____________________________________________________________________________________

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

i

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

ii

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 Su bsidi ari es		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

iv

NORTHEAST UTILITIES AND SUBSIDIARIES

1

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.

2

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.

3

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.

4

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.

5

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)

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (All Companies)

A.

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			-			-

6

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

B.

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

7

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.

C.

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.

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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.

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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.

D.

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.

E.

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.  

10

F.

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.

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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.  

G.

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.

H.

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.  

2.

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)

12

		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.  

13

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.

3.

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.

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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		$	-

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