Edgar Filing: NORTHEAST UTILITIES

September 2008 Form 10-Q

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended September 30, 2008
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ____________ to ____________


Commission File Number	Registrant; State of Incorporation; Address; and Telephone Number	I.R.S. Employer Identification No.

1-5324	NORTHEAST UTILITIES (a Massachusetts voluntary association) One Federal Street Building 111-4 Springfield, Massachusetts 01105 Telephone: (413) 785-5871	04-2147929

0-00404	THE CONNECTICUT LIGHT AND POWER COMPANY (a Connecticut corporation) 107 Selden Street Berlin, Connecticut 06037-1616 Telephone: (860) 665-5000	06-0303850

1-6392	PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE (a New Hampshire corporation) Energy Park 780 North Commercial Street Manchester, New Hampshire 03101-1134 Telephone: (603) 669-4000	02-0181050

0-7624	WESTERN MASSACHUSETTS ELECTRIC COMPANY (a Massachusetts corporation) One Federal Street Building 111-4 Springfield, Massachusetts 01105 Telephone: (413) 785-5871	04-1961130

____________________________________________________________________________________

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


	Yes	No

	Ö

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check one):


	Large Accelerated Filer	Accelerated Filer	Non-accelerated Filer

Northeast Utilities	Ö
The Connecticut Light and Power Company			Ö
Public Service Company of New Hampshire			Ö
Western Massachusetts Electric Company			Ö

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):


	Yes	No

Northeast Utilities		Ö
The Connecticut Light and Power Company		Ö
Public Service Company of New Hampshire		Ö
Western Massachusetts Electric Company		Ö

Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date:


Company - Class of Stock	Outstanding at October 31, 2008
Northeast Utilities Common stock, $5.00 par value	155,699,235 shares

The Connecticut Light and Power Company Common stock, $10.00 par value	6,035,205 shares

Public Service Company of New Hampshire Common stock, $1.00 par value	301 shares

Western Massachusetts Electric Company Common stock, $25.00 par value	434,653 shares

Northeast Utilities holds all of the 6,035,205 shares, 301 shares, and 434,653 shares of the outstanding common stock of The Connecticut Light and Power Company, Public Service Company of New Hampshire and Western Massachusetts Electric Company, respectively.

Public Service Company of New Hampshire and Western Massachusetts Electric Company each meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.


GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms that are found in this report.

CURRENT OR FORMER NU COMPANIES, SEGMENTS OR INVESTMENTS:

Boulos	E.S. Boulos Company
CL&P	The Connecticut Light and Power Company
CRC	CL&P Receivables Corporation
HWP	Holyoke Water Power Company
Mt. Tom	Mt. Tom generating plant
NGC	Northeast Generation Company
NGS	Northeast Generation Services Company and subsidiaries
NU or the company	Northeast Utilities
NU Enterprises	At September 30, 2008, NU Enterprises, Inc. is the parent company of Select Energy, NGS, SECI and Boulos. For further information, see Note 9, "Segment Information," to the condensed consolidated financial statements.
NU parent and other companies	NU parent and other companies is comprised of NU parent, Northeast Utilities Service Company, HWP (since January 1, 2007) and other subsidiaries, including The Rocky River Realty Company and The Quinnehtuk Company (both real estate subsidiaries), Mode 1 Communications, Inc. (telecommunications) and the nonenergy-related subsidiaries of Yankee (Yankee Energy Services Company, Yankee Energy Financial Services Company, and NorConn Properties, Inc.)
PSNH	Public Service Company of New Hampshire
Regulated companies	NU's regulated companies, comprised of the electric distribution and transmission segments of CL&P, PSNH and WMECO, the generation segment of PSNH and Yankee Gas, a natural gas local distribution company. For further information, see Note 9, "Segment Information," to the condensed consolidated financial statements.
SECI	Select Energy Contracting, Inc.
Select Energy	Select Energy, Inc.
SESI	Select Energy Services, Inc.
WMECO	Western Massachusetts Electric Company
Yankee	Yankee Energy System, Inc.
Yankee Gas	Yankee Gas Services Company

REGULATORS:

DPU	Massachusetts Department of Public Utilities (formerly the Massachusetts Department of Telecommunications and Energy (DTE))
DPUC	Connecticut Department of Public Utility Control
FERC	Federal Energy Regulatory Commission
NHPUC	New Hampshire Public Utilities Commission
SEC	Securities and Exchange Commission


OTHER:

AFUDC	Allowance For Funds Used During Construction
CfD	Contract for Differences
Con Edison	Consolidated Edison, Inc.
CTA	Competitive Transition Assessment
EPS	Earnings Per Share
ES	Default Energy Service
FASB	Financial Accounting Standards Board
FMCC	Federally Mandated Congestion Charges
GSC	Generation Service Charge
ISO-NE	New England Independent System Operator or ISO New England, Inc.
KWH	Kilowatt-Hour
KV	Kilovolt
LOC	Letter of Credit
MW	Megawatts
NU 2007 Form 10-K	The Northeast Utilities and Subsidiaries combined 2007 Annual Report on Form 10-K as filed with the SEC
NYMPA	New York Municipal Power Agency
PBOP	Postretirement Benefits Other Than Pensions
Regulatory ROE	The average cost of capital method for calculating the return on equity related to the distribution and generation business segments excluding the wholesale transmission segment.
RMR	Reliability Must Run
ROE	Return on Equity
SBC	System Benefits Charge
SCRC	Stranded Cost Recovery Charge
SFAS	Statement of Financial Accounting Standards
TCAM	Transmission Cost Adjustment Mechanism
TSO	Transitional Standard Offer
UI	The United Illuminating Company
VAR	Voltage Ampere Reactive

NORTHEAST UTILITIES AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

TABLE OF CONTENTS


	Page

PART I - FINANCIAL INFORMATION

ITEM 1 - Condensed Consolidated Financial Statements for the Following Companies:

Northeast Utilities and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2008 and December 31, 2007	2

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2008 and 2007	4

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2008 and 2007	5

Notes to Condensed Consolidated Financial Statements (Unaudited - all companies)	6

Report of Independent Registered Public Accounting Firm	31

The Connecticut Light and Power Company and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited) - Septe mber 30, 2008 and December 31, 2007	34

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2008 and 2007	36

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2008 and 2007	37

Public Service Company of New Hampshire and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2008 and December 31, 2007	40

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2008 and 2007	42

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2008 and 2007	43

Western Massachusetts Electric Company and Subsidiary

Condensed Consolidated Balance Sheets (Unaudited) - September 30, 2008 and December 31, 2007	46

Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended September 30, 2008 and 2007	48

Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2008 and 2007	49

iii


	Page

ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations for the following companies:

Northeast Utilities and Subsidiaries		50

The Connecticut Light and Power Company and Subsidiaries		79

Public Service Company of New Hampshire and Subsidiaries		83

Western Massachusetts Electric Company and Subsidiary		87

ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk		90

ITEM 4 - Controls and Procedures		91

PART II - OTHER INFORMATION

ITEM 1 - Legal Proceedings		92

ITEM 1A - Risk Factors		92

ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds		92

ITEM 6 - Exhibits		93

SIGNATURES		95

NORTHEAST UTILITIES AND SUBSIDIARIES


NORTHEAST UTILITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,		December 31,
	2008		2007
	(Thousands of Dollars)
ASSETS

Current Assets:
Cash and cash equivalents	$ 82,818	$ 15,104
Investments in securitizable assets (Note 1E)	-	308,182
Receivables, less provision for uncollectible
accounts of $44,423 in 2008 and $25,529 in 2007	623,834	401,283
Unbilled revenues	193,685	101,860
Taxes receivable	1,102	13,850
Fuel, materials and supplies	270,375	210,850
Marketable securities - current	80,623	70,816
Derivative assets - current	44,054	105,517
Prepayments and other	77,756	58,794
	1,374,247	1,286,256

Property, Plant and Equipment:
Electric utility	8,378,452	7,594,606
Gas utility	1,011,311	977,290
Other	288,890	310,535
	9,678,653	8,882,431
Less: Accumulated depreciation: $2,591,645 for electric
and gas utility and $158,751 for other in 2008;
$2,483,570 for electric and gas utility and
$178,193 for other in 2007	2,750,396	2,661,763
	6,928,257	6,220,668
Construction work in progress	1,012,770	1,009,277
	7,941,027	7,229,945

Deferred Debits and Other Assets:
Regulatory assets	2,372,197	2,057,083
Goodwill	287,591	287,591
Prepaid pension	222,484	202,512
Marketable securities - long-term	35,020	53,281
Derivative assets - long-term	266,346	298,001
Other	164,821	167,153
	3,348,459	3,065,621












Total Assets	$ 12,663,733	$ 11,581,822




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


NORTHEAST UTILITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,	December 31,
	2008	2007
	(Thousands of Dollars)
LIABILITIES AND CAPITALIZATION

Current Liabilities:
Notes payable to banks	$ 442,187	$ 79,000
Long-term debt - current portion	116,286	154,286
Accounts payable	463,966	598,546
Accrued interest	77,062	56,592
Derivative liabilities - current	64,175	71,601
Other	172,226	246,125
	1,335,902	1,206,150

Rate Reduction Bonds	743,345	917,436

Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	1,175,988	1,067,490
Accumulated deferred investment tax credits	26,239	28,845
Deferred contractual obligations	197,304	222,908
Regulatory liabilities	645,235	851,780
Derivative liabilities - long-term	785,908	208,461
Accrued postretirement benefits	162,910	181,507
Other	427,289	383,611
	3,420,873	2,944,602

Capitalization:
Long-Term Debt	4,031,432	3,483,599

Preferred Stock of Subsidiary - Non-Redeemable	116,200	116,200

Common Shareholders' Equity:
Common shares, $5 par value - authorized
225,000,000 shares; 176,179,925 shares issued
and 155,661,854 shares outstanding in 2008 and
175,924,694 shares issued and 155,079,770 shares
outstanding in 2007	880,899	879,623
Capital surplus, paid in	1,472,550	1,465,946
Deferred contribution plan - employee stock
ownership plan	(18,726)	(26,352)
Retained earnings	1,039,984	946,792
Accumulated other comprehensive income	2,877	9,359
Treasury stock, 19,708,136 shares in 2008
and 19,705,545 shares in 2007	(361,603)	(361,533)
Common Shareholders' Equity	3,015,981	2,913,835
Total Capitalization	7,163,613	6,513,634

Commitments and Contingencies (Note 5)

Total Liabilities and Capitalization	$ 12,663,733	$ 11,581,822




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


NORTHEAST UTILITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(Thousands of Dollars, except share information)

Operating Revenues	$ 1,506,897	$ 1,450,977	$ 4,352,209	$ 4,546,267

Operating Expenses:
Operation -
Fuel, purchased and net interchange power	801,050	881,234	2,286,066	2,756,522
Other	232,222	195,112	755,306	678,224
Maintenance	71,287	53,854	198,892	159,681
Depreciation	69,717	64,522	205,792	191,393
Amortization of regulatory assets, net	61,386	17,007	132,186	19,795
Amortization of rate reduction bonds	53,132	52,403	154,366	151,316
Taxes other than income taxes	69,026	63,485	200,133	193,435
Total operating expenses	1,357,820	1,327,617	3,932,741	4,150,366
Operating Income	149,077	123,360	419,468	395,901

Interest Expense:
Interest on long-term debt	53,111	41,706	142,333	118,153
Interest on rate reduction bonds	12,207	15,111	38,910	47,300
Other interest	5,579	4,949	18,355	15,172
Interest expense, net	70,897	61,766	199,598	180,625
Other Income, Net	17,682	10,734	41,610	36,676
Income from Continuing Operations Before
Income Tax Expense	95,862	72,328	261,480	251,952
Income Tax Expense	21,783	20,756	68,381	75,182
Income from Continuing Operations Before
Preferred Dividends of Subsidiary	74,079	51,572	193,099	176,770
Preferred Dividends of Subsidiary	1,390	1,390	4,169	4,169
Income from Continuing Operations	72,689	50,182	188,930	172,601
Discontinued Operations:
Income from Discontinued Operations	-	16	-	264
(Losses)/Gains from Sale/Disposition of Discontinued Operations	-	(90)	-	1,927
Income Tax (Benefit)/Expense	-	(16)	-	1,021
(Loss)/Income from Discontinued Operations	-	(58)	-	1,170
Net Income	$ 72,689	$ 50,124	$ 188,930	$ 173,771

Basic Earnings Per Common Share:
Income from Continuing Operations	$ 0.47	$ 0.32	$ 1.22	$ 1.12
Income from Discontinued Operations	-	-	-	-
Basic Earnings Per Common Share	$ 0.47	$ 0.32	$ 1.22	$ 1.12

Fully Diluted Earnings Per Common Share:
Income from Continuing Operations	$ 0.47	$ 0.32	$ 1.21	$ 1.11
Income from Discontinued Operations	-	-	-	0.01
Fully Diluted Earnings Per Common Share	$ 0.47	$ 0.32	$ 1.21	$ 1.12

Basic Common Shares Outstanding (weighted average)	155,607,201	154,930,930	155,456,606	154,672,270

Fully Diluted Common Shares Outstanding (weighted average)	156,097,641	155,420,239	155,904,871	155,210,704




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


NORTHEAST UTILITIES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)	Nine Months Ended
	September 30,
	2008	2007
	(Thousands of Dollars)

Operating Activities:
Net income	$ 188,930	$ 173,771
Adjustments to reconcile to net cash flows
provided by operating activities:
Bad debt expense	21,341	19,983
Depreciation	205,792	191,393
Deferred income taxes	31,125	(41,144)
Pension expense, net of capitalized portion	5,956	13,776
(Deferral)/amortization of recoverable energy costs	(5,898)	1,494
Amortization of rate reduction bonds	154,366	151,316
Amortization of regulatory assets, net	132,186	19,795
Regulatory (refunds and underrecoveries)/overrecoveries	(97,888)	95,766
Derivative assets and liabilities	(32,369)	(31,641)
Deferred contractual obligations	(25,604)	(32,760)
Other non-cash adjustments	(19,532)	(2,561)
Other sources of cash	2,907	-
Other uses of cash	(28,315)	(33,101)
Changes in current assets and liabilities:
Receivables and unbilled revenues, net	(10,356)	43,511
Fuel, materials and supplies	(59,554)	(57,281)
Investments in securitizable assets	(25,787)	18,137
Other current assets	(26,189)	(6,483)
Accounts payable	(58,594)	(91,473)
Counterparty deposits and margin special deposits	7,965	20,858
Taxes receivable/accrued	64,425	(350,529)
Other current liabilities	(2,801)	(34,676)
Net cash flows provided by operating activities	422,106	68,151

Investing Activities:
Investments in property and plant	(951,831)	(750,231)
Proceeds from sales of investment securities	195,445	196,083
Purchases of investment securities	(197,453)	(199,964)
Rate reduction bond escrow and other deposits	465	8,436
Other investing activities	2,765	996
Net cash flows used in investing activities	(950,609)	(744,680)

Financing Activities:
Issuance of common shares	5,002	8,988
Issuance of long-term debt	660,000	655,000
Retirements of rate reduction bonds	(174,091)	(161,926)
Increase in short-term debt	363,187	-
Retirements of long-term debt	(154,286)	(4,877)
Cash dividends on common shares	(95,824)	(89,745)
Other financing activities	(7,771)	(5,169)
Net cash flows provided by financing activities	596,217	402,271
Net increase/(decrease) in cash and cash equivalents	67,714	(274,258)
Cash and cash equivalents - beginning of period	15,104	481,911
Cash and cash equivalents - end of period	$ 82,818	$ 207,653

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

NORTHEAST UTILITIES AND SUBSIDIARIES

THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (All Companies)

Presentation

Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the entirety of this Quarterly Report on Form 10-Q, the first and second quarter 2008 Quarterly Reports on Form 10-Q and the Annual Reports of Northeast Utilities (NU or the company), The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), and Western Massachusetts Electric Company (WMECO), which were filed with the SEC as part of the Northeast Utilities and subsidiaries combined 2007 Annual Report on Form 10-K (NU 2007 Form 10-K). The accompanying condensed consolidated financial statements contain, in the opinion of management, all adjustments (including normal, recurring adjustments) necessary to present fairly NU's and the above companies' financial position at September 30, 2008 and December 31, 2007, the results of operations for the three and nine months ended September 30, 2008 and 2007 and cash flows for the nine months ended September 30, 2008 and 2007. The results of operations and cash flows for the nine months ended September 30, 2008 and 2007 are not necessarily indicative of the results expected for a full year.

The condensed consolidated financial statements of NU and its subsidiaries, as applicable, include the accounts of all their respective subsidiaries. Intercompany transactions have been eliminated in consolidation.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 condensed consolidated 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 period data included in the accompanying condensed consolidated financial statements have been made to conform with the current period's presentation.

NU's condensed consolidated statements of income for the three and nine months ended September 30, 2007 classify activity related to the following subsidiaries as discontinued operations:

Northeast Generation Company (NGC),

The Mt. Tom generating plant (Mt. Tom) previously owned by Holyoke Water Power Company (HWP), and

Select Energy Contracting, Inc. (including Reeds Ferry Supply Co., Inc.) (SECI).

For the three and nine months ended September 30, 2007, the remaining portions of SECI that were included in continuing operations have been reclassified to discontinued operations in the condensed consolidated statements of income as a result of winding down SECI operations in 2007. The amounts of these reclassifications are as follows:


(Millions of Dollars)	Three Months Ended September 30, 2007		Nine Months Ended September 30, 2007
Operating revenues	$	0.1	$	1.2
Operating expenses		(0.1)		(1.0)
Other interest		-		0.1
Income from discontinued operations		-		0.3
Income tax expense from discontinued operations		-		(0.3)
Net (loss)/income from discontinued operations		-		-

For further information regarding discontinued operations, see Note 7, "Discontinued Operations," to the condensed consolidated financial statements.

Regulatory Accounting

The accounting policies of the regulated companies conform to accounting principles generally accepted in the United States of America applicable to rate-regulated enterprises and historically reflect the effects of the rate-making process in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation."

The transmission and distribution segments of CL&P, PSNH and WMECO, along with PSNH's generation segment and Yankee Gas Service Company's (Yankee Gas) distribution segment, continue to be cost-of-service, rate regulated. Management believes that the application of SFAS No. 71 to those segments continues to be appropriate. Management also believes it is probable that NU's regulated companies will recover their investments in long-lived assets, including regulatory assets. All material net regulatory assets are earning an equity return, except for securitized regulatory assets and the majority of deferred benefit costs, which are not supported by equity. Amortization and deferrals of regulatory assets/(liabilities) are included on a net basis in amortization expense on the accompanying condensed consolidated statements of income.

Regulatory Assets: The components of regulatory assets are as follows:


	At September 30, 2008
(Millions of Dollars)	NU Consolidated		CL&P		PSNH		WMECO		Yankee Gas and Other
Securitized assets	$	733.9	$	419.4	$	239.1	$	75.4	$	-
Income taxes, net		352.3		304.7		9.8		28.0		9.8
Deferred benefit costs		162.4		56.9		43.6		5.5		56.4
Unrecovered contractual obligations		173.6		136.2		-		37.4		-
Regulatory assets offsetting regulated company derivative liabilities		687.6		634.7		52.5		-		0.4
CL&P SBC undercollections		32.3		32.3		-		-		-
Other regulatory assets		230.1		100.2		62.3		15.9		51.7
Totals	$	2,372.2	$	1,684.4	$	407.3	$	162.2	$	118.3


	At December 31, 2007
(Millions of Dollars)	NU Consolidated		CL&P		PSNH		WMECO		Yankee Gas and Other
Securitized assets	$	907.0	$	548.2	$	273.2	$	85.6	$	-
Income taxes, net		335.5		279.4		10.3		38.2		7.6
Deferred benefit costs		201.4		72.2		50.4		8.2		70.6
Unrecovered contractual obligations		189.9		148.0		-		42.0		(0.1)
Regulatory assets offsetting regulated company derivative liabilities		122.3		119.8		2.5		-		-
CL&P CTA and SBC undercollections		90.6		90.6		-		-		-
Other regulatory assets		210.4		71.8		65.0		19.9		53.7
Totals	$	2,057.1	$	1,330.0	$	401.4	$	193.9	$	131.8

At December 31, 2007, CL&P's Competitive Transition Assessment (CTA) was recorded as a $54 million regulatory asset as CTA unrecovered costs were in excess of CTA collections. At September 30, 2008, CTA collections were in excess of CTA costs and a $26.7 million regulatory liability was recorded.

Included in regulatory assets offsetting regulated company derivative liabilities are $577.2 million and $86.7 million at September 30, 2008 and December 31, 2007, respectively, of derivative liabilities relating to CL&P’s capacity contracts, referred to as contracts for differences (CfDs). For further information, see Note 2, "Derivative Instruments," to the condensed consolidated financial statements.

Included in NU's other regulatory assets are the regulatory assets associated with the implementation of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143," totaling $44.3 million at September 30, 2008 and $40.6 million at December 31, 2007. Management believes that recovery of these regulatory assets is probable.

Additionally, the regulated companies had $4.2 million and $11.9 million of regulatory costs at September 30, 2008 and December 31, 2007, respectively, that were included in deferred debits and other assets - other on the accompanying condensed consolidated balance

sheets. These amounts represent regulatory costs that have not yet been approved for recovery by the applicable regulatory agency. Management believes these costs are recoverable in future cost-of-service regulated rates.

Regulatory Liabilities: The components of regulatory liabilities are as follows:


	At September 30, 2008
(Millions of Dollars)	NU Consolidated		CL&P		PSNH		WMECO		Yankee Gas
Cost of removal	$	231.7	$	94.1	$	66.3	$	20.4	$	50.9
Regulatory liabilities offsetting regulated company derivative assets		212.1		200.9		10.5		-		0.7
CL&P CTA, GSC and FMCC overcollections		64.7		64.7		-		-		-
CL&P AFUDC transmission incentive		42.2		42.2		-		-		-
Other regulatory liabilities		94.5		39.0		18.8		13.1		23.6
Totals	$	645.2	$	440.9	$	95.6	$	33.5	$	75.2


	At December 31, 2007
(Millions of Dollars)	NU Consolidated		CL&P		PSNH		WMECO		Yankee Gas
Cost of removal	$	262.6	$	116.6	$	72.8	$	21.5	$	51.7
Regulatory liabilities offsetting regulated company derivative assets		330.4		313.0		17.2		-		0.2
CL&P GSC and FMCC overcollections		119.2		119.2		-		-		-
CL&P AFUDC transmission incentive		21.4		21.4		-		-		-
Other regulatory liabilities		118.2		31.3		37.6		17.9		31.4
Totals	$	851.8	$	601.5	$	127.6	$	39.4	$	83.3

Included in regulatory liabilities offsetting regulated company derivative assets are $0.4 million at December 31, 2007 of derivative assets relating to CL&P’s CfDs. For further information, see Note 2, "Derivative Instruments," to the condensed consolidated financial statements. For information regarding CL&P allowance for funds used during construction (AFUDC) transmission incentive, see Note 1D, "Summary of Significant Accounting Policies - Allowance for Funds Used During Construction," to the condensed consolidated financial statements.

Fair Value Measurements

On January 1, 2008, the company adopted SFAS No. 157, "Fair Value Measurements," which establishes a framework for defining and measuring fair value and requires expanded disclosures about fair value measurements. SFAS No. 157:

Defines fair value as the price that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

Establishes a three-level fair value hierarchy based upon the observability of inputs to the valuations of assets and liabilities.

Requires consideration of the company's own creditworthiness and risk of nonperformance when valuing its liabilities.

Requires prospective implementation with adjustments to fair value reflected in earnings, similar to a change in estimate, with exceptions including recognition of previously deferred initial gains or losses described below.

Requires recognition in retained earnings of previously deferred initial gains or losses on derivative contracts whose estimated fair values are based on significant unobservable inputs. Recognition of the initial gains or losses was previously prohibited under Emerging Issues Task Force Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." CL&P’s initial gains and losses on its CfDs that would have been recorded in retained earnings upon adoption were recorded as regulatory assets and liabilities because their costs or benefits are expected to be fully recovered from or refunded to customers.

The company applied SFAS No. 157 to the regulated and unregulated companies' derivative contracts that are recorded at fair value and to the marketable securities held in NU's Rabbi Trust and WMECO's prior spent nuclear fuel trust. SFAS No. 157 also applies to investment valuations for NU’s pension and other postretirement benefit plans beginning as of December 31, 2008, and beginning in 2009, to nonrecurring fair value measurements of non-financial assets and liabilities such as goodwill and asset retirement obligations.

As a result of adopting SFAS No. 157, the company recorded a pre-tax charge to earnings of $6.1 million as of January 1, 2008 related to derivative liabilities for its remaining unregulated wholesale marketing contracts. In the first nine months of 2008, the company recorded a $1.5 million pre-tax benefit to partially reverse the exit price impact recorded under SFAS No. 157 as the company served out rather than exited the contracts.

The company also recorded changes in fair value of certain derivative contracts of CL&P. Because CL&P is a cost-of-service, rate regulated entity, the cost or benefit of the contracts is expected to be fully recovered from or refunded to CL&P's customers and an offsetting regulatory asset or liability was recorded to reflect these changes. As of January 1, 2008, implementing SFAS No. 157 resulted in a total increase to CL&P's derivative liabilities, with an offset to regulatory assets, of approximately $590 million, and a total decrease to derivative assets, with an offset to regulatory liabilities, of approximately $30 million.

Fair Value Hierarchy: As required by SFAS No. 157, in measuring fair value the company uses observable market data when available and minimizes the use of unobservable inputs. Unobservable inputs are needed to value certain derivative contracts due to complexities in contractual terms and the long duration of a contract. SFAS No. 157 requires inputs used in fair value measurements to be categorized into three fair value hierarchy levels for disclosure purposes. The entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement.

The three levels of the fair value hierarchy are described below:

Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 - Inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs are observable.

Level 3 - Quoted market prices are not available. Fair value is derived from valuation techniques in which one or more significant inputs or assumptions are unobservable. Where possible, valuation techniques incorporate observable market inputs that can be validated to external sources such as industry exchanges, including prices of energy and energy-related products. Significant unobservable inputs are used in the valuations, including items such as energy and energy-related product prices in future years for which observable prices are not yet available, future contract quantities under full-requirements or supplemental sales contracts, and market volatilities. Items valued using these valuation techniques are classified according to the lowest level for which there is at least one input that is significant to the valuation. Therefore, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

Determination of Fair Value: The following is a description of the valuation techniques utilized in our fair value measurements:

Derivative contracts: Many of the company's derivative positions that are recorded at fair value are classified as Level 3 within the fair value hierarchy and are valued using models that incorporate both observable and unobservable inputs. Fair value is modeled using techniques such as discounted cash flow approaches adjusted for assumptions relating to exit price and the Black-Scholes option pricing model, incorporating the terms of the contracts. Significant unobservable inputs utilized in the valuations include energy and energy-related product prices for future years for long-dated derivative contracts, future contract quantities under full requirements and supplemental sales contracts, and market volatilities. Discounted cash flow valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using available historical market transaction information. Valuations of derivative contracts also reflect nonperformance risk, including credit. The derivative contracts classified as Level 3 include NU Enterprises, Inc.'s (NU Enterprises) remaining wholesale marketing contract and its related supply contracts, CL&P's CfDs, CL&P's contracts with certain independent power producers (IPPs) and regulated company options and financial transmission rights (FTRs).

Other derivative contracts recorded at fair value are classified as Level 2 within the fair value hierarchy. An active market for the same or similar contracts exists for these contracts, which include regulated company forward contracts to purchase energy and interest rate swap agreements for the regulated companies and NU parent. For these contracts, valuations are based on quoted prices in the market and include some modeling using market-based assumptions.

For further information on derivative contracts, see Note 2, "Derivative Instruments," to the condensed consolidated financial statements.

Marketable securities: The company holds in trust marketable securities, which include equity securities, mutual funds and cash equivalents, and fixed maturity securities.

Equity securities, mutual funds and cash equivalents are classified as Level 1 in the fair value hierarchy. These investments are traded in active markets and quoted prices are available for identical investments.

Fixed maturity securities classified as Level 2 within the fair value hierarchy include U.S. Treasury securities, corporate bonds, collateralized mortgage obligations, U.S. pass-through bonds, asset-backed securities, commercial mortgage-backed securities, and commercial paper. The fair value of these instruments is estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The pricing models utilize observable inputs such as recent trades for the same or similar instruments, yield curves, discount margins and bond structures.

For further information see Note 3, "Fair Value Measurements," to the accompanying condensed consolidated financial statements.

Allowance for Funds Used During Construction

AFUDC is included in the cost of the regulated companies' utility plant and represents the cost of borrowed and equity funds used to finance construction. The portion of AFUDC attributable to borrowed funds is recorded as a reduction of other interest expense, and the AFUDC related to equity funds is recorded as other income on the accompanying condensed consolidated statements of income:


	For the Three Months Ended				For the Nine Months Ended
(Millions of Dollars, except percentages)	September 30, 2008		September 30, 2007		September 30, 2008		September 30, 2007
Borrowed funds	$	4.3	$	4.3	$	13.5	$	12.9
Equity funds		8.5		4.8		23.5		11.1
Totals	$	12.8	$	9.1	$	37.0	$	24.0
Average AFUDC rates		8.4%		7.6%		8.3%		7.3%

The regulated companies' average AFUDC rate is based on a Federal Energy Regulatory Commission (FERC) prescribed formula that produces an average rate using the cost of a company's short-term financings as well as a company's capitalization (preferred stock, long-term debt and common equity). The average rate is applied to average eligible construction work in progress (CWIP) amounts to calculate AFUDC. Although AFUDC is recorded on 100 percent of CL&P's CWIP for its major transmission projects in southwest Connecticut, 50 percent of this AFUDC is being reserved as a regulatory liability to reflect current rate base recovery for 50 percent of the CWIP as a result of FERC approved transmission incentives.

Sale of Customer Receivables

Prior to June 30, 2008, under the Receivables Purchase and Sale Agreement, CL&P Receivables Corporation (CRC), a consolidated, wholly-owned subsidiary of CL&P, purchased an undivided interest in CL&P's accounts receivable and unbilled revenues and could sell up to $100 million thereof to a financial institution. At December 31, 2007, there were $20 million in such sales. On June 30, 2008, CL&P chose to terminate the Receivables Purchase and Sale Agreement and there are no receivables sold under that facility.

At December 31, 2007, amounts totaling $308.2 million sold to CRC by CL&P but not sold to the financial institution were included in investments in securitizable assets on the accompanying condensed consolidated balance sheet. These amounts would have been excluded from CL&P's assets in the event of bankruptcy by CL&P. Since CL&P chose to terminate the Receivables Purchase and Sale Agreement on June 30, 2008, all such amounts are now included in accounts receivables and unbilled revenues on the accompanying condensed consolidated balance sheet as of September 30, 2008.

Other Income, Net

The pre-tax components of other income/(loss) items are as follows:


NU	For the Three Months Ended				For the Nine Months Ended
(Millions of Dollars)	September 30, 2008		September 30, 2007		September 30, 2008		September 30, 2007
Other Income:
Investment income	$	2.3	$	4.2	$	6.1	$	18.6
2008 federal tax settlement - interest		10.1		-		10.1		-
AFUDC - equity funds		8.5		4.8		23.5		11.1
Energy Independence Act incentives		0.5		0.1		9.4		5.0
Conservation and load management incentives		0.1		1.4		(0.3)		1.8
Other		0.2		0.2		0.8		0.8
Total Other Income		21.7		10.7		49.6		37.3
Other Loss:
Investment loss		(4.0)		-		(7.8)		-
Investment write-down		-		-		-		(0.5)
Other		-		-		(0.2)		(0.1)
Total Other Loss		(4.0)		-		(8.0)		(0.6)
Total Other Income, Net	$	17.7	$	10.7	$	41.6	$	36.7


CL&P	For the Three Months Ended				For the Nine Months Ended
(Millions of Dollars)	September 30, 2008		September 30, 2007		September 30, 2008		September 30, 2007
Other Income:
Investment income	$	1.7	$	1.3	$	5.0	$	4.3
2008 federal tax settlement - interest		6.4		-		6.4		-
AFUDC - equity funds		7.0		4.7		19.4		9.0
Energy Independence Act incentives		0.5		0.1		9.4		5.0
Conservation and load management incentives		-		1.3		(0.6)		1.4
Other		0.2		0.1		0.5		0.6
Total Other Income		15.8		7.5		40.1		20.3
Investment loss		(2.7)		-		(5.3)		-
Total Other Income, Net	$	13.1	$	7.5	$	34.8	$	20.3


PSNH	For the Three Months Ended				For the Nine Months Ended
(Millions of Dollars)	September 30, 2008		September 30, 2007		September 30, 2008		September 30, 2007
Other Income:
Investment income	$	0.5	$	0.2	$	1.4	$	0.6
2008 federal tax settlement - interest		1.9		-		1.9		-
AFUDC - equity funds		0.9		-		3.2		0.9
Other		-		-		0.1		0.1
Total Other Income		3.3		0.2		6.6		1.6
Investment loss		(0.6)		-		(1.3)		-
Total Other Income, Net	$	2.7	$	0.2	$	5.3	$	1.6


WMECO	For the Three Months Ended				For the Nine Months Ended
(Millions of Dollars)	September 30, 2008		September 30, 2007		September 30, 2008		September 30, 2007
Other Income:
Investment income	$	0.2	$	0.2	$	0.9	$	0.8
2008 federal tax settlement - interest		1.1		-		1.1		-
AFUDC - equity funds		0.5		-		0.9		-
Conservation and load management incentives		0.1		0.1		0.3		0.4
Total Other Income		1.9		0.3		3.2		1.2
Investment loss		(0.6)		-		(1.1)		-
Total Other Income, Net	$	1.3	$	0.3	$	2.1	$	1.2

Investment income for NU includes equity in earnings of regional nuclear generating and transmission companies of $0.4 million for both the three months ended September 30, 2008 and 2007, and $1.4 million and $1.5 million for the nine months ended September 30, 2008 and 2007, respectively. Equity in earnings relates to the company's investment in Connecticut Yankee Atomic Power Company (CYAPC), Maine Yankee Atomic Power Company, Yankee Atomic Electric Company and two regional transmission companies.

For further information regarding interest from the 2008 federal tax settlement, see Note 1G, "Summary of Significant Accounting Policies - Income Taxes," to the condensed consolidated financial statements.

Income Taxes

Tax Positions: In September 2008, NU and the Internal Revenue Service (IRS) reached a settlement agreement related to the timing for deducting certain costs. This agreement will close the federal tax years 2002 through 2004. The issues regarding the timing for deducting these costs are also subject to review during the 2005 through 2007 IRS federal audit cycle and therefore are not considered effectively settled for years after 2004. While this settlement had a $10.1 million pre-tax impact on interest income, it did not have a significant impact on income tax expense. The receivable related to this settlement of $18.1 million was included in current assets - prepayments and other on the accompanying condensed consolidated balance sheet at September 30, 2008. NU is actively working to reach resolution of these matters regarding the timing for certain deductions in the remaining open federal tax years. While discussions are currently ongoing with federal and state taxing authorities, for which a change in the unrecognized tax benefits over the next twelve months is reasonably possible, a range in the outcome could not be determined as of this date.

Other Taxes

Certain excise taxes levied by state or local governments are collected by NU from its customers. These excise taxes are accounted for on a gross basis with collections in revenues and payments in expenses. For the three and nine months ended September 30, 2008, gross receipts taxes, franchise taxes and other excise taxes of $33.9 million and $92.4 million, respectively, were included in operating revenues and taxes other than income taxes on the accompanying condensed consolidated statements of income. For the three and nine months ended September 30, 2007, these amounts totaled $27 million and $84.9 million, respectively. Certain sales taxes are also collected by the regulated companies from their customers as agents for state and local governments and are recorded on a net basis with no impact on the accompanying condensed consolidated statements of income.

DERIVATIVE INSTRUMENTS (NU, Select Energy, CL&P, PSNH, Yankee Gas)

Contracts that are derivatives and do not meet the requirements to be treated as a cash flow hedge or normal purchase or normal sale are recorded at fair value with changes in fair value included in earnings. For those contracts that meet the definition of a derivative and meet the cash flow hedge requirements, including those related to initial and ongoing documentation, the contract is recorded at fair value and the changes in the fair value of the effective portion of those contracts are recognized in accumulated other comprehensive income. Cash flow hedges include forward interest rate swap agreements on proposed debt issuances. When a cash flow hedge is settled, the settlement amount is recorded in accumulated other comprehensive income and is amortized into earnings over the term of the debt. Cash flow hedges impact net income when the hedged items affect earnings, when hedge ineffectiveness is measured and recorded, or when the forecasted transaction being hedged is improbable of occurring. Derivative contracts designated as fair value hedges and the items they are hedging are both recorded at fair value with changes in fair value of both items recognized in earnings. Derivative contracts that meet the requirements of a normal purchase or sale, and are so designated, are recognized in revenues or expenses, as applicable, when the quantity of the contract is delivered.

The fair value of the company's derivative contracts may not represent amounts that will be realized. For further information on the fair value of derivative contracts, see Note 1C, "Summary of Significant Accounting Policies - Fair Value Measurements," and Note 3, "Fair Value Measurements," to the condensed consolidated financial statements. On the accompanying condensed consolidated balance sheets at September 30, 2008 and December 31, 2007, these amounts are recorded as current or long-term derivative assets or liabilities and are summarized as follows:


	At September 30, 2008
	Assets				Liabilities
	Current		Long-Term		Current		Long-Term		Net Totals
(Millions of Dollars)
NU Enterprises - Wholesale	$	4.1	$	3.1	$	(18.5)	$	(57.3)	$	(68.6)
Regulated Companies - Gas:
Supply		-		0.7		(0.4)		-		0.3
Regulated Companies - Electric:
Supply/Stranded Costs		40.0		258.1		(45.3)		(728.6)		(475.8)
NU Parent:
Interest Rate Hedging		-		4.4		-		-		4.4
Totals	$	44.1	$	266.3	$	(64.2)	$	(785.9)	$	(539.7)


	At December 31, 2007
	Assets				Liabilities
	Current		Long-Term		Current		Long-Term		Net Totals
(Millions of Dollars)
NU Enterprises - Wholesale	$	36.2	$	7.2	$	(64.9)	$	(72.5)	$	(94.0)
Regulated Companies - Gas:
Supply		0.2		-		-		-		0.2
Interest Rate Hedging		0.9		-		-		-		0.9
Regulated Companies - Electric:
Supply/Stranded Costs		59.8		290.8		(6.7)		(136.0)		207.9
Interest Rate Hedging		3.3		-		-		-		3.3
NU Parent:
Interest Rate Hedging		5.1		-		-		-		5.1
Totals	$	105.5	$	298.0	$	(71.6)	$	(208.5)	$	123.4

For the regulated companies, except for interest rate swap agreements, offsetting regulatory assets or liabilities are recorded for the changes in fair value of their contracts, as these contracts were part of the stranded costs or are current regulated operating costs, and management believes that these costs will continue to be recovered or refunded in cost-of-service, regulated rates.

The business activities of NU Enterprises that result in the recognition of derivative assets also create exposures to credit risk of energy marketing and trading counterparties. At September 30, 2008, Select Energy, Inc. (Select Energy) had $7.2 million of derivative assets from wholesale activities that are exposed to counterparty credit risk, a significant portion of which is contracted with investment grade entities.

NU Enterprises - Wholesale: Certain electric derivative contracts are part of NU Enterprises' remaining wholesale marketing business. These contracts include short-term and long-term electric supply contracts and a contract to sell electricity to the New York Municipal Power Agency (NYMPA) (an agency that is comprised of municipalities) that expires in 2013. The fair value of the contracts was determined using prices from external sources through 2011 for on-peak and off-peak periods and through 2012 for on-peak periods, except for one contract, under which a portion of the fair value is also determined from a model based on natural gas prices and a heat-rate conversion factor to electricity for off-peak periods in 2012 and for all periods in 2013. The 2007 balances also included a full requirements contract and the related short-term supply contracts to sell electricity to a utility. These full requirements contracts expired on May 31, 2008.

Regulated Companies - Gas - Supply: Yankee Gas's supply derivatives consist of peaking supply arrangements to serve winter load obligations and firm retail sales contracts with options to curtail delivery. These contracts are subject to fair value accounting as these contracts are derivatives that cannot be designated as normal purchases and sales because of the optionality in the contract terms. An offsetting regulatory liability/asset was recorded for these amounts as management believes that these costs will be refunded or recovered in rates.

Regulated Companies - Gas - Interest Rate Hedging: Yankee Gas had a forward interest rate swap agreement to hedge the interest cash outflows associated with its $100 million debt issuance in October 2008. The interest rate swap was based on a 10-year LIBOR swap rate and matched the index used for the debt issuance. As a cash flow hedge, the fair value of the hedge was recorded as a derivative asset on the accompanying condensed consolidated balance sheets as of December 31, 2007, with an offsetting amount, net of tax, included in accumulated other comprehensive income. The swap was terminated in September 2008.

Regulated Companies - Electric - Supply/Stranded Costs: CL&P has contracts with two IPPs to purchase power that contain pricing provisions that are not clearly and closely related to the price of power and therefore do not qualify for the normal purchases and sales exception. The fair values of these derivatives at September 30, 2008 included a derivative asset with a fair value of $199.3 million and a derivative liability with a fair value of $57.5 million. An offsetting regulatory liability and an offsetting regulatory asset were recorded, as these contracts are part of stranded costs, and management believes that these costs will continue to be recovered or refunded in cost-of-service, regulated rates. At December 31, 2007, the fair values of these derivatives included a derivative asset with a fair value of $311.2 million and a derivative liability with a fair value of $31.8 million.

CL&P has entered into FTR contracts and bilateral basis swaps to limit the congestion costs associated with its standard offer contracts. An offsetting regulatory asset or liability has been recorded as management believes that these costs will be recovered or refunded in rates. At September 30, 2008, the fair value of these contracts was recorded as a derivative asset of $1.6 million on the accompanying condensed consolidated balance sheets. At December 31, 2007, the fair value of these contracts was recorded as a derivative asset of $1.4 million and a derivative liability of $1.3 million on the accompanying condensed consolidated balance sheets.

Pursuant to Public Act 05-01, "An Act Concerning Energy Independence," in August 2007, the Connecticut Department of Public Utility Control (DPUC) approved two CL&P contracts associated with the capacity of two generating projects to be built or modified. The DPUC also approved two capacity-related contracts entered into by The United Illuminating Company (UI), one with a generating project to be built and one with a new demand response project. The total capacity of these four projects is expected to be approximately 787 megawatts (MW). The contracts, referred to as CfDs, obligate the utilities' customers to pay the difference between a set capacity price and the forward capacity market price that the projects receive in the New England Independent System Operator (ISO-NE) capacity markets for periods of up to 15 years beginning in 2009. As directed by the DPUC, CL&P has an agreement with UI under which it will share the costs and benefits of these four CfDs, with 80 percent to CL&P and 20 percent to UI. The ultimate cost to CL&P under the contracts will depend on the capacity prices that the projects receive in the ISO-NE capacity markets. At September 30, 2008, the fair value of the CL&P CfDs was recorded as a derivative liability of $663.9 million. The fair values of UI's share of the CL&P's contracts and CL&P's share of UI's contracts were recorded as a derivative asset of $86.7 million. An offsetting regulatory asset of $577.2 million was recorded, as management believes these amounts will be recovered from or refunded to customers in cost-of-service, regulated rates. The value of CL&P's CfDs at September 30, 2008 included approximately $100 million of initial gains and losses, previously deferred due to the use of significant unobservable inputs in the valuation, that were recorded upon adoption of SFAS No. 157 on January 1, 2008. At December 31, 2007, changes in CfD fair values since inception were recorded as a derivative liability of $107.1 million, and UI's share and one CL&P CfD were recorded as derivative assets of $20.8 million. Offsetting regulatory assets of $86.7 million and regulatory liabilities of $0.4 million were also recorded at December 31, 2007. A 2007 NRG Energy, Inc. (NRG) appeal of the DPUC's decision selecting the CfDs was taken into consideration in valuing the CfDs as of December 31, 2007, reducing the net negative derivative values by approximately $215 million. In February 2008, the appeal was denied, which increased derivative liabilities in 2008.

PSNH has electricity procurement contracts that are derivatives. The fair values of these contracts are calculated based on market prices and were recorded as derivative liabilities totaling $52.5 million at September 30, 2008. At December 31, 2007, the fair value was recorded as a derivative asset of $1.5 million and a derivative liability of $2.5 million. An offsetting regulatory asset/liability was recorded as management believes that these costs will be refunded or recovered in rates as the energy is delivered.

PSNH has a contract to assign its transmission rights in a direct current transmission line in exchange for two energy call options which expire in 2010. These energy call options are derivatives that do not qualify for the normal purchases and sales exception and are accounted for at fair value based on option value modeling. At September 30, 2008 and December 31, 2007, the options were recorded as a derivative asset of $10.5 million and $15.7 million, respectively. An offsetting regulatory liability was recorded, as management believes the benefit of this arrangement will be refunded to customers in rates.

Regulated Companies - Electric - Interest Rate Hedging: At December 31, 2007, CL&P had two forward interest rate swap agreements to hedge the interest cash outflows associated with its debt issuance of $300 million in May 2008. PSNH had a forward interest rate swap agreement to hedge the interest cash outflows associated with its debt issuance of $110 million in May 2008. Prior to termination in May 2008, the interest rate swaps were based on a 10-year LIBOR swap rate and matched the index used for the debt issuances. As cash flow hedges, the fair values of these hedges were recorded as derivative assets at December 31, 2007 on the accompanying condensed consolidated balance sheet with an offsetting amount, net of tax, included in accumulated other comprehensive income.

NU Parent - Interest Rate Hedging: In March 2003, to manage the interest rate characteristics of the company's long-term debt, NU parent entered into a fixed to floating interest rate swap on its $263 million, 7.25 percent fixed rate senior notes that mature on April 1, 2012. Under fair value hedge accounting, the changes in fair value of the swap and the interest component of the hedged long-term debt instrument are recorded in interest expense, which generally offset each other in the condensed consolidated statements of income. The cumulative change in the fair value of the swap and the long-term debt was recorded as a derivative asset and an increase to long-term debt of $4.4 million and $4.2 million at September 30, 2008 and December 31, 2007, respectively.

NU parent had a forward interest rate swap agreement to hedge the interest cash outflows associated with its planned debt issuance in June 2008. Prior to termination in June 2008, the interest rate swap was based on a 5-year LIBOR swap rate and a notional amount of $200 million, and matched the index used for the debt issuance. As a cash flow hedge at December 31, 2007, the fair value of the hedge was recorded as a $0.9 million derivative asset on the accompanying condensed consolidated balance sheet with an offsetting amount, net of tax, included in accumulated other comprehensive income.

FAIR VALUE MEASUREMENTS (All Companies)

Items Measured at Fair Value on a Recurring Basis: The company's assets and liabilities recorded at fair value on a recurring basis have been categorized based upon the fair value hierarchy in accordance with SFAS No. 157. See Note 1C, "Summary of Significant Accounting Policies - Fair Value Measurements," for further information regarding the hierarchy and fair value measurements.

The following table presents the amounts of assets and liabilities carried at fair value at September 30, 2008 by the level in which they are classified within the SFAS No. 157 valuation hierarchy:


(Millions of Dollars)	Total NU		CL&P		PSNH		WMECO		NU Enterprises		Yankee Gas		NU Parent
Derivative Assets:
Level 1	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Level 2		4.4		-		-		-		-		-		4.4
Level 3		306.0		287.6		10.5		-		7.2		0.7		-
Total	$	310.4	$	287.6	$	10.5	$	-	$	7.2	$	0.7	$	4.4
Derivative Liabilities:
Level 1	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Level 2		(52.5)		-		(52.5)		-		-		-		-
Level 3		(797.6)		(721.4)		-		-		(75.8)		(0.4)		-
Total	$	(850.1)	$	(721.4)	$	(52.5)	$	-	$	(75.8)	$	(0.4)	$	-
Marketable Securities:
Level 1	$	38.7	$	-	$	-	$	5.1	$	-	$	-	$	33.6
Level 2		76.9		-		-		50.6		-		-		26.3
Level 3		-		-		-		-		-		-		-
Total	$	115.6	$	-	$	-	$	55.7	$	-	$	-	$	59.9

Not included in the table above are $62.6 million of cash equivalents included in cash and cash equivalents on the accompanying condensed consolidated balance sheet, which are classified as Level 1 in the fair value hierarchy. These assets were held in a money market account at September 30, 2008 primarily to repurchase the CL&P PCRBs on October 1, 2008. See Note 10, "Subsequent Events," to the condensed consolidated financial statements.

The following tables present changes for the three and nine months ended September 30, 2008 in the Level 3 category of assets and liabilities measured at fair value on a recurring basis. This category includes derivative assets and liabilities, which are presented net. The derivative amounts at January 1, 2008 reflect the fair values after initial adoption of SFAS No. 157. The company classifies assets and liabilities in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 assets and liabilities typically also rely on a number of inputs that are observable either directly or indirectly. Thus, the gains and losses presented below include changes in fair value that are attributable to both observable and unobservable inputs. There were no transfers into or out of Level 3 assets and liabilities for the three and nine months ended September 30, 2008.


	For the Three Months Ended September 30, 2008
(Millions of Dollars)	Total NU		CL&P		PSNH		NU Enterprises		Yankee Gas
Derivatives, Net:
Fair value at June 30, 2008	$	(277.0)	$	(244.9)	$	40.9	$	(74.6)	$	1.6
Net realized/unrealized gains included in:
Earnings ⁽¹⁾		5.3		-		-		5.3		-
Regulatory assets/liabilities		(195.8)		(164.1)		(30.4)		-		(1.3)
Purchases, issuances and settlements		(24.1)		(24.8)		-		0.7		-
Fair value at September 30, 2008	$	(491.6)	$	(433.8)	$	10.5	$	(68.6)	$	0.3
Quarterly change in unrealized gains included in earnings relating to items held at September 30, 2008	$	6.0	$	-	$	-	$	6.0	$	-


	For the Nine Months Ended September 30, 2008
(Millions of Dollars)	Total NU		CL&P		PSNH		NU Enterprises		Yankee Gas
Derivatives, Net:
Fair value at January 1, 2008 ⁽²⁾	$	(511.1)	$	(426.9)	$	15.7	$	(100.1)	$	0.2
Net realized/unrealized gains included in:
Earnings ⁽¹⁾		10.2		-		-		10.2		-
Regulatory assets/liabilities		49.7		54.8		(5.2)		-		0.1
Purchases, issuances and settlements		(40.4)		(61.7)		-		21.3		-
Fair value at September 30, 2008	$	(491.6)	$	(433.8)	$	10.5	$	(68.6)	$	0.3
Period change in unrealized gains included in earnings relating to items held at September 30, 2008	$	4.5	$	-	$	-	$	4.5	$	-

⁽¹⁾

Realized and unrealized gains and losses on derivatives included in earnings relate to the remaining Select Energy wholesale marketing contracts and are reported in fuel, purchased and net interchange power on the accompanying condensed consolidated statements of income.

⁽²⁾

Amounts as of January 1, 2008 reflect fair values after initial adoption of SFAS No. 157. As a result of implementing SFAS No. 157, the company recorded an increase to derivative liabilities and a pre-tax charge to earnings of $6.1 million as of January 1, 2008 related to NU Enterprises' remaining derivative contracts. The company also recorded changes in fair value of CL&P's CfD and IPP contracts, resulting in increases to CL&P's derivative liabilities of approximately $590 million, with an offset to regulatory assets and a decrease to CL&P's derivative assets of approximately $30 million with an offset to regulatory liabilities.

PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (All Companies)

NU's subsidiaries participate in a uniform noncontributory defined benefit retirement plan (Pension Plan) covering substantially all regular NU employees and also provide certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees (post-retirement benefits other than pension (PBOP) Plan). In addition, NU maintains a Supplemental Executive Retirement Plan (SERP) which provides benefits to eligible participants, who are officers of NU, and would have been provided to them under the Pension Plan if certain Internal Revenue Code and other limitations were not imposed.

The components of net periodic expense/(income) for the Pension Plan, PBOP Plan and SERP for the three and nine months ended September 30, 2008 and 2007 are as follows:


NU	For the Three Months Ended September 30,
	Pension Benefits				Postretirement Benefits				SERP Benefits
(Millions of Dollars)	2008		2007		2008		2007		2008		2007
Service cost	$	11.1	$	11.4	$	1.8	$	1.6	$	0.2	$	0.2
Interest cost		35.9		33.7		7.0		6.2		0.5		0.5
Expected return on plan assets		(50.0)		(48.4)		(5.3)		(4.6)		-		-
Amortization of unrecognized net transition obligation		-		-		2.9		3.2		-		-
Amortization of prior service cost		2.5		2.5		(0.1)		(0.1)		-		-
Amortization of actuarial loss		1.1		4.1		2.7		2.9		0.1		0.2
Net periodic expense - before termination benefits		0.6		3.3		9.0		9.2		0.8		0.9
Termination benefits		-		(0.3)		-		-		-		-
Total - net periodic expense	$	0.6	$	3.0	$	9.0	$	9.2	$	0.8	$	0.9


NU	For the Nine Months Ended September 30,
	Pension Benefits				Postretirement Benefits				SERP Benefits
(Millions of Dollars)	2008		2007		2008		2007		2008		2007
Service cost	$	32.8	$	35.7	$	5.3	$	5.8	$	0.5	$	0.6
Interest cost		108.1		102.8		21.2		19.5		1.5		1.5
Expected return on plan assets		(150.2)		(146.8)		(15.8)		(13.7)		-		-
Amortization of unrecognized net transition obligation		0.2		0.1		8.7		9.0		-		-
Amortization of prior service cost		7.4		6.4		(0.2)		(0.2)		0.1		0.1
Amortization of actuarial loss		3.6		15.9		7.9		8.7		0.2		0.5
Net periodic expense - before termination benefits		1.9		14.1		27.1		29.1		2.3		2.7
Termination benefits		-		(0.3)		-		-		-		-
Total - net periodic expense	$	1.9	$	13.8	$	27.1	$	29.1	$	2.3	$	2.7

A portion of these pension amounts is capitalized related to current employees that are working on capital projects. Amounts capitalized were approximately $1.4 million and $4.1 million for the three and nine months ended September 30, 2008, respectively, and $0.4 million and a de minimis amount for the three and nine months ended September 30, 2007, respectively. These amounts offset capital costs, as pension income was recorded for certain of NU’s subsidiaries.


CL&P	For the Three Months Ended September 30,
	Pension Benefits				Postretirement Benefits				SERP Benefits
(Millions of Dollars)	2008		2007		2008		2007		2008		2007
Service cost	$	3.9	$	3.9	$	0.6	$	0.5	$	-	$	-
Interest cost		12.8		12.1		2.8		2.4		0.1		-
Expected return on plan assets		(23.4)		(22.5)		(2.1)		(1.8)		-		-
Amortization of unrecognized net transition obligation		-		-		1.5		1.2		-		-
Amortization of prior service cost		1.1		1.0		-		-		-		-
Amortization of actuarial loss		0.3		1.2		1.1		1.5		-		0.1
Net periodic (income)/expense	$	(5.3)	$	(4.3)	$	3.9	$	3.8	$	0.1	$	0.1


CL&P	For the Nine Months Ended September 30,
	Pension Benefits				Postretirement Benefits				SERP Benefits
(Millions of Dollars)	2008		2007		2008		2007		2008		2007
Service cost	$	11.5	$	12.2	$	1.6	$	1.9	$	-	$	-
Interest cost		38.6		36.8		8.5		7.6		0.1		0.1
Expected return on plan assets		(70.1)		(68.2)		(6.3)		(5.4)		-		-
Amortization of unrecognized net transition obligation		-		-		4.6		4.3		-		-
Amortization of prior service cost		3.2		2.8		-		-		-		-
Amortization of actuarial loss		0.8		5.1		3.4		3.8		0.1		0.1
Net periodic (income)/expense	$	(16.0)	$	(11.3)	$	11.8	$	12.2	$	0.2	$	0.2

Not included in the pension income amounts above are related intercompany allocations totaling $2 million and $6 million for the three and nine months ended September 30, 2008, respectively, and $2.6 million and $8.6 million for the three and nine months ended September 30, 2007, respectively. Excluded from postretirement benefits are related intercompany allocations of $1.7 million and $5.1 million for the three and nine months ended September 30, 2008, respectively, and $1.9 million and $5.5 million for the three and nine months ended September 30, 2007, respectively. Excluded from SERP expenses are related intercompany allocations of $0.4 million and $1.2 million for the three and nine months ended September 30, 2008, respectively, and $0.5 million and $1.4 million for the three and nine months ended September 30, 2007, respectively.

For CL&P, a portion of the pension amounts, including intercompany allocations, is capitalized related to current employees that are working on capital projects. Amounts capitalized were $2.1 million and $6.5 million for the three and nine months ended September 30, 2008, respectively, and $1.3 million and $3.2 million for the three and nine months ended September 30, 2007, respectively. These amounts offset capital costs, as pension income was recorded for those periods.


PSNH	For the Three Months Ended September 30,
	Pension Benefits				Postretirement Benefits				SERP Benefits
(Millions of Dollars)	2008		2007		2008		2007		2008		2007
Service cost	$	2.3	$	2.3	$	0.4	$	0.4	$	-	$	-
Interest cost		5.7		5.3		1.3		1.2		0.1		0.1
Expected return on plan assets		(4.5)		(4.4)		(1.0)		(0.8)		-		-
Amortization of unrecognized net transition obligation		0.1		0.1		0.6		0.6		-		-
Amortization of prior service cost		0.5		0.5		-		-		-		-
Amortization of actuarial loss		0.4		0.9		0.5		0.6		-		-
Net periodic expense	$	4.5	$	4.7	$	1.8	$	2.0	$	0.1	$	0.1


PSNH	For the Nine Months Ended September 30,
	Pension Benefits				Postretirement Benefits				SERP Benefits
(Millions of Dollars)	2008		2007		2008		2007		2008		2007
Service cost	$	6.9	$	7.3	$	1.2	$	1.3	$	-	$	-
Interest cost		17.4		16.3		3.9		3.6		0.1		0.1
Expected return on plan assets		(13.4)		(13.4)		(3.0)		(2.5)		-		-
Amortization of unrecognized net transition obligation		0.2		0.2		1.9		1.8		-		-
Amortization of prior service cost		1.4		1.3		-		-		-		-
Amortization of actuarial loss		1.1		3.1		1.3		1.7		0.1		0.2
Net periodic expense	$	13.6	$	14.8	$	5.3	$	5.9	$	0.2	$	0.3

Not included in the pension expense amounts above are related intercompany allocations totaling $0.4 million and $1.2 million for the three and nine months ended September 30, 2008, respectively, and $0.4 million and $1.4 million for the three and nine months ended September 30, 2007, respectively. Excluded from postretirement benefits are related intercompany allocations of $0.4 million and $1.1 million for the three and nine months ended September 30, 2008, respectively, and $0.3 million and $1 million for the three and nine months ended September 30, 2007, respectively. Excluded from SERP expenses are related intercompany allocations of $0.1 million and $0.3 million for both the three and nine months ended September 30, 2008 and 2007, respectively.

For PSNH, a portion of these pension amounts, including intercompany allocations, is capitalized related to current employees that are working on capital projects. Amounts capitalized were $1.2 million and $3.5 million for the three and nine months ended September 30, 2008, respectively, and $1.1 million and $3.6 million for the three and nine months ended September 30, 2007, respectively.


WMECO	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	Pension Benefits				Postretirement Benefits				Pension Benefits				Postretirement Benefits
	2008		2007		2008		2007		2008		2007		2008		2007
(Millions of Dollars)
Service cost	$	0.8	$	0.8	$	0.1	$	0.1	$	2.4	$	2.5	$	0.4	$	0.4
Interest cost		2.6		2.4		0.6		0.5		7.8		7.4		1.8		1.7
Expected return on plan assets		(5.2)		(4.9)		(0.5)		(0.4)		(15.6)		(15.1)		(1.5)		(1.3)
Amortization of unrecognized net transition obligation		-		-		0.4		0.2		-		-		1.0		0.8
Amortization of prior service cost		0.2		0.2		-		-		0.7		0.6		-		-
Amortization of actuarial loss		0.1		0.2		0.1		0.3		0.1		0.9		0.4		0.7
Net periodic (income)/expense	$	(1.5)	$	(1.3)	$	0.7	$	0.7	$	(4.6)	$	(3.7)	$	2.1	$	2.3

A de minimis amount of SERP expense was recorded for WMECO for each of the three and nine months ended September 30, 2008 and 2007. Related intercompany allocations of SERP benefits totaled $0.1 million and $0.2 million for both the three and nine months ended September 30, 2008 and 2007, respectively.

Not included in the pension income amounts above are related intercompany allocations totaling $0.3 million and $1 million for the three and nine months ended September 30, 2008, respectively, and $0.4 million and $1.4 million for the three and nine months ended September 30, 2007, respectively. Excluded from postretirement benefits are related intercompany allocations of $0.3 million and $0.8 million for the three and nine months ended September 30, 2008, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2007, respectively.

For WMECO, a portion of these pension amounts, including intercompany allocations, is capitalized related to current employees that are working on capital projects. Amounts capitalized were $0.6 million and $1.7 million for the three and nine months ended

September 30, 2008, respectively, and $0.4 million and $1.2 million for the three and nine months ended September 30, 2007, respectively. These amounts offset capital costs, as pension income was recorded for those periods.

COMMITMENTS AND CONTINGENCIES

Regulatory Developments and Rate Matters (CL&P, PSNH, WMECO)

Connecticut:

CTA and SBC Reconciliation: The CTA allows CL&P to recover stranded costs, such as securitization costs associated with its rate reduction bonds, amortization of regulatory assets, and IPP over-market costs, while the System Benefits Charge (SBC) allows CL&P to recover certain regulatory and energy public policy costs, such as public education outreach costs, hardship protection costs, transition period property taxes, and displaced worker protection costs.

On March 31, 2008, CL&P filed with the DPUC its 2007 CTA and SBC reconciliation, which compared CTA and SBC revenues to revenue requirements. For the 12 months ended December 31, 2007, total CTA revenues exceeded CTA revenue requirements by $26.1 million. This amount was recorded as a decrease to the CTA regulatory asset on the accompanying condensed consolidated balance sheets. For the 12 months ended December 31, 2007, the SBC cost of service exceeded SBC revenues by $39.4 million. This amount was recorded as a regulatory asset on the accompanying condensed consolidated balance sheets. Management expects a decision in this docket from the DPUC by the end of 2008 and does not expect the outcome to have a material adverse effect on CL&P's net income, financial position or cash flows.

Procurement Fee Rate Proceedings: CL&P was allowed to collect a fixed procurement fee of 0.50 mills per kilowatt-hour (KWH) from customers that purchased transitional standard offer (TSO) service from 2004 through the end of 2006. One mill is equal to one tenth of a cent. That fee could increase to 0.75 mills per KWH if CL&P outperforms certain regional benchmarks. CL&P submitted to the DPUC its proposed methodology to calculate the variable incentive portion of the procurement fee and requested approval of $5.8 million in incentive fees. On December 8, 2005, a draft decision was issued in this docket, which accepted the methodology as proposed by CL&P and authorized payment of the pre-tax $5.8 million incentive fee. Subsequent to this draft decision the record was re-opened for numerous inputs. Additional hearings were held on December 10, 2007 and January 30, 2008 and the record was then closed. A date for the new draft decision in this docket has not yet been determined by the DPUC. Management continues to believe that final regulatory approval of the $5.8 million pre-tax amount, which was reflected in 2005 earnings, is probable.

New Hampshire:

ES and SCRC Reconciliation and Rates: On an annual basis, PSNH files with the New Hampshire Public Utilities Commission (NHPUC) a default energy service charge/stranded cost recovery charge (ES/SCRC) reconciliation filing for the preceding year. On May 1, 2008, PSNH filed its 2007 ES/SCRC reconciliation with the NHPUC. During 2007, ES/SCRC revenues exceeded ES/SCRC costs by $1.4 million and $6.8 million, respectively, and were deferred as a regulatory liability to be refunded to customers. The NHPUC is currently reviewing this filing which includes a prudence review of PSNH's generation operations. Testimony filed on October 24, 2008 by the NHPUC's consultant contained no material adverse findings. Hearings are scheduled before the NHPUC in November 2008. Management does not expect the outcome of the NHPUC review to have a material adverse impact on PSNH's net income, financial position or cash flows.

Massachusetts:

Transition Cost Reconciliation: On July 18, 2008, WMECO filed its 2007 transition cost (TC) reconciliation with the Massachusetts Department of Public Utilities (DPU), which compared TC revenue and revenue requirements. For the twelve months ended December 31, 2007, total TC revenues along with carrying charges exceeded TC revenue requirements by $2.6 million, which has been recorded as a regulatory liability on the accompanying condensed consolidated balance sheets. On September 19, 2008, the DPU issued an order of notice for this proceeding, scheduling a public hearing and procedural conference on November 20, 2008. Management does not expect the outcome of the DPU's review of this filing to have a material adverse effect on WMECO's net income, financial position or cash flows.

Long-Term Contractual Arrangements (CL&P)

Estimated Future Annual CL&P Costs: In the third quarter of 2008, UI entered into an additional agreement to purchase energy, capacity and renewable energy credits from a renewable energy facility. CL&P is subject to a sharing agreement with UI, whereby CL&P will share in approximately 80 percent of the costs and benefits of this contract. CL&P’s portion of the costs and benefits of this contract will be paid by or refunded to CL&P’s customers.

The estimated future annual payments under this agreement, not including the other renewable energy contracts signed earlier this year, are as follows:


(Millions of Dollars)	2008		2009		2010		2011		2012		Thereafter		Total
Renewable energy contracts	$	-	$	-	$	21.6	$	25.9	$	25.9	$	314.5	$	387.9

As of September 30, 2008, the estimated future annual costs of CL&P's two signed and approved peaking generation CfDs are as follows:


(Millions of Dollars)	2008		2009		2010		2011		2012		Thereafter		Total
CL&P Peaker CfDs	$	-	$	-	$	3.4	$	9.7	$	10.9	$	40.0	$	64.0

Environmental Matters (HWP)

HWP is a subsidiary of NU that owns a minimal amount of transmission property and has limited operating activities. HWP continues to evaluate additional potential remediation requirements at a river site in Massachusetts containing tar deposits associated with a manufactured gas plant which it sold to Holyoke Gas and Electric (HG&E), a municipal electric utility, in 1902. HWP is at least partially responsible for this site, and has already conducted substantial remediation activities. HWP first established a reserve for this site in 1994. A pre-tax charge of approximately $3 million was recorded in the first nine months of 2008 to reflect the estimated cost of further tar delineation and site characterization studies, as well as certain remediation costs that are considered to be probable and estimable as of September 30, 2008. The cumulative expense recorded to this reserve through September 30, 2008 was approximately $15.9 million, of which $13.3 million had been spent, leaving approximately $2.6 million in the reserve as of September 30, 2008.

The Massachusetts Department of Environmental Protection (MA DEP) issued a letter on April 3, 2008 to HWP and HG&E, who share responsibility for the site, providing conditional authorization for additional investigatory and risk characterization activities and providing detailed comments on HWP’s 2007 reports and proposals for further investigations. MA DEP also indicated that further removal of tar in certain areas was necessary prior to commencing many of the additional studies and evaluation. This letter represents guidance from the MA DEP, rather than mandates. HWP has developed plans for additional investigations in conformity with MA DEP’s guidance letter, including estimated costs and schedules. These matters are subject to ongoing discussions with MA DEP and HG&E and may change from time to time.

At this time, management believes that the $2.6 million remaining in the reserve is at the low end of a range of probable and estimable costs of approximately $2.6 million to $3.3 million and will be sufficient for HWP to conduct the additional tar delineation and site characterization studies, evaluate its approach to this matter and conduct certain soft tar remediation. The additional studies are expected to occur through 2009.

There are many outcomes that could affect management's estimates and require an increase to the reserve, or range of costs, and a reserve increase would be reflected as a charge to pre-tax earnings. However, management cannot reasonably estimate the range of additional investigation and remediation costs because they will depend on, among other things, the level and extent of the remaining tar that may be required to be remediated, the extent of HWP’s responsibility and the related scope and timing, all of which are difficult to estimate because of a number of uncertainties at this time. Further developments may require a material increase to this reserve.

HWP's share of the remediation costs related to this site is not recoverable from customers.

Guarantees and Indemnifications (All Companies)

NU provides credit assurances on behalf of subsidiaries in the form of guarantees and letters of credit (LOCs) in the normal course of business. NU has also provided guarantees and various indemnifications on behalf of external parties as a result of the sales of Select Energy Services, Inc. (SESI), NU Enterprises' retail marketing business and its competitive generation business. The following table summarizes NU's maximum exposure at September 30, 2008, in accordance with FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," expiration dates, and fair value of amounts recorded.


Company	Description	Maximum Exposure (in millions)		Expiration Date(s)	Fair Value of Amounts Recorded (in millions)
On behalf of external parties:

SESI	General indemnifications in connection with the sale of SESI including completeness and accuracy of information provided, compliance with laws, and various claims	Not Specified	(1)	None	$ -

	Specific indemnifications in connection with the sale of SESI for estimated costs to complete or modify specific projects	Not Specified	(1)	Through project completion	$0.2

	Indemnifications to lenders for payment of shortfalls in the event of early termination of government contracts	$1.5		2017-2018	$0.1

	Surety bonds covering certain projects	$10.5		Through project completion	$ -

Hess Corporation (Retail Marketing Business)	General indemnifications in connection with the sale including compliance with laws, completeness and accuracy of information provided, and various claims	Not Specified	(1)	None	$ -

Energy Capital Partners (Competitive Generation Business)	General indemnifications in connection with the sale of NGC and the generating assets of Mt. Tom including compliance with tax and environmental laws, and various claims	Not Specified	(1)	2008-2009	$ -

On behalf of subsidiaries:

Regulated Companies	Surety bonds, primarily for self-insurance	$13.6		None	N/A
	Letters of credit	$65.0		2009	N/A

Rocky River Realty Company	Lease payments for real estate	$10.1		2024	N/A

NUSCO	Lease payments for fleet of vehicles	$9.1		None	N/A

E.S. Boulos Company (Boulos)	Surety bonds covering ongoing projects	$36.4		Through project completion	N/A

NGS	Performance guarantee and insurance bonds	$22.1	(2)	2020 (2)	N/A

Select Energy	Performance guarantees and surety bonds for retail marketing contracts	$3.3	(3)	None (4)	N/A

	Performance guarantees for wholesale contracts	$22.0	(3)	2013	N/A

	Letters of credit	$2.0		2009	N/A

(1)

There is no specified maximum exposure included in the related sale agreements.

(2)

Included in the maximum exposure is $20.9 million related to a performance guarantee of Northeast Generation Services Company (NGS) obligations for which there is no specified maximum exposure in the agreement. The maximum exposure is calculated based on limits on NGS's liability contained in the underlying service contract and assumes that NGS will perform under that contract through its expiration in 2020. The remaining $1.2 million of maximum exposure relates to insurance bonds with no expiration date which are billed annually on their anniversary date.

(3)

Maximum exposure is as of September 30, 2008; however, exposures vary with underlying commodity prices and for certain contracts are essentially unlimited.

(4)

NU does not currently anticipate that these remaining guarantees on behalf of Select Energy will result in significant guarantees of the performance of Hess Corporation.

Many of the underlying contracts that NU guarantees, as well as certain surety bonds, contain provisions that would require NU to post collateral in the event that NU's credit ratings are downgraded below investment grade.

In July 2006, under a guarantee of SESI obligations, NU purchased the right to receive contract payments relating to a SESI project that was financed and behind schedule. The carrying value of these assets was $8.8 million at September 30, 2008 and is included in other deferred debits on the accompanying condensed consolidated balance sheets. This carrying amount represents the net realizable value of the asset, which is subject to change through SESI's completion of the project. NU may record additional losses associated with this transaction, the amount of which will depend on the amount of project cash available to offset NU's costs and other factors.

COMPREHENSIVE INCOME (NU, CL&P, PSNH, WMECO, NU Enterprises, Yankee Gas)

Total comprehensive income, which includes all comprehensive income/(loss) items, net of tax and by category, for the three and nine months ended September 30, 2008 and 2007 is as follows:


	Three Months Ended September 30, 2008
(Millions of Dollars)	NU*		CL&P		PSNH		WMECO		NU Enterprises		Yankee Gas		Other
Net income/(loss)	$	72.7	$	54.2	$	14.3	$	5.2	$	4.6	$	(2.3)	$	(3.3)
Comprehensive (loss)/income items:
Qualified cash flow hedging instruments		(1.1)		0.1		-		-		-		(1.1)		(0.1)
Decrease in unrealized gains on securities		(0.9)		-		-		(0.3)		-		-		(0.6)
Pension, SERP, and other postretirement benefits		0.1		-		-		-		0.1		-		-
Net change in comprehensive (loss)/income items		(1.9)		0.1		-		(0.3)		0.1		(1.1)		(0.7)
Total comprehensive income/(loss)	$	70.8	$	54.3	$	14.3	$	4.9	$	4.7	$	(3.4)	$	(4.0)


	Three Months Ended September 30, 2007
(Millions of Dollars)	NU*		CL&P		PSNH		WMECO		NU Enterprises		Yankee Gas		Other
Net income/(loss)	$	50.2	$	33.6	$	13.0	$	5.3	$	0.7	$	(3.4)	$	1.0
Comprehensive (loss)/income items:
Qualified cash flow hedging items		(5.2)		(4.6)		-		(0.6)		-		-		-
Decrease in unrealized gains on securities		(0.7)		-		-		(0.1)		-		-		(0.6)
Pension, SERP, and other postretirement benefits		1.7		-		-		-		5.6		-		(3.9)
Net change in comprehensive (loss)/income items		(4.2)		(4.6)		-		(0.7)		5.6		-		(4.5)
Total comprehensive income/(loss)	$	46.0	$	29.0	$	13.0	$	4.6	$	6.3	$	(3.4)	$	(3.5)


	Nine Months Ended September 30, 2008
(Millions of Dollars)	NU*		CL&P		PSNH		WMECO		NU Enterprises		Yankee Gas		Other
Net income/(loss)	$	188.9	$	143.7	$	44.7	$	14.8	$	8.7	$	15.3	$	(38.3)
Comprehensive (loss)/income items:
Qualified cash flow hedging instruments		(7.0)		(3.5)		(1.4)		(0.1)		-		(1.2)		(0.8)
Decrease in unrealized gains on securities		(1.6)		-		(0.1)		(0.3)		-		-		(1.2)
Pension, SERP, and other postretirement benefits		2.1		-		-		-		1.1		-		1.0
Net change in comprehensive (loss)/income items		(6.5)		(3.5)		(1.5)		(0.4)		1.1		(1.2)		(1.0)
Total comprehensive income/(loss)	$	182.4	$	140.2	$	43.2	$	14.4	$	9.8	$	14.1	$	(39.3)


	Nine Months Ended September 30, 2007
(Millions of Dollars)	NU*		CL&P		PSNH		WMECO		NU Enterprises		Yankee Gas		Other
Net income	$	173.8	$	91.6	$	38.2	$	16.8	$	8.1	$	10.5	$	8.6
Comprehensive income/(loss) items:
Qualified cash flow hedging instruments		(6.8)		(6.2)		-		(0.7)		-		-		0.1
Increase/(decrease) in unrealized gains on securities		0.6		-		-		(0.1)		-		-		0.7
Pension, SERP, and other postretirement benefits		8.0		-		-		-		9.4		-		(1.4)
Net change in comprehensive income/(loss) items		1.8		(6.2)		-		(0.8)		9.4		-		(0.6)
Total comprehensive income	$	175.6	$	85.4	$	38.2	$	16.0	$	17.5	$	10.5	$	8.0

*After preferred dividends of subsidiary.

Comprehensive income amounts included in the Other column primarily relate to NU parent and Northeast Utilities Service Company (NUSCO).

Accumulated other comprehensive income fair value adjustments in NU's qualified cash flow hedging instruments for the nine months ended September 30, 2008 and the twelve months ended December 31, 2007 are as follows:


(Millions of Dollars, Net of Tax)	Nine Months Ended September 30, 2008		Twelve Months Ended December 31, 2007
Balance at beginning of period	$	2.3	$	5.9
Hedged transactions recognized into earnings		0.3		0.2
Change in fair value of interest rate swap agreements		(7.0)		-
Cash flow transactions entered into for the period		(0.3)		(3.8)
Net change associated with hedging transactions		(7.0)		(3.6)
Total fair value adjustments included in accumulated other comprehensive income	$	(4.7)	$	2.3

The following table provides the forward starting interest rate swap transactions entered into by the company, CL&P, PSNH and Yankee Gas to hedge interest rate risk associated with their respective long-term debt issuances and terminated in March, May, June and September 2008:

NU Parent

CL&P

PSNH

Yankee Gas

Long-term debt issued (in millions)

$250

$300

$110

$100

Date issued

June 5, 2008

May 27, 2008

October 7, 2008

Term

5-year

10-year

Loaded LIBOR swap percentage
rate(s) (percentage)

4.102

⁽¹⁾

4.590 and 4.602

⁽²⁾

4.5575 and 4.147

⁽³⁾

4.635 and 4.5685

⁽⁴⁾

Charge to accumulated other
comprehensive income (net of tax) ⁽⁵⁾

0.1

2.3

0.9

⁽⁶⁾

0.7

⁽¹⁾

The interest rate swap was entered into with a notional amount of $200 million.

⁽²⁾

The two locked rates reflect two forward starting interest rate swap transactions, each with a notional amount of $150 million.

⁽³⁾

The first swap transaction was entered into in December 2007 and was replaced at its scheduled termination date in March 2008 with a new swap to extend the hedging relationship to the revised pricing date of the long-term debt in May 2008.

⁽⁴⁾

The first swap transaction was entered into in December 2007 and was replaced at its scheduled termination date in September 2008 with a new swap to extend the hedging relationship to the revised pricing date of the long-term debt in October 2008. On September 26, 2008, the debt was priced and the second swap was unwound.

⁽⁵⁾

The charge to accumulated other comprehensive income will be amortized into earnings over the terms of each respective long-term debt.

⁽⁶⁾

The amount charged to accumulated other comprehensive income is net of ineffectiveness of $0.2 million related to the settlement of the March 2008 forward starting swap agreement.

It is estimated that a charge of $0.2 million will be reclassified from accumulated other comprehensive income as a decrease to earnings over the next 12 months as a result of amortization of amounts due to forward interest rate swap agreements that have been settled. At September 30, 2008, it is estimated that a pre-tax $0.1 million included in the accumulated other comprehensive income balance will be reclassified as an increase to earnings over the next 12 months related to Pension, SERP and other postretirement benefits adjustments.

DISCONTINUED OPERATIONS (NU, NU Enterprises)

NU's condensed consolidated statements of income present NGC, Mt. Tom and SECI as discontinued operations. Under discontinued operations presentation, revenues and expenses of the businesses classified as discontinued operations are classified in loss from discontinued operations on the condensed consolidated statements of income, for all periods presented.

Summarized information for the discontinued operations is as follows:


	For the Three Months Ended				For the Nine Months Ended
(Millions of Dollars)	September 30, 2008		September 30, 2007		September 30, 2008		September 30, 2007
Operating revenues	$	-	$	0.1	$	-	$	1.2
Operating expenses		-		(0.1)		-		(0.9)
Income from discontinued operations		-		-		-		0.3
(Losses)/gains from sale/disposition of discontinued operations		-		(0.1)		-		1.9
Income tax benefit/(expense) from discontinued operations		-		0.1		-		(1.0)
Net income from discontinued operations		-		-		-		1.2

The gain on sale/disposition of discontinued operations of $1.9 million for the nine months ended September 30, 2007 was primarily due to the favorable resolution of contingencies from the completion of a cogeneration plant by SESI, which was sold in May of 2006, partially offset by charges related to the sale of the competitive generation business, including a $1.9 million charge in the first quarter resulting from a purchase price adjustment from the sale of the competitive generation business.

No intercompany revenues were included in discontinued operations for either of the three and nine months ended September 30, 2008 and 2007.

At September 30, 2008, NU did not have and does not expect to have significant ongoing involvement or continuing cash flows with the entities presented in discontinued operations.

EARNINGS PER SHARE (NU)

Earnings per share (EPS) is computed based upon the weighted average number of common shares outstanding, excluding unallocated Employee Stock Ownership Plan (ESOP) shares, during each period. Diluted EPS is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect if certain securities are converted into common stock. There were no antidilutive options for any of the three- and nine-month periods ended September 30, 2008 and 2007.

The following table sets forth the components of basic and fully diluted EPS:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Millions of Dollars, Except for Share Information)	2008		2007		2008		2007
Income from continuing operations	$	72.7	$	50.2	$	188.9	$	172.6
Income from discontinued operations		-		-		-		1.2
Net income	$	72.7	$	50.2	$	188.9	$	173.8
Basic EPS common shares outstanding (average)		155,607,201		154,930,930		155,456,606		154,672,270
Dilutive effect		490,440		489,309		448,265		538,434
Fully diluted EPS common shares outstanding (average)		156,097,641		155,420,239		155,904,871		155,210,704
Basic EPS:
Income from continuing operations	$	0.47	$	0.32	$	1.22	$	1.12
Income from discontinued operations		-		-		-		-
Net income	$	0.47	$	0.32	$	1.22	$	1.12
Fully Diluted EPS:
Income from continuing operations	$	0.47	$	0.32	$	1.21	$	1.11
Income from discontinued operations		-		-		-		0.01
Net income	$	0.47	$	0.32	$	1.21	$	1.12

The dilutive effect of restricted share units (RSUs) granted but not issued is calculated using the treasury stock method. Assumed proceeds of RSUs under the treasury stock method consist of the remaining compensation cost to be recognized and a theoretical tax benefit. The theoretical tax benefit is calculated as the tax impact of the intrinsic value of the RSUs (the difference between the market value of RSUs using the average market price during the period and the grant date market value).

The dilutive effect of stock options is also calculated using the treasury stock method. Assumed proceeds for stock options consist of remaining compensation cost to be recognized, cash proceeds that would be received upon exercise, and a theoretical tax benefit. The theoretical tax benefit is calculated as the tax impact of the intrinsic value of the stock options (the difference between the market value of the common shares underlying the stock options outstanding for the period using the average market price and the exercise price on the date of grant).

Allocated ESOP shares are included in basic common shares outstanding in the above table.

SEGMENT INFORMATION (All Companies)

Presentation: NU is organized between the regulated companies and NU Enterprises' businesses based on a combination of factors, including the characteristics of each business' products and services, the sources of operating revenues and expenses and the regulatory environment in which each segment operates. Cash flows for total investments in plant included in the segment information below are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC and the capitalized portion of pension expense or income. Segment information for all periods presented has been reclassified to conform to the current period presentation, except as indicated.

The regulated companies segments, including the electric distribution, generation and transmission segments, as well as the gas distribution segment (Yankee Gas), represented approximately 99 percent of NU's total revenues for the three and nine months ended September 30, 2008 as compared to 96 percent for the 2007 periods. CL&P's, PSNH's and WMECO's complete condensed consolidated financial statements are included in this combined quarterly report on Form 10-Q. PSNH's distribution segment includes generation activities. Also included in this combined quarterly report on Form 10-Q is detailed information regarding CL&P's, PSNH's, and WMECO's transmission segments.

The NU Enterprises segment is comprised of the following: 1) Select Energy (wholesale contracts), 2) NGS, 3) Boulos, and 4) NU Enterprises parent.

Other in the segment tables primarily consists of 1) the results of NU parent, which include other income related to the equity in earnings of NU parent's subsidiaries and interest income from the NU Money Pool, which are both eliminated in consolidation, and interest income and expense related to the cash and debt of NU parent, respectively, 2) the revenues and expenses of NUSCO, most of which are eliminated in consolidation, and 3) the results of other subsidiaries, which include The Rocky River Realty Company and The Quinnehtuk Company (real estate subsidiaries), Mode 1 Communications, Inc., the non-utility subsidiaries of Yankee Energy System, Inc. (Yankee Energy Services Company, Yankee Energy Financial Services Company and NorConn Properties, Inc.) and the remaining operations of HWP that were not exited as part of the sale of the competitive generation business.

NU's condensed consolidated statements of income for the three and nine months ended September 30, 2007 present the remaining activity for NGC, Mt. Tom and SECI as discontinued operations. For further information and information regarding the exit from these businesses, see Note 7, "Discontinued Operations," to the condensed consolidated financial statements.

NU's segment information for the three and nine months ended September 30, 2008 and 2007 is as follows (certain amounts presented in the financial statements may differ from amounts presented in the segment schedules due to rounding):


	For the Three Months Ended September 30, 2008
	Regulated Companies
	Distribution (1)
(Millions of Dollars)	Electric		Gas		Transmission		NU Enterprises		Other		Eliminations		Total
Operating revenues	$	1,283.8	$	92.3	$	110.0	$	23.1	$	106.2	$	(108.5)	$	1,506.9
Depreciation and amortization		(161.9)		(6.7)		(12.8)		(0.2)		(2.8)		0.2		(184.2)
Other operating expenses		(1,044.4)		(84.5)		(36.4)		(16.4)		(96.1)		104.2		(1,173.6)
Operating income/(loss)		77.5		1.1		60.8		6.5		7.3		(4.1)		149.1
Interest expense, net of AFUDC		(41.8)		(5.1)		(14.4)		(1.3)		(10.9)		2.6		(70.9)
Interest income		11.1		0.4		0.2		0.4		2.5		(2.6)		12.0
Other income, net		(0.6)		-		6.4		-		33.0		(33.1)		5.7
Income tax (expense)/benefit		(7.5)		1.3		(16.6)		(1.0)		2.0		-		(21.8)
Preferred dividends		(0.9)		-		(0.5)		-		-		-		(1.4)
Net income	$	37.8	$	(2.3)	$	35.9	$	4.6	$	33.9	$	(37.2)	$	72.7


	For the Nine Months Ended September 30, 2008
	Regulated Companies
	Distribution (1)
(Millions of Dollars)	Electric		Gas		Transmission		NU Enterprises		Other		Eliminations		Total
Operating revenues	$	3,580.6	$	404.9	$	306.3	$	87.0	$	306.3	$	(332.9)	$	4,352.2
Depreciation and amortization		(427.7)		(19.7)		(35.1)		(0.4)		(10.0)		0.6		(492.3)
Other operating expenses		(2,915.0)		(346.1)		(101.6)		(70.8)		(332.2)		325.3		(3,440.4)
Operating income/(loss)		237.9		39.1		169.6		15.8		(35.9)		(7.0)		419.5
Interest expense, net of AFUDC		(122.0)		(15.2)		(39.7)		(4.3)		(25.9)		7.5		(199.6)
Interest income		12.9		0.4		2.3		0.9		6.4		(8.4)		14.5
Other income, net		4.8		0.1		22.1		-		143.4		(143.3)		27.1
Income tax (expense)/benefit		(31.3)		(9.1)		(49.2)		(3.7)		26.0		(1.1)		(68.4)
Preferred dividends		(2.7)		-		(1.5)		-		-		-		(4.2)
Net income	$	99.6	$	15.3	$	103.6	$	8.7	$	114.0	$	(152.3)	$	188.9
Total assets (2)	$	11,081.3	$	1,326.8	$	-	$	48.9	$	4,377.7	$	(4,171.0)	$	12,663.7
Cash flows for total investments in plant	$	326.3	$	39.1	$	566.7	$	-	$	19.7	$	-	$	951.8


	For the Three Months Ended September 30, 2007
	Regulated Companies
	Distribution (1)
(Millions of Dollars)	Electric		Gas		Transmission		NU Enterprises		Other		Eliminations		Total
Operating revenues	$	1,243.3	$	71.7	$	72.9	$	68.3	$	93.2	$	(98.4)	$	1,451.0
Depreciation and amortization		(116.6)		(6.8)		(9.6)		(0.2)		(2.0)		1.2		(134.0)
Other operating expenses		(1,043.4)		(64.3)		(29.0)		(65.9)		(87.6)		96.6		(1,193.6)
Operating income		83.3		0.6		34.3		2.2		3.6		(0.6)		123.4
Interest expense, net of AFUDC		(43.2)		(5.1)		(8.9)		(1.9)		(8.3)		5.6		(61.8)
Interest income		1.0		-		0.4		0.6		7.1		(5.6)		3.5
Other income/(loss), net		2.9		-		3.8		-		27.2		(26.6)		7.3
Income tax (expense)/benefit		(11.1)		1.1		(9.2)		(0.2)		(0.9)		(0.5)		(20.8)
Preferred dividends		(1.0)		-		(0.4)		-		-		-		(1.4)
Income/(loss) from continuing operations		31.9		(3.4)		20.0		0.7		28.7		(27.7)		50.2
Income from discontinued operations		-		-		-		-		-		-		-
Net income/(loss)	$	31.9	$	(3.4)	$	20.0	$	0.7	$	28.7	$	(27.7)	$	50.2


	For the Nine Months Ended September 30, 2007
	Regulated Companies
	Distribution (1)
(Millions of Dollars)	Electric		Gas		Transmission		NU Enterprises		Other		Eliminations		Total
Operating revenues	$	3,784.7	$	351.5	$	214.7	$	220.4	$	287.1	$	(312.1)	$	4,546.3
Depreciation and amortization		(312.7)		(18.4)		(27.8)		(0.5)		(6.1)		3.0		(362.5)
Other operating expenses		(3,230.6)		(303.9)		(84.4)		(206.0)		(269.3)		306.3		(3,787.9)
Operating income		241.4		29.2		102.5		13.9		11.7		(2.8)		395.9
Interest expense, net of AFUDC		(127.1)		(13.6)		(26.0)		(7.1)		(25.4)		18.6		(180.6)
Interest income		3.1		0.1		1.4		1.9		27.3		(18.4)		15.4
Other income, net		10.9		1.0		7.7		-		113.1		(111.4)		21.3
Income tax expense		(35.7)		(6.2)		(27.4)		(1.8)		(2.6)		(1.5)		(75.2)
Preferred dividends		(3.0)		-		(1.2)		-		-		-		(4.2)
Income from continuing operations		89.6		10.5		57.0		6.9		124.1		(115.5)		172.6
Income from discontinued operations		-		-		-		1.2		-		-		1.2
Net income	$	89.6	$	10.5	$	57.0	$	8.1	$	124.1	$	(115.5)	$	173.8
Cash flows for total investments in plant	$	259.5	$	43.3	$	436.5	$	6.8	$	4.1	$	-	$	750.2

(1)

Includes PSNH's generation activities.

(2)

Information for segmenting total assets between electric distribution and transmission is not available at September 30, 2008. On an NU consolidated basis, these distribution and transmission assets are disclosed in the electric distribution columns above.

The regulated companies information related to the distribution and transmission segments for CL&P, PSNH and WMECO for the three and nine months ended September 30, 2008 and 2007 is as follows:


	CL&P - For the Three Months Ended September 30, 2008
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	891.0	$	89.5	$	980.5
Depreciation and amortization		(123.9)		(10.3)		(134.2)
Other operating expenses		(720.6)		(27.5)		(748.1)
Operating income		46.5		51.7		98.2
Interest expense, net of AFUDC		(25.7)		(12.4)		(38.1)
Interest income		7.3		0.5		7.8
Other income, net		(0.2)		5.5		5.3
Income tax expense		(3.5)		(14.1)		(17.6)
Preferred dividends		(0.9)		(0.5)		(1.4)
Net income	$	23.5	$	30.7	$	54.2


	CL&P - For the Nine Months Ended September 30, 2008
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	2,444.8	$	243.1	$	2,687.9
Depreciation and amortization		(332.7)		(27.9)		(360.6)
Other operating expenses		(1,975.5)		(74.2)		(2,049.7)
Operating income		136.6		141.0		277.6
Interest expense, net of AFUDC		(75.4)		(34.1)		(109.5)
Interest income		8.6		1.8		10.4
Other income, net		4.7		19.7		24.4
Income tax expense		(14.6)		(40.4)		(55.0)
Preferred dividends		(2.7)		(1.5)		(4.2)
Net income	$	57.2	$	86.5	$	143.7
Cash flows for total investments in plant	$	200.6	$	478.0	$	678.6


	CL&P - For the Three Months Ended September 30, 2007
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	862.5	$	55.9	$	918.4
Depreciation and amortization		(73.0)		(7.4)		(80.4)
Other operating expenses		(745.0)		(21.6)		(766.6)
Operating income		44.5		26.9		71.4
Interest expense, net of AFUDC		(28.0)		(7.6)		(35.6)
Interest income		0.8		0.3		1.1
Other income, net		2.6		3.9		6.5
Income tax expense		(2.2)		(6.2)		(8.4)
Preferred dividends		(1.0)		(0.4)		(1.4)
Net income	$	16.7	$	16.9	$	33.6


	CL&P - For the Nine Months Ended September 30, 2007
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	2,668.0	$	164.5	$	2,832.5
Depreciation and amortization		(211.6)		(21.5)		(233.1)
Other operating expenses		(2,324.2)		(60.9)		(2,385.1)
Operating income		132.2		82.1		214.3
Interest expense, net of AFUDC		(82.0)		(21.6)		(103.6)
Interest income		2.2		1.2		3.4
Other income, net		9.7		7.3		17.0
Income tax expense		(14.8)		(20.5)		(35.3)
Preferred dividends		(3.0)		(1.2)		(4.2)
Net income	$	44.3	$	47.3	$	91.6
Cash flows for total investments in plant	$	166.5	$	383.6	$	550.1


	PSNH - For the Three Months Ended September 30, 2008
(Millions of Dollars)	Distribution (1)		Transmission		Total
Operating revenues	$	286.9	$	14.1	$	301.0
Depreciation and amortization		(26.5)		(1.9)		(28.4)
Other operating expenses		(237.1)		(6.1)		(243.2)
Operating income		23.3		6.1		29.4
Interest expense, net of AFUDC		(11.8)		(1.6)		(13.4)
Interest income		2.3		-		2.3
Other income, net		(0.2)		0.6		0.4
Income tax expense		(2.9)		(1.5)		(4.4)
Net income	$	10.7	$	3.6	$	14.3


	PSNH - For the Nine Months Ended September 30, 2008
(Millions of Dollars)	Distribution (1)		Transmission		Total
Operating revenues	$	822.8	$	44.0	$	866.8
Depreciation and amortization		(61.2)		(5.3)		(66.5)
Other operating expenses		(687.6)		(18.4)		(706.0)
Operating income		74.0		20.3		94.3
Interest expense, net of AFUDC		(33.6)		(3.9)		(37.5)
Interest income		2.6		0.4		3.0
Other income, net		0.4		1.9		2.3
Income tax expense		(11.1)		(6.3)		(17.4)
Net income	$	32.3	$	12.4	$	44.7
Cash flows for total investments in plant	$	101.5	$	63.3	$	164.8


	PSNH - For the Three Months Ended September 30, 2007
(Millions of Dollars)	Distribution (1)		Transmission		Total
Operating revenues	$	272.8	$	11.5	$	284.3
Depreciation and amortization		(32.6)		(1.5)		(34.1)
Other operating expenses		(212.6)		(4.9)		(217.5)
Operating income		27.6		5.1		32.7
Interest expense, net of AFUDC		(10.9)		(0.8)		(11.7)
Interest income		0.1		-		0.1
Income tax expense		(5.8)		(2.3)		(8.1)
Net income	$	11.0	$	2.0	$	13.0


	PSNH - For the Nine Months Ended September 30, 2007
(Millions of Dollars)	Distribution (1)		Transmission		Total
Operating revenues	$	778.2	$	33.5	$	811.7
Depreciation and amortization		(70.3)		(4.4)		(74.7)
Other operating expenses		(633.4)		(15.3)		(648.7)
Operating income		74.5		13.8		88.3
Interest expense, net of AFUDC		(31.9)		(2.9)		(34.8)
Interest income		0.4		0.1		0.5
Other income, net		0.7		0.4		1.1
Income tax expense		(12.0)		(4.9)		(16.9)
Net income	$	31.7	$	6.5	$	38.2
Cash flows for total investments in plant	$	71.9	$	41.2	$	113.1

(1)

Includes PSNH's generation activities.


	WMECO - For the Three Months Ended September 30, 2008
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	105.9	$	6.4	$	112.3
Depreciation and amortization		(11.4)		(0.7)		(12.1)
Other operating expenses		(86.8)		(2.6)		(89.4)
Operating income		7.7		3.1		10.8
Interest expense, net of AFUDC		(4.3)		(0.4)		(4.7)
Interest income		1.4		(0.3)		1.1
Other income, net		(0.2)		0.3		0.1
Income tax expense		(1.0)		(1.1)		(2.1)
Net income	$	3.6	$	1.6	$	5.2


	WMECO - For the Nine Months Ended September 30, 2008
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	313.2	$	19.1	$	332.3
Depreciation and amortization		(33.8)		(2.0)		(35.8)
Other operating expenses		(252.1)		(8.8)		(260.9)
Operating income		27.3		8.3		35.6
Interest expense, net of AFUDC		(13.1)		(1.6)		(14.7)
Interest income		1.7		-		1.7
Other income, net		(0.2)		0.5		0.3
Income tax expense		(5.6)		(2.5)		(8.1)
Net income	$	10.1	$	4.7	$	14.8
Cash flows for total investments in plant	$	24.2	$	25.4	$	49.6


	WMECO - For the Three Months Ended September 30, 2007
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	108.1	$	5.4	$	113.5
Depreciation and amortization		(11.0)		(0.6)		(11.6)
Other operating expenses		(85.8)		(2.5)		(88.3)
Operating income		11.3		2.3		13.6
Interest expense, net of AFUDC		(4.3)		(0.5)		(4.8)
Interest income		0.2		-		0.2
Income tax expense		(3.0)		(0.7)		(3.7)
Net income	$	4.2	$	1.1	$	5.3


	WMECO - For the Nine Months Ended September 30, 2007
(Millions of Dollars)	Distribution		Transmission		Total
Operating revenues	$	338.7	$	16.7	$	355.4
Depreciation and amortization		(30.8)		(1.9)		(32.7)
Other operating expenses		(273.2)		(8.2)		(281.4)
Operating income		34.7		6.6		41.3
Interest expense, net of AFUDC		(13.2)		(1.5)		(14.7)
Interest income		0.5		0.1		0.6
Other income, net		0.6		0.1		0.7
Income tax expense		(9.0)		(2.1)		(11.1)
Net income	$	13.6	$	3.2	$	16.8
Cash flows for total investments in plant	$	21.1	$	11.7	$	32.8

10.

SUBSEQUENT EVENTS

On October 7, 2008, Yankee Gas issued $100 million of Series J first mortgage bonds with a coupon rate of 6.9 percent and a maturity date of October 1, 2018. The proceeds from this issuance will be used to repay short-term debt, to fund ongoing capital investment programs and for general working capital purposes.

On October 1, 2008, CL&P reacquired $62 million of PCRBs that had a fixed rate mode which terminated effective September 30, 2008. The reacquisition of the PCRBs will be accounted for as a reduction of the September 30, 2008 balance of long-term debt - current portion.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of Northeast Utilities:

We have reviewed the accompanying condensed consolidated balance sheet of Northeast Utilities and subsidiaries (the "Company") as of September 30, 2008, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2008 and 2007, and of cash flows for the nine-month periods ended September 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1.C. and 3., the Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements, as of January 1, 2008.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and consolidated statement of capitalization of Northeast Utilities and subsidiaries as of December 31, 2007, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2008 (which report included an explanatory paragraph related to the adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, as of January 1, 2007), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/	Deloitte & Touche LLP
	Deloitte & Touche LLP

Hartford, Connecticut

November 7, 2008

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THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES


THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,	December 31,
	2008	2007
	(Thousands of Dollars)
ASSETS

Current Assets:
Cash	$ 6,096	$ 538
Investments in securitizable assets (Note 1E)	-	308,182
Receivables, less provision for uncollectible
accounts of $22,059 in 2008 and $7,874 in 2007	396,408	118,342
Notes receivable from affiliated companies	16,075	-
Accounts receivable from affiliated companies	2,917	3,339
Unbilled revenues	122,200	8,225
Taxes receivable	-	16,245
Materials and supplies	69,172	55,477
Derivative assets - current	37,428	57,003
Prepayments and other	35,841	17,387
	686,137	584,738

Property, Plant and Equipment:
Electric utility	5,503,016	4,899,075
Less: Accumulated depreciation	1,331,493	1,279,697
	4,171,523	3,619,378
Construction work in progress	775,852	782,468
	4,947,375	4,401,846

Deferred Debits and Other Assets:
Regulatory assets	1,684,429	1,329,963
Prepaid pension	358,145	334,786
Derivative assets - long-term	250,174	278,726
Other	83,480	88,040
	2,376,228	2,031,515










Total Assets	$ 8,009,740	$ 7,018,099



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


THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,	December 31,
	2008	2007
	(Thousands of Dollars)
LIABILITIES AND CAPITALIZATION

Current Liabilities:
Notes payable to banks	$ 187,973	$ -
Notes payable to affiliated companies	-	38,825
Long-term debt - current portion	62,000	-
Accounts payable	289,778	368,356
Accounts payable to affiliated companies	52,614	53,096
Accrued taxes	50,741	-
Accrued interest	38,481	29,532
Derivative liabilities - current	5,366	4,234
Other	102,951	107,940
	789,904	601,983

Rate Reduction Bonds	419,834	548,686

Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	781,408	698,789
Accumulated deferred investment tax credits	19,457	21,412
Deferred contractual obligations	135,768	152,735
Regulatory liabilities	440,877	601,455
Derivative liabilities - long-term	715,950	135,991
Accrued postretirement benefits	70,256	78,587
Other	209,984	191,464
	2,373,700	1,880,433
Capitalization:
Long-Term Debt	2,269,765	2,028,546

Preferred Stock - Non-Redeemable	116,200	116,200

Common Stockholder's Equity:
Common stock, $10 par value - authorized
24,500,000 shares; 6,035,205 shares outstanding
in 2008 and 2007	60,352	60,352
Capital surplus, paid in	1,381,688	1,243,940
Retained earnings	601,981	538,138
Accumulated other comprehensive loss	(3,684)	(179)
Common Stockholder's Equity	2,040,337	1,842,251
Total Capitalization	4,426,302	3,986,997

Commitments and Contingencies (Note 5)

Total Liabilities and Capitalization	$ 8,009,740	$ 7,018,099


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


THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(Thousands of Dollars)


Operating Revenues	$ 980,507	$ 918,418	$ 2,687,881	$ 2,832,483

Operating Expenses:
Operation -
Fuel, purchased and net interchange power	522,613	604,953	1,414,506	1,809,996
Other	140,727	87,946	402,099	365,184
Maintenance	35,863	29,391	98,297	80,281
Depreciation	40,740	38,354	119,464	114,818
Amortization of regulatory assets, net	55,105	6,156	131,093	15,493
Amortization of rate reduction bonds	38,353	35,904	110,033	102,833
Taxes other than income taxes	48,953	44,291	134,787	129,540
Total operating expenses	882,354	846,995	2,410,279	2,618,145
Operating Income	98,153	71,423	277,602	214,338

Interest Expense:
Interest on long-term debt	28,053	21,457	77,052	60,637
Interest on rate reduction bonds	6,997	9,230	22,808	29,097
Other interest	3,074	4,897	9,635	13,849
Interest expense, net	38,124	35,584	109,495	103,583
Other Income, Net	13,059	7,545	34,757	20,275
Income Before Income Tax Expense	73,088	43,384	202,864	131,030
Income Tax Expense	17,553	8,408	55,006	35,274
Net Income	$ 55,535	$ 34,976	$ 147,858	$ 95,756













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


THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Nine Months Ended
	September 30,
	2008	2007
	(Thousands of Dollars)
Operating Activities:
Net income	$ 147,858	$ 95,756
Adjustments to reconcile to net cash flows
provided by operating activities:
Bad debt expense	5,450	13,720
Depreciation	119,464	114,818
Deferred income taxes	18,313	(27,738)
Pension income, net of capitalized portion	(8,508)	(6,570)
Amortization of recoverable energy costs	-	3,096
Amortization of rate reduction bonds	110,033	102,833
Amortization of regulatory assets, net	131,093	15,493
Regulatory (refunds and underrecoveries)/overrecoveries	(99,900)	66,976
Settlement of cash flow hedge instruments	(3,890)	-
Deferred contractual obligations	(16,967)	(21,915)
Other non-cash adjustments	(25,075)	(13,382)
Other uses of cash	(10,994)	(24,703)
Changes in current assets and liabilities:
Receivables and unbilled revenues, net	(68,702)	(13,984)
Materials and supplies	(13,700)	(15,009)
Investments in securitizable assets	(25,787)	18,138
Other current assets	(18,642)	(15,798)
Accounts payable	(25,626)	(34,858)
Taxes receivable/accrued	102,146	(162,843)
Other current liabilities	14,468	7,755
Net cash flows provided by operating activities	331,034	101,785

Investing Activities:
Investments in property and plant	(678,616)	(550,128)
Increase in NU Money Pool lending	(16,075)	-
Proceeds from sales of investment securities	2,061	1,515
Purchases of investment securities	(2,110)	(1,565)
Rate reduction bond escrow and other deposits	(1,607)	3,741
Other investing activities	623	680
Net cash flows used in investing activities	(695,724)	(545,757)

Financing Activities:
Issuance of long-term debt	300,000	500,000
Retirement of rate reduction bonds	(128,852)	(114,411)
Increase in short-term debt	187,973	-
Decrease in NU Money Pool borrowings	(38,825)	(128,400)
Capital contributions from NU parent	137,430	265,000
Cash dividends on preferred stock	(4,169)	(4,169)
Cash dividends on common stock	(79,846)	(59,386)
Other financing activities	(3,463)	(7,303)
Net cash flows provided by financing activities	370,248	451,331
Net increase in cash	5,558	7,359
Cash - beginning of period	538	3,310
Cash - end of period	$ 6,096	$ 10,669

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

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PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,	December 31,
	2008	2007
	(Thousands of Dollars)
ASSETS

Current Assets:
Cash	$ 3,107	$ 450
Receivables, less provision for uncollectible
accounts of $3,764 in 2008 and $2,675 in 2007	99,620	97,749
Notes receivable from affiliated companies	6,100	-
Accounts receivable from affiliated companies	1,166	817
Unbilled revenues	45,407	45,607
Taxes receivable	21,593	255
Fuel, materials and supplies	70,490	72,215
Derivative assets - current	2,469	6,146
Prepayments and other	25,827	14,327
	275,779	237,566

Property, Plant and Equipment:
Electric utility	2,168,429	2,010,220
Less: Accumulated depreciation	773,172	737,917
	1,395,257	1,272,303
Construction work in progress	112,588	116,102
	1,507,845	1,388,405

Deferred Debits and Other Assets:
Regulatory assets	407,327	401,374
Derivative assets - long-term	8,023	12,075
Other	68,518	67,549
	483,868	480,998








Total Assets	$ 2,267,492	$ 2,106,969

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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,	December 31,
	2008	2007
	(Thousands of Dollars)
LIABILITIES AND CAPITALIZATION

Current Liabilities:
Notes payable to banks	$ -	$ 10,000
Notes payable to affiliated companies	-	11,300
Accounts payable	80,373	91,356
Accounts payable to affiliated companies	9,602	15,717
Accrued interest	16,197	9,175
Derivative liabilities - current	39,895	2,453
Other	21,861	22,664
	167,928	162,665

Rate Reduction Bonds	246,958	282,018

Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	217,033	192,094
Accumulated deferred investment tax credits	412	582
Deferred contractual obligations	24,151	28,215
Regulatory liabilities	95,584	127,569
Derivative liabilities - long-term	12,623	-
Accrued pension	147,639	138,346
Accrued postretirement benefits	26,378	29,057
Other	41,547	31,559
	565,367	547,422
Capitalization:
Long-Term Debt	686,766	576,997

Common Stockholder's Equity:
Common stock, $1 par value - authorized
100,000,000 shares; 301 shares outstanding
in 2008 and 2007	-	-
Capital surplus, paid in	322,277	275,569
Retained earnings	278,944	261,528
Accumulated other comprehensive (loss)/income	(748)	770
Common Stockholder's Equity	600,473	537,867
Total Capitalization	1,287,239	1,114,864

Commitments and Contingencies (Note 5)

Total Liabilities and Capitalization	$ 2,267,492	$ 2,106,969


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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(Thousands of Dollars)


Operating Revenues	$ 301,033	$ 284,326	$ 866,837	$ 811,655

Operating Expenses:
Operation -
Fuel, purchased and net interchange power	159,255	140,881	443,690	409,493
Other	46,159	49,584	155,266	152,123
Maintenance	26,814	16,621	75,987	56,733
Depreciation	14,331	13,702	41,553	40,345
Amortization of regulatory assets/(liabilities), net	2,671	7,027	(9,240)	(4,682)
Amortization of rate reduction bonds	11,439	13,374	34,186	38,977
Taxes other than income taxes	11,000	10,471	31,121	30,355
Total operating expenses	271,669	251,660	772,563	723,344
Operating Income	29,364	32,666	94,274	88,311

Interest Expense:
Interest on long-term debt	9,089	6,211	24,088	18,616
Interest on rate reduction bonds	3,948	4,441	12,180	13,752
Other interest	362	1,066	1,252	2,446
Interest expense, net	13,399	11,718	37,520	34,814
Other Income, Net	2,706	205	5,294	1,598
Income Before Income Tax Expense	18,671	21,153	62,048	55,095
Income Tax Expense	4,353	8,137	17,350	16,867
Net Income	$ 14,318	$ 13,016	$ 44,698	$ 38,228












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


PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Nine Months Ended
	September 30,
	2008	2007
	(Thousands of Dollars)
Operating activities:
Net income	$ 44,698	$ 38,228
Adjustments to reconcile to net cash flows
provided by operating activities:
Bad debt expense	3,992	2,269
Depreciation	41,553	40,345
Deferred income taxes	10,164	(11,287)
Pension expense, net of capitalized portion	10,218	11,294
Amortization of rate reduction bonds	34,186	38,977
Amortization of regulatory liabilities, net	(9,240)	(4,682)
Regulatory refunds and underrecoveries	(3,873)	(4,248)
Net settlement of cash flow hedge instruments	(1,730)	-
Deferred contractual obligations	(4,064)	(4,924)
Other non-cash adjustments	(7,694)	(3,470)
Other uses of cash	(10,014)	(8,392)