CONNECTICUT LIGHT & POWER CO - Quarter Report: 2009 March (Form 10-Q)

____________________________________________________________________________________

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 March 31, 2009
	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 has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

	Yes	No

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 April 30, 2009
Northeast Utilities Common shares, $5.00 par value	175,129,250 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 each 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
HWP	Holyoke Water Power Company
NAESCO	North Atlantic Energy Service Company
NGC	Northeast Generation Company
NGS	Northeast Generation Services Company and subsidiaries
NU or the company	Northeast Utilities
NU Enterprises	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.
NUSCO	Northeast Utilities Service Company
NU parent and other companies	NU parent and other companies is comprised of NU parent, NUSCO, HWP (through December 31, 2008) and other subsidiaries, including The Rocky River Realty Company and The Quinnehtuk Company (both real estate subsidiaries), Mode 1 Communications, Inc. (telecommunications) and the non-energy-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
DPUC	Connecticut Department of Public Utility Control
FERC	Federal Energy Regulatory Commission
NHPUC	New Hampshire Public Utilities Commission
SEC	Securities and Exchange Commission

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OTHER:
AFUDC	Allowance For Funds Used During Construction
CfD	Contract for Differences
CO2	Carbon Dioxide
CTA	Competitive Transition Assessment
EPS	Earnings Per Share
ES	Default Energy Service
FASB	Financial Accounting Standards Board
FMCC	Federally Mandated Congestion Charges
FSP	FASB Staff Position
GAAP	Accounting principles generally accepted in the United States of America
GSC	Generation Service Charge
ISO-NE	New England Independent System Operator or ISO New England, Inc.
KWH	Kilowatt-Hours
KV	Kilovolt
LBCB	Lehman Brothers Commercial Bank, Inc.
LOC	Letter of Credit
MW	Megawatts
MWH	Megawatt-Hours
NEEWS	New England East-West Solutions
NU 2008 Form 10-K	The Northeast Utilities and Subsidiaries combined 2008 Annual Report on Form 10-K as filed with the SEC
NYMPA	New York Municipal Power Agency
PBOP	Postretirement Benefits Other Than Pensions
PCRBs	Pollution Control Revenue Bonds
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.
RGGI	The Regional Greenhouse Gas Initiative
ROE	Return on Equity
RRB	Rate Reduction Bonds
SBC	System Benefits Charge
SCRC	Stranded Cost Recovery Charge
SERP	Supplemental Executive Retirement Plan
SFAS	Statement of Financial Accounting Standards
UI	The United Illuminating Company

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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) - March 31, 2009 and December 31, 2008	2
Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2009 and 2008	4
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2009 and 2008	5
Combined Notes to Condensed Consolidated Financial Statements (Unaudited - all companies)	6
Report of Independent Registered Public Accounting Firm	27
The Connecticut Light and Power Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited) - March 31, 2009 and December 31, 2008	30
Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2009 and 2008	32
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2009 and 2008	33
Public Service Company of New Hampshire and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited) - March 31, 2009 and December 31, 2008	36
Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2009 and 2008	38
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2009 and 2008	39
Western Massachusetts Electric Company and Subsidiary
Condensed Consolidated Balance Sheets (Unaudited) - March 31, 2009 and December 31, 2008	42
Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31, 2009 and 2008	44
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2009 and 2008	45

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	Page
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations for the following  companies:
Northeast Utilities and Subsidiaries		46
The Connecticut Light and Power Company and Subsidiaries		67
Public Service Company of New Hampshire and Subsidiaries		70
Western Massachusetts Electric Company and Subsidiary		72
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk		74
ITEM 4 - Controls and Procedures		75
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings		77
ITEM 1A - Risk Factors		77
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds		77
ITEM 6 - Exhibits		78
SIGNATURES		80

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NORTHEAST UTILITIES AND SUBSIDIARIES

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NORTHEAST UTILITIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	March 31,		December 31,
(Thousands of Dollars)	2009		2008
ASSETS
Current Assets:
Cash and cash equivalents	$            416,828		$            89,816
Receivables, less provision for uncollectible
accounts of $51,054 in 2009 and $43,275 in 2008	695,599		698,755
Unbilled revenues	198,109		218,440
Fuel, materials and supplies	235,717		300,049
Marketable securities - current	76,789		78,452
Derivative assets - current	8,734		31,373
Prepayments and other	115,392		88,679
	1,747,168		1,505,564
Property, Plant and Equipment:
Electric utility	9,324,237		9,219,351
Gas utility	1,051,271		1,043,687
Other	294,296		290,156
	10,669,804		10,553,194
Less:  Accumulated depreciation: $2,652,256 for electric
and gas utility and $158,977 for other in 2009;
$2,610,479 for electric and gas utility and
$159,639 for other in 2008	2,811,233		2,770,118
	7,858,571		7,783,076
Construction work in progress	454,965		424,800
	8,313,536		8,207,876
Deferred Debits and Other Assets:
Regulatory assets	3,437,996		3,502,606
Goodwill	287,591		287,591
Marketable securities - long-term	29,841		30,757
Derivative assets - long-term	229,265		241,814
Other	228,189		212,272
	4,212,882		4,275,040
Total Assets	$       14,273,586		$     13,988,480
The accompanying notes are an integral part of these condensed consolidated financial statements.

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NORTHEAST UTILITIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	March 31,		December 31,
(Thousands of Dollars)	2009		2008
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Notes payable to banks	$            493,988		$          618,897
Long-term debt - current portion	54,286		54,286
Accounts payable	466,286		678,614
Accrued taxes	51,405		12,527
Accrued interest	74,682		69,818
Derivative liabilities - current	107,147		100,919
Other	133,452		168,401
	1,381,246		1,703,462
Rate Reduction Bonds	624,060		686,511
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	1,257,974		1,223,461
Accumulated deferred investment tax credits	24,658		25,371
Deferred contractual obligations	185,601		193,016
Regulatory liabilities	555,519		592,540
Derivative liabilities - long-term	897,939		912,426
Accrued pension	743,298		740,930
Accrued postretirement benefits	236,031		240,371
Other	441,808		430,718
	4,342,828		4,358,833
Capitalization:
Long-Term Debt	4,353,180		4,103,162
Noncontrolling Interest in Consolidated Subsidiary:
Preferred stock not subject to mandatory redemption	116,200		116,200
Common Shareholders' Equity:
Common shares, $5 par value - authorized
225,000,000 shares; 195,344,140 shares issued
and 175,098,530 shares outstanding in 2009 and
176,212,275 shares issued and 155,834,361 shares
outstanding in 2008	976,721		881,061
Capital surplus, paid in	1,751,499		1,475,006
Deferred contribution plan - employee stock
ownership plan	(12,418)		(15,481)
Retained earnings	1,138,969		1,078,594
Accumulated other comprehensive loss	(37,096)		(37,265)
Treasury stock, 19,708,136 shares in 2009 and 2008	(361,603)		(361,603)
Common Shareholders' Equity	3,456,072		3,020,312
Total Capitalization	7,925,452		7,239,674
Commitments and Contingencies (Note 5)
Total Liabilities and Capitalization	$       14,273,586		$     13,988,480
The accompanying notes are an integral part of these condensed consolidated financial statements.

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NORTHEAST UTILITIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	Three Months Ended March 31,
(Thousands of Dollars, except share information)	2009		2008
Operating Revenues	$         1,593,483		$    1,519,967
Operating Expenses:
Operation -
Fuel, purchased and net interchange power	838,920		823,317
Other	247,445		285,881
Maintenance	48,836		56,709
Depreciation	76,983		67,754
Amortization of regulatory assets, net	21,691		28,855
Amortization of rate reduction bonds	55,897		53,350
Taxes other than income taxes	86,429		71,829
Total operating expenses	1,376,201		1,387,695
Operating Income	217,282		132,272
Interest Expense:
Interest on long-term debt	55,684		42,773
Interest on rate reduction bonds	10,625		13,716
Other interest	4,668		6,152
Interest expense, net	70,977		62,641
Other Income, Net	4,182		13,558
Income Before Income Tax Expense	150,487		83,189
Income Tax Expense	51,423		23,406
Net Income	99,064		59,783
Net Income Attributable to Noncontrolling Interests:
Preferred Dividends of Subsidiary	1,390		1,390
Net Income Attributable to Controlling Interests	$              97,674		$         58,393
Basic and Fully Diluted Earnings Per Common Share	$                  0.60		$             0.38
Dividends Declared Per Common Share	$                  0.24		$             0.20
Basic Common Shares Outstanding (weighted average)	162,340,475		155,286,111
Fully Diluted Common Shares Outstanding (weighted average)	162,925,167		155,721,610
The accompanying notes are an integral part of these condensed consolidated financial statements.

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NORTHEAST UTILITIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended March 31,
(Thousands of Dollars)	2009		2008
Operating Activities:
Net income	$             99,064		$           59,783
Adjustments to reconcile to net cash flows
provided by operating activities:
Bad debt expense	9,507		6,542
Depreciation	76,983		67,754
Deferred income taxes	17,178		29,009
Pension and PBOP expense/(income), net of capitalized portion, and contributions	6,703		(2,401)
Other-than-temporary impairments of marketable securities	3,462		3,186
Regulatory refunds and underrecoveries	(29,939)		(84,348)
Amortization/(deferral) of recoverable energy costs	15,245		(2,772)
Amortization of regulatory assets, net	21,691		28,855
Amortization of rate reduction bonds	55,897		53,350
Deferred contractual obligations	(8,666)		(8,620)
Derivative assets and liabilities	(14,769)		(17,208)
Other	(6,912)		(5,948)
Changes in current assets and liabilities:
Receivables and unbilled revenues, net	10,483		(32,510)
Investments in securitizable assets	-		33,316
Fuel, materials and supplies	51,171		55,163
Other current assets	(1,541)		(4,646)
Accounts payable	(174,497)		(17,912)
Margin special deposits	(10,582)		7,157
Taxes receivable/accrued	43,270		(28,122)
Other current liabilities	(23,795)		(41,902)
Net cash flows provided by operating activities	139,953		97,726
Investing Activities:
Investments in property and plant	(208,896)		(288,135)
Proceeds from sales of marketable securities	52,933		67,509
Purchases of marketable securities	(54,557)		(68,564)
Rate reduction bond escrow and other deposits	(1,480)		9,394
Other investing activities	2,853		1,840
Net cash flows used in investing activities	(209,147)		(277,956)
Financing Activities:
Issuance of common shares	387,350		4,041
Cash dividends on common shares	(37,207)		(31,283)
Cash dividends on preferred stock of subsidiary	(1,390)		(1,390)
(Decrease)/increase in short-term debt	(124,909)		279,000
Issuance of long-term debt	250,000		-
Retirements of rate reduction bonds	(62,451)		(61,136)
Financing fees	(15,205)		-
Other financing activities	18		868
Net cash flows provided by financing activities	396,206		190,100
Net increase in cash and cash equivalents	327,012		9,870
Cash and cash equivalents - beginning of period	89,816		15,104
Cash and cash equivalents - end of period	$           416,828		$           24,974
The accompanying notes are an integral part of these condensed consolidated financial statements.

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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

COMBINED 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 combined Quarterly Report on Form 10-Q and the combined Annual Report 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 was filed with the SEC as part of the Northeast Utilities and subsidiaries combined 2008 Annual Report on Form 10-K (NU 2008 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 March 31, 2009 and December 31, 2008, and the results of operations and cash flows for the three months ended March 31, 2009 and 2008.  The results of operations and cash flows for the three months ended March 31, 2009 and 2008 are not necessarily indicative of the results expected for a full year.  

The condensed consolidated financial statements of NU, CL&P, PSNH and WMECO include the accounts of all their respective subsidiaries.  Intercompany transactions have been eliminated in consolidation.  

The preparation of the 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.  

In accordance with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51," the preferred stock of CL&P, which is not owned by NU or its consolidated subsidiaries and is not subject to mandatory redemption, has been presented as a noncontrolling interest in CL&P in the accompanying condensed consolidated financial statements of NU.  The preferred stock of CL&P is considered to be temporary equity and has been classified between liabilities and permanent shareholders' equity on the accompanying condensed consolidated balance sheets of NU and CL&P due to a provision in CL&P's certificate of incorporation that grants preferred stockholders the right to elect a majority of CL&P's board of directors while certain conditions exist, such as if preferred dividends are in arrears for one year.  In accordance with SFAS No. 160, the net income reported in the accompanying statements of income and cash flows for NU has been revised to represent consolidated net income prior to apportionment to noncontrolling interests, which is represented by dividends on preferred stock of CL&P.  

Pursuant to SFAS No. 160, the included presentation and disclosure requirements have been applied retrospectively to the condensed consolidated balance sheet as of December 31, 2008 and the statements of income and cash flows for the three months ended March 31, 2008, and to consolidated comprehensive income for the three months ended March 31, 2008 included in Note 6, "Comprehensive Income," to the condensed consolidated financial statements.  For the three months ended March 31, 2009 and 2008, there was no change in NU parent’s 100 percent ownership interest in common equity of CL&P.

B.

Accounting Standards Issued But Not Yet Adopted

In April 2009, the FASB issued FASB Staff Position (FSP) FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," which is effective as of June 30, 2009 with early adoption permitted.  The company will adopt the FSP as of June 30, 2009.  The FSP changes the indicators for determining whether an other-than-temporary impairment on a debt security should be recorded in earnings.  Under current accounting guidance, one of the primary indicators that an unrealized loss should be recognized in earnings is if the company does not have the intent and ability to hold a debt security until recovery of its cost basis.  Under the FSP, the primary indicators that an unrealized loss should be recognized in earnings are whether the company intends to sell the debt security or whether it is more likely than not that the company will be required to sell the debt security prior to recovery of its cost basis.  For

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debt securities determined to be other-than-temporarily impaired, but which the company does not intend to sell or is not more likely than not going to be required to sell before recovery, credit losses are recognized in earnings, and the remaining unrealized losses are recorded in accumulated other comprehensive income.  For other-than-temporarily impaired debt securities that the company intends to sell or is more likely than not going to be required to sell before recovery, all unrealized losses are recorded in earnings.  Implementation of the FSP, which may affect the accounting for debt securities held in the company’s supplemental benefit trust and WMECO’s spent nuclear fuel trust, is not expected to have a material effect on the condensed consolidated financial statements.  The company will adopt the FSP by applying its provisions to debt securities held in the supplemental benefit trust as of April 1, 2009 through a cumulative effect adjustment to increase retained earnings and a corresponding adjustment to decrease accumulated other comprehensive income.  Beginning in the second quarter of 2009, for debt securities in the supplemental benefit trust that the company does not intend to sell or does not expect it will more likely than not be required to sell, the company will record credit losses in earnings and other unrealized losses in accumulated other comprehensive income.  Adoption of the FSP for WMECO’s spent nuclear fuel trust will not affect shareholders' equity or results of operations due to the regulatory accounting treatment applicable to that trust.

In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly," which is effective prospectively for fair value measurements of assets and liabilities as of June 30, 2009 with early adoption permitted.  The FSP does not change the measurement objective that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.  The FSP provides additional guidance on determining whether there has been a significant decrease in the volume and level of activity when compared with normal market activity for an asset or liability and, if so, whether associated transactions or quoted prices are not orderly.  In preparing fair value measurements, reporting entities are required to place more weight on transactions that are orderly than on those that are not orderly.  NU and its subsidiaries will apply the FSP to their fair value measurements of assets and liabilities as of June 30, 2009.  Implementation of the FSP is not expected to have a material effect on the companies’ condensed consolidated financial statements.  

C.

Regulatory Accounting

The accounting policies of the regulated companies, as defined below, 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 SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation."

The transmission and distribution segments of CL&P, PSNH (including its generation business) and WMECO, along with Yankee Gas Service Company's (Yankee Gas) distribution segment (regulated companies), 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 respective investments in long-lived assets, including regulatory assets.  All material net regulatory assets are earning an equity return, except for securitized regulatory assets, the majority of deferred benefit costs and regulatory assets offsetting regulated company derivative liabilities, 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 March 31, 2009			At December 31, 2008
(Millions of Dollars)		NU Consolidated			NU Consolidated
Deferred benefit costs		$	1,127.9		$	1,140.9
Regulatory assets offsetting regulated   company derivative liabilities			852.5			844.2
Securitized assets			614.6			677.4
Income taxes, net			353.3			355.4
Unrecovered contractual obligations			164.1			169.1
CL&P undercollections			111.3			75.2
Other regulatory assets			214.3			240.4
Totals		$	3,438.0		$	3,502.6

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		At March 31, 2009									At December 31, 2008
(Millions of Dollars)		CL&P			PSNH			WMECO			CL&P			PSNH			WMECO
Deferred benefit costs		$	531.9		$	140.6		$	112.3		$	537.7		$	142.9		$	113.5
Regulatory assets offsetting regulated   company derivative liabilities			745.5			107.0			-			751.9			92.1			-
Securitized assets			330.4			215.9			68.3			377.8			227.6			72.0
Income taxes, net			304.1			19.1			18.2			306.8			16.1			20.7
Unrecovered contractual obligations			128.9			-			35.1			132.6			-			36.5
CL&P undercollections			111.3			-			-			75.2			-			-
WMECO recoverable nuclear costs			-			-			4.0			-			-			5.0
Other regulatory assets			73.6			65.9			21.6			92.1			71.2			20.7
Totals		$	2,225.7		$	548.5		$	259.5		$	2,274.1		$	549.9		$	268.4

Additionally, the regulated companies had $70.6 million ($62.8 million for PSNH, $6.6 million for CL&P, and $1.2 million for WMECO) and $68.3 million ($62.7 million for PSNH and $5.6 million for CL&P) of regulatory costs at March 31, 2009 and December 31, 2008, respectively, which were included in deferred debits and other assets - other on the accompanying condensed consolidated balance sheets.  These amounts represent incurred costs that have not yet been approved for recovery by the applicable regulatory agency.  Of these amounts, $62.4 million and $62.7 million at March 31, 2009 and December 31, 2008, respectively, related to costs incurred at PSNH for the December 2008 storm restorations that met the New Hampshire Public Utilities Commission (NHPUC) specified criteria for deferral to a major storm cost reserve.  Management believes these costs are recoverable in future cost-of-service regulated rates.

Included in NU's other regulatory assets are the regulatory assets associated with the implementation of FASB Interpretation No. (FIN) 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143," totaling $43.3 million ($23.8 million for CL&P, $14.1 million for PSNH, and $2.8 million for WMECO) at March 31, 2009 and $42.3 million ($23.1 million for CL&P, $13.9 million for PSNH, and $2.8 million for WMECO) at December 31, 2008.  Of these amounts, $12.1 million and $12 million, respectively, related to PSNH have been approved for future recovery.  Management believes that recovery of the remaining FIN 47 regulatory assets is probable.  

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

		At March 31, 2009			At December 31, 2008
(Millions of Dollars)		NU Consolidated			NU Consolidated
Cost of removal		$	222.3		$	226.0
Regulatory liabilities offsetting   regulated company derivative assets			107.9			137.8
CL&P overcollections			54.4			69.5
CL&P AFUDC transmission incentive			47.9			47.6
PSNH deferred ES revenue, net			41.1			33.0
Pension and PBOP liabilities - Yankee   Gas acquisition			16.9			17.6
Overrecovered gas costs			23.1			16.9
Other regulatory liabilities			41.9			44.1
Totals		$	555.5		$	592.5

		At March 31, 2009									At December 31, 2008
(Millions of Dollars)		CL&P			PSNH			WMECO			CL&P			PSNH			WMECO
Regulatory liabilities offsetting   regulated company derivative assets		$	105.2		$	1.8		$	-		$	131.3		$	4.6		$	-
Cost of removal			89.2			63.6			18.4			91.2			64.7			19.2
CL&P overcollections			54.4			-			-			69.5			-			-
CL&P AFUDC transmission incentive			47.9			-			-			47.6			-			-
PSNH deferred ES revenue, net			-			41.1			-			-			33.0			-
WMECO transition charge overcollections			-			-			3.6			-			-			5.7
WMECO pension/PBOP tracker			-			-			0.8			-			-			2.0
Other regulatory liabilities			25.4			7.7			3.8			23.9			9.1			2.9
Totals		$	322.1		$	114.2		$	26.6		$	363.5		$	111.4		$	29.8

8

D.

Allowance for Funds Used During Construction

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, net on the accompanying condensed consolidated statements of income.

	For the Three Months Ended
	March 31, 2009			March 31, 2008
(Millions of Dollars, except percentages)	NU Consolidated			NU Consolidated
Borrowed funds	$	2.1		$	4.7
Equity funds		0.9			8.3
Totals	$	3.0		$	13.0
Average AFUDC rates		5.2%			8.2%

		For the Three Months Ended
		March 31, 2009									March 31, 2008
(Millions of Dollars, except percentages)		CL&P			PSNH			WMECO			CL&P			PSNH			WMECO
Borrowed funds		$	0.9		$	0.9		$	0.1		$	3.4		$	0.9		$	0.2
Equity funds			-			0.9			-			6.6			1.4			0.3
Totals		$	0.9		$	1.8		$	0.1		$	10.0		$	2.3		$	0.5
Average AFUDC rates			3.2%			8.1%			3.8%			8.5%			8.1%			7.9%

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.  AFUDC is recorded on 100 percent of CL&P's and WMECO's CWIP for their New England East-West Solutions (NEEWS) projects, all of which is being reserved as a regulatory liability to reflect current rate base recovery for 100 percent of the CWIP as a result of FERC-approved transmission incentives.

E.

Other Income, Net

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

NU Consolidated		For the Three Months Ended
(Millions of Dollars)		March 31, 2009			March 31, 2008
Other Income:
Interest income		$	0.8		$	-
Investment income			1.8			1.9
AFUDC - equity funds			0.9			8.3
Energy Independence Act incentives			3.6			5.5
Conservation and load management incentives			0.1			0.3
Other			0.3			0.2
Total Other Income			7.5			16.2
Other Loss:
Investment write-downs			(3.2)			(2.6)
Rental expense			(0.1)			-
Total Other Loss			(3.3)			(2.6)
Total Other Income, Net		$	4.2		$	13.6

CL&P		For the Three Months Ended
(Millions of Dollars)		March 31, 2009			March 31, 2008
Other Income:
Investment income		$	1.1		$	1.4
AFUDC - equity funds			-			6.6
Energy Independence Act incentives			3.6			5.5
Conservation and load management incentives			-			0.2
Other			0.2			0.2
Total Other Income			4.9			13.9
Investment write-downs			(2.2)			(1.8)
Total Other Income, Net		$	2.7		$	12.1

9

PSNH		For the Three Months Ended
(Millions of Dollars)		March 31, 2009			March 31, 2008
Other Income:
Interest income		$	0.8		$	-
Investment income			0.2			0.3
AFUDC - equity funds			0.9			1.4
Total Other Income			1.9			1.7
Investment write-downs			(0.5)			(0.4)
Total Other Income, Net		$	1.4		$	1.3

WMECO		For the Three Months Ended
(Millions of Dollars)		March 31, 2009			March 31, 2008
Other Income:
Investment income		$	0.2		$	0.2
AFUDC - equity funds			-			0.3
Conservation and load management incentives			0.1			0.1
Total Other Income			0.3			0.6
Investment write-downs			(0.5)			(0.4)
Total Other (Loss)/Income, Net		$	(0.2)		$	0.2

Investment income includes equity in earnings of regional nuclear generating and transmission companies of $0.5 million and $0.7 million for NU consolidated ($0.1 million in both periods for CL&P and de minimus amounts for PSNH and WMECO) for the three months ended March 31, 2009 and 2008, respectively.  Equity in earnings relates to the company's consolidated investments, including CL&P, PSNH and WMECO’s investments, in Connecticut Yankee Atomic Power Company (CYAPC), Maine Yankee Atomic Power Company, and Yankee Atomic Electric Company and NU’s investments in two regional transmission companies.

F.

Special Deposits and Counterparty Deposits

To the extent NU Enterprises, Inc (NU Enterprises), a wholly owned subsidiary of NU, through its wholly owned subsidiary Select Energy, Inc. (Select Energy), requires collateral from counterparties, or the counterparties require collateral from Select Energy, cash is held on deposit by Select Energy or with unaffiliated counterparties and brokerage firms as a part of the total collateral required based on Select Energy's position in transactions with the counterparty.  Select Energy's right to use cash collateral is determined by the terms of the related agreements.  Key factors affecting the unrestricted status of a portion of this cash collateral include the financial standing of Select Energy and of NU as its credit supporter.

NU and its subsidiaries record special deposits and counterparty deposits in accordance with FSP FIN 39-1, "Amendment of FASB Interpretation No. 39," which requires NU to net collateral amounts posted under a master netting agreement if the related derivatives are recorded in a net position.  At March 31, 2009, CL&P had $1 million in cash collateral deposited with counterparties.  At March 31, 2009 and December 31, 2008, NU and its subsidiaries, including CL&P, PSNH and WMECO, had no special deposits or counterparty collateral posted under master netting agreements netted against the fair value of derivatives.

Special deposits paid by Select Energy to unaffiliated counterparties and brokerage firms were not subject to master netting agreements and totaled $35.7 million and $26.3 million at March 31, 2009 and December 31, 2008, respectively.  These amounts are recorded as current assets and are included in prepayments and other on the accompanying condensed consolidated balance sheets.  There were no counterparty deposits for Select Energy as of March 31, 2009 and December 31, 2008.  

NU consolidated, CL&P, PSNH and WMECO have established credit policies regarding counterparties to minimize overall credit risk.  These policies require an evaluation of potential counterparties, financial condition, collateral requirements and the use of standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty.  These evaluations result in established credit limits prior to entering into a contract.  At March 31, 2009 and December 31, 2008, there were no counterparty deposits for these companies.

G.

Income Taxes

Tax Positions:  In March 2009, CL&P and Yankee Gas reached a settlement with state tax authorities that closed certain state income tax years 1997 through 2000.  The settlement resulted in CL&P and Yankee Gas making payments of approximately $4 million and $1 million, respectively, and increased pre-tax income by approximately $3 million on an NU consolidated basis (approximately $3 million at CL&P).  The settlement did not have a significant impact on NU, CL&P or Yankee Gas's first quarter income tax expense and is not expected to have a significant impact on NU, CL&P or Yankee Gas's 2009 income tax expense or earnings.

10

H.

Other Taxes

Certain excise taxes levied by state or local governments are collected by CL&P and Yankee Gas from their respective customers.  These excise taxes are accounted for on a gross basis with collections in revenues and payments in expenses.  For the three months ended March 31, 2009 and 2008, gross receipts taxes, franchise taxes and other excise taxes for NU consolidated of $39 million and $31 million, respectively, ($30.9 million and $23.7 million, respectively, for CL&P) were included in operating revenues and taxes other than income taxes on the accompanying condensed consolidated statements of income.  Certain sales taxes are also collected by CL&P and Yankee Gas from their respective 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, NU Enterprises, CL&P, PSNH, Yankee Gas)

On January 1, 2009, NU and its subsidiaries, including CL&P, PSNH and WMECO, adopted SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which establishes disclosure requirements for derivative instruments and hedging activities.  SFAS No. 161 requires disclosure, presented below, of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.   

CL&P, PSNH, WMECO and Yankee Gas are exposed to the volatility of the prices of energy and energy related products in procuring supply for their customers.  The costs associated with supplying energy to customers are recoverable through customer rates.  The company manages the risks associated with the price volatility of energy and energy related products through the use of derivative contracts, many of which are accounted for as normal purchases and sales, and the use of non-derivative contracts.

CL&P mitigates the risks associated with the price volatility of energy and energy-related products through the use of standard or last resort service contracts, which fix the price of electricity purchased for customers for periods of time ranging from three months to three years and are accounted for under the normal purchases and sales exception.  CL&P has entered into derivatives, including financial transmission rights contracts (FTRs) and bilateral basis swaps, to manage the risk of congestion costs associated with its standard offer and last resort service contracts.  As required by regulation, CL&P has also entered into derivative and non-derivative contracts for the purchase of energy and energy-related products and contracts related to capacity.  While the risks managed by these contracts are regional congestion costs and capacity price risks that are not specific to CL&P, Connecticut's electric distribution companies, including CL&P, are required to enter into these contracts.  The derivative contracts not accounted for under the normal purchases and sales exception are accounted for at fair value, and because management believes any costs or benefits from these contracts are recoverable from or refunded to CL&P's customers, any changes in fair value are recorded as regulatory assets and liabilities.

WMECO mitigates the risks associated with the volatility of the prices of energy and energy-related products in procuring energy supply for its customers through the use of default service contracts, which fix the price of electricity purchased for customers for periods of time ranging from three months to three years and are accounted for under the normal purchases and sales exception.  

PSNH mitigates the risks associated with the volatility of energy prices in procuring energy supply for its customers through its generation facilities and the use of derivative contracts, including energy forward contracts, options and FTRs.  PSNH enters into these contracts in order to stabilize electricity rates for customers.  The derivative contracts not accounted for under the normal purchases and sales exception are accounted for at fair value, and because management believes any costs or benefits from these contracts are recoverable from or refunded to PSNH's customers, any changes in fair value are recorded as regulatory assets and liabilities.

Yankee Gas mitigates the risks associated with supply availability and volatility of natural gas prices through the use of storage facilities and long-term agreements to purchase gas supply for customers that include non-derivative contracts and contracts that are accounted for as normal purchases.  Yankee Gas also manages price risk through the use of options contracts.  The derivative contracts not accounted for under the normal purchases and sales exception are accounted for at fair value, and because management believes any costs or benefits from these contracts are recoverable from or refundable to Yankee Gas' customers, any changes in fair value are recorded as regulatory assets and liabilities.

NU Enterprises, through Select Energy, has one remaining fixed price forward sales contract that was entered into as part of its wholesale energy marketing business.  NU Enterprises mitigates the price risk associated with this contract through the use of forward purchase contracts.  NU Enterprises’ derivative contracts are accounted for at fair value, and changes in their fair values are recorded in earnings.  

The company is also exposed to interest rate risk associated with its long-term debt.  From time to time, the company enters into forward starting interest rate swaps, accounted for as cash flow hedges, to mitigate the risk of changes in interest rates when it expects to issue long-term debt.  The company has also entered into an interest rate swap on fixed rate long-term debt in order to manage the balance of fixed and floating rate debt.  The interest rate swap mitigating the interest rate risk associated with the fixed rate long-term debt is accounted for as a fair value hedge.

11

Derivative contracts that meet the definition of and are designated as normal purchases or normal sales are recognized in revenues or expenses, as applicable, as electricity or gas is delivered.  

Derivative contracts that are not designated as hedging instruments or as normal purchases or normal sales are recorded at fair value as current or long-term derivative assets or liabilities.  Changes in fair values of NU Enterprises' derivatives are included in earnings.  For the regulated companies, including CL&P, PSNH and Yankee Gas, regulatory assets or liabilities are recorded for the changes in fair values of derivatives, as these contracts are part of stranded costs or are current regulated operating costs, and management believes that these costs will continue to be recovered from or refunded to customers in cost-of-service, regulated rates.

The gross fair values of derivative assets and liabilities with the same counterparty are offset and reported net as derivative assets or derivative liabilities in the accompanying condensed consolidated balance sheets.  The following tables present the gross fair values of contracts and the net amounts recorded as current or long-term derivative assets or liabilities, by primary underlying risk exposures or purpose:

		At March 31, 2009
NU Consolidated (Millions of Dollars)		Gross Asset			Gross Liability			Net Amount Recorded as Derivative Asset			Gross Asset			Gross Liability			Net Amount Recorded as Derivative Liability
Derivatives not designated as hedging instruments under SFAS No. 133
NU Enterprises:
Commodity sales contract and related   price and supply risk management:
Current		$	-		$	-		$	-		$	6.2		$	(13.1)		$	(6.9)
Long-Term			-			-			-			13.1			(55.4)			(42.3)
Regulated Companies:
CL&P commodity and capacity contracts   required by regulation:
Current			0.1			(2.9)			(2.8)	(1)		-			(7.9)			(7.9)
Long-Term			259.4			(48.1)			211.3	(1)		-			(835.3)			(835.3)
CL&P, PSNH and Yankee Gas commodity   price and supply risk management:
Current			7.1			-			7.1			-			(92.3)			(92.3)
Long-Term			2.5			-			2.5			-			(20.4)			(20.4)
Derivatives designated as hedging  instruments under SFAS No. 133
Interest rate risk management:
Current (2)			4.4			-			4.4			-			-			-
Long-Term			15.5			-			15.5			-			-			-

⁽¹⁾

Fair value amounts of $(2.9) million current and $105.7 million long-term that are subject to a sharing agreement are recorded in derivative assets.  

⁽²⁾

Amount does not include interest receivable of $3.7 million as of March 31, 2009 recorded in prepayments and other on the accompanying condensed consolidated balance sheet.  

12

		At March 31, 2009
CL&P (Millions of Dollars)		Gross Asset			Gross Liability			Net Amount Recorded as Derivative Assets			Gross Asset			Gross Liability			Net Amount Recorded as Derivative Liability
Derivatives not designated as hedging   instruments under SFAS No. 133
Commodity and capacity contracts  required by regulation:
Current		$	0.1		$	(2.9)		$	(2.8)	(1)	$	-		$	(7.9)		$	(7.9)
Long-Term			259.4			(48.1)			211.3	(1)		-			(835.3)			(835.3)
Commodity price and supply risk   management:
Current			6.9			-			6.9			-			(5.5)			(5.5)
Long-Term			-			-			-			-			-			-

⁽¹⁾

Fair value amounts of $(2.9) million current and $105.7 million long-term that are subject to a sharing agreement are recorded in derivative assets.  

		At March 31, 2009
PSNH (Millions of Dollars)		Gross Asset			Gross Liability			Net Amount Recorded as Derivative Assets			Gross Asset			Gross Liability			Net Amount Recorded as Derivative Liability
Derivatives not designated as hedging   instruments under SFAS No. 133
Commodity price and supply  risk   management:
Current		$	0.2		$	-		$	0.2		$	-		$	(86.7)		$	(86.7)
Long-Term			1.6			-			1.6			-			(20.4)			(20.4)

WMECO does not have derivatives that are recorded at fair value on the accompanying condensed consolidated balance sheets.

For further information on the fair value of derivative contracts, see Note 3, "Fair Value Measurements," to the condensed consolidated financial statements.

The following provides additional information about the derivatives included in the tables above, including volumes and cash flow information.

Derivatives not designated as hedging instruments under SFAS No. 133

NU Enterprises' energy sales contract and related price risk management:  At March 31, 2009, NU Enterprises had approximately 0.2 million megawatt-hours (MWH) remaining under its wholesale sales contract expiring in 2013 to sell electricity to the New York Municipal Power Agency (NYMPA) (an agency that is comprised of municipalities), net of sourcing contracts to purchase electricity with delivery dates through 2013.  These contracts affect cash flows as electricity is purchased and delivered.

CL&P energy and capacity contracts required by regulation:  CL&P has contracts with two independent power producers (IPPs) to purchase electricity monthly in amounts aggregating approximately 1.5 million MWH per year through March 2015 under one of these contracts and 0.1 million MWH per year through December 2020 under the second contract.  CL&P also has two capacity-related contracts for differences (CfDs) to increase energy supply in Connecticut relating to two generating projects to be built or modified.  The total capacity of these CfDs and two additional CfDs of The United Illuminating Company (UI) is expected to be approximately 787 MW.  These four contracts obligate the utilities to pay/receive monthly 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.  CL&P has an agreement with UI, which is also accounted for as a derivative, under which it will share the costs and benefits of the four CfDs, with 80 percent allocated to CL&P and 20 percent to UI.  

CL&P, PSNH and Yankee Gas energy and natural gas price risk management:  At March 31, 2009, CL&P had 1.8 million MWH and 1.3 million MWH remaining under FTRs and bilateral basis swaps, respectively, that expire in 2009 and require monthly payments or receipts.  

13

PSNH has electricity procurement contracts with delivery dates through 2011 to purchase an aggregate amount of 2.9 million MWH of power that is used to serve customer load and manage price risk of its electricity delivery service obligations.  These contracts are settled monthly.  PSNH also has two energy call options that it received in exchange for assigning its transmission rights in a direct current transmission line.  The options give PSNH the right to purchase monthly 1 million MWH of electricity through December 2010.  In addition, PSNH has entered into FTRs to manage the risk of congestion costs associated with its electricity delivery service.  At March 31, 2009, there were 1 million MWH remaining under FTRs that expire in 2009 and require monthly payments or receipts.  The purpose of the PSNH derivative contracts is to provide stable rates for customers by mitigating price uncertainties associated with the New England spot market.  

Yankee Gas has two peaking supply option contracts to purchase up to 17 thousand MMBtu of natural gas on up to 20 days per season to manage natural gas supply price risk related to winter load obligations.  One contract for 3 thousand MMBtu expires on October 31, 2009 and the other contract for 14 thousand MMBtu expires on April 1, 2012.  Demand fees on these contracts are payable annually.  

The following table presents the realized and unrealized gains/(losses) associated with derivative contracts not designated as hedging instruments under SFAS No. 133 for the three months ended March 31, 2009 (millions of dollars):

Derivatives Not Designated as Hedging Instruments under SFAS No. 133		Location of Gain or Loss Recognized on Derivative		Amount of Gain/(Loss) Recognized on Derivative
NU Enterprises:
Energy sales contract and energy price   risk management		Fuel, purchased and net   interchange power				$	5.5
Regulated Companies:
CL&P energy and capacity   contracts required by regulation		Regulatory assets/liabilities					(11.1)
Commodity price and supply risk  management:
CL&P		Regulatory assets/liabilities					(5.9)
PSNH		Regulatory assets/liabilities					(42.5)
Yankee Gas		Regulatory assets/liabilities					(0.9)

For the regulated companies, monthly settlement amounts are recorded as receivables or payables and as revenues or purchased power.  Regulatory assets/liabilities are established through amortization of regulatory assets/liabilities, net, with no impact to net income.

Derivatives designated as hedging instruments under SFAS No. 133  

Interest Rate Risk Management:  To manage the interest rate risk characteristics of the company's fixed rate long-term debt, NU parent has a fixed to floating interest rate swap on its $263 million, 7.25 percent fixed rate senior notes maturing on April 1, 2012.  This interest rate swap qualified and was designated as a fair value hedge and requires semi-annual payments/receipts.  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.  There was no ineffectiveness recorded for the three months ended March 31, 2009.  The cumulative changes in fair values of the swap and the long-term debt are recorded as a derivative and an adjustment to long-term debt.  Interest receivable is recorded as a reduction of interest expense and is included in prepayments and other.  For the three months ended March 31, 2009, the realized and unrealized gains/(losses) incurred on the swap and hedged debt and interest expense recorded in earnings were as follows (millions of dollars):

Income Statement Classification		Swap				Hedged Debt
Change in fair value				$0.5			$(0.5)
Interest recorded in earnings				-			1.4

There were no cash flow hedges outstanding as of March 31, 2009 or during the three months ended March 31, 2009 and no ineffectiveness was recorded for that period.  From time to time, NU and its subsidiaries, including CL&P, PSNH and WMECO, enter into forward starting interest rate swap agreements on proposed debt issuances that qualify and are designated as cash flow hedges.  Cash flow hedges are 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 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.  When a cash flow hedge is terminated, the settlement amount is recorded in accumulated other comprehensive income and is amortized into earnings over the term of the debt.  

14

For the three months ended March 31, 2009, pre-tax gains/(losses) amortized from accumulated other comprehensive income into interest expense were as follows (millions of dollars):

CL&P	$	(0.2)
PSNH		-
WMECO		-
Other		0.1
NU Consolidated	$	(0.1)

For further information, see Note 6, "Comprehensive Income," to the condensed consolidated financial statements.

Credit Risk

Certain derivative contracts that are accounted for at fair value, including PSNH's electricity procurement contracts, CL&P's bilateral agreements and NU Enterprises' electricity sourcing contracts, contain credit risk contingent features.  These features require these companies, or in NU Enterprises' case, NU, to maintain investment grade credit ratings from the major rating agencies and to post cash or standby letters of credit (LOCs) as collateral for contracts in a net liability position over specified credit limits.  NU provides standby LOCs under its revolving credit agreement for its subsidiaries to post with counterparties.  The following summarizes the fair value of derivative contracts that are in a liability position and subject to credit risk contingent features and the fair value of cash collateral and standby LOCs posted with counterparties as of March 31, 2009 (millions of dollars):  

		Fair value subject to credit risk contingent features			Cash collateral posted			Standby LOCs posted
CL&P		$	(1.0)		$	1.0		$	-
PSNH			(106.7)			-			91.0
NU Enterprises			(37.8)			35.7			-
NU Consolidated		$	(145.5)		$	36.7		$	91.0

Additional collateral is required to be posted by NU Enterprises, CL&P or PSNH, respectively, if NU parent's, CL&P's or PSNH's respective credit ratings are downgraded below investment grade.  As of March 31, 2009, no additional cash collateral would be required to be posted if credit ratings were downgraded below investment grade.  However, if PSNH's or NU parent's senior unsecured debt were downgraded to below investment grade, additional standby LOCs in the amount of $26.5 million and $13.4 million would be required to be posted for PSNH and Select Energy, respectively.

For further information, see Note 1F, "Summary of Significant Accounting Policies - Special Deposits and Counterparty Deposits," to the condensed consolidated financial statements.   

3.

FAIR VALUE MEASUREMENTS (All Companies)

Items Measured at Fair Value on a Nonrecurring Basis:  On January 1, 2009, NU and its subsidiaries, including CL&P, PSNH and WMECO, adopted SFAS No. 157, "Fair Value Measurements," for nonrecurring fair value measurements of nonfinancial assets and liabilities, including asset retirement obligations (AROs) and goodwill and other impairment analyses.  We adopted SFAS No. 157 for fair value measurements of financial assets and liabilities effective January 1, 2008.  Implementation of SFAS No. 157 for nonfinancial assets and liabilities did not affect the accompanying condensed consolidated financial statements.  Application of SFAS No. 157 to Yankee Gas goodwill, which is tested for impairment as of October 1^st of each year, is not expected to have a material effect on the company’s financial position or results of operations.  

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.  

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The following tables present the amounts of assets and liabilities carried at fair value by the level in which they are classified within the SFAS No. 157 valuation hierarchy:

		At March 31, 2009
(Millions of Dollars)		Total NU			CL&P			PSNH			WMECO			NU Enterprises			Yankee Gas			NU Parent
Derivative Assets:
Level 1		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Level 2			19.9			-			-			-			-			-			19.9
Level 3			218.1			215.4			1.8			-			-			0.9			-
Total		$	238.0		$	215.4		$	1.8		$	-		$	-		$	0.9		$	19.9
Derivative Liabilities:
Level 1		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Level 2			(106.7)			-			(106.7)			-			-			-			-
Level 3			(898.4)			(848.7)			(0.4)			-			(49.2)			(0.1)			-
Total		$	(1,005.1)		$	(848.7)		$	(107.1)		$	-		$	(49.2)		$	(0.1)		$	-
Marketable Securities:
Level 1		$	51.4		$	-		$	-		$	21.4		$	-		$	-		$	30.0
Level 2			55.2			-			-			34.6			-			-			20.6
Level 3			-			-			-			-			-			-			-
Total		$	106.6		$	-		$	-		$	56.0		$	-		$	-		$	50.6

		At December 31, 2008
(Millions of Dollars)		Total NU			CL&P			PSNH			WMECO			NU Enterprises			Yankee Gas			NU Parent
Derivative Assets:
Level 1		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Level 2			20.8			-			-			-			-			-			20.8
Level 3			252.4			245.8			4.7			-			-			1.9			-
Total		$	273.2		$	245.8		$	4.7		$	-		$	-		$	1.9		$	20.8
Derivative Liabilities:
Level 1		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Level 2			(91.7)			-			(91.7)			-			-			-			-
Level 3			(921.6)			(856.9)			(0.6)			-			(63.9)			(0.2)			-
Total		$	(1,013.3)		$	(856.9)		$	(92.3)		$	-		$	(63.9)		$	(0.2)		$	-
Marketable Securities:
Level 1		$	42.1		$	-		$	-		$	10.3		$	-		$	-		$	31.8
Level 2			67.1			-			-			45.4			-			-			21.7
Level 3			-			-			-			-			-			-			-
Total		$	109.2		$	-		$	-		$	55.7		$	-		$	-		$	53.5

Not included in the tables above are $393.6 million and $81.6 million of cash equivalents held by NU parent at March 31, 2009 and December 31, 2008, respectively, which are included in cash and cash equivalents on the accompanying condensed consolidated balance sheets and are classified as Level 1 in the fair value hierarchy.  

The following tables present changes for the three months ended March 31, 2009 and 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 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 months ended March 31, 2009 and 2008.

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