $0.2 million in 1998. Operating lease rental payments charged to
expense were $3.5 million in 2000, $3.1 million in 1999 and $5.4 million
in 1998.

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

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

2001................................ $ 1.2 $ 8.3
2002................................ 0.4 5.4
2003................................ 0.4 3.7
2004................................ 0.4 2.9
2005................................ 0.4 2.3
After 2005.......................... 0.7 5.1
----- -----
Future minimum lease payments....... 3.5 $27.7
=====
Less amount representing interest... 1.2
-----
Present value of future minimum
lease payments.................... $ 2.3
=====
-------------------------------------------------------------------------

5. EMPLOYEE BENEFITS

Pension Benefits and Postretirement Benefits Other Than Pensions
The NU system's subsidiaries, including PSNH, participate in a uniform
noncontributory defined benefit retirement plan covering substantially all
regular NU system employees. Benefits are based on years of service and
employees' highest eligible compensation during 60 consecutive months of
employment. PSNH's portion of the NU system's pension credit, part of
which was credited to utility plant, was $4.3 million in 2000, $0.5
million in 1999 and $0.1 million in 1998.

Currently, PSNH annually funds 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 PSNH, 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 PSNH 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. PSNH 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' 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......... $ (201.5) $ (201.0) $(51.2) $(50.1)
Service cost................... (4.8) (4.9) (0.9) (1.0)
Interest cost.................. (15.0) (14.3) (3.9) (3.6)
Plan amendment................. - (11.2) - -
Transfers...................... 0.1 0.5 - -
Actuarial gain/(loss).......... (1.0) 19.1 (1.1) (1.5)
Benefits paid.................. 11.1 10.3 4.2 5.0
-------------------------------------------------------------------------------
Benefit obligation
at end of year............... $ (211.1) $ (201.5) $(52.9) $(51.2)
-------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year......... $ 233.8 $ 213.2 $ 30.6 $ 27.3
Actual return on plan assets... (0.8) 30.4 1.5 3.4
Employer contribution.......... - - 4.5 4.9
Benefits paid.................. (11.1) (10.3) (4.2) (5.0)
Transfers...................... (0.1) 0.5 - -
-------------------------------------------------------------------------------
Fair value of plan assets
at end of year............... $ 221.8 $ 233.8 $ 32.4 $ 30.6
-------------------------------------------------------------------------------
Funded status at December 31... $ 10.7 $ 32.3 $(20.5) $(20.6)
Unrecognized transition
obligation................... 3.0 3.3 35.3 38.2
Unrecognized prior
service cost................. 15.5 16.9 - -
Unrecognized net gain.......... (70.4) (98.0) (14.8) (17.6)
-------------------------------------------------------------------------------
Deferred benefit cost.......... $ (41.2) $ (45.5) $ - $ -
-------------------------------------------------------------------------------

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........ $ 4.8 $ 4.9 $ 4.3 $ 0.9 $ 1.0 $ 0.9
Interest cost........ 15.0 14.3 13.2 3.9 3.6 3.4
Expected return
on plan assets..... (19.7) (17.7) (15.6) (2.6) (2.1) (1.8)
Amortization of
unrecognized net
transition (asset)/
obligation......... 0.3 0.3 0.3 2.9 2.9 2.9
Amortization of prior
service cost....... 1.3 1.3 0.5 - - -
Amortization of
actuarial gain..... (6.0) (3.6) (2.8) - - -
Other
amortization, net.. - - - (0.6) (0.5) (0.5)
--------------------------------------------------------------------------
Net periodic benefit
(credit)/cost....... $(4.3) $(0.5) $(0.1) $ 4.5 $ 4.9 $ 4.9
--------------------------------------------------------------------------

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

--------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
--------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
--------------------------------------------------------------------------
Discount rate........ 7.75% 7.00% 7.25% 7.75% 7.00% 7.25%
Expected long-term
rate of return..... 9.50 9.50 9.50 N/A N/A N/A
Compensation/
progression rate.... 4.75 4.25 4.25 4.75 4.25 4.25
Long-term rate
of return -
Health assets,
net of tax....... N/A N/A N/A 7.50 7.50 7.75
Life assets........ N/A N/A N/A 9.50 9.50 9.50
--------------------------------------------------------------------------

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 ...... $0.2 $(0.2)
Effect on postretirement
benefit obligation............. $2.9 $(2.6)
--------------------------------------------------------------------------

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

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

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

10.60% Series A of 1991 970,722 $24.3 $50.0

Less preferred stock to be
redeemed within one year 970,722 24.3 25.0
----- -----
$ - $25.0
===== =====

The Series A preferred stock is not subject to optional redemption by
PSNH. It is subject to an annual sinking fund requirement of $25 million
each year, which began on June 30, 1997, sufficient to retire annually
1,000,000 shares at $25 per share. In case of default on dividends or
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 PSNH is in arrears in the payment of
dividends on any outstanding shares of preferred stock, PSNH would be
prohibited from redeeming or purchasing less than all of the outstanding
preferred stock.

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

-------------------------------------------------------------------------
At December 31, 2000 1999
-------------------------------------------------------------------------
(Millions of Dollars)
Pollution Control Revenue Bonds:
7.65% Tax-Exempt Series A, due 2021........ $ 66.0 $ 66.0
7.50% Tax-Exempt Series B, due 2021........ 109.0 109.0
7.65% Tax-Exempt Series C, due 2021........ 112.5 112.5
6.00% Tax-Exempt Series D, due 2021........ 75.0 75.0
6.00% Tax-Exempt Series E, due 2021........ 44.8 44.8
Adjustable Rate, Series D, due 2021........ - 39.5
Adjustable Rate, Series E, due 2021........ - 69.7
------ ------
Long-term debt.............................. $407.3 $516.5
====== ======
-------------------------------------------------------------------------

There are no cash sinking fund requirements or debt maturities for the
years 2001 through 2005. There are annual renewal and replacement fund
requirements equal to 2.25 percent of the average of net depreciable
utility property owned by PSNH at the reorganization date, plus cumulative
gross property additions thereafter. PSNH expects to meet these future
fund requirements by certifying property additions. Any deficiency would
need to be satisfied by the deposit of cash or bonds.

Concurrent with the issuance of PSNH's Series A and B first mortgage
bonds, PSNH entered into financing arrangements with the Business Finance
Authority (BFA) of the State of New Hampshire. Pursuant to these
arrangements, the BFA issued five series of Pollution Control Revenue
Bonds (PCRBs) and loaned the proceeds to PSNH. PSNH's obligation to repay
each series of PCRBs is secured by the first mortgage bonds. Each such
series of first mortgage bonds contains similar terms and provisions as
the applicable series of PCRBs. For financial reporting purposes, these
bonds would not be considered outstanding unless PSNH failed to meet its
obligations under the PCRBs.

The average effective interest rates on the variable-rate pollution
control notes ranged from 5.9 percent to 6.8 percent in 2000 and from 4.9
percent to 6.1 percent in 1999.

8. 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.................................... $ 41.8 $ 41.4 $ (6.6)
State...................................... 3.7 4.6 0.8
------ ------ ------
Total current............................ 45.5 46.0 (5.8)
------ ------ ------
Deferred income taxes, net:
Federal.................................... 6.7 4.6 78.0
State...................................... 0.8 (2.2) 0.9
------ ------ ------
Total deferred........................... 7.5 2.4 78.9
------ ------ ------
Investment tax credits, net.................. (8.0) (7.7) (0.5)
------ ------ ------
Total income tax expense..................... $ 45.0 $ 40.7 $ 72.6
====== ====== ======
--------------------------------------------------------------------------

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

Income taxes charged to operating expenses... $ 45.1 $ 36.8 $ 65.1
Other income taxes........................... (0.1) 3.9 7.5
------ ------ ------
Total income tax expense..................... $ 45.0 $ 40.7 $ 72.6
====== ====== ======
--------------------------------------------------------------------------

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

Depreciation................................. $(1.0) $ (6.5) $(12.1)
Regulatory deferral.......................... 6.9 (12.6) 22.6
State net operating loss carryforward........ - 29.5 69.2
Regulatory disallowance...................... - (2.3) -
Contractual settlements...................... - (6.7) -
Other........................................ 1.6 1.0 (0.8)
----- ------ ------
Deferred income taxes, net................... $ 7.5 $ 2.4 78.9
===== ====== ======
--------------------------------------------------------------------------

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

Expected federal income tax $39.4 $43.7 $57.5
Tax effect of differences:
Depreciation............................... 0.3 0.9 (2.2)
Amortization of regulatory assets.......... 9.9 9.9 17.3
Investment tax credit amortization......... (8.0) (7.7) (0.5)
State income taxes, net of
federal benefit.......................... 2.9 1.6 1.0
Adjustment to tax asset
valuation allowance...................... - (7.4) -
Seabrook intercompany gains and losses..... 5.0 0.8 0.6
Allocation of parent company loss.......... (4.2) - -
Other, net................................. (0.3) (1.1) (1.1)
----- ----- -----
Total income tax expense..................... $45.0 $40.7 $72.6
===== ===== =====
--------------------------------------------------------------------------

9. COMMITMENTS AND CONTINGENCIES

A. Restructuring
In September 2000, the New Hampshire Public Utilities Commission
(NHPUC) approved a comprehensive restructuring order that would allow
PSNH to securitize up to $670 million of stranded costs. In January
2001, the New Hampshire Supreme Court upheld this restructuring order
on appeal. However, one of the appellants indicated publicly it would
request a review of the New Hampshire Supreme Court decision by the
United States Supreme Court. Such a request must be filed by May 1,
2001. Management believes that such an appeal would have a low
probability of success, but cannot determine what effect it might have
on the timing of the issuance of securitization bonds and the
implementation of customer choice in New Hampshire. PSNH currently
expects to work with the State of New Hampshire to issue
securitization bonds early in the second quarter of 2001.

B. Nuclear Generation Assets Divestiture
On August 7, 2000, PSNH, CL&P, and WMECO and certain other joint
owners, including PSNH, reached an agreement to sell substantially all
of the Millstone units, located in Waterford, Connecticut, to Dominion
Resources, Inc. (Dominion), for approximately $1.3 billion, including
approximately $105 million for nuclear fuel. NU expects to close on
the sale of Millstone as early as the end of March 2001.

If the transaction is consummated as proposed, PSNH will receive $26
million on a pretax basis, which will be reflected as a gain in
accordance with the Settlement Agreement.

By the end of 2002, PSNH expects to complete the sale of its fossil
and hydroelectric generation assets, as well as NAEC's ownership share
of Seabrook.

C. Environmental Matters
The NU system, including PSNH, is subject to environmental laws and
regulations intended to mitigate or remove the effect of past
operations and improve or maintain the quality of our environment.
As such, the NU system and PSNH 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 necessarily involve
activities and substances that expose PSNH 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 PSNH's financial statements.

Based upon currently available information for the estimated
remediation costs as of December 31, 2000 and 1999, the liability
recorded by PSNH for its estimated environmental remediation costs
amounted to $9.7 million and $9.5 million, respectively.

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

E. Nuclear Insurance Contingencies
Insurance policies covering PSNH'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.

PSNH is subject to retroactive assessments if losses under those
policies exceed the accumulated funds available to the insurer. The
maximum potential assessments, including costs resulting from PSNH's
contracts with NAEC, with respect to losses arising during the current
policy year for the primary property insurance program, the
replacement power policies and the excess property damage policies
are $2.1 million, $0.8 million and $2.7 million, respectively. In
addition, insurance has been purchased in the aggregate amount of
$200 million on an industry basis by the NU system 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
PSNH, 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 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. Under the terms of the
Seabrook Power Contracts, PSNH could be obligated to pay for any
assessment charged to NAEC as a cost of service. Based upon its
ownership interest in Millstone 3 and NAEC's ownership interest in
Seabrook, PSNH's maximum liability, including any additional
assessments, would be $33.8 million per incident, of which payments
would be limited to $3.9 million per year. In addition, through
purchased-power contracts with VYNPC, PSNH would be responsible for
up to an additional assessment of $3.5 million per incident, of which
payments would be limited to $0.3 million per year.

F. Long-Term Contractual Arrangements
Yankee Companies: Under the terms of its agreement, PSNH 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 and recovered
through PSNH's rates. PSNH's cost of purchases under contracts with
VYNPC amounted to $6.4 million in 2000, $7.5 million in 1999 and $7
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): PSNH has entered into various
arrangements for the purchase of capacity and energy from NUGs.
PSNH's total cost of purchases under these arrangements amounted to
$144.9 million in 2000, $139.8 million in 1999 and $139.1 million in
1998. The company is attempting to renegotiate the terms of the
largest of these contracts through either a contract buydown or
buyout. The company expects any payments to the NUGs as a result of
these successful renegotiations to be recovered from the company's
customers.

Hydro-Quebec: Along with other New England utilities, PSNH has
entered into an agreement to support transmission and terminal
facilities to import electricity from the Hydro-Quebec system in
Canada. PSNH 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 PSNH'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............. $ 7.1 $ 7.1 $ 7.1 $ 7.9 $ 7.4
NUGs.............. 150.0 154.6 159.4 163.7 166.4
Hydro-Quebec...... 8.7 8.4 8.1 7.8 7.5
---------------------------------------------------------------------

G. Deferred Receivable from Affiliated Company
At the time PSNH emerged from bankruptcy on May 16, 1991, in
accordance with the phase-in under the Rate Agreement, it began to
accrue a deferred return on a portion of its Seabrook investment.
From May 16, 1991, to the Acquisition Date, PSNH accrued a deferred
return of $50.9 million. On the Acquisition Date, PSNH sold the
$50.9 million deferred return to NAEC as part of the Seabrook-
related assets.

At the time PSNH transferred the deferred return to NAEC, it realized,
for income tax purposes, a gain that was deferred under the
consolidated income tax rules. Beginning December 1, 1997, the gain
is being amortized into income for income tax purposes, as the
deferred return of $50.9 million, and the associated income taxes of
$32.9 million, are being collected by NAEC through the Seabrook Power
Contracts. As NAEC recovers the $32.9 million in years eight through
ten of the Rate Agreement, corresponding payments are being made to
PSNH. The balance of the deferred receivable from NAEC at
December 31, 2000 and 1999, was $3.2 million and $13 million,
respectively.

10. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS
Millstone and Seabrook: PSNH is obligated to pay NAEC's share of
Seabrook's decommissioning costs, even if the unit is shut down prior
to the expiration of its operating license. Accordingly, NAEC bills PSNH
directly for its share of the costs of decommissioning Seabrook. PSNH
records its Seabrook decommissioning costs as a component of purchased-
power expense. These costs are recovered through base rates. The
Seabrook decommissioning costs will continue to be increased annually by
its respective escalation rates until the unit is sold. Under New
Hampshire law, Seabrook's decommissioning funding requirements are set
by the New Hampshire Nuclear Decommissioning Financing Committee (NDFC).
During April 1999, the NDFC issued an order that adjusted the
decommissioning collection period and funding levels assuming that
Seabrook's anticipated energy producing life was 25 years from the date
it went into commercial operation. Decommissioning collections are now
expected to be completed by October 2015, as opposed to 2026, for the
decommissioning collection period only. The cost of funding
decommissioning Seabrook is now accrued over the estimated remaining
accelerated funding period that was ordered by the NDFC. This is
eleven years earlier than the service life established by Seabrook's
Nuclear Regulatory Commission's (NRC) operating license.

Millstone 3 and Seabrook's service lives are expected to end during the
years 2025 through 2026, and upon retirement, must be decommissioned.
In connection with the sale of the Millstone nuclear units, Dominion has
agreed to assume responsibility for decommissioning. Until the
divestiture, PSNH recovers sufficient amounts through their allowed rates
related to decommissioning costs.

PSNH's ownership share of the estimated cost of decommissioning
Millstone 3 and NAEC's ownership share of Seabrook, in year end 2000
dollars, is $18.4 million and $210.8 million, respectively. Nuclear
decommissioning costs are accrued over the expected service lives of
Millstone 3 and are included in depreciation expense and the accumulated
provision for depreciation. Nuclear decommissioning expenses for PSNH's
ownership share of Millstone 3 amounted to $.5 million in 2000 and 1999
and $0.4 million in 1998. Through December 31, 2000 and 1999, total
decommissioning expenses of $4 million and $3.5 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. PSNH payments for NAEC's ownership
share of the cost of decommissioning Seabrook are paid by NAEC to an
independent decommissioning financing fund managed by the state of New
Hampshire. Funding of the estimated decommissioning costs assumes
after-tax earnings on the Millstone and Seabrook decommissioning funds
of 5.5 percent and 6.5 percent, respectively.

As of December 31, 2000 and 1999, NAEC has paid approximately $39.6
million and $32.7 million, respectively, (including payments made prior
to the Acquisition Date by PSNH) into Seabrook's decommissioning fund.
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 for
Millstone 3 were $7.4 million and $6.9 million at December 31, 2000
and 1999, respectively. Upon divestiture of Millstone 3, balances in
the decommissioning trusts for Millstone 3 will be transferred to the
buyer. NU is obligated to top off the 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. PSNH's ownership share of
estimated costs, in year end 2000 dollars, of decommissioning this unit is
$18.1 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 PSNH)
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, PSNH 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, PSNH's remaining estimated obligation,
including decommissioning for the units owned by CYAPC, YAEC and MYAPC,
which have been shut down was $41.5 million and $56.5 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:

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

Nuclear decommissioning trusts: PSNH's portion of the investments held
in the NU system companies' nuclear decommissioning trusts were marked-
to-market by $2 million as of December 31, 2000, and $2.2 million as of
December 31, 1999, with corresponding offsets to the accumulated provision
for depreciation. The amounts adjusted in 2000 and 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 PSNH'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 PSNH's
financial instruments and the estimated fair values are as follows:

--------------------------------------------------------------------------
At December 31, 2000
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
Preferred stock subject
to mandatory redemption............... $ 24.3 $ 25.5

Other long-term debt.................... 407.3 401.9
--------------------------------------------------------------------------

--------------------------------------------------------------------------
At December 31, 1999
--------------------------------------------------------------------------
Carrying Fair
(Millions of Dollars) Amount Value
--------------------------------------------------------------------------
Preferred stock subject
to mandatory redemption............... $ 50.0 $ 52.0

Other long-term debt.................... 516.5 517.4
--------------------------------------------------------------------------

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................ $1,268 $133 $1,401
Minimum pension
liability adjustments........... (194) - (194)
--------------------------------------------------------------------------
Accumulated other
comprehensive income............ $1,074 $133 $1,207
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Current
December 31, Period December 31,
1998 Change 1999
--------------------------------------------------------------------------
(Thousands of Dollars)
--------------------------------------------------------------------------
Unrealized gains
on securities................... $1,198 $ 70 $1,268
Minimum pension
liability adjustments........... (194) - (194)
--------------------------------------------------------------------------
Accumulated other
comprehensive income............ $1,004 $ 70 $1,074
--------------------------------------------------------------------------

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......... $(74) $(39) $(660)
Minimum pension
liability adjustments................ - - 107
--------------------------------------------------------------------------
Other comprehensive income............. $(74) $(39) $(553)
--------------------------------------------------------------------------

13. SEGMENT INFORMATION
Effective January 1, 1999, the NU system companies, including PSNH, 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. PSNH 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 NRC 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 a 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.

Public Service Company of New Hampshire

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

Operating Revenues.................. $1,291,280 $1,160,572 $1,087,247 $1,108,459 $1,110,169

Operating Income.................... 89,930 124,605 131,199 144,024 155,758

Net Income.......................... (146,666) 84,209 91,686 92,172 97,465

Cash Dividends on Common Stock...... 50,000 - - 85,000 52,000

Total Assets........................ 2,082,194 2,622,433 2,681,595 2,837,159 2,851,212

Long-Term Debt (a).................. 407,285 516,485 516,485 686,485 686,485

Preferred Stock Subject
to Mandatory Redemption (a)....... 24,268 50,000 75,000 100,000 125,000

Obligations Under Seabrook Power
Contracts and Other Capital
Leases (a)........................ 629,230 726,153 842,223 921,813 914,617

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

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

Operating Revenues $328,694 $326,458 $337,865 $ 298,263
======== ======== ======== =========

Operating Income $ 25,242 $ 24,434 $ 28,180 $ 12,074
======== ======== ======== =========

Net Income $ 17,431 $ 14,252 $ 28,733 $(207,082)
======== ======== ======== =========
- ------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------

Operating Revenues $286,799 $286,824 $310,739 $ 276,210
======== ======== ======== =========

Operating Income $ 35,449 $ 29,419 $ 34,666 $ 25,071
======== ======== ======== =========

Net Income $ 25,281 $ 20,695 $ 25,584 $ 12,649
======== ======== ======== =========

(a) Includes portion due within one year.

Public Service Company of New Hampshire

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

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

2000 $1,535,142 17,143 6,644 433,937 1,227
1999 2,283,187 12,832 6,665 427,694 1,258
1998 2,302,254 12,579 6,347 421,602 1,265
1997 2,312,628 13,340 6,528 407,642 1,254
1996 2,382,009 13,601 6,567 407,082 1,279

(a) Includes unamortized acquisition costs.