10-K

UNITED STATES SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

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 1-14768

NSTAR

(Exact name of registrant as specified in its charter)

Massachusetts	04-3466300
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
800 Boylston Street, Boston, Massachusetts	02199
(Address of principal executive offices)	(Zip code)

617-424-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, par value $1 per share	New York Stock Exchange Boston Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x  Yes    ¨  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨  Yes    x  No

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x Accelerated filer  ¨ Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨  Yes    x  No

The aggregate market value of the 106,808,376 shares of voting stock of the registrant held by non-affiliates of the registrant, computed as the average of the high and low market prices of the common shares as reported on the New York Stock Exchange consolidated transaction reporting system for NSTAR Common Shares as of the last business day of the registrant’s most recently completed second fiscal quarter: $3,041,368,507.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class	Outstanding at February 16, 2007
Common Shares, par value $1 per share	106,808,376 shares

Documents Incorporated by Reference

Sections of NSTAR’s Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders to be held on May 3, 2007 are incorporated by reference into Parts I and III of this Form 10-K.

NSTAR

Index to Annual Report on Form 10-K

Year Ended December 31, 2006

		Page
Glossary of Terms		2
Cautionary Statement Regarding Forward-Looking Information		4
	Part I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 4A.	Executive Officers of the Registrant	16
	Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Consolidated Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 8.	Financial Statements and Supplementary Data	56
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	99
Item 9A.	Controls and Procedures	99
Item 9B.	Other Information	99
	Part III
Item 10.	Trustees, Executive Officers and Corporate Governance	100
Item 11.	Executive Compensation	100
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	100
Item 13.	Certain Relationships and Related Transactions, and Trustee Independence	100
Item 14.	Principal Accountant Fees and Services	100
	Part IV
Item 15.	Exhibits and Financial Statement Schedules	101
Signatures		107

1

Glossary of Terms

The following is a glossary of frequently used abbreviations or acronyms that are used throughout this report.

NSTAR Companies
NSTAR	NSTAR (Parent company), Company or NSTAR and its subsidiaries (as the context requires)
NSTAR Electric	NSTAR’s three retail electric utility subsidiaries, collectively
Boston Edison	Boston Edison Company
ComElectric	Commonwealth Electric Company
Cambridge Electric	Cambridge Electric Light Company
Canal	Canal Electric Company
NSTAR Gas	NSTAR Gas Company
NSTAR Electric & Gas	NSTAR Electric & Gas Corporation
MATEP	Medical Area Total Energy Plant, Inc.
AES	Advanced Energy Systems, Inc. (Parent company of MATEP)
NSTAR Com	NSTAR Communications, Inc.
Hopkinton	Hopkinton LNG Corp.
Regulatory and Other Authorities
AG	Attorney General of the Commonwealth of Massachusetts
DOE	U.S. Department of Energy
EITF	Emerging Issues Task Force (of FASB)
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission (the Commission)
IRS	U.S. Internal Revenue Service
ISO-NE	ISO (Independent System Operator) - New England, Inc.
MDTE	Massachusetts Department of Telecommunications and Energy
NRC	U.S. Nuclear Regulatory Commission
NYMEX	New York Mercantile Exchange
PCAOB	Public Company Accounting Oversight Board (United States)
SEC	U.S. Securities and Exchange Commission
SJC	Massachusetts Supreme Judicial Court
Other
AFUDC	Allowance for Funds Used During Construction
AOCI	Accumulated Other Comprehensive Income
APB	Accounting Principles Board
ARO	Asset Retirement Obligation
BBtu	Billions of British thermal units
Bcf	Billion cubic feet
Bechtel	Bechtel Power Corporation
CGAC	Cost of Gas Adjustment Clause
CPSL	Capital Projects Scheduling List
CY	Connecticut Yankee Atomic Power Company
DSM	Demand-Side Management
ED	Exposure Draft
EPS	Earnings Per Common Share
FCA	Forward Capacity Auctions
FCM	Forward Capacity Market
GAAP	Accounting principles generally accepted in the United States of America
ISFSI	Independent Spent Fuel Storage Installation

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LDAC	Local Distribution Adjustment Clause
LICAP	Locational Installed Capacity
LNG	Liquefied Natural Gas
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
MGP	Manufactured gas plant
MMbtu	Millions of British thermal units
MWh	Megawatthour (equal to one million watthours)
MY	Maine Yankee Atomic Power Company
MW	Megawatts
NEH	New England Hydro-Transmission Company, Inc.
NHH	New England Hydro-Transmission Corporation
NEMA	Northeastern Massachusetts
OATT	Open Access Transmission Tariff
PBOP	Postretirement Benefit Obligation other than Pensions
PBR	Performance Based Distribution Rates
ROE	Return on Equity
RMR	Reliability Must Run
RTO	Regional Transmission Organization
SAB	Staff Accounting Bulletin
SFAS	Statement of Financial Accounting Standards
SIP	Simplified Incentive Plan
SQI	Service Quality Indicators
SSCM	Simplified Service Cost Method
VIE	Variable Interest Entities
YA	Yankee Atomic Electric Company

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Cautionary Statement Regarding Forward-Looking Information

This Annual Report on Form 10-K contains statements that are considered forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements may also be contained in other filings with the SEC, in press releases and oral statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are based on the current expectations, estimates or projections of management and are not guarantees of future performance. Some or all of these forward-looking statements may not turn out to be what NSTAR expected. Actual results could differ materially from these statements. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Examples of some important factors that could cause our actual results or outcomes to differ materially from those discussed in the forward-looking statements include, but are not limited to, the following:

• financial market conditions including, but not limited to, changes in interest rates and the availability and cost of capital

• weather conditions that directly influence the demand for electricity and natural gas and damage from major storms

• future economic conditions in the regional and national markets

• prevailing governmental policies and regulatory actions (including those of the MDTE and FERC) with respect to allowed rates of return, rate structure, continued recovery of regulatory assets, financings, purchased power, municipalization acquisition and disposition of assets, operation and construction of facilities, changes in tax laws and policies and changes in, and compliance with, environmental and safety laws and policies

• new governmental regulations or changes to existing regulations that impose additional operating requirements or liabilities

• changes in available information and circumstances regarding legal issues and the resulting impact on our estimated litigation costs

• impact of continued cost control procedures on operating results

• ability to maintain current credit ratings

• impact of uninsured losses

• impact of union contract negotiations

• impact of conservation measures and self-generation by our customers

• changes in financial accounting and reporting standards

• changes in specific hazardous waste site conditions and the specific cleanup technology

• prices and availability of operating supplies

• the impact of terrorist acts, and

• changes in tax laws, regulations and rates

• impact of performance service quality measures

Any forward-looking statement speaks only as of the date of this filing and NSTAR undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult all further disclosures NSTAR makes in its filings to the SEC. Other factors in addition to those listed here could also adversely affect NSTAR. This Annual Report also describes material contingencies and critical accounting policies and estimates in the accompanying MD&A and in the accompanying Notes to Consolidated Financial Statements and NSTAR encourages a review of these items.

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Part I

Item 1. Business

(a) General Development of Business

NSTAR (or the Company) is a holding company engaged through its subsidiaries in the energy delivery business serving approximately 1.4 million customers in Massachusetts, including approximately 1.1 million electric distribution customers in 81 communities and approximately 300,000 natural gas distribution customers in 51 communities. Utility operations accounted for approximately 96% of consolidated operating revenues in 2006, 2005 and 2004 and the remainder is generated from its unregulated operations.

NSTAR derives its revenues primarily from the sale of energy, distribution and transmission services to customers and from its unregulated businesses. NSTAR’s earnings are impacted by fluctuations in unit sales of kWh and MMbtu, which directly determine the level of distribution and transmission revenues recognized. In accordance with the regulatory rate structure in which NSTAR operates, its recovery of energy costs are fully reconciled with the level of energy revenues currently recorded and, therefore, do not have an impact on earnings. As a result of this rate structure, any variability in the cost of energy supply purchased will impact purchased power and cost of gas sold expense and corresponding revenues but will not affect the Company’s earnings.

(b) Financial Information about Industry Segments

NSTAR’s principal operating segments are the electric and natural gas utility operations that provide energy delivery services in 107 cities and towns in Massachusetts and its unregulated operations. Refer to Note N, “Segment and Related Information” of the accompanying Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data” for specific financial information related to NSTAR’s electric utility, natural gas utility and unregulated operating segments.

(c) Narrative Description of Business

Principal Products and Services

NSTAR Electric

NSTAR Electric currently supplies electricity at retail to an area of 1,702 square miles. The territory served includes the City of Boston and 80 surrounding cities and towns, including Cambridge, New Bedford, and Plymouth and the geographic area comprising Cape Cod and Martha’s Vineyard. The population of this area is approximately 2.3 million.

NSTAR Electric’s operating revenues and energy sales percentages by customer class for the years 2006, 2005 and 2004 consisted of the following:

	Revenues ($)						Energy Sales (mWh)
	2006		2005		2004		2006		2005		2004
Retail:
Commercial	52	%	54	%	54	%	62	%	60	%	59	%
Residential	43	%	39	%	39	%	30	%	31	%	31	%
Industrial and other	5	%	6	%	6	%	8	%	8	%	9	%
Wholesale and contract sales	—		1	%	1	%	—		1	%	1	%

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Electric Rates

Retail electric delivery rates are established by the MDTE and are comprised of:

• distribution charges, which include a fixed customer charge, energy and demand charges (to collect the costs of building and expanding the infrastructure to deliver power to its destination, as well as ongoing operating and maintenance costs), and a reconciling rate adjustment mechanism for recovery of costs associated with NSTAR’s obligation to provide its employees qualified pension and other postretirement benefits,

• a transition charge (to collect costs primarily for previously held investments in generating plants and costs related to above market power contracts),

• a transmission charge (to collect the cost of moving the electricity over high voltage lines from generating plants to substations located within NSTAR’s service area including costs allocated to NSTAR Electric by ISO-NE to maintain the wholesale electric market),

• an energy conservation charge (legislatively-mandated charge to collect costs for demand-side management programs) and

• a renewable energy charge (legislatively-mandated charge to collect the cost to support the development and promotion of renewable energy projects).

Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers through basic service for those who choose not to buy energy from a competitive energy supplier. Basic service rates are reset every six months (every three months for large commercial and industrial customers). The price of basic service is intended to reflect the average competitive market price for power. As of December 31, 2006, 2005 and 2004, customers of NSTAR Electric had approximately 51%, 32%, and 24%, respectively, of their load requirements provided by competitive suppliers.

On December 30, 2005, the MDTE approved the seven-year Rate Settlement Agreement between NSTAR, the AG, and several interveners. For 2006, the Rate Settlement Agreement required NSTAR Electric to lower its transition rates by $20 million from what would otherwise have been billed in 2006, and then any change in distribution rates were offset by an equal and opposite change in the transition rates, continuing through 2012. Uncollected transition charges as a result of the reductions in transition rates are being deferred and collected through future rates with a carrying charge at a rate of 10.88%. This Rate Settlement Agreement permitted NSTAR Electric to increase its distribution rates by an annual rate of $30 million effective May 1, 2006, with a corresponding reduction in transition charges. The Rate Settlement Agreement allows NSTAR Electric other important and long-term initiatives. Refer to the “Rate Settlement Agreement” section of the accompanying Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for more details.

NSTAR’s Rate Settlement Agreement also anticipated the transfer of the net assets, structured as a merger, of NSTAR’s subsidiary companies of Cambridge Electric, ComElectric and Canal to Boston Edison, contingent upon obtaining final approval from the MDTE and FERC. The MDTE gave final approval that became effective on November 28, 2006. The FERC conditionally approved the merger on October 20, 2006 and granted clarification and reconsideration on a related transmission tariff issue on November 28, 2006. On December 1, 2006, NSTAR filed blended Basic Service rates with the MDTE, effective January 1, 2007. The individual Boston Edison, ComElectric and Cambridge Electric Basic Service rates are blended into rates applicable to the entire NSTAR Electric service territory pursuant to the MDTE’s approval of the NSTAR Electric merger. The merger was effective as of January 1, 2007 and Boston Edison was renamed “NSTAR Electric Company.”

Sources and Availability of Electric Power Supply

For basic service power supply, NSTAR Electric makes periodic market solicitations consistent with MDTE requirements. During 2006, NSTAR Electric entered into short-term power purchase agreements to meet its

6

entire basic service supply obligation, other than to its largest customers, for the period January 1, 2007 through June 30, 2007 and for 50% of its obligation, other than to these large customers, for the second-half of 2007. NSTAR Electric has entered into short-term power purchase agreements to meet its entire basic service supply obligation for large customers through March 2007. A request for proposals will be issued quarterly in 2007 for the remainder of the obligation for large customers and semi-annually for non-large customers. For 2006, NSTAR Electric entered into agreements ranging in length from three to twelve-months. NSTAR Electric fully recovers its payments to suppliers through MDTE-approved rates billed to customers. During late 2004 and early 2005, NSTAR Electric completed several transactions to buy-out or restructure certain of its long-term purchase power contracts. Refer to the accompanying Notes to Consolidated Financial Statements, Note O, “Contracts for the Purchase of Energy” for more detail.

The Rate Settlement Agreement required NSTAR Electric to design a policy for the procurement of basic service supply for residential customers effective July 1, 2006, permitting NSTAR Electric to execute energy supply contacts for one, two and three-years procuring fifty, twenty-five and twenty-five percent, respectively, of its total energy load requirements for residential customers. NSTAR Electric, after working with the AG and a low-income support organization, developed a schedule to implement this provision. This proposal included a method for further review and modification to potentially include longer-term contracts that are anticipated to reduce price volatility for small consumers, solicited long-term contracts as part of its last 2006 solicitation. However, after review of the proposals, NSTAR Electric, again after consultation with the AG, determined that it would enter into short-term contract alternatives.

Transmission Project

A significant portion of NSTAR Electric’s 345kV transmission line project from Stoughton, Massachusetts to Boston was in-service by December 31, 2006. Refer to “Plant Expenditures and Financings” section of this Item 1 for further information.

Wholesale Market and Transmission Rule Changes

Locational Installed Capacity Replaced by Forward Capacity Market

After a lengthy hearing, a FERC-appointed Administrative Law Judge issued an Initial Decision on June 15, 2005 approving an ISO-NE plan to implement LICAP. LICAP was conceived as an administrative mechanism designed to compensate wholesale generators for their locational capacity value based on a price-quantity curve. The FERC did not immediately affirm the Initial Decision, but allowed additional oral argument and delayed implementation. In response to language in the Energy Policy Act of 2005 requesting the FERC to “carefully consider States’ objections” to LICAP, the FERC, on October 21, 2005, ordered settlement procedures to “develop an alternative to LICAP.” A contested settlement was filed on January 31, 2006 and approved by FERC in a June 16, 2006 order and is expected to provide significant savings to NSTAR Electric’s customers relative to the costs associated with the LICAP model approved in the Initial Decision. The order adopted the FCM based on FCA as a replacement to LICAP. NSTAR supports the FCM concept, but opposed, on several grounds, the order in a July 17, 2006 filing that requested a rehearing, together with the AG and other load-serving entity representatives. Some of the aspects of the order that NSTAR objected to, on behalf of its customers, include an expensive transition payment mechanism and the failure to terminate RMR agreements coincident with the initiation of transition payments. In December 2006, the Maine Public Utilities Commission, the Connecticut Attorney General and the Massachusetts Attorney General filed appeals of the FERC orders approving the settlement with the U.S. Court of Appeals for the D.C. Circuit. NSTAR Electric is an intervener in those appeals. NSTAR cannot predict the ultimate outcome of this case on appeal.

Transition payments applicable to all capacity began December 1, 2006 at a rate of $3.05/KWMonth and escalate to $4.10/KWMonth until May 2010 when FCM will begin on June 1, 2010. FCAs are auctions designed to procure capacity three or more years into the future with a one-year to five-year commitment period. FCM includes a locational mechanism to establish separate zones for capacity when transmission constraints are found

7

to exist. FCM allows load-serving entities such as NSTAR to self-supply through contracted resources to meet its capacity obligations without participating in the FCAs. The impact to rates for NSTAR customers during the transition period will be approximately 0.8 to 1.1 cents per kilowatt hour. NSTAR Electric cannot anticipate the precise changes resulting from the FCAs due to their competitive nature, but expects all costs incurred to be fully recoverable.

FERC Transmission ROE

On October 31, 2006, the FERC authorized for the participating New England Transmission Owners, including NSTAR Electric, an ROE on regional transmission facilities of 10.2% plus a 50 basis point adder for joining a RTO from February 1, 2005 (the RTO effective date) through October 31, 2006, and an ROE of 11.4% thereafter. In addition, FERC granted a 100 basis point incentive adder to ROE for qualified investments made in new regional transmission facilities, that when combined with FERC’s approved ROEs, provide 11.7% and 12.4% returns for the respective time frames. RTO-NE ratepayers will benefit as a result of this order because it responds to the need to enhance the New England transmission grid to alleviate congestion costs and reliability issues. Transmission projects that are in progress including NSTAR Electric’s 345kV project, are expected to significantly minimize these congestion costs and enhance reliability in the region. The New England Transmission Owners accepted the terms of the October 31, 2006 FERC decision, with one exception, and on November 30, 2006, filed for a request for rehearing involving the calculation of the base ROE, for which the FERC did not provide an explanation for its action and which the New England Transmission Owner’s believe is not supported by the record evidence. The New England Transmission Owners contend that the base ROE should be 10.5%. The Company is unable to determine the ultimate timing or result of the rehearing process or of the ultimate FERC decision.

Wholesale Power Cost Savings Initiatives

The Rate Settlement Agreement provides for NSTAR Electric to continue its efforts to advocate on behalf of customers at the FERC to mitigate wholesale electricity cost inefficiencies that would be borne by customers. If NSTAR Electric’s efforts to reduce customers’ costs are successful, the Company is allowed to retain a portion of these savings, as well as related litigation costs, as an incentive.

NSTAR Electric and the AG have agreed that NSTAR Electric’s efforts involving two RMR cases resulted in total regional customer savings of over $362 million, of which $134 million is applicable to NSTAR Electric customers. Under the terms of the Rate Settlement Agreement, NSTAR Electric will share 25% of the savings applicable to its customers. The recovery of NSTAR Electric’s share of benefits will be collected over three years, and the aggregate annual recovery is capped at 2% of the annual distribution and transmission service revenues. NSTAR Electric seeks collection of $9.8 million annually and represents one-third of the savings to its customers. NSTAR Electric will recognize these incentive revenues as they are collected from its customers for a three year period, effective January 1, 2007. Ultimate approval for the incentives is required by the MDTE.

NSTAR Gas

NSTAR Gas distributes natural gas to approximately 300,000 customers in 51 communities in central and eastern Massachusetts covering 1,067 square miles and having an aggregate population of 1.2 million. Twenty-five of these communities are also served with electricity by NSTAR Electric. Some of the larger communities served by NSTAR Gas include Cambridge, Somerville, New Bedford, Plymouth, Worcester, Framingham, Dedham and the Hyde Park area of Boston.

8

NSTAR Gas’ operating revenues and energy sales percentages by customer class for the years 2006, 2005 and 2004, consisted of the following:

	Revenues ($)						Energy Sales (therms)
	2006		2005		2004		2006		2005		2004
Gas Sales and Transportation:
Residential	59	%	64	%	61	%	47	%	46	%	45	%
Commercial	27	%	23	%	25	%	35	%	32	%	33	%
Industrial and other	9	%	8	%	9	%	12	%	17	%	17	%
Off-System and contract sales	5	%	5	%	5	%	6	%	5	%	5	%

Gas Rates

NSTAR Gas generates revenues primarily through the sale and/or transportation of natural gas. Gas sales and transportation services are divided into two categories: firm, whereby NSTAR Gas must supply gas and/or transportation services to customers on demand; and interruptible, whereby NSTAR Gas may, generally during colder months, temporarily discontinue service to high volume commercial and industrial customers. Sales and transportation of gas to interruptible customers do not materially affect NSTAR Gas’ operating income because substantially the entire margin for such service is returned to its firm customers as rate reductions.

In addition to delivery service rates, NSTAR Gas’ tariffs include a seasonal CGAC and LDAC. The CGAC provides for the recovery of all gas supply costs from firm sales customers. The LDAC provides for the recovery of certain costs applicable to both sales and transportation customers. The CGAC is filed semi-annually for approval by the MDTE. The LDAC is filed annually for approval. In addition, NSTAR Gas is required to file interim changes to its CGAC factor when the actual costs of gas supply vary from projections by more than 5%.

As discussed above, the MDTE approved the seven-year Rate Settlement Agreement on December 30, 2005 between the AG, NSTAR and several interveners. For NSTAR Gas customers, the settlement required an adjustment to the CGAC to defer recovery of approximately $18.5 million effective January 2006. NSTAR Gas is currently recovering this deferred amount, with interest at the effective prime rate, over a twelve-month period effective May 1, 2006.

On August 30, 2006, the MDTE approved a fixed-price option pilot program that offers NSTAR Gas’ residential and small commercial customers the opportunity to “lock-in” their gas costs prior to the winter heating season, thus providing a more stable, predictable gas price. The program is open to the first customers who apply up to twenty-five percent of those eligible. As of the end of the enrollment period, approximately 13,600 gas customers signed up to take part in the fixed rate. Under the plan, the non-participants’ impact are minimized from the risk of changing prices during the winter heating season by having the plan participant pay a $0.02/therm premium charge above NSTAR Gas’ otherwise applicable gas adjustment factor. Customers choosing this plan locked into a supply price of $1.2149/therm for the entire 2006/2007 winter heating season. If the market results in higher gas costs and NSTAR Gas increases its CGAC for other customers, customers participating in the fixed-price option program will not have to pay the higher rate. If prices on the market end up being lower and NSTAR Gas reduces its CGAC for other customers, customers who are in the program will not pay the lower rate. NSTAR Gas remains revenue neutral under the plan and gas costs included in revenues are fully reconciled to allow full recovery of all NSTAR gas costs as allowed by the MDTE. The program was developed as a result of the Rate Settlement Agreement between NSTAR and the AG as approved on December 30, 2005.

On February 28, 2005, the MDTE approved a petition by NSTAR Gas to change a portion of its gas procurement practices. As approved, NSTAR Gas began purchasing financial contracts based upon NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase price for approximately one-third of its natural gas purchases. Ultimately, this will minimize fluctuations in prices to NSTAR firm gas sales customers. NSTAR Gas will not take physical delivery of gas when the financial contracts are executed or expire.

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All costs incurred will continue to be included in the CGAC and are fully recovered in rates. Refer to the accompanying Notes to Consolidated Financial Statements, Note F, “Derivative Instruments - Hedging Agreements,” for further details.

Gas Supply, Transportation and Storage

NSTAR Gas maintains a flexible resource portfolio consisting of gas supply contracts, transportation contracts on interstate pipelines, market area storage and peaking services.

NSTAR Gas purchases transportation, storage and balancing services from Tennessee Gas Pipeline Company and Algonquin Gas Transmission Company, as well as other upstream pipelines that bring gas from major producing regions in the U.S., Gulf of Mexico and Canada to the final delivery points in the NSTAR Gas service area. NSTAR Gas purchases all of its gas supply from third-party vendors. Most of the supplies are purchased under a firm portfolio management contract with a term of one year. NSTAR Gas has one multiple year contract, which is used for the purchase of its Canadian supplies. Based on its firm pipeline transportation capacity entitlements, NSTAR Gas contracts for up to 139,373 MMbtu per day of domestic production. In addition, NSTAR Gas has an agreement for up to 4,500 MMbtu per day of Canadian supplies.

In addition to the firm transportation and gas supplies mentioned above, NSTAR Gas utilizes contracts for underground storage and LNG facilities to meet its winter peaking demands. The LNG facilities, described below, are located within NSTAR Gas’ distribution system and are used to liquefy and store pipeline gas during the warmer months for use during the heating season. During the summer injection season, excess pipeline capacity is used to deliver and store gas in market area storage facilities, located in the New York and Pennsylvania region. Stored gas is withdrawn during the winter season to supplement pipeline supplies in order to meet firm heating demand. NSTAR Gas has firm storage contracts and total storage capacity entitlements of approximately 9.3 Bcf.

A portion of the storage of gas supply for NSTAR Gas during the winter heating season is provided by Hopkinton, a wholly-owned subsidiary of NSTAR. The facility consists of a liquefaction and vaporization plant and three above-ground cryogenic storage tanks having an aggregate capacity of 3 Bcf of natural gas.

In addition, Hopkinton owns a satellite vaporization plant and two above-ground cryogenic storage tanks with an aggregate capacity of 0.5 Bcf of natural gas that are filled with LNG trucked from the Hopkinton facility or purchased from third parties.

Based upon information currently available regarding projected growth in demand and estimates of availability of future supplies of pipeline gas, NSTAR Gas believes that its present sources of gas supply are adequate to meet existing load and allow for future growth in sales.

Franchises

Through their charters, which are unlimited in time, NSTAR Electric and NSTAR Gas have the right to engage in the business of delivering and selling electricity and natural gas and have powers incidental thereto and are entitled to all the rights and privileges of and subject to the duties imposed upon electric and natural gas companies under Massachusetts laws. The locations in public ways for electric transmission and distribution lines or gas distribution lines and gas distribution pipelines are obtained from municipal and other state authorities who, in granting these locations, act as agents for the state. In some cases the actions of these authorities are subject to appeal to the MDTE. The rights to these locations are not limited in time and are subject to the action of these authorities and the legislature. Under Massachusetts law, no other entity may provide electric or gas delivery service to retail customers within NSTAR’s territory without the written consent of NSTAR Electric and/or NSTAR Gas. This consent must be filed with the MDTE and the municipality so affected.

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Unregulated Operations

NSTAR’s unregulated operations segment engages in businesses that include district energy operations, telecommunications and liquefied natural gas service. District energy operations are provided through its AES subsidiary that sells chilled water, steam and electricity to hospitals and teaching facilities located in Boston’s Longwood Medical Area. Telecommunications services are provided through NSTAR Com, which installs, owns, operates and maintains a wholesale transport network for other telecommunications service providers in the metropolitan Boston area to deliver voice, video, data and internet services to customers. A former NSTAR subsidiary, NSTAR Steam Corporation, sold its assets to a non-affiliated entity in September 2005. Revenues earned from NSTAR’s unregulated operations accounted for approximately 4% of consolidated operating revenues in 2006, 2005 and 2004.

RCN Joint Venture, Investment Conversion and Abandonment

NSTAR Com participated in a telecommunications venture with RCN Telecom Services of Massachusetts, a subsidiary of RCN Corporation (RCN). As part of the Joint Venture Agreement, NSTAR Com had the option to exchange portions of its joint venture interest for common shares of RCN at specified periods. NSTAR Com exercised this option and exchanged its entire joint venture interest for common shares of RCN over several years through 2002. As of December 31, 2002, NSTAR Com no longer participated in the joint venture but held approximately 11.6 million common shares of RCN. On December 24, 2003, NSTAR abandoned its common shares of RCN.

Regulation

The Energy Policy Act of 2005 repealed the Public Utility Holding Company Act of 1935 (PUHCA), which established a regulatory regime overseen by the SEC, and replaced it with a new statute focused on increased access to holding company books and records to assist the FERC and state utility regulators in protecting customers of regulated utilities. On December 8, 2005, the FERC finalized rules to implement the congressionally mandated repeal of the PUHCA of 1935 and enactment of the PUHCA of 2005. FERC issued its final rules effective February 8, 2006. NSTAR is a holding company exempt from the provisions of the PUHCA of 1935, as amended, except for Section 9(c)(2). NSTAR was granted an exemption and waiver from the PUHCA 2005 revisions by operation of law on June 15, 2006.

NSTAR Gas and NSTAR Electric and its wholly-owned regulated subsidiary, Harbor Electric Energy Company, operate primarily under the authority of the MDTE, whose jurisdiction includes supervision over retail rates for distribution of electricity, natural gas and financing and investing activities. In addition, the FERC has jurisdiction over various phases of NSTAR Electric and NSTAR Gas utility businesses, conditions under which natural gas is sold at wholesale, facilities used for the transmission or sale of that energy, certain issuances of short-term debt and regulation of accounting. These companies are also subject to various other state and municipal regulations with respect to environmental, employment, and general operating matters.

Plant Expenditures and Financings

The most recent estimates of plant expenditures and long-term debt maturities for the years 2007 and 2008-2011 are as follows:

(in thousands)	2007		2008-2011
Plant expenditures	$	404,300	$	1,215,000
Long-term debt	$	176,081	$	1,160,715

In the five-year period 2007 through 2011, plant expenditures are forecasted to be used for system reliability and performance improvements, customer service enhancements and capacity expansion to meet expected growth in the NSTAR service territory. In 2006, these factors contributed significantly to the $38.9 million increase in plant

11

expenditures from 2005. Included in these amounts are expenditures of $69 million and $120 million in 2006 and 2005, respectively, for NSTAR Electric’s 345kV transmission line project ($11 million spent in 2004). This project involves the construction of two 345kV transmission lines from a switching station in Stoughton, Massachusetts to substations in the Hyde Park section of Boston and to South Boston, respectively (phase one). Total spending on this project through December 31, 2006 is approximately $200 million, with approximately $20 million to be spent in 2007. The first line of this project was placed in service in October 2006 and the second line of phase one is expected to be placed in service by the end of the first quarter of 2007. Phase two of the 345kV transmission line project, which will add a third line to the project, is expected to be in service in 2008. Expenditures on this phase of the project are expected to amount to $55 million and $38 million in 2007 and 2008, respectively. These transmission lines ensure continued reliability of electric service and improvement of power import capability in the Northeast Massachusetts area. A substantial portion of the cost of this project will be shared by other utilities in New England based on ISO-NE’s approval and will be recovered by NSTAR through wholesale and retail transmission rates.

Management continuously reviews its capital expenditure and financing programs. These programs and, therefore, the estimates included in this Form 10-K are subject to revision due to changes in regulatory requirements, operating requirements, environmental standards, availability and cost of capital, interest rates and other assumptions. Refer to the accompanying “Cautionary Statement Regarding Forward-Looking Information” preceding Item 1, “Business” and the “Liquidity, Commitments and Capital Resources” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Seasonal Nature of Business

NSTAR Electric’s kilowatt-hour sales and revenues are typically higher in the winter and summer than in the spring and fall as sales tend to vary with weather conditions. NSTAR Gas’ sales are positively impacted by colder weather because a substantial portion of its customer base uses natural gas for space heating purposes. Refer to the accompanying “Selected Quarterly Consolidated Financial Data” section in Item 6, “Selected Consolidated Financial Data” for specific financial information by quarter for 2006 and 2005.

Competitive Conditions

As a rate regulated distribution and transmission utility company, NSTAR is not subject to a significant competitive business environment. Through its franchise charters, NSTAR Electric and NSTAR Gas have the exclusive right and privilege to engage in the business of delivering energy services within their granted territory. Under Massachusetts law, no other entity may provide electric or gas delivery service to retail customers within NSTAR’s service territory without the written consent of NSTAR Electric and/or NSTAR Gas. Refer to the accompanying “Franchises” section of this Item 1 and to Item 1A, “Risk Factors” for a further discussion of NSTAR’s rights and competitive pressures within its service territory.

Environmental Matters

NSTAR’s subsidiaries are subject to numerous federal, state and local standards with respect to the management of wastes and other environmental considerations. NSTAR subsidiaries face possible liabilities as a result of involvement in several multi-party disposal sites, state-regulated sites or third party claims associated with contamination remediation. NSTAR generally expects to have only a small percentage of the total potential liability for the majority of these sites. Noncompliance with certain standards can, in some cases, also result in the imposition of monetary civil penalties. Refer to the accompanying “Contingencies - Environmental Matters” section in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to Notes to Consolidated Financial Statements, Note P, “Commitments and Contingencies,” for more information.

Management believes that its facilities are in substantial compliance with currently applicable statutory and regulatory environmental requirements.

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Number of Employees

As of December 31, 2006, NSTAR had approximately 3,100 employees, including approximately 2,200, or 71%, who are represented by three unions covered by separate collective bargaining contracts.

Substantially all management, engineering, financing and support services are provided to the operating subsidiaries of NSTAR by employees of NSTAR Electric & Gas. NSTAR’s labor contract with Local 369 of the Utility Workers Union of America, AFL-CIO, which represents approximately 61% of employees, expires on June 1, 2009. An additional 8% of employees that support NSTAR gas operations are represented by Local 12004 of the United Steelworkers of America, who earlier in 2006 agreed upon a new four-year contract expiring March 31, 2010. The remaining 2% of employees are at AES’ MATEP subsidiary. Those employees are represented by Local 877, the International Union of Operating Engineers, AFL-CIO. On September 30, 2006, Local 877 ratified a new three-year agreement expiring on September 30, 2009.

Management believes it has satisfactory relations with its employees.

(d) Financial Information about Geographic Areas

NSTAR is a holding company engaged through its subsidiaries in the energy delivery business in Massachusetts. None of NSTAR’s subsidiaries have any foreign operations or export sales.

(e) Available Information

NSTAR files its Forms 10-K, 10-Q and 8-K reports, proxy statements and other information with the SEC. You may access materials NSTAR has filed with the SEC on the SEC’s website at www.sec.gov. In addition, NSTAR’s Board of Trustees has various committees, including an Audit, Finance and Risk Management Committee, an Executive Personnel Committee and a Board Governance and Nominating Committee. The Board also has a standing Executive Committee. The Board has adopted the NSTAR Board of Trustees Corporate Guidelines on Significant Corporate Governance Issues, a Code of Ethics for the Principal Executive Officer, General Counsel, and Senior Financial Officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, and a Code of Ethics and Business Conduct for Directors, Officers and Employees. NSTAR intends to disclose any amendment to, and any waiver from, a provision of the Code of Ethics that applies to the Chief Executive Office or Chief Financial Officer or any other executive officer and that relates to any element of the Code of Ethics definition enumerated in Item 406(b) of Regulation S-K, on Form 8-K, within five business days following the date of such amendment or waiver. NSTAR’s SEC filings and Corporate Governance documents, including charters, guidelines and codes, and any amendments to such charters, guidelines and codes that are applicable to NSTAR’s executive officers, senior financial officers or trustees can be accessed free of charge on NSTAR’s website at www.nstar.com. Copies of NSTAR’s SEC filings may also be obtained by writing to NSTAR’s Investor Relations Department at the address on the cover of this Form 10-K or by calling 781-441-8338.

The certifications of NSTAR’s Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached to this Annual Report on Form 10-K as Exhibits 31.1, 31.2, 32.1 and 32.2. NSTAR also filed the required certificate of its Chief Executive Officer with the NYSE in 2006, certifying that he is not aware of any violation of the NYSE corporate governance listing standards.

Item 1A. Risk Factors

In addition to the other information in this Annual Report on Form 10-K, shareholders or prospective investors should carefully consider the following risk factors.

Our electric and gas operations are highly regulated, and any adverse regulatory changes could have a significant impact on the Company’s results of operations and its financial position.

NSTAR’s electric and gas operations, including the rates charged, are regulated by the FERC and the MDTE. In addition, NSTAR’s accounting policies are prescribed by GAAP, the FERC and the MDTE. Adverse regulatory changes could have a significant impact on results of operations and financial condition.

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Potential municipalization or technological developments may adversely affect our regulated electricity and gas businesses.

Under Massachusetts law, no other entity may provide electric or gas delivery service to retail customers within NSTAR’s service territory without the written consent of NSTAR Electric and/or NSTAR Gas. Although not a trend, NSTAR’s operating utility companies could be exposed to municipalization risk, whereby a municipality could acquire the electric or gas delivery assets located in that city or town and take over the customer delivery service, thereby reducing NSTAR’s revenues. Any such action would require numerous legal and regulatory consents and approvals. NSTAR expects that any municipalization would require that NSTAR be compensated for its assets assumed. In addition, there is also the risk that technological developments could lead to distributed generation among NSTAR’s customer base.

Changes in environmental laws and regulations affecting our business could increase our costs or curtail our activities.

NSTAR and its subsidiaries are subject to a number of environmental laws and regulations that are currently in effect, including those related to the handling, disposal, and treatment of hazardous materials. Changes in compliance requirements or the interpretation by governmental authorities of existing requirements may impose additional costs on us, all of which could have an adverse impact on NSTAR’s results of operations.

The Company may be required to conduct environmental remediation activities for power generating sites and other potentially unidentified sites.

NSTAR is subject to actual or potential claims and lawsuits involving environmental remediation activities for power generating sites previously owned and other potentially unidentified sites. NSTAR divested all of its generating assets over the past 10 years under terms that generally require the buyer to assume all responsibility for past and present environmental harm. Based on NSTAR’s current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, NSTAR does not believe that its known environmental remediation responsibilities will have a material adverse effect on NSTAR’s results of operations, cash flows or financial position. However, discovery of currently unknown conditions at existing sites, identification of additional waste disposal sites or changes in environmental regulation, could have a material adverse impact on NSTAR’s results of operations, cash flows or financial position.

NSTAR is subject to operational risk that could cause us to incur substantial costs and liabilities.

Our business, which involves the transmission and distribution of natural gas and electricity that is used as an energy source by our customers, is subject to various operational risks, including incidents that expose the Company to potential claims for property damages or personal injuries beyond the scope of NSTAR’s insurance coverage, and equipment failures that could result in performance below assumed levels. For example, operational performance below established target benchmark levels could cause NSTAR to incur penalties imposed by the MDTE, up to a maximum of two percent of transmission and distribution revenues, under applicable Service Quality Indicators.

Increases in interest rates due to financial market conditions or changes in our credit ratings, could have an adverse impact on our access to capital markets at favorable rates, or at all, and could otherwise increase our costs of doing business.

NSTAR frequently accesses the capital markets to finance its working capital requirements, capital expenditures and to meet its long-term debt maturity obligations. Increased interest rates, or adverse changes in our credit ratings, would increase our cost of borrowing and other costs that could have an adverse impact on our results of operations and cash flows and ultimately have an adverse impact on the market price of our common shares. In addition, an adverse change in our credit ratings could, in addition to increasing our borrowing costs, trigger requirements that we obtain additional security for performance, such as a letter of credit, related to our energy procurement agreements. Refer to the accompanying Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” for a further discussion.

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Our electric and gas businesses are sensitive to variations in weather and have seasonal variations. In addition, severe storm-related disasters could adversely affect the Company.

Sales of electricity and gas to residential and commercial customers are influenced by temperature fluctuations. Significant fluctuations in heating or cooling degree days could have a material impact on unit sales for any given period. In addition, extremely severe storms, such as hurricanes and ice storms, could cause damage to our facilities that may require additional costs to repair and have a material adverse impact on the Company’s results of operations, cash flows or financial position. To the extent possible, NSTAR’s rate regulated subsidiaries would seek recovery of these costs through the regulatory process.

Economic downturn, and increased costs of energy supply, could adversely affect energy consumption and could adversely affect our results of operation.

Energy consumption is significantly impacted by the general level of economic activity and cost of energy supply. Economic downturns or periods of high energy supply costs typically lead to reductions in energy consumption and increased conservation measures. These conditions could adversely impact the level of energy sales and result in less demand for energy delivery. A recession or a prolonged lag of a subsequent recovery could have an adverse effect on NSTAR’s results of operations, cash flows or financial position.

The ability of NSTAR to maintain future cash dividends at the level currently paid to shareholders is dependent upon the ability of its subsidiaries to pay dividends to NSTAR.

As a holding company, NSTAR does not have any operating activity and therefore is substantially dependent on dividends from its subsidiaries and from external borrowings at variable rates of interest to provide the cash necessary for debt obligations, to pay administrative costs, to meet contractual obligations that may not be met by our subsidiaries and to pay common share dividends to NSTAR’s shareholders. Regulatory and other legal restrictions may limit our ability to transfer funds freely, either to or from our subsidiaries. These laws and regulations may hinder our ability to access funds that we may need to make payments on our obligations. As NSTAR’s sources of cash are limited to dividends from its subsidiaries and external borrowings, the ability to maintain future cash dividends at the level currently paid to shareholders will be dependent upon the growth in earnings of NSTAR’s subsidiaries.

Our electric and gas businesses may be impacted if generation supply or its transportation or transmission availability is limited or unreliable

Our electric and natural gas delivery businesses are reliant on transportation and transmission facilities that we do not own or control. Our ability to provide energy delivery services depends on the operations and facilities of third parties, including the independent system operator, electric generators that supply our customers’ energy requirements and natural gas pipeline operators from which we receive delivery of our natural gas supply. Should our ability to receive electric or natural gas supply be disrupted due either to operational issues or that transmission capacity is inadequate, it could impact our ability to serve our customers. It could also force us to secure alternative supply at significantly higher costs.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

NSTAR Electric properties include an integrated system of transmission and distribution lines and substations, an office building and other structures such as garages and service centers that are located primarily in eastern Massachusetts.

At December 31, 2006, the NSTAR Electric primary and secondary transmission and distribution system consisted of approximately 21,560 circuit miles of overhead lines, approximately 12,670 circuit miles of underground lines, 255 substation facilities and approximately 1,154,300 active customer meters.

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NSTAR Electric’s principal electric properties consist of substations, transmission and distribution lines and meters necessary to maintain reliable service to customers. In addition, it owns several service centers. NSTAR’s high-voltage transmission lines are generally located on land either owned or subject to perpetual and exclusive easements in its favor. Its low-voltage distribution lines are located principally on public property under permits granted by municipal and other state authorities. In October 2006, NSTAR Electric completed and placed in service the first line of a 345 kV transmission project that will add approximately 18 miles of transmission lines. The second line of this project is nearly complete and is expected to be placed in-service by the end of the first quarter of 2007.

NSTAR Gas’ principal natural gas properties consist of distribution mains, services and meters necessary to maintain reliable service to customers. In addition, it owns an office and service building, three district office buildings and several natural gas receiving and take stations. At December 31, 2006, the gas system included approximately 3,060 miles of gas distribution lines, approximately 184,800 services and approximately 269,700 customer meters together with the necessary measuring and regulating equipment. In addition, Hopkinton LNG Corp. owns a liquefaction and vaporization plant, a satellite vaporization plant and above ground cryogenic storage tanks having an aggregate storage capacity equivalent to 3.5 Bcf of natural gas.

District energy operations consist of AES’ cogeneration facility located in the Longwood Medical Area of Boston. MATEP provides steam, chilled water and electricity to over 9 million square feet of medical and teaching facilities. NSTAR Steam Corporation sold its assets to a non-affiliated entity in September 2005. NSTAR Steam’s distribution system primarily consisted of approximately 3.5 miles of steam lines utilized to provide service to customers in Cambridge, MA.

Item 3. Legal Proceedings

In the normal course of its business, NSTAR and its subsidiaries are involved in certain legal matters, including civil litigation. Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs (“legal liabilities”) that would be in excess of amounts accrued and amounts covered by insurance. Based on the information currently available, NSTAR does not believe that it is probable that any such legal liabilities will have a material impact on its consolidated financial position. However, it is reasonably possible that additional legal liabilities that may result from changes in circumstances could have a material impact on its results of operations, cash flows and financial condition for a reporting period.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of 2006.

Item 4A. Executive Officers of Registrant

Identification of Executive Officers

Name of Officer	Position and Business Experience	Age at December 31, 2006
Thomas J. May	Chairman, President (since 2002) and Chief Executive Officer and a Trustee	59
Douglas S. Horan	Senior Vice President - Strategy, Law and Policy, Secretary and General Counsel	57
James J. Judge	Senior Vice President, Treasurer and Chief Financial Officer	50
Timothy R. Manning	Senior Vice President - Human Resources (since 2002)	55
Joseph R. Nolan, Jr.	Senior Vice President - Customer & Corporate Relations (since 2002)	43
Werner J. Schweiger	Senior Vice President - Operations (since 2002)	47
Eugene J. Zimon	Senior Vice President - Information Technology (since 2001)	58
Robert J. Weafer, Jr.	Vice President, Controller and Chief Accounting Officer	59

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Market Information and (c) Dividends

The NSTAR Common Shares, $1 par value, are listed on the New York and Boston Stock Exchanges under the symbol “NST.” NSTAR’s Common Shares closing market price at December 31, 2006 was $34.36 per share.

The NSTAR Common Shares high and low sales prices as reported by the New York Stock Exchange composite transaction reporting system and dividends declared per share for each of the quarters in 2006 and 2005 were as follows:

	2006						2005
	Sales Prices				Dividends Declared		Sales Prices				Dividends Declared
	High		Low				High		Low
First quarter	$	30.16	$	28.00	$	0.3025	$	29.68	$	26.33	$	0.2900
Second quarter	$	28.83	$	26.50	$	0.3025	$	30.98	$	26.80	$	0.2900
Third quarter	$	34.07	$	28.10	$	0.3025	$	31.46	$	28.55	$	0.2900
Fourth quarter	$	35.90	$	33.26	$	0.3250	$	30.02	$	24.90	$	0.3025	*

* As a result of a change in NSTAR’s Board of Trustee meetings schedule in 2005, the fourth quarter dividend typically declared in December was approved on January 26, 2006. The dividend payment schedule remains unchanged.

NSTAR paid common share dividends to shareholders totaling $127.3 million and $123.8 million in 2006 and 2005, respectively.

(b) Holders

As of December 31, 2006, there were 22,258 registered holders of NSTAR Common Shares.

(d) Securities authorized for issuance under equity compensation plans

The following table provides information about NSTAR’s equity compensation plans as of December 31, 2006.

Plan Category	Number of securities to be issued upon exercise of outstanding options	Weighted average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by shareholders	2,265,333	$	25.66	1,212,172
Equity compensation plans not approved by shareholders	—		N/A	N/A
Total	2,265,333	$	25.66	1,212,172

The NSTAR 1997 Share Incentive Plan (the 1997 Plan) permitted a variety of stock and stock-based awards, including stock options and deferred stock awards granted to key employees. The 1997 Plan, which expired as to further grants on January 23, 2007, limited the terms of awards to ten years. Subject to adjustment for stock-splits and similar events, the aggregate number of common shares that were available for award under the 1997 Plan was four million. There were 1,212,172 unissued shares available under the 1997 Plan as of December 31, 2006. All options were granted at the full market price of the common shares on the date of the grant when approved by the NSTAR Board of Trustees’ Executive Personnel Committee. In general, stock options and deferred stock awards vest ratably over a three-year period from date of grants, and options may be exercised during the ten-year period from grant date.

On January 25, 2007, the NSTAR Board of Trustees approved the NSTAR 2007 Long Term Incentive Plan (the 2007 Plan), subject to approval by NSTAR common shareholders at the 2007 Annual Meeting of Shareholders to be held on May 3, 2007. The 2007 Plan also limits the terms of awards to ten years and is substantially similar to

17

the 1997 Plan, except that the aggregate number of common shares that may be awarded under the 2007 Plan is 3.5 million. The 2007 Plan also has additional shareholder protections, such as a prohibition on stock repricing. A complete description of the 2007 Plan will be set forth in the NSTAR 2007 proxy statement, which is scheduled to be sent to shareholders on or about March 15, 2007.

(e) Purchases of equity securities

Common Shares of NSTAR issued under the NSTAR Dividend Reinvestment and Direct Common Shares Purchase Plan, the 1997 Share Incentive Plan and the NSTAR Savings Plan may consist of newly issued shares from the Company or shares purchased in the open market by the Company or an independent agent. During the three-month period ended December 31, 2006, the shares listed below were acquired in the open market.

	Total Number of Common Shares Purchased	Average Price Paid Per Share
October	713,153	$	34.73
November	92,392	$	35.05
December	5,265	$	35.00

(f) Stock Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

The line-graph presentation set forth below compares cumulative five-year shareholder returns with the S&P 500 Index and the Edison Electric Industry Index (EEI Index), a recognized industry index of 64 investor-owned utility companies. Pursuant to the SEC’s regulations, the graph below depicts the investment of $100 at the commencement of the measurement period, with dividends reinvested.

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Item 6. Selected Consolidated Financial Data

The following table summarizes five years of selected consolidated financial data.

(in thousands, except per share and ratio data)	2006			2005			2004			2003			2002
Operating revenues	$	3,577,702		$	3,243,120		$	2,954,332		$	2,911,711		$	2,690,625
Net income (a)	$	206,774		$	196,135		$	188,481		$	181,574		$	161,707
Per common share:
Basic earnings (a)	$	1.94		$	1.84		$	1.77		$	1.71		$	1.52
Diluted earnings (a)	$	1.93		$	1.83		$	1.76		$	1.70		$	1.52
Dividends paid	$	1.21		$	1.16		$	1.11		$	1.08		$	1.06
Cash dividends declared (d)	$	1.535		$	0.87		$	1.1225		$	1.0875		$	1.065
Book value	$	14.93		$	14.43		$	13.56		$	12.90		$	12.32
Dividend payout ratio (a)		62	%		63	%		63	%		63	%		70	%
Return on average common equity (a)		13.3	%		13.2	%		13.3	%		13.5	%		12.6	%
Fixed charge coverage (SEC) (a)		2.75x			2.75x			2.87x			2.54x			2.27x
Capitalization:
Total debt (c)		58	%		57	%		58	%		59	%		60	%
Preferred equity		1	%		1	%		1	%		1	%		1	%
Common equity		41	%		42	%		41	%		40	%		39	%
Total assets	$	7,769,395		$	7,638,332		$	7,391,356		$	6,614,186		$	6,628,396
Long-term debt (b)	$	1,723,558		$	1,614,411		$	1,792,654		$	1,602,402		$	1,645,465
Transition property securitization (b)	$	637,217		$	787,966		$	308,748		$	377,150		$	445,890
Preferred stock of subsidiary	$	43,000		$	43,000		$	43,000		$	43,000		$	43,000
Plant expenditures (includes AFUDC)	$	426,146		$	387,265		$	314,390		$	312,228		$	370,959
Stock price (year-end)	$	34.36		$	28.70		$	27.14		$	24.25		$	22.20
Market value (year-end)	$	3,669,936		$	3,065,400		$	2,891,775		$	2,572,078		$	2,354,115
Market/book ratio (year-end)		2.30			1.99			2.00			1.88			1.80
Price/earnings ratio (year-end) (a)		17.7			15.6			15.3			14.2			14.6

(a) 2002 includes a non-cash, after-tax charge of $17.7 million, or $0.17 per share, related to NSTAR’s investment in RCN Corporation.

(b) Excludes the current portion.

(c) Includes short-term debt and the current portion of long-term debt. Excludes transition property securitization debt.

(d) As a result of a change in NSTAR’s Board of Trustee meetings schedule in 2005, the fourth quarter dividend that typically would have been declared in December 2005, was approved on January 26, 2006 and therefore dividends declared during 2006 include fourth quarter 2005. The dividend payment schedule remains unchanged.

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Selected Quarterly Consolidated Financial Data (Unaudited)

(in thousands, except earnings per share)
	Operating Revenues		Operating Income		Net Income		Earnings Per Share (a)
							Basic		Diluted
2006
First quarter	$	1,034,770	$	87,478	$	44,047	$	0.41	$	0.41
Second quarter	$	784,586	$	87,661	$	45,666	$	0.43	$	0.43
Third quarter	$	956,279	$	121,307	$	76,705	$	0.72	$	0.72
Fourth quarter	$	802,067	$	78,069	$	40,356	$	0.38	$	0.38
2005
First quarter	$	880,045	$	86,132	$	46,269	$	0.43	$	0.43
Second quarter	$	692,005	$	76,088	$	33,151	$	0.31	$	0.31
Third quarter	$	858,495	$	119,478	$	78,010	$	0.73	$	0.72
Fourth quarter	$	812,575	$	73,872	$	38,705	$	0.36	$	0.36

(a) The sum of the quarters may not equal basic and diluted annual earnings per share due to rounding.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

Overview

NSTAR (or the Company) is a holding company engaged through its subsidiaries in the energy delivery business serving approximately 1.4 million customers in Massachusetts, including approximately 1.1 million electric distribution customers in 81 communities and approximately 300,000 natural gas distribution customers in 51 communities. Prior to January 1, 2007, NSTAR’s retail electric utility subsidiaries were Boston Edison, ComElectric and Cambridge Electric. Its wholesale electric subsidiary was Canal. NSTAR’s three retail electric companies collectively have operated under the trade name “NSTAR Electric.” NSTAR’s retail gas distribution utility subsidiary is NSTAR Gas. NSTAR’s nonutility, unregulated operations include district energy operations primarily through its AES subsidiary, telecommunications operations (NSTAR Com) and a liquefied natural gas service company (Hopkinton). Utility operations accounted for approximately 96% of consolidated operating revenues in 2006, 2005 and 2004.

NSTAR’s Rate Settlement Agreement of December 30, 2005 (“Rate Settlement Agreement”) approved by the MDTE anticipated the transfer of the net assets, structured as a merger, of NSTAR’s electric subsidiary companies Cambridge Electric, ComElectric and Canal, to Boston Edison. NSTAR requested and received final approval of this merger from the MDTE and FERC during the fourth quarter of 2006. On December 1, 2006, NSTAR filed blended Basic Service rates with the MDTE, effective January 1, 2007. The individual Boston Edison, ComElectric and Cambridge Electric Basic Service rates are blended into rates applicable to the entire NSTAR Electric service territory pursuant to the MDTE’s approval of the NSTAR Electric merger. The merger was effective as of January 1, 2007 and Boston Edison was renamed “NSTAR Electric Company.”

NSTAR derives its revenues primarily from the sale of energy, distribution and transmission services to customers and from its unregulated businesses. NSTAR’s earnings are impacted by fluctuations in unit sales of kWh and MMbtu, which directly determine the level of distribution and transmission revenues recognized. In accordance with the regulatory rate structure in which NSTAR operates, its recovery of energy costs are fully reconciled with the level of energy revenues currently recorded and, therefore, do not have an impact on earnings. As a result of this rate structure, any variability in the cost of energy supply purchased will impact purchased power and cost of gas sold expense and corresponding revenues but will not affect the Company’s earnings.

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Rate Settlement Agreement

On December 30, 2005, the MDTE approved a seven-year Rate Settlement Agreement between NSTAR, the AG and several interveners, for adjustments to NSTAR Electric’s transition and distribution rates effective January 1, 2006 and May 1, 2006, respectively. Effective May 1, 2006, NSTAR Electric increased its distribution rates with an offsetting decrease in transition rates. Beginning January 1, 2007, the Rate Settlement Agreement establishes annual inflation-adjusted distribution rate increases that are offset by decreases in transition rates through 2012. The Rate Settlement Agreement also permits NSTAR Electric to recover incremental costs relating to certain safety and reliability projects through an adjustment to distribution rates. In addition, as part of the Rate Settlement Agreement of December 30, 2005, transition rates were reduced by $20 million effective January 1, 2006 and by $30 million on May 1, 2006. Cost under-recoveries resulting from these rate reductions are deferred with carrying charges at a rate of 10.88%. Refer to the “Rate Settlement Agreement” included in the “Rate Structures” section of this MD&A.

Critical Accounting Policies and Estimates

NSTAR’s discussion and analysis of its financial condition, results of operations and cash flows are based upon the accompanying Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Consolidated Financial Statements required management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and estimates are defined as those that require significant judgment and uncertainties, and potentially may result in materially different outcomes under different assumptions and conditions. NSTAR believes that its accounting policies and estimates that are most critical to the reported results of operations, cash flows and financial position are described below.

a. Revenue Recognition

Utility revenues are based on authorized rates approved by the MDTE and FERC. Revenues related to the sale, transmission and distribution of delivery service are generally recorded when service is rendered or energy is delivered to customers. However, the determination of the energy sales to individual customers is based on systematic meter readings throughout the month. Meters that are not read during a given month are estimated and trued-up in a future period. At the end of each month, amounts of energy delivered to customers since the date of the last billing date are estimated and the corresponding unbilled revenue is estimated. This unbilled electric revenue is estimated each month based on daily generation volumes (territory load), estimated line losses and applicable customer rates. Unbilled natural gas revenues are estimated based on estimated purchased gas volumes, estimated gas losses and tariffed rates in effect. Accrued unbilled revenues totaled $59 million in the accompanying Consolidated Balance Sheets as of both December 31, 2006 and 2005.

NSTAR’s nonutility revenues are recognized when services are rendered or when the energy is delivered. Revenues are based, for the most part, on long-term contractual rates.

The level of unbilled revenues is subject to seasonal weather conditions. Electric sales volumes are typically higher in the winter and summer than in the spring or fall. Gas sales volumes are impacted by colder weather since a substantial portion of NSTAR’s customer base uses natural gas for heating purposes. As a result, NSTAR records a higher level of unbilled revenue during the seasonal periods mentioned above.

b. Regulatory Accounting

NSTAR follows accounting policies prescribed by GAAP, the FERC and the MDTE. As a rate-regulated company, NSTAR’s utility subsidiaries are subject to SFAS No. 71, “Accounting for the Effects of Certain Types

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of Regulation” (SFAS 71). The application of SFAS 71 results in differences in the timing of recognition of certain revenues and expenses from those of other businesses and industries. NSTAR’s energy delivery businesses remain subject to rate-regulation and continue to meet the criteria for application of SFAS 71. This ratemaking process results in the recording of regulatory assets based on the probability of current and future cash inflows. Regulatory assets represent incurred or accrued costs that have been deferred because they are probable of future recovery from customers. As of December 31, 2006 and 2005, NSTAR has recorded regulatory assets of $2.9 billion and $2.7 billion, respectively. NSTAR continuously reviews these assets to assess their ultimate recoverability within the approved regulatory guidelines. NSTAR expects to fully recover these regulatory assets in its rates. If future recovery of costs ceases to be probable, NSTAR would be required to charge these assets to current earnings. Impairment risk associated with these assets relates to potentially adverse legislative, judicial or regulatory actions in the future.

c. Pension and Other Postretirement Benefits

NSTAR’s annual pension and other postretirement benefits costs are dependent upon several factors and assumptions, such as employee demographics, plan design, the level of cash contributions made to the plans, the discount rate, the expected long-term rate of return on the plans’ assets and health care cost trends.

In accordance with SFAS No. 87, “Employers’ Accounting for Pensions” (SFAS 87) and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions” (SFAS 106), changes in pension and PBOP associated with these factors are not immediately recognized as pension and PBOP costs in the statements of income, but generally are recognized in future years over the remaining average service period of the plans’ participants. However, as a result of the adoption of SFAS No. 158, “Employers’ Accounting for Deferred Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158) these factors could have a significant impact on pension and postretirement assets or liabilities recognized.

There were no significant changes to NSTAR’s pension benefits in 2006, 2005 and 2004 that had an impact on recorded pension costs. As further described in Note I, “Pension and Other Postretirement Benefits,” to the accompanying Consolidated Financial Statements, NSTAR’s discount rates at December 31, 2006 and 2005 were 6% and 5.75%, respectively, and align with market conditions and the characteristics of NSTAR’s pension obligation. The expected long-term rate of return on its pension plan assets for 2006 remained at 8.4% (net of plan expenses), the same as 2005. These assumptions will have an impact on reported pension costs in future years in accordance with the cost recognition approach of SFAS 87. This impact, however, is mitigated through NSTAR’s regulatory accounting treatment of qualified pension and PBOP costs. (Refer to a further discussion of regulatory accounting treatment below.) In determining pension obligation and cost amounts, these assumptions may change from period to period, and such changes could result in material changes to recorded pension and PBOP costs and funding requirements.

NSTAR’s Pension Plan (the Plan) assets, which partially consist of equity investments, are affected by fluctuations in the financial markets. These fluctuations in market returns will have an impact on pension costs in future periods. In addition, fluctuation in the market value of these assets will have an impact on the recorded funded status of these benefit plans, in accordance with the requirements of SFAS 158.

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The following chart reflects the projected benefit obligation and cost sensitivities associated with a change in certain actuarial assumptions by the indicated percentage. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

(in thousands)
Actuarial Assumption	Change in Assumption	Impact on Projected Benefit Obligation Increase/(Decrease)			Impact on 2006 Cost Increase/(Decrease)
Pension:
Increase in discount rate	50 basis points	$	(59,284	)	$	(5,134	)
Decrease in discount rate	50 basis points	$	60,254		$	4,608
Increase in expected long-term rate of return on plan assets	50 basis points		N/A		$	4,663
Decrease in expected long-term rate of return on plan assets	50 basis points		N/A		$	(4,663	)
Other Postretirement Benefits:
Increase in discount rate	50 basis points	$	(42,143	)	$	(3,285	)
Decrease in discount rate	50 basis points	$	46,386		$	3,480
Increase in expected long-term rate of return on plan assets	50 basis points		N/A		$	(1,562	)
Decrease in expected long-term rate of return on plan assets	50 basis points		N/A		$	1,562
N/A - not applicable

Management evaluates the appropriateness of the discount rate through the modeling of a bond portfolio that approximates the Plan liabilities. Management further considers rates of high quality corporate bonds of appropriate maturities as published by nationally recognized rating agencies consistent with the duration of the Company’s plans.

In determining the expected long-term rate of return on plan assets, NSTAR considers past performance and economic forecasts for the types of investments held by the Plan as well as the target allocation for the investments over a 20-year time period. In 2006, NSTAR kept the expected long-term rate of return on plan assets at 8.4% as a result of the prevailing outlook for investment returns. This rate is presented net of both administrative expenses and investment expenses, which have averaged approximately 0.6% for 2006, 2005 and 2004.

The expected long-term rate of return on Plan assets could vary from actual returns as well as the target allocation for investments over time. As such these fluctuations could impact NSTAR’s capital resources to meet its plan contributions.

As a result of the MDTE-approved Pension and PBOP cost reconciliation rate adjustment mechanism tariff (PAM), NSTAR is authorized to recover its pension and PBOP expense through this reconciling rate mechanism. This PAM removes the volatility in earnings that could result from fluctuations in market conditions and plan assumptions.

On August 17, 2006, the Pension Protection Act of 2006 (the Act) was enacted into law. The Act requires employers with defined-benefit pension plans to make contributions to meet a certain funding target and eliminate funding shortfalls. The Company is in the process of evaluating the effects, if any, that the provisions of the Act could have on its financial position, results of operations and cash flows. However, based on its current funding level and the provisions of the Act, NSTAR does not anticipate making additional contributions beyond its normal level in the near future.

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The Plan currently meets the minimum funding requirements of the Employee Retirement Income Security Act of 1974. As a result, NSTAR anticipates that it will not contribute to the Plan in 2007.

d. Decommissioning Cost Estimates

The accounting for decommissioning costs of nuclear power plants involves significant estimates related to costs to be incurred many years in the future. Changes in these estimates will not affect NSTAR’s results of operations or cash flows because these costs will be collected from customers through NSTAR’s transition charge filings with the MDTE.

While NSTAR no longer directly owns any operating nuclear power plants, NSTAR Electric collectively owns, through its equity investments, 14% of CY, 14% of YA, and 4% of MY, (collectively, the “Yankee Companies”). Periodically, NSTAR obtains estimates from the management of the Yankee Companies on the cost of decommissioning the CY and the YA nuclear units that are completely shut down and currently conducting decommissioning activities.

Based on estimates from the Yankee Companies’ management as of December 31, 2006, the total remaining approximate cost for decommissioning and/or security or protection of each nuclear unit is as follows: $410.3 million for CY, $93.9 million for YA and $170.4 million for MY. Of these amounts, NSTAR Electric is obligated to pay $57.4 million towards the decommissioning of CY, $13.2 million toward YA, and $6.8 million toward MY. These amounts are recorded in the accompanying Consolidated Balance Sheets as Energy contract liabilities with a corresponding Regulatory asset and do not impact the current results of operations and cash flows. These estimates may be revised from time to time based on information available to the Yankee Companies regarding future costs.

The Yankee Companies have received approval from FERC for recovery of these costs and NSTAR expects any additional increases to these costs to be included in future rate applications with the FERC, with any resulting adjustments being charged to their respective sponsors, including NSTAR Electric. NSTAR Electric would recover its share of any allowed increases from customers through the transition charge.

Investments in Yankee Companies

Yankee Companies Spent Fuel Litigation

On October 4, 2006, the U.S. Court of Federal Claims issued judgment in a spent nuclear fuel litigation in the amounts of $34.2 million, $32.9 million and $75.8 million for CY, YA and MY, respectively. The Yankee Companies alleged the failure of the DOE to provide for a permanent facility to store spent nuclear fuel. NSTAR Electric’s portion of the judgment amounted to $4.8 million, $4.6 million and $3 million, respectively. The decision awards the Yankee Companies the above stated damages for spent fuel storage costs that they incurred through 2001 for CY and YA and through 2002 for MY. CY, YA and MY had sought $37.7 million, $60.8 million and $78.1 million, respectively, in damages through the same period.

On December 4, 2006, the DOE filed its notice of appeal of the trial court’s decision. The Yankee Companies filed notices of cross appeal with the U.S. Circuit Court on December 14, 2006. Given these appeals, the Yankee Companies have not recognized the damage awards on their books. The Yankee Companies’ respective FERC settlements require that such damage awards, once realized, net of taxes and net of further spent fuel trust funding, be credited to ratepayers, including NSTAR.

The decision, if upheld, establishes the DOE’s responsibility for reimbursing the Yankee Companies for their actual costs (through 2001 for CY and YA and through 2002 for MY) for the incremental spent fuel storage, security, construction and other costs of the ISFSI. Although the decision leaves open the question regarding damages in subsequent years, the decision does support future claims for the remaining ISFSI construction costs. NSTAR cannot predict the ultimate outcome of this decision on appeal.

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Equity Investment in CY

CY’s estimated decommissioning costs have increased reflecting the fact that CY is now self-performing all work to complete the decommissioning of the plant due to the termination of the decommissioning contract with Bechtel. In July 2004, CY filed with FERC for recovery of these increased costs. In August 2004, FERC issued an order accepting the new rates, beginning in February 2005, subject to the outcome of a hearing and refund to allow for this recovery. In November 2005, the Administrative Law Judge overseeing the hearing issued a ruling favorable to CY, including findings that the allegations of imprudence raised by interveners were not substantiated. Subsequently, on August 15, 2006, CY filed a settlement agreement among various interveners that settled all issues in the FERC proceeding. The full Commission approved the settlement on November 16, 2006.

On March 7, 2006, CY and Bechtel executed a Settlement Agreement that fully, mutually and immediately settled a dispute in a Connecticut state court among the parties and signed releases against all future claims. Bechtel agreed to settle with CY, and CY withdrew its termination of the decommissioning contract for default and instead deemed it terminated by agreement. NSTAR Electric’s portion of the settlement proceeds will reduce its ultimate future decommissioning obligation. NSTAR Electric recovers decommissioning costs from its customers and therefore, this settlement will not have an impact on NSTAR’s results of operations, financial position or cash flows.

On December 21, 2006, the shareholders of CY approved a resolution to repurchase 276,575 of its outstanding shares from all equity holders at a price of $108.4681 per share and declared those shares payable at the close of business on that date. The total value of this buy-back transaction was $30 million. NSTAR Electric’s reduction of its equity ownership resulting from the CY buy-back of 38,721 shares was approximately $4.2 million.

Equity Investment in YA

During the course of carrying out the decommissioning work, YA identified increases in the scope of soil remediation and certain other remediation required to meet environmental standards beyond the levels assumed in a 2003 Estimate. On November 23, 2005, YA submitted a filing to the FERC for adjustments to its Rate Schedules to revise the level of collections to recover the costs of completing the decommissioning of YA’s retired nuclear generating plant (the 2005 Estimate). The schedule for the completion of physical work was extended until the end of August 2006 and the costs of completing decommissioning was estimated to be approximately $63 million greater than the estimate that formed the basis of the 2003 FERC settlement. Based on this allocation increase, NSTAR Electric will be obligated to pay an additional $8.8 million to the decommissioning of YA. Most of the cost increase relates to decommissioning expenditures that were made during 2006, followed by a significant reduction in those charges during the years 2007 through 2010. On January 31, 2006, FERC issued an order accepting the rates for filing, effective February 1, 2006, subject to hearing and refund. FERC ordered the hearing held in abeyance pending the outcome of settlement negotiations. The parties to these negotiations subsequently reached a settlement agreement that was filed with FERC on May 1, 2006. The settlement agreement extends the collection period to 2014, but revises the schedule of decommissioning charges to reflect a reduction of nearly $28 million compared to the 2005 estimate, based on a modification to the annual escalation factor, elimination of the litigation costs associated with a protracted FERC proceeding and a modification to the contingency assumption. Based on this allocation decrease, NSTAR Electric’s obligation is reduced by $4 million. The settlement agreement was approved by FERC on July 31, 2006.

The accounting for decommissioning costs of nuclear power plants involves significant estimates related to costs to be incurred many years in the future. Changes in these estimates will not affect NSTAR’s results of operations or cash flows because these costs will be collected from customers through NSTAR Electric’s transition charge filings with the MDTE.

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Derivative Instruments

Energy Contracts

The electric distribution industry may contract to buy and sell electricity under option contracts, which allow the distribution company the flexibility to determine when and in what quantity to take electricity in order to align with its demand for electricity. These contracts would normally meet the definition of a derivative instrument requiring mark-to-market accounting. However, because electricity cannot be stored and utilities are obligated to maintain sufficient capacity to meet the electricity needs of their customer base, an option contract for the purchase of electricity typically qualifies for the normal purchases and sales exception as described in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) and Derivative Implementation Group interpretations and, therefore, does not require mark-to-market accounting. As a result, these agreements are not reflected as an asset or liability on the accompanying Consolidated Balance Sheets as they qualify for the normal purchases and sales exception. NSTAR accounts for its energy contracts in accordance with SFAS 133 and SFAS No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities” (SFAS 149).

Hedging Agreements

On February 28, 2005, the MDTE approved a petition by NSTAR Gas to change a portion of its gas procurement practices. As approved, NSTAR Gas began purchasing financial contracts based upon NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase price for approximately one-third of its natural gas purchases. This practice minimizes fluctuations in prices to NSTAR firm gas sales customers. NSTAR Gas does not take physical delivery of gas when the financial contracts are executed. These contracts qualify as derivative financial instruments and specifically cash flow hedges under SFAS 133, as amended by SFAS 149. Accordingly, the fair value of these instruments is recognized on the accompanying Consolidated Balance Sheets as an asset or liability representing amounts due from or payable to the counter parties of NSTAR Gas, if such contracts were settled. All costs incurred are included in the firm sales CGAC and are fully recoverable in rates. Therefore, NSTAR Gas records an offsetting regulatory asset or liability. Management implemented this practice with five major financial institutions. Currently, these derivative contracts extend through April 2008. At December 31, 2006 and 2005, NSTAR has recorded a liability and a corresponding regulatory asset of $32.7 million and $0.3 million, respectively, reflecting the fair value of these contracts.

Asset Retirement Obligations

The FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143” (FIN 47), “Accounting for Asset Retirement Obligations” (SFAS 143), requires entities to record the fair value of a liability for an ARO in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. FIN 47 clarifies when an entity would be required to recognize a liability for the fair value of an ARO that is conditional on a future event if the liability’s fair value can be reasonably estimated. Uncertainty surrounding the timing and method of settlement that may be conditional on events occurring in the future are factored into the measurement of the liability rather than the existence of the liability.

NSTAR adopted FIN 47 at December 31, 2005, as required. The recognition of an ARO within its regulated utility businesses has no impact on NSTAR’s earnings. In accordance with SFAS 71, for its rate-regulated utilities, NSTAR established a regulatory asset to recognize future recoveries through depreciation rates for the recorded ARO. NSTAR has identified several plant assets in which this condition exists and is related to both plant assets containing asbestos materials and legal requirements to undertake remediation efforts upon retirement. As a result, in December 2005, NSTAR recognized an asset retirement cost of $0.4 million as an increase in utility property, an asset retirement liability of $9.4 million and a regulatory asset of $9 million.

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For NSTAR’s regulated utility businesses, the ultimate cost to remove utility plant from service (cost of removal) is recognized as a component of depreciation expense in accordance with approved regulatory treatment. As of December 31, 2006 and 2005, the estimated amount of the cost of removal included in regulatory liabilities was approximately $260 million and $259 million, respectively, based on the estimated cost of removal component in current depreciation rates. At December 31, 2006, NSTAR has an asset retirement cost in utility plant of $1.1 million, an asset retirement liability of $14.8 million and a regulatory asset of $12.2 million.

Variable Interest Entities

Based on NSTAR’s review of the FASB interpretation of “Consolidation of Variable Interest Entities” (FIN 46 and FIN 46R), it consolidates three-wholly owned special purpose subsidiaries -BEC Funding LLC, established in 1999, BEC Funding II, LLC and CEC Funding, LLC, both established in 2004, to undertake the completed sale of $725 million, $265.5 million and $409 million, respectively, in notes to a special purpose trust created by two Massachusetts state agencies. NSTAR determined that the substance of these entities is appropriate to continue to consolidate these entities.

New Accounting Standards

On July 14, 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” an Interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes guidance to address inconsistencies among entities with the measurement and recognition in accounting for income tax positions for financial statement purposes. Specifically, FIN 48 addresses the timing of the recognition of income tax benefits. FIN 48 requires the financial statement recognition of an income tax benefit when the company determines that it is more-likely-than-not that the tax position will be ultimately sustained. FIN 48 is effective for fiscal years beginning after December 15, 2006. Upon adoption of FIN 48, the cumulative effect will be reported as an adjustment to the opening balance of retained earnings at January 1, 2007.

NSTAR adopted FIN 48 effective January 1, 2007. NSTAR’s tax accounting policy, prior to the adoption of FIN 48, was to recognize uncertain tax positions taken on its income tax return only if the likelihood in prevailing was probable. FIN 48 establishes a recognition standard of more likely than not, which is below the Company’s previous tax recognition policy of probable. Therefore, NSTAR will record an adjustment to increase its beginning retained earnings effective January 1, 2007 of approximately $44.3 million related to its RCN share abandonment tax deduction that includes the reversal of previously recorded interest expense. Refer to the accompanying Notes to Consolidated Financial Statements, Note H, “Income Taxes,” for a description of this uncertain tax position.

On September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value measurements in financial reporting. While the standard does not expand the use of fair value in any new circumstance, it has applicability to several current accounting standards that require or permit entities to measure assets and liabilities at fair value. This standard defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Application of this standard is required for NSTAR beginning in 2008. Management is currently assessing what impact, if any, the application of this standard could have on NSTAR’s results of operations and financial position.

Rate and Regulatory Proceedings

a. Service Quality Indicators

SQI are established performance benchmarks for certain identified measures of service quality relating to customer service and billing performance, safety and reliability and consumer division statistics performance for all Massachusetts utilities. NSTAR Electric and NSTAR Gas are required to report annually to the MDTE concerning their performance as to each measure and are subject to maximum penalties of up to two percent of total transmission and distribution revenues should performance fail to meet the applicable benchmarks.

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NSTAR monitors its service quality continuously to determine if a liability has been triggered. If it is probable that a liability has been incurred and is estimable, a liability is accrued. Annually, each NSTAR utility subsidiary makes a service quality performance filing with the MDTE. Any settlement or rate order that would result in a different liability level from what has been accrued would be adjusted in the period that the MDTE issues an order determining the amount of any such liability.

On March 1, 2005, NSTAR Electric and NSTAR Gas filed their 2004 Service Quality Reports with the MDTE that demonstrated the Companies achieved sufficient levels of reliability and performance; the reports indicate that no penalty was assessable for 2004. On December 30, 2005, the MDTE issued a formal approval of this filing.

For 2005, only one of the electric subsidiaries was in a penalty situation and recorded a liability of approximately $0.1 million. On March 1, 2006, NSTAR Electric filed its SQI performance measures for 2005 and on December 21, 2006, the MDTE issued a final order in this matter.

As of December 31, 2006, the NSTAR Electric subsidiaries and NSTAR Gas’ 2006 performance exceeded the applicable established benchmarks such that no net liability has been accrued for 2006.

In late 2004, the MDTE initiated a proceeding to eventually modify and improve the SQI guidelines for all Massachusetts utilities. On December 23, 2006, the MDTE issued its final order and guidelines in the generic SQI evaluation. The new guidelines somewhat alter existing requirements, but it does not appear that the changes will have a material impact on NSTAR’s operating results or financial position in the future. Utilities in Massachusetts gather data and report statistics to the MDTE on customer service and billing performance, measures for customer satisfaction, electric service interruption and duration statistics, circuit performance and employee lost time accident rate measures. In addition, gas utilities report their response times to odor calls. Monetary penalties and penalty offsets, which may only be used to offset monetary penalties, will continue to be based on deviations from established benchmarks.

The Rate Settlement Agreement approved by the MDTE on December 30, 2005 (refer to the accompanying Notes to Consolidated Financial Statements, Note P, “Commitments and Contingencies”) established additional performance measures applicable to NSTAR’s rate regulated subsidiaries. The Rate Settlement Agreement outlines that NSTAR Gas will establish and submit a service quality measure based on separate leaks per mile metrics for bare-steel mains and unprotected, coated-steel mains. A specific proposal to implement this performance benchmark is to be submitted to the MDTE for approval and subjects NSTAR Gas to a maximum penalty or incentive of up to $500,000. This provision is still under discussion between the AG and NSTAR Gas. The Rate Settlement Agreement also establishes, for NSTAR Electric, a performance benchmark relating to poor performing circuits, with a maximum penalty or incentive of up to $500,000. Since NSTAR Electric’s filing of its 2005 Annual Service Quality filing earlier in 2006, the MDTE has issued several sets of discovery questions in this matter. NSTAR Electric has responded to the MDTE on a timely basis, including providing updates in September 2006 on detailed electric circuit data. For 2006, NSTAR Electric determined that its performance related to these applicable circuits has exceeded the established benchmarks and therefore, has accrued its incentive entitlement of $0.5 million.

b. Rate Structures

Retail Electric Rates

Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers through basic service for those who choose not to buy energy from a competitive energy supplier. Basic service rates are reset every six months (every three months for large commercial and industrial customers). The price of basic service is intended to reflect the average competitive market price for power. As of December 31, 2006, 2005 and 2004, customers of NSTAR Electric had approximately 51%, 32% and 24%, respectively, of their load requirements provided by competitive suppliers.

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Rate Settlement Agreement and Other Regulatory Matters

On December 30, 2005, the MDTE approved the seven-year Rate Settlement Agreement (through 2012) between NSTAR, the AG and several interveners. During 2006, NSTAR Electric lowered its transition rates by $20 million effective January 1 and on May 1, increased its distribution rates by $30 million with a corresponding reduction in transition charges. The Rate Settlement Agreement requires NSTAR Electric to lower its transition rates from what would otherwise have been billed, and then any annual adjustment to distribution rates will be offset by an equal and opposite change in the transition rates. Uncollected transition charges as a result of the reductions in transition rates are being deferred and collected through future rates with a carrying charge at a rate of 10.88%. On December 1, 2006, NSTAR filed blended Basic Service rates with the MDTE, effective January 1, 2007. The individual Boston Edison, ComElectric and Cambridge Electric Basic Service rates are blended into rates applicable to the entire NSTAR Electric service territory pursuant to the MDTE’s approval of the NSTAR Electric merger.

NSTAR Electric filed its 2006 Distribution Rate Adjustment/Reconciliation Filing on September 29, 2006 to further implement the provisions of the Rate Settlement Agreement that supports the establishment of new distribution and transition rates that became effective January 1, 2007. For 2007, as further discussed below, NSTAR Electric’s distribution rates include elements of a SIP and a CPSL program that require an offsetting adjustment to the transition rate. The performance-based SIP factors in the gross domestic product price index minus a productivity offset and rate adjustment factor that results in a 2.64% increase in distribution rates. Also included effective January 1, 2007 is Cambridge Electric’s 13.8kV transmission facility with estimated revenues of $13.4 million to be classified as distribution facilities and included in distribution rates that require an offsetting adjustment to the transmission rate. The CPSL program required that NSTAR Electric spend not less than $10 million in 2006 on capital additions and incremental operation and maintenance expense related to specific projects designed to improve reliability and safety. For 2007, the CPSL cost recovery is estimated to be $13.3 million. The total of the SIP and CPSL will result in higher total distribution rates of 4.3%, with a corresponding reduction in transition rates. The CPSL and 13.8kV amounts are subject to subsequent MDTE review and reconciliation to actual costs for 2006.

In addition, the Rate Settlement Agreement provided for a preliminary agreement to certain terms of a merger and asset transfer of Cambridge Electric, ComElectric and Canal into Boston Edison that became effective on January 1, 2007, and implemented a 50% / 50% earnings sharing mechanism based on NSTAR Electric’s aggregate return on equity should it exceed 12.5% or fall below 8.5%. Should the return on equity fall below 7.5%, NSTAR Electric may file a request for a general rate increase. Also agreed upon and implemented was a sharing of cost and benefits resulting from NSTAR Electric’s efforts to mitigate wholesale electric market inefficiencies (refer to the accompanying “Wholesale Power Cost Savings Initiatives” included in Item 1, “Business.”) This incentive mechanism relates to the recovery of litigation costs associated with NSTAR Electric’s efforts to reduce wholesale energy and capacity costs and sharing of customer benefits realized from those efforts with the potential for NSTAR to retain 25% of any resulting savings. NSTAR Electric also adopted certain new SQI performance incentives and penalties on January 1, 2007.

On December 1, 2006, NSTAR filed blended Basic Service and transmission rates with the MDTE, effective January 1, 2007. The blended Basic Service rate was approved on December 19, 2006 and the blended transmission rate was approved on January 3, 2007. The individual Boston Edison, ComElectric and Cambridge Electric Basic Service rates were blended into rates applicable to the entire NSTAR Electric service territory pursuant to the MDTE’s approval of the NSTAR Electric merger.

In December 2005, NSTAR Electric filed proposed transition rate adjustments for 2006, including a preliminary reconciliation of transition, transmission, standard offer and default service costs and revenues through 2005. The MDTE subsequently approved tariffs for each retail electric subsidiary effective January 1, 2006. Updated reconciliations to reflect final 2005 costs and revenues were filed during the second quarter for Boston Edison, ComElectric and Cambridge Electric. As of December 31, 2006, settlement discussions with an intervener and the AG are ongoing with respect to the former Boston Edison’s 2004 and 2005 reconciliation filings. A

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determination by the MDTE regarding the reconciliation of Boston Edison’s 2004 and 2005 costs for transmission, transition, standard offer and basic service have been delayed and will be decided by the MDTE in a proceeding. Similarly, a determination by the MDTE regarding Cambridge Electric’s and ComElectric’s 2005 reconciliation filings will be decided in separate proceedings. NSTAR cannot predict the timing or the ultimate outcome of these proceedings.

On October 19, 2005, the MDTE approved a settlement agreement between Cambridge Electric, ComElectric and the AG to resolve issues relating to the reconciliation of transition, standard offer and basic service costs for 2003 and 2004. This settlement agreement had no material effect on NSTAR’s consolidated results of operations, cash flows and financial condition.

On March 24, 2006, the MDTE approved a second settlement relating to ComElectric’s and Cambridge Electric’s reconciliation of transmission costs and revenues. As a result of this settlement, NSTAR Electric will refund in 2007 $6 million and $2.5 million to the customers of the former ComElectric and Cambridge Electric companies, respectively. This agreement had no impact on NSTAR’s consolidated results of operations for 2006, as this refund has been previously recognized.

c. Wholesale Market and Transmission Changes

Locational Installed Capacity Replaced by Forward Capacity Market

After a lengthy hearing, a FERC-appointed Administrative Law Judge issued an Initial Decision on June 15, 2005 approving an ISO-NE plan to implement LICAP. LICAP was conceived as an administrative mechanism designed to compensate wholesale generators for their locational capacity value based on a price-quantity curve. The FERC did not immediately affirm the Initial Decision, but allowed additional oral argument and delayed implementation. In response to language in the Energy Policy Act of 2005 requesting the FERC to “carefully consider States’ objections” to LICAP, the FERC, on October 21, 2005, ordered settlement procedures to “develop an alternative to LICAP.” A contested settlement was filed on January 31, 2006 and approved by FERC in a June 16, 2006 order and is expected to provide significant savings to NSTAR Electric’s customers relative to the costs associated with the LICAP model approved in the Initial Decision. The order adopted the FCM based on FCA as a replacement to LICAP. NSTAR supports the FCM concept, but opposed, on several grounds, the order in a July 17, 2006 filing that requested a rehearing, together with the AG and other load-serving entity representatives. Some of the aspects of the order that NSTAR objected to, on behalf of its customers, include an expensive transition payment mechanism and the failure to terminate RMR agreements coincident with the initiation of transition payments. In December 2006, the Maine Public Utilities Commission, the Connecticut Attorney General and the Massachusetts Attorney General filed appeals of the FERC orders approving the settlement with the U.S. Court of Appeals for the D.C. Circuit. NSTAR Electric is an intervener in those appeals. NSTAR cannot predict the ultimate outcome of this case on appeal.

Transition payments applicable to all capacity began December 1, 2006 at a rate of $3.05/KWMonth and escalate to $4.10/KWMonth until May 2010 when FCM will begin on June 1, 2010. FCAs are auctions designed to procure capacity three or more years into the future with a one-year to five-year commitment period. FCM includes a locational mechanism to establish separate zones for capacity when transmission constraints are found to exist. FCM allows load-serving entities such as NSTAR to self-supply through contracted resources to meet its capacity obligations without participating in the FCAs. The impact to rates for NSTAR customers during the transition period will be approximately 0.8 to 1.1 cents per kilowatt hour. NSTAR Electric cannot anticipate the precise changes resulting from the FCAs due to their competitive nature, but expects all costs incurred to be fully recoverable.

Regulatory Proceedings - FERC

NSTAR’s Rate Settlement Agreement anticipated the transfer of the net assets, structured as a merger, of NSTAR’s subsidiary companies of Cambridge Electric, ComElectric and Canal to Boston Edison, contingent

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upon obtaining final approval from the MDTE and FERC. The MDTE gave final approval that become effective on November 28, 2006 following a twenty-day appeal period. The FERC conditionally approved the merger on October 20, 2006 and granted clarification and reconsideration on a related transmission tariff issue on November 28, 2006. The merger was effective as of January 1, 2007 and Boston Edison was renamed “NSTAR Electric Company.” The merger of these subsidiaries will be accounted for as a merger of companies under common control and ownership and, therefore, will not have an impact on NSTAR’s consolidated results of operations, financial position or cash flows.

On October 31, 2006, the FERC authorized for the participating New England Transmission Owners, including NSTAR Electric, an ROE on regional transmission facilities of 10.2% plus a 50 basis point adder for joining a RTO from February 1, 2005 (the RTO effective date) through October 31, 2006, and an ROE of 11.4% thereafter. In addition, FERC granted a 100 basis point incentive adder to ROE for qualified investments made in new regional transmission facilities, that when combined with FERC’s approved ROEs, provide 11.7% and 12.4% returns for the respective time frames. RTO-NE ratepayers will benefit as a result of this order because it responds to the need to enhance the New England transmission grid to alleviate congestion costs and reliability issues. Transmission projects that are in progress including NSTAR Electric’s 345kV project, are expected to significantly minimize these congestion costs and enhance reliability in the region. The New England Transmission Owners accepted the terms of the October 31, 2006 FERC decision, with one exception, and on November 30, 2006, filed for a request for rehearing involving the calculation of the base ROE, for which the FERC did not provide an explanation for its action and which the New England Transmission Owner’s believe is not supported by the record evidence. The New England Transmission Owners contend that the base ROE should be 10.5%. The Company is unable to determine the ultimate timing or result of the rehearing process or of the ultimate FERC decision.

Cambridge Electric and ComElectric filed proposed changes to their OATT with the FERC on March 30, 2005 to provide for consistent application of the OATT among those companies. The new tariffs became effective on June 1, 2005; however, the FERC set certain rate-related issues raised in the proceeding for hearing, but held the hearing in abeyance pending settlement discussions with the AG, the sole intervener. On November 17, 2006, a settlement agreement that resolved all issues in the proceeding was filed at FERC. The settlement must be approved by the full Commission prior to becoming final. NSTAR cannot predict the timing or ultimate resolution of this proceeding.

Wholesale Power Cost Savings Initiatives

The Rate Settlement Agreement provides for NSTAR Electric to continue its efforts to advocate on behalf of customers at the FERC to mitigate wholesale electricity cost inefficiencies that would be borne by customers. If NSTAR Electric’s efforts to reduce customers’ costs are successful, the Company is allowed to retain a portion of these savings, as well as related litigation costs, as an incentive.

NSTAR Electric and the AG have agreed that NSTAR Electric’s efforts involving two RMR cases resulted in total regional customer savings of over $362 million, of which $134 million is applicable to NSTAR Electric customers. Under the terms of the Rate Settlement Agreement, NSTAR Electric will share 25% of the savings applicable to its customers. The recovery of NSTAR Electric’s share of benefits will be collected over three years, and the aggregate annual recovery is capped at 2% of the annual distribution and transmission service revenues. NSTAR Electric seeks for collect $9.8 million annually and represents one-third of the savings to its customers. NSTAR Electric will recognize these incentive revenues as they are collected from its customers for a three year period, effective January 1, 2007. Ultimate approval for the incentives is required by the MDTE.

d. Gas Rates

NSTAR Gas generates revenues primarily through the sale and/or transportation of natural gas. Gas sales and transportation services are divided into two categories: firm, whereby NSTAR Gas must supply gas and/or

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transportation services to customers on demand; and interruptible, whereby NSTAR Gas may, generally during colder months, temporarily discontinue service to high volume commercial and industrial customers. Sales and transportation of gas to interruptible customers do not materially affect NSTAR Gas’ operating income because substantially the entire margin for such service is returned to its firm customers as rate reductions.

In addition to delivery service rates, NSTAR Gas’ tariffs include a seasonal CGAC and a LDAC. The CGAC provides for the recovery of all gas supply costs from firm sales customers. The LDAC provides for the recovery of certain costs applicable to both sales and transportation customers. The CGAC is filed semi-annually for approval by the MDTE. The LDAC is filed annually for approval. In addition, NSTAR Gas is required to file interim changes to its CGAC factor when the actual costs of gas supply vary from projections by more than 5%.

As previously discussed, the MDTE approved a seven-year Rate Settlement Agreement on December 30, 2005 between NSTAR, the AG and other interveners. For NSTAR Gas customers, the Rate Settlement Agreement required an adjustment to the CGAC to defer recovery of approximately $18.5 million effective January 2006. NSTAR Gas is currently recovering this deferred amount, with interest at the effective prime rate, over a twelve-month period effective May 1, 2006.

The 2005-2006 winter season MDTE-approved CGAC factor was revised downward to $0.90/therm effective March 1, 2006 from a factor of $1.3955/therm effective January 1, 2006 to reflect decreases in the cost of gas caused by varying market conditions. Effective May 1, 2006, the MDTE approved a summer period CGAC factor of $1.1855/therm that includes higher forecasted gas commodity costs. The CGAC factor effective November 1, 2006 for the winter heating season is $1.1949/therm and is approximately 14% lower than the rate at the beginning of 2006 due to supplies recovering from storms in 2005. Changes in the cost of gas supply have no impact on the Company’s earnings due to this rate recovery mechanism.

On August 30, 2006, the MDTE approved a fixed-price option pilot program that offers NSTAR Gas’ residential and small commercial customers the opportunity to “lock-in” their gas costs prior to the winter heating season, thus providing a more stable, predictable gas price. The program is open to the first customers who apply up to twenty-five percent of those eligible. As of the end of the enrollment period, approximately 13,600 gas customers signed up to take part in the fixed rate. Under the plan, the non-participants’ impact are minimized from the risk of changing prices during the winter heating season by plan participants paying a $0.02/therm premium charge above NSTAR Gas’ otherwise applicable gas adjustment factor. Customers choosing this plan locked into a supply price of $1.2149/therm for the entire 2006/2007 winter heating season. If the market results in higher gas costs and NSTAR Gas increases its CGAC for other customers, customers participating in the fixed-price option program will not have to pay the higher rate. If prices on the market end up being lower and NSTAR Gas reduces its CGAC for other customers, customers who are in the program will not pay the lower rate. NSTAR Gas remains revenue neutral under the plan and gas costs included in revenues are fully reconciled to allow full recovery of all NSTAR gas costs as allowed by the MDTE. The program was developed as a result of the Rate Settlement Agreement between NSTAR and the AG as approved on December 30, 2005.

On February 28, 2005, the MDTE approved a petition by NSTAR Gas to change a portion of its gas procurement practices. As approved, NSTAR Gas began purchasing financial contracts based upon NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase price for approximately one-third of its natural gas purchases. Refer to the accompanying “Hedging Agreements” section disclosed above for a further discussion.

Nonmonetary Transactions

In the third and fourth quarters of 2006, NSTAR’s unregulated subsidiary, AES, recognized the impact of several nonmonetary transactions. As part of an agreement executed with a vendor, AES will receive new equipment with a fair value of $4.1 million, at no cost, to compensate AES for incremental costs incurred resulting from equipment installation problems experienced during 2003 and 2004. This resulting nonmonetary gain, representing the fair value of the new equipment, was primarily recognized as a reduction in purchased power expense on the accompanying Consolidated Statements of Income.

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In addition, in separate transactions, two agreements were executed between AES and other parties, which required AES to relinquish its rights under existing easements and other assets owned by AES located on development sites. In exchange, AES will receive title to new steam and chilled water pipelines with greater capacity and replacement easements. As a result of the new assets, AES anticipates achieving higher future sales. Therefore, the transactions were recorded at the fair value of the assets received and resulted in a $5.5 million nonmonetary gain recorded to other income on the accompanying Consolidated Statements of Income.

Sale of Properties

2006

On November 8, 2006, NSTAR Electric completed the sale of a former office complex in Wareham, Massachusetts for $7.7 million. The regulatory treatment of the proceeds remains subject to MDTE approval. As a result, this transaction had no impact on 2006 earnings.

On April 26, 2006 and September 19, 2006, NSTAR Electric sold two parcels of nonutility land in Boston, Massachusetts and Lincoln, Massachusetts for $6.2 million, realizing a pre-tax gain on the sale of $4.1 million. This gain is reflected as a component of other income, net on the accompanying Consolidated Statements of Income.

2005

On December 28, 2005, NSTAR Electric sold a former electric generation station site in New Bedford, Massachusetts for $12 million. NSTAR anticipates that most of the proceeds from the sale will be applied against NSTAR Electric’s transition charge. The sale and regulatory treatment of the proceeds remains subject to MDTE approval. As a result, this transaction had no impact on 2005 earnings.

On September 8, 2005, NSTAR sold the assets of its wholly-owned unregulated subsidiary, NSTAR Steam Corporation to a non-affiliated company for $3.5 million, realizing a pre-tax gain on the sale of $2.5 million. Also in September 2005, NSTAR sold a parcel of land in Cambridge, Massachusetts for $2 million. No gain was recognized from this land sale, as NSTAR Electric refunded these proceeds to its customers.

2004

On April 7, 2004, NSTAR Electric sold a parcel of land in the City of Newton, Massachusetts for $15.1 million; the net proceeds from the sale were used to reduce NSTAR Electrics’ transition charge. The sale and the regulatory treatment of the proceeds were approved by the MDTE. As a result, this transaction had no impact on 2004 earnings.

General Legal Matters

In the normal course of its business, NSTAR and its subsidiaries are involved in certain legal matters, including civil litigation. Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs (“legal liabilities”) that would be in excess of amounts accrued and amounts covered by insurance. Based on the information currently available, NSTAR does not believe that it is probable that any such legal liabilities will have a material impact on its consolidated financial position. However, it is reasonably possible that additional legal liabilities that may result from changes in circumstances could have a material impact on its results of operations, cash flows and financial condition for a reporting period.

Tax Payments

In 2004, NSTAR filed an amended 2002 Federal income tax return to change the method of accounting for certain construction-related overhead costs previously capitalized to plant to the Simplified Service Cost Method

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(“SSCM”). Under SSCM, certain costs which were previously capitalized for tax purposes are deducted in the year incurred. NSTAR has claimed additional deductions related to the tax accounting method change in its 2002-2004 returns of $368.9 million. In 2005, NSTAR received formal notification from the IRS that the claim on its amended income tax return would be denied. NSTAR has not received the requested refund amount due.

In August 2005, the IRS issued Revenue Ruling 2005-53 and Treasury Regulations under Code Section 263A related to the SSCM to curtail these levels of construction-related cost deductions by utilities and others. Under this Regulation, the SSCM is not available for the majority of NSTAR’s constructed property for the years 2005 and forward. As a result, NSTAR was required to make a cash tax payment to the IRS of $129.1 million in December 2006 representing the disallowed SSCM deductions taken for 2002-2004 even though the tax refund was never received. This payment will be fully refunded with interest to NSTAR, once this tax position is settled. As of December 31, 2006, this refund has been recorded as a non-current Refundable income tax on the accompanying Consolidated Balance Sheet. Due to NSTAR’s 2005 tax net operating loss that resulted in a tax refund of approximately $88 million before this item, NSTAR applied the initial $65 million payment (50% of the $129.1 million) as a reduction to its 2005 refund due. This tax payment, along with any potential deduction ultimately sustained, is not anticipated to have a material impact on NSTAR’s results of operations, its financial position, or cash flows.

The remaining 50% of the cash tax payment for this item of $64.1 million was made in December 2006. In addition to this payment, NSTAR made a $130.9 million estimated federal tax payment relating to its 2006 tax liability. Also, in the fourth quarter of 2006, NSTAR received the remaining refund due of $23 million from the IRS related to its 2005 net operating loss.

RCN Corporation (RCN) Share Abandonment Tax Treatment

On December 24, 2003, NSTAR exited its investment in RCN by formally abandoning its 11.6 million shares of RCN common stock. As a result of this action, NSTAR recorded a pre-tax charge of approximately $6.8 million reflecting the write-down of its investment to zero as of December 31, 2003. NSTAR determined that the abandonment at that time was the most tax efficient, cost effective and expedient means to exit its RCN investment. NSTAR also determined that the benefit of a tax realization event at that time and in that manner outweighed any benefit that it would likely realize from any other alternative, including the future sale of such shares in an orderly fashion consistent with all laws, rules and regulations.

As a result of the RCN share abandonment, the Company claimed an ordinary loss on its 2003 tax return for this item. The ordinary loss tax treatment resulted in the Company realizing the benefits represented by the tax asset recorded on its books that resulted from the previous write-down of this investment for financial reporting purposes. The requirement for a tax valuation allowance recorded prior to this abandonment, therefore, was no longer applicable. Accordingly, the Company reversed this reserve as of December 31, 2003.

It is NSTAR’s tax accounting policy not to recognize tax benefits associated with an uncertain tax position until it is probable that such tax benefit will ultimately be realized. Since NSTAR is under continuous audit by the Internal Revenue Service (IRS), NSTAR consulted with its independent tax advisors and determined that it could not conclude that it is probable that the tax deduction related to the abandonment of its RCN investment will be sustained. Accordingly, NSTAR accrued a tax reserve so as to not record the tax benefit of the uncertain tax position. Refer to the accompanying Notes to Consolidated Financial Statements, Note A, Item 16, “New Accounting Standards” for the impact of this uncertain tax position upon the adoption of FIN 48, effective January 1, 2007.

The Company believes it is more likely than not that it is entitled to this ordinary loss deduction. In accordance with the Company’s tax policy as it relates to uncertain tax positions, NSTAR established a loss contingency of approximately $44.4 million at December 31, 2003. This amount represents the tax impact to the Company should the ordinary loss ultimately be recharacterized to a capital loss and would be reclassified as a tax

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valuation allowance. During 2006 and 2005, the Company recognized approximately $4.8 million in total tax benefits related to capital tax gain transactions. As a result, the Company reduced its loss contingency by a corresponding amount. Therefore, as of December 31, 2006, the tax loss contingency is approximately $39.6 million. This contingent liability is recorded as part of Deferred credits - Other on the accompanying Consolidated Balance Sheets.

On December 22, 2006, NSTAR received from its IRS examining agent a preliminary notice indicating their intention to not accept NSTAR’s position regarding the RCN ordinary loss deduction. If the Company’s position is not upheld, the Company will be required to make future cash payments to the IRS that will impact NSTAR’s cash requirements in future periods. NSTAR cannot predict the timing or ultimate resolution of this uncertain tax position.

Earnings Outlook

NSTAR is currently projecting to achieve earnings per share for the year ended December 31, 2007 in the $2.02 - $2.12 range. This estimate reflects several factors including: performance-based rate adjustment is implemented for electric sales effective January 1, 2007, providing approximately $20 million in additional revenues; modest economic improvements and a return to normal weather are expected in 2007; capital expenditures for the year are expected to be approximately $400 million, including approximately $100 million for transmission projects; nonutility operations, primarily NSTAR’s district energy business, are expected to contribute approximately $8 million in 2007, down from $15 million in 2006; and energy market incentive revenues allowed under the Rate Settlement Agreement amount to $9.8 million for the year. In addition, NSTAR maintains its longer-term earnings per share growth estimate to be in the 6% - 8% range.

Results of Operations

The following section of MD&A compares the results of operations for each of the three fiscal years ended December 31, 2006, 2005 and 2004 and should be read in conjunction with the accompanying Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this report.

2006 compared to 2005

Executive Summary

NSTAR achieved several positive performance results in 2006:

• Several important regulatory outcomes were achieved in 2006, including full implementation of a comprehensive state rate settlement, the merger of the Company’s four electric utility subsidiaries into a single corporation and a federal rate order relating to transmission return on equity.

• The Company’s common share dividend was increased in November, 2006 by 7.4%, outperforming the industry average of 5.9%.

• The Company’s pension plan achieved an overall return of 14.4%, exceeding the established absolute return and relative performance targets.

• The Company’s credit rating was upgraded by Standard & Poors to “A+”, while NSTAR utility subsidiary credit ratings maintained their “A” level ratings, above the utility average of “BBB.”

Earnings per common share were as follows:

	Years ended December 31,
	2006		2005		% Change
Basic	$	1.94	$	1.84	5.4
Diluted	$	1.93	$	1.83	5.5

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Net income was $206.8 million for 2006 compared to $196.1 million for 2005. Factors (after tax) that contributed to the $10.7 million, or 5.5%, increase in 2006 earnings include:

• Higher electric transmission revenues primarily as a result of investment in the Company’s transmission infrastructure, specifically, NSTAR’s 345kV project ($11.6 million)

• Higher distribution revenues as a result of the Rate Settlement Agreement ($11.9 million),

• Lower operations and maintenance expenses in 2006 due to service restoration costs incurred in 2005 associated with storms (approximately $10.3 million), lower facilities consolidation charges in 2006 (approximately $2.2 million), lower bad debt expense in 2006 ($5.1 million) and a charge in 2005 related to an environmental settlement claim in 2006 ($4.6 million). The reduction in bad debt expense includes the effect of the implementation of a new MDTE-approved recovery rate mechanism, effective January 1, 2006, that allows NSTAR Electric to segregate recovery of bad debt charge-offs related to its basic service (energy component) on a fully reconciling basis

• Improved earnings resulting from NSTAR’s unregulated district energy business (excluding nonmonetary gains), offset by the sale of steam assets in 2005 ($4.2 million)

• Nonmonetary gains of $6.3 million in connection with the asset exchanges related to NSTAR’s unregulated operations.

These increases in earnings factors were partially offset by:

• A reduction in 2006 of MDTE-approved incentive entitlements for successfully lowering transition charges ($10.1 million) in 2005

• Distribution revenues offset by the impact of the 1.9% reduction in kWh sales ($5.6 million)

• Adjustments lowering income tax expense in 2005 reflecting the positive outcome of a tax audit ($4.2 million)

• Lower firm gas revenues due to lower energy sales primarily caused by warmer weather (heating degree-days declined by 10%) ($5.2 million)

• Adjustments lowering income tax expense in 2005 related to the successful completion of a tax audit and tax benefits related to capital gain transactions in 2006 ($8.8 million)

• Higher depreciation and amortization expense in 2006 related to higher depreciable distribution and transmission plant in service ($5.3 million)

• Higher interest expense as a result of both increased rates and higher levels of borrowings ($6.2 million)

Significant cash flow events during 2006 included the following: NSTAR invested approximately $426 million in capital projects to improve capacity and reliability, issued, net of discount, $198 million in new long-term debt to pay-down its short-term debt balances, paid approximately $129 million in common share dividends and retired approximately $188 million in securitized and other long-term debt.

In September 2006, NSTAR filed its 2005 Federal Income Tax return. It reflected a net operating loss and resulted in a tax refund of approximately $88 million. NSTAR’s 2005 net operating loss for income tax purposes was primarily the result of the deduction of the purchase power contract termination payments made on March 1, 2005. This refund was reduced by the $65 million payment required in connection with the SSCM. The remaining $23 million was received in November 2006. Refer to the accompanying Notes to Consolidated Financial Statements, Note H, “Income Taxes” and the “Liquidity, Commitments and Capital Resources” section of this MD&A, for further details.

On March 16, 2006, Boston Edison closed on the sale of $200 million, 30-year, fixed rate (5.75%) Debentures. The proceeds of the sale were used to repay short-term debt balances. In the first quarter of 2005, NSTAR closed

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on a $674.5 million securitization financing transaction. The net proceeds were used primarily to make liquidation payments required in connection with the termination of obligations under certain purchase power contracts (approximately $554 million) and to repay $150 million of outstanding debt at ComElectric.

Energy Sales

The following is a summary of retail electric and firm gas energy sales for the years indicated:

	Years ended December 31,
	2006	2005	% Change
Retail Electric Sales - MWH
Residential	6,481,929	6,773,925	(4.3	)
Commercial	13,083,032	13,117,869	(0.3	)
Industrial	1,551,552	1,624,422	(4.5	)
Other	163,494	165,158	(1.0	)
Total retail sales	21,280,007	21,681,374	(1.9	)

NSTAR Electric’s peak load for 2006 reached an all-time high demand of 4,959 MW on August 2, 2006 that was 7.3% more than the previous level of 4,621 MW established in 2005 and 16.6% more than the 2004 peak demand of 4,254 MW. The summer peak load in 2004 was impacted by cooler weather.

	Years ended December 31,
	2006	2005	% Change
Firm Gas Sales - BBtu
Residential	19,283	21,932	(12.1	)
Commercial	14,547	15,416	(5.6	)
Industrial and other	7,389	8,157	(9.4	)
Total firm sales	41,219	45,505	(9.4	)

NSTAR forecasts its electric and natural gas sales based on normal weather conditions. Actual results may vary from those projected due to actual weather conditions, energy conservation, and other factors. Refer to the “Cautionary Statement Regarding Forward-Looking Information” section preceding Item 1. “Business” of this Form 10-K.

Weather Conditions

The demand for electricity and natural gas is affected by weather conditions. In terms of customer sector characteristics, industrial sales are less sensitive to weather than residential and commercial sales, which are influenced by temperature extremes. Electric residential and commercial customers represented approximately 30% and 61%, respectively, of NSTAR’s total sales mix for 2006 and provided 41% and 53% of distribution and transmission revenues, respectively. Refer to the “Electric revenues” section below for a more detailed discussion. Industrial sales are primarily influenced by national and local economic conditions.

	2006		2005		Normal 30-Year Average
Heating degree-days	6,094		6,768		6,815
Percentage (warmer) colder than prior year	(10.0	)%	(1.3	)%
Percentage (warmer) colder than 30-year average	(10.6	)%	(0.7	)%
Cooling degree-days	803		894		777
Percentage warmer (cooler) than prior year	(10.1	)%	41.9	%
Percentage warmer (cooler) than 30-year average	3.3	%	15.1	%

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Heating and Cooling Degree-Days measure changes in daily temperature levels in explaining demand for electricity and natural gas, based on weather conditions. Weather conditions impact electric sales primarily during the summer and, to a greater extent, gas sales during the winter season in NSTAR’s service area. The comparative information above relates to heating and cooling degree-days for the years 2006 and 2005 and the number of heating and cooling degree-days in a “normal” year as presented by a 30-year average. A degree-day is a unit measuring how much the outdoor mean temperature falls below or rises above a base of 65 degrees. Each degree below or above the base temperature is measured as one heating or cooling degree-day.

The 1.9% decrease in retail MWh sales in 2006 reflects the warmer temperatures in January, March and May than in 2005, a cooler summer, and the warmest combined November and December in Boston’s weather history. However, even with the lower energy usage, revenues and the cost of that energy (which is also included in revenues) increased dramatically due to the rise in global energy costs. The warmer temperatures in the heating season not only resulted in fewer natural gas energy units sold, but also resulted in lower demand from electrically-powered heating equipment. Similarly, during the cooler summer months, the demand for air conditioning was reduced. The 9.4% decrease in firm gas sales in 2006 primarily reflects warmer winter temperatures in the first half of the year and fourth quarter as compared to the same periods in 2005. Additionally, conservation measures implemented by NSTAR’s electric and gas customers have contributed to these declines in sales.

Operating Revenues

Operating revenues for 2006 increased 10.3% from 2005 as follows:

					Increase/(Decrease)
(in millions)	2006		2005		Amount			Percent
Electric revenues
Retail distribution and transmission	$	1,002.4	$	867.1	$	135.3		15.6
Energy, transition and other		1,909.7		1,666.7		243.0		14.6
Total retail		2,912.1		2,533.8		378.3		14.9
Wholesale		—		9.7		(9.7	)	(100.0	)
Total electric revenues		2,912.1		2,543.5		368.6		14.5
Gas revenues
Firm and transportation		139.5		145.6		(6.1	)	(4.2	)
Energy supply and other		378.4		425.6		(47.2	)	(11.1	)
Total gas revenues		517.9		571.2		(53.3	)	(9.3	)
Unregulated operations revenues		147.7		128.4		19.3		15.0
Total operating revenues	$	3,577.7	$	3,243.1	$	334.6		10.3

Electric Revenues

Electric retail distribution revenues primarily represent charges to customers for recovery of the Company’s capital investment, including a return component, and operation and maintenance related to its electric distribution infrastructure. The transmission revenue component represents charges to customers for the recovery of costs to move the electricity over high voltage lines from the generator to the Company’s substations. The increase in retail distribution and transmission revenues includes higher transmission rates reflecting primarily Boston Edison’s increased investment in transmission infrastructure and higher transmission congestion costs.

NSTAR’s largest earnings sources are the revenues derived from transmission and distribution rates approved by the MDTE and FERC. Despite a 1.9% decrease in MWh sales, substantially in the residential sector, the $135.3 million increase in retail distribution and transmission revenues is primarily due to higher transmission-related

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rates that increased transmission revenues by approximately $112.6 million and a distribution rate increase effective May 1, 2006, as approved in NSTAR Electric’s Rate Settlement Agreement. Weather, conservation measures and economic conditions affect sales to NSTAR’s residential and small commercial customers. Economic conditions and conservation measures affect NSTAR’s large commercial and industrial customers.

Energy, transition and other revenues primarily represent charges to customers for the recovery of costs incurred by the Company in order to acquire the energy supply on behalf of its customers and a transition charge for recovery of the Company’s prior investments in generating plants and the costs related to long-term power contracts. The energy revenues relate to customers being provided energy supply under basic service. These revenues are fully reconciled to the costs incurred and have no impact on NSTAR’s consolidated net income. Energy, transition and other revenues also reflect revenues related to the Company’s ability to effectively reduce stranded costs (mitigation incentive), rental revenue from electric property and annual cost reconciliation true-up adjustments. The $243 million increase in energy, transition and other revenues is primarily attributable to the $348.3 million increase in energy supply costs, partially offset by the a reduction of $61.7 million in transition-related revenues resulting from the December 30, 2005 Rate Settlement Agreement and the absence in 2006 of approximately $16.6 million of MDTE-approved incentive revenue entitlements realized in 2005 for successfully lowering transition charges resulting from the securitization financing that closed on March 1, 2005. NSTAR Electric earns a carrying charge on transition deferral balances.

Wholesale revenues relate to electric sales to municipal utilities and certain other governmental authorities. The absence in 2006 of wholesale revenues reflects the expiration of a wholesale power supply contract with a regional airport that expired on October 31, 2005. As of November 1, 2005, NSTAR no longer has wholesale electric supply contracts. Amounts collected from wholesale customers were credited to retail customers through the transition charge. Therefore, the expiration of these wholesale supply contracts had no material impact on results of operations or cash flows.

Gas Revenues

Firm and transportation gas revenues primarily represent charges to customers for NSTAR Gas’ recovery of costs of its capital investment in its gas infrastructure, including a return component, and for the recovery of costs for the ongoing operation and maintenance of that infrastructure. The transportation revenue component represents charges to customers for the recovery of costs to move the natural gas over pipelines from gas suppliers to take stations located within NSTAR Gas’ service area. The $6.1 million decrease in firm and transportation revenues is primarily attributable to warmer winter weather conditions, energy efficiency and customer conservation efforts and customers switching to alternate fuel sources as a result of higher energy price concerns. These factors contributed to the decrease in sales volumes of 9.4% in 2006.

NSTAR Gas’ sales are impacted by heating season weather because a substantial portion of its customer base uses natural gas for space heating purposes.

Energy supply and other gas revenues primarily represent charges to customers for the recovery of costs to the Company to acquire the natural gas in the marketplace and a charge for recovery of the Company’s gas supplier service costs. The energy supply and other revenue decrease of $47.2 million primarily reflects the decline in cost of gas purchased from these suppliers combined with an 9.4% decline in energy sales. These revenues are fully reconciled with the cost currently recognized by the Company and, as a result do not have an effect on the Company’s earnings.

Unregulated Operations Revenues

Unregulated operating revenues are primarily derived from NSTAR’s unregulated businesses that include district energy and telecommunications operations. Unregulated revenues were $147.7 million in 2006 compared to $128.4 million in 2005, an increase of $19.3 million, or 15%. The increase in unregulated revenues is primarily the result of higher electricity, steam and chilled water prices and higher electricity sales.

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Operating Expenses

Purchased power costs were $1,776.7 million for 2006 compared to $1,428.4 million for 2005, an increase of $348.3 million, or 24%. The increase includes $83.2 million in higher transmission-related congestion costs and the remaining $265.1 million reflects higher energy procurement costs of both our regulated and unregulated companies, slightly offset by decreased kWh sales. NSTAR Electric adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis. Due to this rate adjustment mechanism, changes in the amount of energy supply expense have no impact on earnings.

Cost of gas sold, representing NSTAR Gas’ supply expense, was $344.6 million for 2006 compared to $388.4 million in 2005, a decrease of $43.8 million, or 11%. The decrease in cost reflects the 9.4% decline in firm gas sales, partly offset by higher costs of gas supply per therm. NSTAR Gas maintains a flexible resource portfolio consisting of gas supply contracts, transportation contracts on interstate pipelines, market area storage and peaking services. NSTAR Gas adjusts its rates to collect costs related to gas supply from customers on a fully reconciling basis and therefore changes in the amount of energy supply expense have no impact on earnings.

Operations and maintenance expense was $431.4 million in 2006 compared to $452.6 million in 2005, a decrease of $21.2 million, or 5%. This decrease primarily relates to:

• lower costs associated with storms and environmental issues in 2006 than similar costs experienced in 2005 ($17 million),

• charges in 2005 related to settlement in 2006 of an environmental claim of $7.5 million

• lower facilities consolidation charges in 2006 ($3.6 million)

• lower bad debt expense of $8.5 million in 2006. The reduction in bad debt expense includes the effect of the implementation of a new MDTE-approved recovery rate mechanism, effective January 1, 2006. The mechanism allows NSTAR Electric to segregate recovery of bad debt charge-offs related to its basic service (energy component) on a fully reconciling basis.

Partially offsetting these decreases in expense were incremental costs in 2006 associated with a MDTE-approved safety and reliability program of $12.2 million and $1.5 million in stock option expense resulting from NSTAR’s adoption of SFAS 123R.

Depreciation and amortization expense was $362.2 million in 2006 compared to $336.7 million in 2005, an increase of $25.5 million or 8%. The increase primarily reflects amortization costs related to transition property regulatory asset ($162.3 million and $145.4 million in 2006 and 2005, respectively) related to securitization transactions completed on March 1, 2005 and higher depreciable distribution and transmission plant in service.

DSM and renewable energy programs expense was $67.9 million in 2006 compared to $68.4 million in 2005, a decrease of $0.5 million, or 1%, which are consistent with the collection of conservation and renewable energy revenues. These costs are in accordance with program guidelines established by the MDTE and are collected from customers on a fully reconciling basis plus a small incentive return.

Property and other taxes were $101.1 million in 2006 compared to $102.4 million in 2005, a decrease of $1.3 million, or 1%. This decrease is primarily due to a lower City of Boston property tax rate.

Income tax expense attributable to operations was $119.3 million in 2006 compared to $110.7 million in 2005, an increase of $8.6 million, or 8%, primarily reflecting the higher pre-tax operating income in 2006 and $4.2 million of tax benefits recognized in 2005 related to the completion of a tax audit.

Other income, net

Other income, net was approximately $13.6 million in 2006 compared to $12.1 million in 2005, an increase in other income $1.5 million. The increase is primarily due to after-tax gains realized on nonutility nonmonetary

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transactions ($3.6 million), the sales of parcels of nonutility land ($2.5 million), and higher interest and rental income ($5.2 million in 2006 as compared to $4 million in 2005). In 2005, NSTAR recognized a $2.5 million gain from the sale of a portion of its district energy steam assets and the recognition of tax benefits resulting from the realization of capital tax gains from sales of property.

Other deductions, net

Other deductions, net was approximately $1.5 million in 2006 compared to $2.0 million in 2005, a decrease in other deductions of $0.5 million. The lower expense in 2006 relates primarily to lower after tax charitable contribution expense of approximately $0.8 million, partially offset by NSTAR’s equity investment reduction resulting from a settlement agreement among CY and certain regulatory parties related to decommissioning activities of $0.7 million.

Interest charges

Interest on long-term debt and transition property securitization certificates was $167.3 million in 2006 compared to $165.7 million in 2005, an increase of $1.6 million, or 1%. The increase in interest expense primarily reflects:

• Interest costs of $9.1 million associated with Boston Edison’s $200 million, 30-year fixed rate (5.75%) Debentures issued on March 16, 2006

Partially offset by:

• The absence in 2006 of interest expense of $2.9 million related to Boston Edison’s $100 million Floating Rate Debentures due to their redemption on October 17, 2005

• Lower interest costs of $2.8 million associated with transition property securitization. Securitization interest represents interest on securitization certificates of BEC Funding, BEC Funding II and CEC Funding collateralized by the future income stream associated primarily with NSTAR’s stranded costs. The future income stream was sold to these companies by Boston Edison and ComElectric

• The absence in 2006 of interest expense of nearly $0.8 million on the March 1, 2005 redemption of $150 million variable rate Note, due in May 2006, at ComElectric

Short-term and other interest expense was $17.5 million in 2006 compared to $5.6 million in 2005, an increase of $11.9 million, or 213%. The increase is due to higher short-term debt borrowing costs of $8.2 million reflecting a 151 basis point increase in the 2006 weighted average borrowing rates and a higher average level of funds borrowed. The weighted average short-term interest rates including fees were 5.32% and 3.81% in 2006 and 2005, respectively. The higher average borrowing during 2006 reflects the impact of Boston Edison financing its $100 million long-term debt redemptions on October 17, 2005 with short-term debt. Boston Edison used the proceeds of its $200 million Debenture that was issued on March 16, 2006 to pay down its short-term debt balances.

AFUDC increased $3.2 million in 2006 primarily due to the higher short-term borrowing rate, as noted above, and the timing of construction activity and higher average construction work in progress balances.

2005 compared to 2004

Executive Summary

Earnings per common share were as follows:

	Years ended December 31,
	2005		2004		% Change
Basic	$	1.84	$	1.77	4.0
Diluted	$	1.83	$	1.76	4.0

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Net income was $196.1 million for 2005 compared to $188.5 million for 2004. Factors that contributed to the $7.6 million, or 4%, increase in 2005 earnings include:

• Recognition of incremental incentives as approved by the MDTE for successfully lowering transition charges (approximately $9 million) and incentives related to NSTAR’s demand-side management programs (approximately $0.9 million)

• Higher electric distribution revenues ($16.5 million) that primarily resulted from a 2.9% increase in energy sales. Cooling and heating degree days increased 41.9% and decreased 1.3%, respectively, over 2004

• Higher electric transmission rates due to FERC approval of the inclusion of 50% of transmission construction work in progress (CWIP) in rate base and additional transmission plant in service ($16.4 million)

• Decreased income tax expense of approximately $9.0 million derived from successful resolution of uncertain tax positions and positive adjustments to NSTAR’s RCN tax loss contingency through a related capital gain transaction

These increases were partially offset by:

• Higher operations and maintenance expense due to costs associated with:

• severe storms and other costs (approximately $8.6 million)

• costs associated with facilities consolidation (approximately $3 million)

• incremental costs associated with a work stoppage by union employees ($3 million)

• a net increase of approximately $4.7 million related to an environmental reserve

• Lower firm gas revenues due to lower firm gas sales caused by warmer winter weather ($3.6 million)

• Higher short-term debt interest costs due to higher level and rates on debt outstanding ($4.8 million)

• The absence in 2005 of $4.7 million in cost reconciliation adjustments that increased revenues in 2004

In 2005, NSTAR closed on a $674.5 million securitization financing transaction. The net proceeds were used primarily to make liquidation payments required in connection with the termination of obligations under certain purchase power contracts (approximately $554.3 million) and to repay $150 million of outstanding debt at ComElectric.

Net cash used in operations in 2005 was $26.9 million, a level that was significantly lower than 2004, and resulted from the effect of the purchase power agreements buy-out payments of $653.2 million. Certain of these buyout costs ($554.3 million) were financed with the proceeds from NSTAR Electric’s securitization financing. Cash generated from operations was primarily used to fund approximately $383.6 million of net plant expenditures. The Company’s plant expenditures will continue to provide improvements to its operational performance. Net financing activities provided approximately $400.5 million of cash and includes the securitization financing referenced above.

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Energy Sales

The following is a summary of retail electric and firm gas energy sales for the years indicated:

	Years ended December 31,
	2005	2004	% Change
Retail Electric Sales - MWH
Residential	6,773,925	6,564,494	3.2
Commercial	13,117,869	12,693,217	3.3
Industrial	1,624,422	1,651,389	(1.6	)
Other	165,158	168,733	(2.1	)
Total retail sales	21,681,374	21,077,833	2.9
	Years ended December 31,
	2005	2004	% Change
Firm Gas Sales - BBtu
Residential	21,932	23,073	(4.9	)
Commercial	15,416	15,692	(1.8	)
Industrial and other	8,157	8,202	(0.5	)
Total firm sales	45,505	46,967	(3.1	)

NSTAR forecasts its electric and natural gas sales based on normal weather conditions. Actual results were significantly different from those projected due to the actual milder winter weather conditions and energy conservation.

Weather Conditions

In terms of customer sector characteristics, industrial sales are less sensitive to weather than residential and commercial sales, which are influenced by temperature fluctuations. The overall warmer weather in 2005 caused residential air conditioning use to rise and significantly contributed to the increase in electric sales. Additionally, the commercial sector has continued to expand and that has resulted in additional energy use. Electric residential and commercial customers represented approximately 31% and 61%, respectively, of NSTAR’s total sales mix for 2005 and provided 43% and 52% of distribution and transmission revenues, respectively. Refer to the “Electric revenues” section below for a more detailed discussion. Industrial sales are primarily influenced by national and local economic conditions and sales to these customers reflect a sluggish economic environment and decreased manufacturing production.

	2005		2004		Normal 30-Year Average
Heating degree-days	6,768		6,858		6,815
Percentage (warmer) colder than prior year	(1.3	)%	(4.0	)%
Percentage (warmer) colder than 30-year average	(0.7	)%	0.6	%
Cooling degree-days	894		632		777
Percentage warmer (cooler) than prior year	41.9	%	(16.3	)%
Percentage warmer (cooler) than 30-year average	15.1	%	(18.7	)%

Weather conditions impact electric and, to a greater extent during the winter, gas sales in NSTAR’s service area. The first quarter of 2005 was 2.6% warmer than the same period in 2004, followed by a change to a cooler spring in the second quarter. The warmer than prior year third quarter resulted in increased air conditioning demand that preceded a slightly colder fourth quarter of 2005. The comparative information above relates to heating and

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cooling degree-days for 2005 and 2004 and the number of degree-days in a “normal” year as represented by a 30-year average. A “degree-day” is a unit measuring how much the outdoor mean temperature falls below (heating degree-day) or rises above (cooling degree-day) a base of 65 degrees. Each degree below or above the base temperature is measured as one degree-day.

Other Events

Impact from Hurricanes

During the summer of 2005, Hurricanes Katrina and Rita impacted natural gas production, processing and transportation assets in the Gulf of Mexico (GOM). None of these facilities are owned by NSTAR; however, NSTAR depends on resources in the GOM for supply of natural gas in addition to storage supplies which were not affected by the storms. One of the facilities impacted is the Tennessee Gas Pipeline (TGP) 500 Line, which is under repair. TGP’s initial assessment is that this pipeline will be out of service for three to six months. NSTAR has approximately 6% of its peak design winter need supplied by the 500 Line. NSTAR has contracted to replace this supply with Canadian supplies. NSTAR is actively involved with other utilities, pipelines, suppliers and regulators in assessing the GOM supplies and will continue to respond as necessary.

Energy Prices

It is possible that the recent unprecedented rise in energy prices, resulting from hurricanes Katrina and Rita and global energy conditions, may have a negative impact on electric and gas demand and therefore on NSTAR’s future electric and gas sales. NSTAR cannot predict the overall impact resulting from these events on its financial positions, results of operations or cash flows.

Operating Revenues

Operating revenues for 2005 increased 9.8% from 2004 as follows:

					Increase/(Decrease)
(in millions)	2005		2004		Amount			Percent
Electric revenues
Retail distribution and transmission	$	867.1	$	852.7	$	14.4		1.7
Energy, transition and other		1,666.7		1,480.6		186.1		12.6
Total retail		2,533.8		2,333.3		200.5		8.6
Wholesale		9.7		16.9		(7.2	)	(42.6	)
Total electric revenues		2,543.5		2,350.2		193.3		8.2
Gas revenues
Firm and transportation		145.6		147.7		(2.1	)	(1.4	)
Energy supply and other		425.6		344.6		81.0		23.5
Total gas revenues		571.2		492.3		78.9		16.0
Unregulated operations revenues		128.4		111.8		16.6		14.8
Total operating revenues	$	3,243.1	$	2,954.3	$	288.8		9.8

Electric Revenues

Electric retail distribution revenues primarily represent charges to customers for the Company’s recovery of its capital investment, including a return component, and operation and maintenance related to its electric distribution infrastructure. The transmission revenue component represents charges to customers for the recovery of costs to move the electricity over high voltage lines from the generator to the Company’s substations. The

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increase in retail distribution and transmission revenues reflects a 2.9% increase in retail mWh sales substantially all in the residential and commercial sector and includes an increase in demand revenues from NSTAR’s commercial customers.

NSTAR’s largest earnings sources are the revenues derived from transmission and distribution rates approved by the MDTE and FERC. The level of distribution revenues is affected by weather conditions and the economy. Weather and economic conditions affect sales to NSTAR’s residential and small commercial customers. Economic conditions affect NSTAR’s large commercial and industrial customers.

Energy, transition and other revenues primarily represent charges to customers for the recovery of costs incurred by the Company in order to acquire the energy supply on their behalf (basic service) and a transition charge for recovery of the Company’s prior investments in generating plants and the costs related to long-term power contracts. Energy supply contract prices vary among the NSTAR Electric companies. However, the retail revenues related to basic service are fully reconciled to the costs incurred and have no impact on NSTAR’s consolidated net income. Furthermore, transition revenues are fully reconciled with the cost currently recognized by the Company and, as a result, do not have an effect on the Company’s earnings. Other revenues primarily relate to the Company’s ability to effectively reduce stranded costs (mitigation incentive), rental revenue from electric property and annual cost reconciliation true-up adjustments. In 2004, the cost reconciliation true-up adjustments increased revenues by approximately $4.7 million. The $186.1 million increase in energy, transition and other revenues is primarily attributable to energy procurement costs and approximately $12.2 million of MDTE-approved incentive revenue entitlements for successfully lowering transition charges resulting from the securitization financing that closed on March 1, 2005. In addition, NSTAR Electric is permitted to earn a carrying charge on transition deferral balances.

Wholesale revenues relate to electric sales to municipal utilities and certain other governmental authorities. The decrease in 2005 wholesale revenues reflects the expiration of a municipal wholesale power supply contract in the fourth quarter of 2004 that was not renewed and a wholesale power supply contract with a regional airport that expired on October 31, 2005. As of November 1, 2005, NSTAR no longer has wholesale electric supply contracts. Amounts collected from wholesale customers are credited to retail customers through the transition charge. Therefore, the expiration of these wholesale supply contracts had no material impact on results of operations or cash flows.

Gas Revenues

Firm and transportation gas revenues primarily represent charges to customers for NSTAR Gas’ recovery of costs of its capital investment in its gas infrastructure, including a return component, and for the recovery of costs for the ongoing operation and maintenance of that infrastructure. The transportation revenue component represents charges to customers for the recovery of costs to move the natural gas over pipelines from gas suppliers to take stations located within NSTAR Gas’ service area. The impact of warmer winter weather conditions, energy efficiency and conservation efforts and customers switching to alternative fuel sources as a result of energy price concerns, resulted in the decrease in sales volumes of 3.1% during 2005. Firm gas and transportation revenues were nearly unchanged when compared with the prior year.

NSTAR Gas’ sales are positively impacted by colder heating season weather because a substantial portion of its customer base uses natural gas for space heating purposes.

Energy supply and other gas revenues primarily represent charges to customers for the recovery of costs to acquire the natural gas in the marketplace and a charge for recovery gas supplier service costs. The energy supply and other revenue increase of $79.1 million primarily reflects the impact of the higher cost of gas purchased from these suppliers. These revenues are fully reconciled with the cost currently recognized by the Company and, as a result do not have an effect on the Company’s earnings.

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Unregulated Operations Revenues

Unregulated operating revenues are primarily derived from NSTAR’s unregulated businesses that include district energy operations and telecommunications. Unregulated revenues were $128.4 million in 2005 compared to $111.8 million in 2004, an increase of $16.6 million, or 14.8%. The increase in unregulated revenues is primarily the result of higher steam sales volume and higher electric sales and prices to its AES’ MATEP customers. Partially offsetting these revenues was the sale of a portion of NSTAR’s district energy steam assets in September 2005. Refer to the “Sale of Properties” section contained within this MD&A.

Operating Expenses

Purchased power costs were $1,428.4 million for 2005 compared to $1,347.8 million for 2004, an increase of $80.6 million, or 6%. The increase is primarily the result of the higher energy procurement costs of both our regulated and unregulated companies and increased sales. NSTAR Electric adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis. Due to this rate adjustment mechanism, changes in the amount of energy supply expense have no impact on earnings.

Cost of gas sold, representing NSTAR Gas’ supply expense, was $388.4 million for 2005 compared to $313.3 million in 2004, an increase of $75.1 million, or 24%. Despite a 3.1% decline in firm gas sales, the expense increase reflects the higher costs of gas supply. NSTAR Gas maintains a flexible resource portfolio consisting of gas supply contracts, transportation contracts on interstate pipelines, market area storage and peaking services. NSTAR Gas adjusts its rates to collect costs related to gas supply from customers on a fully reconciling basis.

Operations and maintenance expense was $452.6 million in 2005 compared to $421.4 million in 2004, an increase of $31.2 million, or 7%. This increase primarily reflects costs associated with storms (approximately $8.6 million), facilities consolidation (approximately $3 million), incremental costs associated with a work stoppage by union employees (approximately $3 million), a net increase to an environmental cost due to a settlement of an environmental claim and an increase in insurance costs (approximately $6.2 million and $2.5 million, respectively), higher bad debt expense (approximately $6.9 million) and higher employee expenses.

Depreciation and amortization expense was $336.7 million in 2005 compared to $254.9 million in 2004, an increase of $81.8 million or 32%. The increase primarily reflects amortization costs related to transition property regulatory assets ($145.4 million and $70.9 million in 2005 and 2004, respectively) and higher depreciable distribution and transmission plant in service.

DSM and renewable energy programs expense was $68.4 million in 2005 compared to $67.3 million in 2004, an increase of $1.1 million, or 2%, which are consistent with the collection of conservation and renewable energy revenues. These costs are in accordance with program guidelines established by the MDTE and are collected from customers on a fully reconciling basis plus a small incentive return.

Property and other taxes were $102.4 million in 2005 compared to $103.1 million in 2004, a decrease of $0.7 million, or less than 1%.

Income tax expense attributable to operations were $110.7 million in 2005 compared to $108.3 million in 2004, an increase of $2.4 million, or 2%, primarily reflecting the increase in tax expense resulting from a higher level of taxable income. Offsetting this increase was the recognition of a favorable resolution of uncertain tax positions that decreased tax expense by $4.2 million.

Other income, net

Other income, net was approximately $12.1 million in 2005 compared to $7.3 million in 2004, an increase of $4.8 million. The increase is primarily due to a $2.5 million gain recognized in 2005 from the sale of a portion of NSTAR’s district energy steam assets, recognition of tax benefits resulting from the realization of capital tax

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gains from sales of property ($4.7 million), offset by the absence in 2005 of proceeds from an executive life insurance policy of $1.2 million and $1 million in employee-related contract fees as a result of the Blackstone Station sale in 2004.

Other deductions, net

Other deductions, net were approximately $2 million in 2005 compared to $1.5 million in 2004. The $0.5 million increase was due to slightly higher charitable donations expenses and higher non-intercompany expenses billed from NSTAR’s services company.

Interest charges

Interest on long-term debt and transition property securitization certificates was $165.7 million in 2005 compared to $147.3 million in 2004, an increase of $18.4 million, or 12%. The increase in interest expense primarily reflects:

• Higher interest costs in 2005 of $4.3 million on Boston Edison’s $300 million ten-year fixed rate 4.875% Debentures issued on April 16, 2004

• Additional interest costs of $17.5 million associated with transition property securitization. Securitization interest represents interest on securitization certificates of BEC Funding, BEC Funding II and CEC Funding collateralized by the future income stream associated primarily with NSTAR’s stranded costs. The future income stream was sold to these companies by Boston Edison and ComElectric.

These increases were partially offset by:

• The absence in 2005 of expense of nearly $3 million related to the retirement of Boston Edison’s $181 million 7.80% Debentures on March 15, 2004

• The impact of the March 1, 2005 retirement of $150 million variable rate Note, due in May 2006, at ComElectric with a portion of the proceeds from the sale of CEC Funding LLC’s securitization certificates.

Short-term and other interest expense was $5.6 million in 2005 compared to $7.4 million in 2004, a decrease of $1.8 million, or 24%. The decrease is primarily due to lower interest costs of $3.8 million on regulatory deferrals offset by higher short-term debt borrowing costs of $4.8 million primarily reflective of a 199 basis point increase in 2005 weighted average borrowing rates and a higher average level of funds borrowed as compared to 2004. The weighted average short-term interest rates including fees were 3.81% and 1.82% in 2005 and 2004, respectively. The higher rate of borrowing during 2005 includes $117 million in contributions to NSTAR’s postretirement benefit plans and $100 million for the retirement of Boston Edison’s Floating Rate Debentures in October 2005.

AFUDC increased $2.7 million in 2005 primarily due to higher levels of construction activity primarily related to the on-going construction of NSTAR’s 345 kV transmission line.

Liquidity, Commitments and Capital Resources

Cash Requirements for Contractual Obligations

A major factor that affects NSTAR’s cash requirements is the level of plant expenditures. The current 2007 forecast of plant expenditures is $404.3 million. These plant costs relate to system reliability and performance improvements, customer service enhancements and capacity expansion. These costs are recoverable through NSTAR Electric and NSTAR Gas’ distribution and transmission rates. The aggregate plant expenditure level over the following four years (2008-2011) is currently forecasted at approximately $1.2 billion.

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In addition to plant expenditures, NSTAR enters into a variety of contractual obligations and other commitments in the course of ordinary business activities. The following table summarizes NSTAR’s significant contractual cash obligations as of December 31, 2006:

(in millions)	2007		2008		2009		2010		2011		Years Thereafter		Total
Long-term debt maturities	$	84	$	6	$	6	$	632	$	7	$	1,086	$	1,821
Interest obligation on long-term debt		113		111		110		85		60		458		937
Securitization obligation		92		153		153		119		84		128		729
Interest obligation on transition property securitization		37		29		21		13		8		6		114
Leases		18		17		15		13		11		35		109
Electric capacity obligations		2		2		2		2		3		19		30
Decommissioning of nuclear generating units		12		9		8		9		8		31		77
Gas contractual obligations		52		51		49		49		46		34		281
Purchase power buy-out obligations		160		162		142		140		75		131		810
	$	570	$	540	$	506	$	1,062	$	302	$	1,928	$	4,908

Transition property securitization payments reflect securities issued in 1999 by BEC Funding LLC, a subsidiary of Boston Edison and on March 1, 2005, additional transition property securitization bonds issued through BEC Funding II, LLC, a subsidiary of Boston Edison and CEC Funding, LLC, a subsidiary of ComElectric. BEC Funding LLC, BEC Funding, II, LLC and CEC Funding, LLC recover the principal and interest obligations for their transition property securitization bonds from customers of Boston Edison and ComElectric, respectively, through a component of Boston Edison’s and ComElectric’s transition charges and, as a result, these payment obligations do not affect NSTAR’s overall cash flow.

Electric capacity and gas contractual obligations reflect obligations for purchase power and the cost of gas. Boston Edison, Cambridge Electric and ComElectric fully recover capacity and buy-out/restructuring obligations from customers through a component of their transition charges and, as a result, these payment obligations do not affect NSTAR’s overall cash flow. NSTAR Gas fully recovers its contractual obligations from customers through its seasonal CGAC and, as a result, these payment obligations do not affect NSTAR’s overall cash flow.

Obligations related to the decommissioning of nuclear generating units are based on estimates from the Yankee Companies’ management and reflect the total remaining approximate cost for decommissioning and/or security or protection of the three units in which NSTAR has equity investments.

Current Cash Flow Activity

NSTAR’s primary uses of cash in 2006 included capital expenditures, dividend payments and debt reductions and purchase power contract buyouts.

Net operating cash flow in 2006 provided $533.5 million. The Company used $426.1 million to fund its plant expenditures, which included construction costs related to NSTAR Electric’s 345kV project and other system reliability and infrastructure improvement projects of NSTAR Electric and NSTAR Gas. The Company also realized proceeds of $13.3 million from the sale of property. Additionally, the Company used $121.4 million in its net financing activities that involved primarily the issuance of new long-term debt, net of discount, of $197.9 million, the redemption payments of its transition property securitization, the pay down of short-term debt and the dividend payments.

Operating Activities

The net cash generated in 2006, as compared to 2005, primarily related to the absence of $554 million in one-time payments made in 2005 for the buy-out of purchase power contracts. These payments were recorded as

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regulatory assets and are being amortized to expense over approximately eight years, as they are recovered from customers. These payments were financed through the issuance of transition property securitization certificates. In addition, these payments created a current tax deduction resulting in minimal tax payments in 2005. For 2006, NSTAR made payments of $130.9 million in estimated income taxes, a level significantly higher than in 2005. Also contributing to this increase in operating cash flows was the over-collection in 2006 of $72 million in regulatory assets, as compared to the $35 million under-collection in regulatory assets in 2005. This is somewhat offset by the timing of cash receipts and disbursements that resulted in an increase in accounts receivable and a reduction in accounts payable.

In 2005, NSTAR contributed $117.6 million to its qualified retirement benefit plans. Due to the high level of contributions in 2005, no contributions were made in 2006.

For 2007, NSTAR anticipates making a $15 million contribution to its qualified other postretirement benefit plan.

Investing Activities

The net cash used in investing activities in 2006 was $411.5 million. The majority of these expenditures were for system reliability and performance improvements, customer service enhancements and capacity expansion to meet expected growth in the NSTAR service territory. These factors contributed significantly to the $38.9 million increase in plant expenditures from 2005. Included in these amounts are expenditures of $69 million and $120 million in 2006 and 2005, respectively, for Boston Edison’s 345kV transmission line project. Total spending on this project through December 31, 2006 was approximately $200 million.

Financing Activities

The net cash used in financing activities in 2006 of $121.4 million primarily reflects the long-term debt redemptions of $187.8 million and dividend payments of $129.2 million. In addition, proceeds from Boston Edison’s issuance of $200 million in 30-year fixed-rate (5.75%) Debentures on March 16, 2006 were used to pay down short-term debt as further discussed below. During 2006, NSTAR received a total of $17.4 million related to the exercise of stock options by key management employees. This equaled the total proceeds received from the exercise options at their weighted average exercise price. Also during the year, NSTAR expended $33.5 million related to the settlement of equity compensation to key employees by acquiring shares in the open market.

Long-Term Financing Activities

On March 16, 2006, Boston Edison sold $200 million of thirty-year fixed rate (5.75%) Debentures. The net proceeds were primarily used to repay outstanding short-term debt balances. This transaction completes a process that began in December 2003 when Boston Edison filed a shelf registration with the SEC to allow it to issue up to $500 million in debt securities. The MDTE approved the issuance by Boston Edison of up to $500 million of debt securities from time to time on or before December 31, 2005. On December 29, 2005, the MDTE approved Boston Edison’s request to extend the term of its financing plan until June 30, 2006 for the remaining $200 million in securities.

On September 1, 2006, Cambridge Electric redeemed the entire $5 million aggregate principal amount of its 8.7%, Series H Notes, due March 1, 2007, at a price of 101.439% of the principal amount thereof plus accrued interest. On November 1, 2006, Cambridge Electric redeemed the entire outstanding balance of $20 million aggregate principal balance of its 7.62% seven-year Notes.

On March 1, 2005, two wholly-owned special purpose subsidiaries, BEC Funding II, LLC and CEC Funding LLC, issued $265.5 million and $409 million, respectively, in notes to a special purpose trust created by two Massachusetts state agencies. The trust then concurrently issued a total of $674.5 million of rate reduction

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certificates to the public. These certificates represent fractional, undivided beneficial interests in the notes issued by BEC Funding II, LLC and CEC Funding, LLC and are secured by a portion of the transition charge assessed on Boston Edison’s and ComElectric’s retail customers as permitted under the 1997 Massachusetts Electric Industry Restructuring Act and authorized by the MDTE. These certificates are non-recourse to Boston Edison and ComElectric, respectively. The assets and revenues of BEC Funding II, LLC and CEC Funding, LLC, including without limitation, the transition property, are owned solely by BEC Funding II, LLC and CEC Funding, LLC, and are not available to creditors of Boston Edison, ComElectric or NSTAR. The certificates and the related BEC Funding II, LLC and CEC Funding, LLC notes were issued at a weighted average yield of 4.15% in four classes with varying final maturity dates between 2008 and 2015. Scheduled semi-annual principal payments began in September 2005. The net proceeds from this transaction were used to make liquidation payments required in connection with the termination of certain purchase power agreements, and, in the case of ComElectric, to repay outstanding debt.

During 2004 and 2005, NSTAR Electric executed several agreements to buy-out or restructure certain of its purchase power agreements. These agreements constituted purchased power commitments and reduced the amount of above-market energy costs that NSTAR Electric will incur and collect from its customers through its transition charges.

The total amount recognized as of December 31, 2006 and 2005 for obligations relating to these agreements is approximately $658 million and $764 million (present valued); approximately $160 million and $156 million are reflected as a component of current liabilities - energy contracts and approximately $498 million and $608 million as a component of Deferred credits - energy contracts on the accompanying Consolidated Balance Sheets as of December 31, 2006 and 2005, respectively. NSTAR Electric has recorded a corresponding regulatory asset to reflect the full future recovery of these payments through its transition charge. This recognition represents a non-cash increase to assets and liabilities.

Short-Term Financing Activities

NSTAR’s short-term debt increased by $18.9 million to $436.4 million at December 31, 2006 as compared to $417.5 million at December 31, 2005. The increase resulted primarily from additional working capital needs.

NSTAR’s banking arrangements provide for daily cash transfers to the Company’s disbursement accounts as vendor checks are presented for payment and where the right of offset does not exist among accounts. Changes in the balances of the disbursement accounts are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows.

Tax Payments

In 2004, NSTAR filed an amended income tax return for 2002 to change the method of accounting for certain construction-related overhead costs previously capitalized to plant to the SSCM that allowed for accelerated deduction. NSTAR has claimed additional deductions related to the tax accounting method change in its 2002-2004 returns of $368.9 million. In 2005, NSTAR received formal notification from the IRS that the claim on its amended income tax return would be denied and therefore, NSTAR never received the requested refund amount due.

In August 2005, the IRS issued Revenue Ruling 2005-53 and Treasury Regulations under Code Section 263A related to the SSCM to curtail these levels of construction-related cost deductions by utilities and others. Under this Regulation, the SSCM is not available for the majority of NSTAR’s constructed property for the years 2005 and forward. As a result, NSTAR was required to make a cash tax payment to the IRS of $129.1 million in December 2006 representing the disallowed SSCM deductions taken for 2002-2004 even though the tax refund was never received. This payment will be fully refunded with interest to NSTAR, once this tax position is settled. As of December 31, 2006, this refund has been recorded as a non-current Refundable income tax on the

50

accompanying Consolidated Balance Sheet. Due to NSTAR’s 2005 net operating loss that resulted in a tax refund of approximately $88 million before this item, NSTAR applied the initial $65 million payment (50% of the $129.1 million) as a reduction to its 2005 refund due. This tax payment, along with any potential deduction ultimately sustained, is not anticipated to have a material impact on NSTAR’s results of operations or its financial position.

The remaining 50% of the cash tax payment for this item of $64.1 million was made in December 2006. In addition to this payment, NSTAR made a $130.9 million estimated federal tax payment relating to its 2006 tax liability. Also, in the fourth quarter of 2006, NSTAR received the remaining refund due of $23 million from the IRS related to its 2005 net operating loss.

Other Information

Management continuously reviews its capital expenditure and financing programs. These programs and, therefore, the forecasts included in NSTAR’s 2006 Form 10-K are subject to revision due to changes in regulatory requirements, operating requirements, environmental standards, availability and cost of capital, interest rates and other assumptions.

Sources of Additional Capital and Financial Covenant Requirements

With the exception of the indemnity agreement referenced in “Financial and Performance Guarantees” within this MD&A, NSTAR has no financial guarantees, commitments, debt or lease agreements that would require a change in terms and conditions, such as acceleration of payment obligations, as a result of a change in its credit rating. However, NSTAR’s subsidiaries could be required to provide additional security for power supply contract performance, such as a letter of credit for their pro-rata share of the remaining value of such contracts. Refer to “Performance Assurances from Electricity and Gas Supply Agreements” and “Financial and Performance Guarantees” as further discussed in this MD&A.

NSTAR and Boston Edison have no financial covenant requirements under their respective long-term debt arrangements. NSTAR Gas has financial covenant requirements under its long-term debt arrangements and was in compliance at December 31, 2006 and 2005. NSTAR’s long-term debt other than its Mortgage Bonds, issued by NSTAR Gas and MATEP, a wholly-owned subsidiary of NSTAR, is unsecured.

NSTAR has executed a five-year, $175 million revolving credit agreement that expires January 2, 2012. At December 31, 2006 and 2005, there were no amounts outstanding under the revolving credit agreement. This credit facility serves as a backup to NSTAR’s $175 million commercial paper program that, at December 31, 2006 and 2005, had $53.5 million and $66 million outstanding, respectively. Under the terms of the credit agreement, NSTAR is required to maintain a maximum total consolidated debt to total capitalization ratio of not greater than 65% at all times, excluding Transition Property Securitization Certificates, and excluding Accumulated other comprehensive income (loss) from common equity. Commitment fees must be paid on the total agreement amount. At December 31, 2006 and 2005, NSTAR was in full compliance with the aforementioned covenant as the ratios were 58.3% and 56.7% respectively.

NSTAR Electric has approval from the FERC to issue short-term debt securities from time to time on or before October 23, 2008, with maturity dates no later than October 23, 2009, in amounts such that the aggregate principal does not exceed $655 million at any one time. NSTAR Electric has a five-year, $450 million revolving credit agreement that expires January 2, 2012. However, unless NSTAR Electric receives necessary approvals from the MDTE, the credit agreement will expire 364 days from the date of the first draw under the agreement. At December 31, 2006 and 2005, there were no amounts outstanding under the revolving credit agreement. This credit facility serves as backup to NSTAR Electric’s $450 million commercial paper program that had a $200 million and $197 million outstanding balance at December 31, 2006 and 2005, respectively. On January 2, 2007, with the effect of the NSTAR Electric merger, the commercial paper program had an outstanding balance of

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$326 million. Under the terms of the revolving credit agreement, NSTAR Electric is required to maintain a consolidated maximum total debt to capitalization ratio of not greater than 65% at all times, excluding Transition Property Securitization Certificates, and excluding Accumulated other comprehensive income (loss) from common equity. At December 31, 2006 and 2005, NSTAR Electric was in full compliance with its covenants in connection with its short-term credit facilities as the ratios were 49.0% and 45.9%, respectively.

Effective with the NSTAR Electric merger, NSTAR Gas has $200 million available under one line of credit. As of December 31, 2006 and 2005, NSTAR Gas had $150.7 million and $154.5 million outstanding balances, respectively. NSTAR Gas is not required to seek approval from FERC to issue short-term debt.

On November 29, 2006, ComElectric gave notice to the holders of its long-term debt securities of its intent to call all of the outstanding debt. As a result, NSTAR reclassified its ComElectric subsidiary’s entire long-term debt balance of $77.7 million as due within one year on the accompanying Consolidated Balance Sheets at December 31, 2006. This is a result of NSTAR’s merger of its electric subsidiaries, ComElectric, Cambridge Electric and Canal into Boston Edison. On January 2, 2007, NSTAR Electric paid off these Notes at a redemption price of approximately $95 million.

Historically, NSTAR and its subsidiaries have had a variety of external sources of financing available, as indicated above, at favorable rates and terms to finance its external cash requirements. However, the availability of such financing at favorable rates and terms depends heavily upon prevailing market conditions and NSTAR’s or its subsidiaries’ financial condition and credit ratings.

NSTAR’s goal is to maintain a capital structure that preserves an appropriate balance between debt and equity. Based on NSTAR’s key cash resources available as discussed above, management believes its liquidity and capital resources are sufficient to meet its current and projected requirements.

Performance Assurances from Electricity and Gas Supply Agreements

NSTAR Electric has entered into short-term power purchase agreements to meet its entire basic service supply obligation, other than to its largest customers, for the period January 1, 2007 through June 30, 2007 and for 50% of its obligation, other than to these large customers, for the second half of 2007. NSTAR Electric has entered into short-term power purchase agreements to meet its entire basic service supply obligation for large customers through March 2007. These agreements are for a term of three to twelve months but could change as a result of NSTAR’s recently approved Rate Settlement Agreement. NSTAR Electric recovers payments it makes to suppliers from its customers. Most of NSTAR Electric’s power suppliers are either investment grade companies or are subsidiaries of larger companies with investment grade or better credit ratings. In accordance with NSTAR’s Internal Credit Policy, and to minimize NSTAR Electric risk in the event the supplier encounters financial difficulties or otherwise fails to perform, NSTAR has financial assurances and guarantees that include both parental guarantees and letters of credit in place from the parent company of the supplier. In addition, under these agreements, in the event that the supplier (or its parent guarantor) fails to maintain an investment grade credit rating, it is required to provide additional security for performance of its obligations. In view of current volatility in the energy supply industry, NSTAR Electric is unable to determine whether its suppliers (or their parent guarantors) will become subject to financial difficulties, or whether these financial assurances and guarantees are sufficient. In the event the supplier (or its guarantor) does not provide the required additional security within the required time frames, NSTAR Electric may then terminate the agreement. In such event, NSTAR may be required to secure alternative sources of supply at higher or lower prices than provided under the terminated agreements. Some of these agreements include a reciprocal provision, where in the event that NSTAR Electric receives a downgrade, it could be required to provide additional security for performance, such as a letter of credit.

Virtually all of NSTAR Gas’ firm gas supply agreements are short-term (one year or less) and utilize market-based, monthly indexed pricing mechanisms so the financial risk to the Company would be minimal if a supplier

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were to fail to perform. However, in the event that a firm supplier does fail to perform under its firm gas supply agreement, the Company would be entitled to any positive difference between the monthly supply price and the cost of replacement supplies.

The cost of gas procured for firm gas sales customers is recovered through a semi-annual cost of gas adjustment mechanism. Under MDTE regulations, interim adjustments to the cost of gas are required when the actual costs of gas supply vary from projections by more than 5%.

NSTAR Gas continually evaluates the financial stability of current and prospective gas suppliers. Firm suppliers are required to have and maintain investment grade credit ratings or financial assurances and guarantees that include both parental guarantees and letters of credit in place from the parent company of the supplier and the firm gas supply agreements allow either party to require financial assurance, or, if necessary, contract termination in the event that either party is downgraded below investment grade level and is unable to provide financial assurance acceptable to NSTAR Gas. Additionally, the hedging agreements that NSTAR Gas enters into related to its gas purchases have a termination clause for either party in the event the credit rating of the other falls below a stipulated level.

Financial and Performance Guarantees

On a limited basis, NSTAR and certain of its subsidiaries may enter into agreements providing financial assurance to third parties. Such agreements include letters of credit, surety bonds, and other guarantees.

At December 31, 2006, outstanding guarantees totaled $31.2 million as follows:

(in thousands)
Letter of Credit	$	5,560
Surety Bonds		17,753
Other Guarantees		7,859
Total Guarantees	$	31,172

Letter of Credit

NSTAR has issued a $5.6 million letter of credit for the benefit of a third party, as trustee in connection with the 6.924% Notes of one of its subsidiaries. The letter of credit is available if the subsidiary has insufficient funds to pay the debt service requirements. As of December 31, 2006, there have been no amounts drawn under its letter of credit.

Surety Bonds

As of December 31, 2006, certain of NSTAR’s subsidiaries have purchased a total of $1.6 million of performance surety bonds for the purpose of obtaining licenses, permits and rights-of-way in various municipalities. In addition, NSTAR and certain of its subsidiaries have purchased approximately $16.2 million in workers’ compensation self-insurer bonds. These bonds support the guarantee by NSTAR and certain of its subsidiaries to the Commonwealth of Massachusetts, required as part of the Company’s workers’ compensation self-insurance program. NSTAR and certain of its subsidiaries have indemnity agreements to provide additional financial security to its bond company in the form of a contingent letter of credit to be triggered in the event of a downgrade in the future of NSTAR’s Senior Note rating to below BBB by S&P and/or to below Baa1 by Moody’s. These Indemnity Agreements cover both the performance surety bonds and workers’ compensation bonds.

Other

NSTAR and its subsidiaries have also issued $7.9 million of residual value guarantees related to its equity interest in the Hydro-Quebec transmission companies.

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Management believes the likelihood that NSTAR would be required to perform or otherwise incur any significant losses associated with any of these guarantees is remote.

Contingencies

Environmental Matters

NSTAR subsidiaries face possible liabilities as a result of involvement in several multi-party disposal sites, state-regulated sites or third-party claims associated with contamination remediation. NSTAR generally expects to have only a small percentage of the total potential liability for the majority of these sites.

In accordance with a court approved settlement agreement relating to litigation brought against Boston Edison by various governmental entities, Boston Edison paid $8.6 million in September, 2006 upon final judgment of the Massachusetts Superior Court. This payment did not have a current earnings impact, as NSTAR recognized of this liability in the second quarter of 2005. In December 2006, Boston Edison settled with its insurance carrier for $4.5 million relating to this claim. In 2004, a Superior Court had issued a decision favorable to Boston Edison that put the burden of proof on the plaintiffs to determine Boston Edison’s liability for contamination. The SJC reversed the Superior Court’s 2004 ruling and held that the plaintiffs in this matter were allowed to seek joint and several liability against the defendants, including Boston Edison. On March 8, 2006, a settlement resolving Boston Edison’s liability was finalized and filed with the Superior Court, which approved and entered final judgment on August 8, 2006.

As of December 31, 2006 and 2005, NSTAR had reserves of $2.9 million and $10.3 million, respectively, for all potential remaining environmental sites. This estimated recorded liability is based on an evaluation of all currently available facts with respect to all of its sites.

NSTAR Gas is participating in the assessment or remediation of certain former MGP sites and alleged MGP waste disposal locations to determine if and to what extent such sites have been contaminated and whether NSTAR Gas may be responsible to undertake remedial action. The MDTE has approved recovery of costs associated with MGP sites over a seven-year period, without carrying costs. As of December 31, 2006 and 2005, NSTAR recorded a liability of approximately $3.2 million and $3.6 million, respectively, as an estimate for site cleanup costs for several MGP sites for which NSTAR Gas was previously cited as a potentially responsible party. A corresponding regulatory asset was recorded that reflects the future rate recovery for these costs.

Estimates related to environmental remediation costs are reviewed and adjusted as further investigation and assignment of responsibility occurs and as either additional sites are identified or NSTAR’s responsibilities for such sites evolve or are resolved. NSTAR’s ultimate liability for future environmental remediation costs may vary from these estimates. Based on NSTAR’s current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, NSTAR does not believe that these environmental remediation costs will have a material adverse effect on NSTAR’s consolidated financial position, results of operations or cash flows.

345kV Transmission Project

In the second quarter of 2006, NSTAR completed the construction of a switching station in Stoughton, Massachusetts as part of its 345kV transmission line project that will connect the switching station to substations located in the Hyde Park section of Boston and in South Boston. To date, a major portion of the 345kV project has been placed in service. The remainder of the project is currently scheduled to be in service by the end of the first quarter of 2007. In 2006, NSTAR decreased its transmission revenues by $3.4 million to reflect the delay in service of the remaining second line of this project. Expenditures for this transmission project were $69 million and $120 million in 2006 and 2005, respectively ($11 million spent in 2004). Total spending on this project through December 31, 2006 was approximately $200 million, with approximately $20 million to be spent in 2007. The first line of this project was placed in service in October 2006 and the second line is expected to be

54

placed in service by the end of the first quarter of 2007. Phase two of the 345kV project, which will add a third and final line to the project, is expected to be in service in 2008. Expenditures on this phase of the project are expected to amount to $55 million and $38 million in 2007 and 2008, respectively. This project is anticipated to enhance the reliability of electric service and improve power import capability in the NEMA area. A substantial portion of the cost of this project will be shared by other utilities in New England based on ISO-NE’s approval and will be recovered by NSTAR through wholesale and retail transmission rates.

Fair Value of Financial Instruments

Carrying amounts and fair values of long-term indebtedness (excluding notes payable, including current maturities) as of December 31, 2006 and 2005 were as follows:

	2006				2005
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term indebtedness (including current maturities)	$	2,536,857	$	2,623,100	$	2,525,517	$	2,642,190

As discussed in the following section, NSTAR’s exposure to financial market risk results primarily from fluctuations in interest rates.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Although NSTAR has material commodity purchase contracts, these instruments are not subject to market risk. NSTAR’s electric and gas distribution subsidiaries have rate-making mechanisms that allow for the recovery of energy supply costs from customers, who make commodity purchases from NSTAR’s electric and gas subsidiaries, rather than from the competitive market. All energy supply costs incurred by NSTAR’s electric and gas subsidiaries to provide electricity for retail customers purchasing basic service or retail gas customers are recovered on a fully reconciling basis.

However, NSTAR’s exposure to financial market risk results primarily from fluctuations in interest rates. NSTAR is exposed to changes in interest rates primarily based on levels of short-term debt outstanding. The weighted average interest rates including fees for short-term indebtedness were 5.32% and 3.81% in 2006 and 2005, respectively. The weighted average interest rates for long-term indebtedness, including current maturities were 6.04% and 6.03% in 2006 and 2005, respectively.

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Item 8. Financial Statements and Supplementary Data

NSTAR

Consolidated Statements of Income

	Years ended December 31,
	2006			2005			2004
	(in thousands, except per share amounts)
Operating revenues	$	3,577,702		$	3,243,120		$	2,954,332
Operating expenses:
Purchased power		1,776,718			1,428,388			1,347,830
Cost of gas sold		344,573			388,377			313,270
Operations and maintenance		431,375			452,558			421,367
Depreciation and amortization		362,222			336,670			254,852
Demand side management and renewable energy programs		67,890			68,441			67,294
Property and other taxes		101,067			102,426			103,061
Income taxes		119,342			110,690			108,330
		3,203,187			2,887,550			2,616,004
Operating income		374,515			355,570			338,328
Other income (deductions):
Other income, net		13,582			12,120			7,305
Other deductions, net		(1,506	)		(2,032	)		(1,487	)
Total other income, net		12,076			10,088			5,818
Interest charges:
Long-term debt		124,336			119,970			119,164
Transition property securitization		42,926			45,694			28,150
Short-term debt and other		17,482			5,608			7,394
Allowance for borrowed funds used during construction		(6,887	)		(3,709	)		(1,003	)
Total interest charges		177,857			167,563			153,705
Preferred stock dividends of subsidiary		1,960			1,960			1,960
Net Income	$	206,774		$	196,135		$	188,481
Weighted average common shares outstanding:
Basic		106,808			106,756			106,268
Diluted		107,125			107,100			107,292
Earnings per common share:
Basic	$	1.94		$	1.84		$	1.77
Diluted	$	1.93		$	1.83		$	1.76
Dividends declared per common share (Note K)	$	1.535		$	0.87		$	1.1225

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

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NSTAR

Consolidated Statements of Comprehensive Income

	Years ended December 31,
	2006			2005			2004
	(in thousands)
Net income	$	206,774		$	196,135		$	188,481
Other comprehensive income, net:
Additional minimum pension liability		(725	)		(5,132	)		(5,817	)
Deferred income taxes benefit		284			2,113			2,414
Comprehensive income	$	206,333		$	193,116		$	185,078

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

NSTAR

Consolidated Statements of Retained Earnings

	Years ended December 31,
	2006		2005		2004
	(in thousands)
Balance at the beginning of the year	$	621,500	$	518,252	$	449,114
Add:
Net income		206,774		196,135		188,481
Subtotal		828,274		714,387		637,595
Deduct:
Dividends declared:
Common shares (Note K)		163,951		92,887		119,343
Balance at the end of the year	$	664,323	$	621,500	$	518,252

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

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NSTAR

Consolidated Balance Sheets

	December 31,
	2006		2005
Assets	(in thousands)
Utility Plant:
Electric and gas plant in service, at original cost	$	5,033,562	$	4,671,059
Less: accumulated depreciation		1,244,163		1,178,259
		3,789,399		3,492,800
Construction work in progress		155,862		208,957
Net utility plant		3,945,261		3,701,757
Other property and investments:
Nonutility property, net		140,866		138,222
Equity investments		8,113		13,705
Other investments		74,482		71,137
		223,461		223,064
Current assets:
Cash and cash equivalents		16,132		15,612
Restricted cash		7,010		6,586
Accounts receivable, net of allowance of $27,240 and $24,504, respectively		317,220		305,441
Accrued unbilled revenues		58,976		59,400
Regulatory assets		419,028		446,286
Inventory, at average cost		124,874		120,924
Income taxes		—		50,212
Other		16,514		16,894
		959,754		1,021,355
Deferred debits:
Regulatory assets		2,434,737		2,266,424
Prepaid pension		—		346,889
Other		77,062		78,843
		2,511,799		2,692,156
Refundable income taxes		129,120		—
Total assets	$	7,769,395	$	7,638,332

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

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NSTAR

Consolidated Balance Sheets

	December 31,
	2006			2005
Capitalization and Liabilities	(in thousands)
Common equity:
Common shares, par value $1 per share, 200,000,000 shares authorized, 106,808,376 issued and outstanding	$	106,808		$	106,808
Premium on common shares		823,450			813,099
Retained earnings		664,323			621,500
Accumulated other comprehensive loss		(12,018	)		(6,392	)
		1,582,563			1,535,015
Long-term debt and preferred stock:
Long-term debt		1,723,558			1,614,411
Transition property securitization		637,217			787,966
Cumulative non-mandatory redeemable preferred stock of subsidiary, par value $100 per share, 2,890,000 shares authorized, 430,000 shares outstanding		43,000			43,000
		2,403,775			2,445,377
Current liabilities:
Long-term debt		83,999			28,457
Transition property securitization		92,083			94,683
Notes payable		436,400			417,500
Income taxes		17,485			—
Accounts payable		302,240			320,960
Energy contracts		171,795			183,674
Accrued interest		37,742			33,114
Dividends payable		35,039			327
Accrued expenses		15,184			20,729
Other		47,966			62,769
		1,239,933			1,162,213
Deferred credits:
Accumulated deferred income taxes		1,209,734			1,249,979
Unamortized investment tax credits		21,785			23,477
Energy contracts		596,611			683,193
Pension and other postretirement liability		264,246			87,246
Regulatory liability - cost of removal		260,198			258,782
Other		190,550			193,050
		2,543,124			2,495,727
Commitments and contingencies
Total capitalization and liabilities	$	7,769,395		$	7,638,332

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

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NSTAR

Consolidated Statements of Cash Flows

	Years ended December 31,
	2006			2005			2004
	(in thousands)
Operating activities:
Net income	$	206,774		$	196,135		$	188,481
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		363,480			337,887			254,271
Deferred income taxes		2,086			158,914			71,662
Gain on sale of nonutility property		(4,144	)		(2,500	)		—
Impact of nonmonetary transactions		(9,630	)		—			—
Noncash stock-based compensation		8,228			5,507			4,291
Purchase power contract buyouts		(140,518	)		(653,210	)		(8,935	)
Net changes in:
Accounts receivable and accrued unbilled revenues		(5,819	)		(8,895	)		(3,572	)
Inventory, at average cost		(3,950	)		(34,527	)		(6,812	)
Other current assets		76,589			(187,986	)		(131,711	)
Accounts payable		4,239			55,523			8,014
Other current liabilities		(11,016	)		(8,939	)		139,229
Net change from other miscellaneous operating activities		47,142			118,914			(84,506	)
Net cash provided by (used in) operating activities		533,461			(23,177	)		430,412
Investing activities:
Plant expenditures (including AFUDC)		(426,146	)		(387,265	)		(314,390	)
(Increase) decrease in restricted cash		(238	)		(4,028	)		2,890
Proceeds from sale of property		13,295			16,321			14,252
Investments		1,571			728			1,070
Net cash used in investing activities		(411,518	)		(374,244	)		(296,178	)
Financing activities:
Long-term debt redemptions		(34,455	)		(259,200	)		(190,926	)
Issuance of long-term debt, net of discount		197,886			—			300,000
Debt issue costs		(1,750	)		(6,513	)		(1,851	)
Issuance of transition property securitization		—			674,500			—
Transition property securitization redemptions		(153,349	)		(141,647	)		(67,431	)
Net change in notes payable		18,900			256,100			(77,700	)
Change in disbursement accounts		(7,272	)		(4,103	)		11,922
Common stock issuance		—			7,146			7,558
Dividends paid		(129,239	)		(125,747	)		(119,835	)
Cash received for exercise of equity options		17,383			—			—
Cash used to settle equity compensation		(33,488	)		—			—
Windfall tax effect of settlement of equity compensation		3,961			—			—
Net cash (used in) provided by financing activities		(121,423	)		400,536			(138,263	)
Net increase (decrease) in cash and cash equivalents		520			3,115			(4,029	)
Cash and cash equivalents at the beginning of the year		15,612			12,497			16,526
Cash and cash equivalents at the end of the year	$	16,132		$	15,612		$	12,497
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest, net of amounts capitalized	$	167,168		$	166,853		$	144,762
Income taxes	$	199,408		$	(4,317	)	$	34,627
Non-cash investing activity:
Plant additions included in ending accounts payable	$	41,969		$	57,656		$	27,729
Non-cash financing activity:
Non-cash common share issuance	$	—		$	—		$	4,063

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

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Notes to Consolidated Financial Statements

Note A. Business Organization and Summary of Significant Accounting Policies

1. About NSTAR

NSTAR (or the Company) is a holding company engaged through its subsidiaries in the energy delivery business serving approximately 1.4 million customers in Massachusetts, including approximately 1.1 million electric distribution customers in 81 communities and approximately 300,000 natural gas distribution customers in 51 communities. Prior to January 1, 2007, NSTAR’s retail electric utility subsidiaries were Boston Edison, ComElectric and Cambridge Electric. Its wholesale electric subsidiary was Canal. NSTAR’s three retail electric companies collectively have operated under the trade name “NSTAR Electric.” NSTAR’s retail gas distribution utility subsidiary is NSTAR Gas. NSTAR’s nonutility, unregulated operations include district energy operations primarily through its AES subsidiary, telecommunications operations (NSTAR Com) and a liquefied natural gas service company (Hopkinton). Utility operations accounted for approximately 96% of consolidated operating revenues in 2006, 2005 and 2004.

NSTAR’s Rate Settlement Agreement (“Rate Settlement Agreement”) of December 30, 2005 approved by the MDTE anticipated the transfer of the net assets, structured as a merger, of NSTAR’s electric subsidiary companies Cambridge Electric, ComElectric and Canal, to Boston Edison. NSTAR requested and received final approval of this merger from the MDTE and FERC during the fourth quarter of 2006. The merger was effective as of January 1, 2007 and Boston Edison was renamed “NSTAR Electric Company.” The merger of these subsidiaries will be accounted for as a merger of companies under common control and ownership and, therefore, will not have an impact on NSTAR’s consolidated results of operations, financial position or cash flows.

2. Basis of Consolidation and Accounting

The accompanying Consolidated Financial Statements reflect the results of operations, comprehensive income, retained earnings, financial position and cash flows of NSTAR and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Certain immaterial reclassifications have been made to prior year amounts to conform to the current year’s presentation.

NSTAR’s utility subsidiaries follow accounting policies prescribed by the FERC and the MDTE. In addition, NSTAR and its subsidiaries are subject to the accounting and reporting requirements of the SEC. The accompanying Consolidated Financial Statements conform to accounting principles in conformity with GAAP. The utility subsidiaries are subject to SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation” (SFAS 71). The application of SFAS 71 results in differences in the timing of recognition of certain revenues and expenses from those of other businesses and industries. The distribution and transmission businesses remain subject to rate-regulation and continue to meet the criteria for application of SFAS 71. Refer to the accompanying Notes to Consolidated Financial Statements, Note E, “Regulatory Assets” for more information on regulatory assets.

3. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management of NSTAR and its subsidiaries to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

4. Revenues

Utility revenues are based on authorized rates approved by the MDTE and FERC. Estimates of distribution and transmission revenues for electricity and natural gas delivered to customers but not yet billed are accrued at the end of each accounting period.

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Revenues for NSTAR’s nonutility subsidiaries are recognized when services are rendered or when the energy is delivered.

NSTAR records sales taxes collected from its customers on a net basis (excluded from operating revenues).

5. Utility Plant

Utility plant is stated at original cost. The cost of replacements of property units is capitalized. Maintenance and repairs and replacements of certain items are expensed as incurred. The original cost of property retired, net of salvage value, is charged to accumulated depreciation. The incurred related cost of removal is charged against the Regulatory liability - cost of removal. The following is a summary of utility property and equipment, at cost, at December 31:

(in thousands)	2006		2005
Electric -
Transmission	$	863,391	$	724,393
Distribution		3,299,898		3,136,554
General		251,227		199,001
Electric utility plant		4,414,516		4,059,948
Gas -
Transmission and distribution		563,675		537,940
General		55,371		73,171
Gas utility plant		619,046		611,111
Total utility plant in service	$	5,033,562	$	4,671,059

6. Nonutility Property

Nonutility property is stated at cost or its net realizable value. The following is a summary of nonutility property, plant and equipment, at cost less accumulated depreciation, at December 31:

(in thousands)	2006			2005
Land	$	15,089		$	15,710
Energy production equipment		145,732			132,564
Telecommunications equipment		40,198			40,120
Buildings and improvements		1,363			1,364
		202,382			189,758
Less: accumulated depreciation		(61,672	)		(51,536	)
		140,710			138,222
Construction work in progress		156			—
Total nonutility property, net	$	140,866		$	138,222

7. Depreciation

Depreciation of utility plant is computed on a straight-line basis using composite rates based on the estimated useful lives of the various classes of property. The composite rates are subject to the approval of the MDTE and FERC. The overall composite depreciation rates for utility property were 3.02%, 3.03% and 3.02% in 2006, 2005 and 2004, respectively. The rates include a cost of removal component, which is collected from customers. Depreciation and amortization expense on utility plant for 2006, 2005 and 2004 was $149.9 million, $141.4 million and $134 million, respectively.

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Depreciation of nonutility property is computed on a straight-line basis over the estimated life of the asset. The estimated depreciable service lives (in years) of the major components of nonutility property and equipment are as follows:

Plant Component	Depreciable Life (Years)
Energy production equipment	25-35
Telecommunications equipment	10
Liquefied gas storage facilities	28
Buildings and improvements	40

Depreciation expense on nonutility property and equipment was $12.8 million, $12.9 million and $13 million for 2006, 2005 and 2004, respectively.

8. Costs Associated with Issuance and Redemption of Debt and Preferred Stock

Consistent with the recovery in utility rates, discounts, redemption premiums and related costs associated with the issuance and redemption of long-term debt and preferred stock are deferred and amortized as an addition to interest expense over the life of the original or replacement debt. Costs related to preferred stock issuances and redemptions are reflected as a direct reduction to retained earnings upon redemption or over the average life of the replacement preferred stock series as applicable.

9. Allowance for Borrowed Funds Used During Construction (AFUDC)

AFUDC represents the estimated costs to finance utility plant construction. In accordance with regulatory accounting, AFUDC is included as a cost of utility plant and a reduction of current interest charges. Although AFUDC is not a current source of cash income, the costs are recovered from customers over the service life of the related plant in the form of increased revenues collected as a result of higher depreciation expense. Average AFUDC rates in 2006, 2005 and 2004 were 5.26%, 3.75% and 1.72%, respectively, and represented only the costs of short-term debt. The 2006 and 2005 rate increases are directly related to increases in short-term borrowing rates.

10. Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash at December 31, 2006 and 2005 are comprised of liquid securities with maturities of 90 days or less when purchased. Restricted cash primarily represents the funds held by a trustee in connection with Advanced Energy System’s 6.924% Note Agreement.

NSTAR’s banking arrangements provide for daily cash transfers to its disbursement accounts as vendor checks are presented for payment. The balances of the disbursement accounts amounted to $14.8 million and $22.1 million at December 31, 2006 and 2005, respectively, and are included in accounts payable on the accompanying Consolidated Balance Sheets. Changes in the balances of the disbursement accounts are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows.

11. Use of Fair Value

The fair value of financial instruments is estimated based upon market trading information, where available. Absent published market values for an instrument or other assets, management uses observable market data to arrive at its estimates of fair value. For its long-term debt, management estimates are based on quotations from broker/dealers or interest rate information for similar instruments. The carrying amount of cash and temporary investments, accounts receivable, accounts payable, short-term borrowings and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments. Refer to SFAS No. 157, “Fair Value Measurements” contained in the accompanying Item 16, “New Accounting Standards” of this Note A for more information

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12. Income Taxes

Income tax expense includes the current tax obligation or benefit and the change in deferred income tax liability for the period. Deferred income taxes result from temporary differences between financial and tax bases of certain assets and liabilities.

13. Stock-Based Compensation

The Company adopted, effective January 1, 2006, the provisions of the revised SFAS No. 123, “Share-Based Payment” (SFAS 123R) in fiscal 2006. SFAS 123R requires that companies recognize compensation expense for awards of equity instruments based on the grant date fair value of those awards. Prior to the adoption of SFAS 123R, the company applied the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees,” to recognize its stock-based compensation.

14. Equity Method of Accounting

NSTAR uses the equity method of accounting for investments in corporate joint ventures in which it does not have a controlling interest. Under this method, it records as income or loss the proportionate share of the net earnings or losses of the joint ventures with a corresponding increase or decrease in the carrying value of the investment. The investment is reduced as cash dividends are received. NSTAR participates in several corporate joint ventures in which it has investments, principally its 14.5% equity investment in two companies that own and operate transmission facilities to import electricity from the Hydro-Quebec System in Canada, and its equity investments ranging from 4% to 14% in three regional nuclear facilities, two of which are currently being decommissioned. The third plant site has been decommissioned in accordance with the federal NRC procedures.

15. Other Income (Deductions), net

Major components of other income, net were as follows:

	Years ended December 31,
(in thousands)	2006			2005			2004
Equity earnings, dividends and other investment income	$	644		$	1,480		$	1,607
Interest and rental income		8,492			6,509			4,859
Nonmonetary gain		5,494			—			—
Sale of unregulated property assets		4,144			2,564			1,700
Tax adjustments		158			4,735			—
Miscellaneous other income, (includes applicable income tax expense)		(5,350	)		(3,168	)		(861	)
	$	13,582		$	12,120		$	7,305

Major components of other deductions, net were as follows:

	Years ended December 31,
(in thousands)	2006			2005		2004
Charitable contributions	$	(449	)	(2,486	)	$	(2,654	)
Miscellaneous other deductions, (includes applicable income tax benefit (expense))		(1,057	)	454			1,167
	$	(1,506	)	(2,032	)	$	(1,487	)

The lower level of charitable contributions in 2006, as compared to the previous two years, reflects the funding of the NSTAR Foundation to the desired level by December 31, 2005. This was accomplished by contributions to the Foundation of $2 million in both 2005 and 2004. Contributions directly from the NSTAR Foundation in 2006 amounted to $914,000.

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16. New Accounting Standards

On July 14, 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” an Interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes guidance to address inconsistencies among entities with the measurement and recognition in accounting for income tax positions for financial statement purposes. Specifically, FIN 48 addresses the timing of the recognition of income tax benefits. FIN 48 requires the financial statement recognition of an income tax benefit when the company determines that it is more-likely-than-not that the tax position will be ultimately sustained. FIN 48 is effective for fiscal years beginning after December 15, 2006. Upon adoption of FIN 48, the cumulative effect will be reported as an adjustment to the opening balance of retained earnings at January 1, 2007.

NSTAR adopted FIN 48 effective January 1, 2007. NSTAR’s tax accounting policy, prior to the adoption of FIN 48, was to recognize uncertain tax positions taken on its income tax return only if the likelihood in prevailing was probable. FIN 48 establishes a recognition standard of more likely than not, which is below the Company’s previously recognition tax policy of probable. Therefore, NSTAR will record an adjustment to increase its beginning retained earnings effective January 1, 2007 of approximately $44.3 million related to its RCN share abandonment tax deduction which adjustment includes the reversal of previously recorded interest expense. Refer to the accompanying Notes to Consolidated Financial Statements, Note H, “Income Taxes,” for a description of this uncertain tax position.

On September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value measurements in financial reporting. While the standard does not expand the use of fair value in any new circumstance, it has applicability to several current accounting standards that require or permit entities to measure assets and liabilities at fair value. This standard defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. Application of this standard is required for NSTAR beginning in 2008. Management is currently assessing what impact, if any, the application of this standard could have on NSTAR’s results of operations and financial position.

17. Purchase and Sales Transactions with ISO-NE

During 2006 and 2005, as part of its normal business operations, NSTAR Electric transacted with ISO-NE to sell energy entitlements from all of its remaining long-term energy supply resources to ISO-NE. NSTAR Electric records the net effect of transactions with the ISO-NE as an adjustment to purchased power expense.

Note B. Earnings Per Common Share

Basic EPS is calculated by dividing net income by the weighted average common shares outstanding during the year. SFAS No. 128, “Earnings per Share,” requires the disclosure of diluted EPS. Diluted EPS is similar to the computation of basic EPS except that the weighted average common shares are increased to include the number of potential dilutive common shares. Diluted EPS reflects the impact on shares outstanding of the deferred (non-vested) shares and stock options granted under the NSTAR Share Incentive Plan.

The following table summarizes the reconciling amounts between basic and diluted EPS:

(in thousands, except per share amounts)	2006		2005		2004
Net income	$	206,774	$	196,135	$	188,481
Basic EPS	$	1.94	$	1.84	$	1.77
Diluted EPS	$	1.93	$	1.83	$	1.76
Weighted average common shares outstanding for basic EPS		106,808		106,756		106,268
Effect of dilutive shares:
Weighted average dilutive potential common shares		317		344		1,024
Weighted average common shares outstanding for diluted EPS		107,125		107,100		107,292

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Note C. Asset Retirement Obligations

The FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143” (FIN 47), “Accounting for Asset Retirement Obligations” (SFAS 143), requires entities to record the fair value of a liability for an ARO in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. FIN 47 clarifies when an entity would be required to recognize a liability for the fair value of an ARO that is conditional on a future event if the liability’s fair value can be reasonably estimated. Uncertainty surrounding the timing and method of settlement that may be conditional on events occurring in the future are factored into the measurement of the liability rather than the existence of the liability.

NSTAR adopted FIN 47 at December 31, 2005, as required. The recognition of an ARO within its regulated utility businesses has no impact on NSTAR’s earnings. In accordance with SFAS 71, for its rate-regulated utilities, NSTAR established a regulatory asset to recognize future recoveries through depreciation rates for the recorded ARO. NSTAR has identified several plant assets in which this condition exists and is related to both plant assets containing asbestos materials and legal requirements to undertake remediation efforts upon retirement. As a result, in December 2005, NSTAR recognized an asset retirement cost of $0.4 million as an increase in utility property, an asset retirement liability of $9.4 million and a regulatory asset of $9 million.

For NSTAR’s regulated utility businesses, the ultimate cost to remove utility plant from service (cost of removal) is recognized as a component of depreciation expense in accordance with approved regulatory treatment. As of December 31, 2006 and 2005, the estimated amount of the cost of removal included in regulatory liabilities was approximately $260 million and $259 million, respectively, based on the estimated cost of removal component in current depreciation rates. At December 31, 2006, NSTAR has asset retirement cost in utility plant of $1.1 million, an asset retirement liability of $14.8 million and a regulatory asset of $12.2 million.

Note D. Nonmonetary Transactions

In the third and fourth quarters of 2006, NSTAR’s unregulated subsidiary, AES, recognized the impact of several nonmonetary transactions. As part of an agreement executed with a vendor, AES will receive new equipment with a fair value of $4.1 million, at no cost, to compensate AES for incremental costs incurred resulting from equipment installation problems experienced during 2003 and 2004. This resulting nonmonetary gain, representing the fair value of the new equipment, was primarily recognized as a reduction in purchased power expense on the accompanying Consolidated Statements of Income.

In addition, in separate transactions, two agreements were executed between AES and other parties, which required AES to relinquish its rights under existing easements and other assets owned by AES located on development sites. In exchange, AES will receive title to new steam and chilled water pipelines with greater capacity and replacement easements. As a result of the new assets, AES anticipates achieving higher future sales. Therefore, the transactions were recorded at the fair value of the assets received and resulted in a $5.5 million nonmonetary gain recorded to other income on the accompanying Consolidated Statements of Income.

Note E. Regulatory Assets

Regulatory assets represent costs incurred that are expected to be collected from customers through future rates in accordance with agreements with regulators. These costs are expensed when the corresponding revenues are received in order to appropriately match revenues and expenses.

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Regulatory assets consisted of the following:

	December 31,
(in thousands)	2006			2005
Energy contracts (including Yankee units)	$	768,406		$	866,867
Goodwill		658,539			678,698
Securitized energy-related costs		802,115			909,651
Retiree benefit costs		482,693			23,090
Merger costs to achieve		43,817			60,247
Income taxes, net		30,857			50,058
Purchased energy costs (over)/under collection		(39,659	)		44,665
Redemption premiums		13,080			14,896
Other		93,917			64,538
Total current and long-term regulatory assets	$	2,853,765		$	2,712,710

Under the traditional revenue requirements model, electric and gas rates are based on the cost of providing energy delivery service. Under this model, NSTAR Electric and NSTAR Gas are subject to certain accounting standards that are not applicable to other businesses and industries in general. The application of SFAS 71 requires companies to defer the recognition of certain costs when incurred if future rate recovery of these costs is expected. This is applicable to NSTAR’s electric and gas distribution and transmission operations.

Energy contracts

The unamortized balance of the estimated costs to decommission the CY, YA and MY nuclear power plants was $77.4 million at December 31, 2006. The MY nuclear unit was notified on October 3, 2005 by the NRC that its former plant site was decommissioned in accordance with NRC procedures. NSTAR’s liability for CY decommissioning and its recovery ends at the earliest in 2010, for YA in 2014 and for MY in 2010. However, should the actual costs exceed current estimates and anticipated decommissioning dates, NSTAR could have an obligation beyond these periods that would be fully recoverable. These costs are recovered through NSTAR

Electric’s transition charge. NSTAR does not earn a return on decommissioning costs, but a return is included in rates charged to NSTAR by the plant operators. Refer to the accompanying Notes to Consolidated Financial Statements, Note P, “Commitments and Contingencies,” for further discussion.

In addition, at December 31, 2006, $658.3 million represents the recognition of eight purchase power contract buy-out agreements that NSTAR Electric executed in 2004 and their future recovery through NSTAR Electric’s transition charges. Refer to the accompanying Notes to Consolidated Financial Statements, Note O, “Contracts for the Purchase of Energy” for further details. For the power contracts that were terminated, NSTAR does not earn a return on this regulatory asset. NSTAR recognized this regulatory asset as a result of recognizing the contract termination liability in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” As a result, NSTAR has not treated this regulatory asset as an investment in which it would be entitled to earn a return. Furthermore, no cash outlay has been incurred by NSTAR to create the regulatory asset. The contracts’ termination payments will occur over time and will be collected from customers through NSTAR’s transition charge over the same time period. The cost recovery of these terminated contracts is through September 2016.

The remaining balance at December 31, 2006 of $32.7 million represents the recognition of the future recoverability of a derivative liability recorded related to contracts structured to hedge the cash flow variability associated with a portion of NSTAR Gas’ future supply purchases. Refer to the accompanying Notes to Consolidated Financial Statements, Note F, “Derivative Instruments,” for further details.

Goodwill

The Company’s goodwill originated from the merger that created NSTAR in 1999. As a result of a rate order from the MDTE approving the merger, the Company is recovering goodwill from its customers and, therefore,

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NSTAR has determined that this rate structure allows for amortization of goodwill over the collection period. Goodwill along with related deferred income taxes is being amortized over 40 years, through 2039, without a carrying charge.

Securitized energy-related costs

Costs related to purchase power contract buy-outs and the divestiture of NSTAR’s generation business are recovered with a return through the transition charge. This recovery occurs through 2019 for Boston Edison and through 2023 for ComElectric. This schedule is subject to adjustment by the MDTE.

On March 1, 2005, NSTAR closed on a securitization financing for $674.5 million to, in part, finance the buy-out of four energy contracts. The remaining balance at December 31, 2006 of $519.9 million represents their future recovery through NSTAR’s electric transition charges.

As of December 31, 2006, $739.6 million of these energy-related regulatory assets are collateralized with the Transition Property Securitization Certificates held by Boston Edison’s subsidiaries, BEC Funding LLC and BEC Funding II, LLC and to ComElectric’s subsidiary, CEC Funding, LLC. The certificates are non-recourse to both Boston Edison and ComElectric.

Merger costs to achieve

An integral part of the merger that created NSTAR was the MDTE-approved rate plan of the retail utility subsidiaries of NSTAR. These costs are collected from all NSTAR Electric and NSTAR Gas distribution customers and exclude a return component. The costs to achieve amortization expense was $16.4 million in 2006, 2005 and 2004 and the original ten-year amortization period ends in 2009.

Income taxes, net

The principal holder of this regulatory asset is NSTAR Electric. Approximately $28 million of this regulatory asset balance reflects deferred tax reserve deficiencies that are being recovered from customers over a 17-year period and excludes a return component. In addition, approximately $15 million, net consisting of additional Boston Edison deferred tax reserve deficiencies have been recorded in accordance with an MDTE-approved settlement agreement and the realization in 2006 of the carryback of tax benefits related to NSTAR’s asset divestiture and excludes a return component. Offsetting these amounts is approximately $12 million of a regulatory liability associated with unamortized investment tax credits relating to NSTAR Electric and NSTAR Gas.

Purchased energy costs

The purchased energy costs at December 31, 2006 relate to deferred electric basic service and gas supply costs. Basic service is the electricity that is supplied by the local distribution company when a customer has chosen not to receive service from a competitive supplier. The market price for basic service and gas costs may fluctuate based on the average market price for energy. Amounts incurred for basic service and cost of gas supply are recovered on a fully reconciling basis.

Redemption premiums

These amounts reflect the unamortized balance of redemption premiums on Boston Edison Debentures that are amortized and recovered over the life of the respective debentures pursuant to MDTE approval. There is no return recognized on this balance.

Retiree benefit costs

The retiree benefit regulatory asset at December 31, 2006 of $482.7 million is comprised primarily of $468.9 million related to the application of SFAS No. 158, “Employers’ Accounting for Deferred Benefit Pension and

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Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). (Refer to the accompanying Notes to Consolidated Financial Statements, Note I, “Pension and Other Postretirement Benefits,” for further details.) Of this amount, $321.9 million is earning a carrying charge under the PAM regulatory mechanism. The remaining balance reflects the recognition of the unfunded status of other postretirement benefits. Deferred pension and PBOP costs, in accordance with PAM, are amortized and collected from customers over three years. At December 31, 2006, these deferred costs amounted to $13.8 million. NSTAR is allowed to recover its qualified pension and PBOP expenses through this reconciling rate mechanism, thereby removing the volatility in earnings that may have resulted from requirements of existing accounting standards and provides for an annual filing and rate adjustment with the MDTE.

Other

These amounts primarily consist of deferred transmission costs that are set to be recovered over a subsequent twelve-month period with carrying charges. The deferred costs represent the difference between the level of billed transmission revenues and the current period costs incurred to provide transmission-related services. Additionally in this category are the costs associated with a MDTE-approved safety and reliability program. Also, included are environmental costs and response costs that represent the recovery of costs to clean up former gas manufacturing sites over a 7-year period without a return.

Note F. Derivative Instruments

Energy Contracts

The electric distribution industry may contract to buy and sell electricity under option contracts, which allow the distribution company the flexibility to determine when and in what quantity to take electricity in order to align with its demand for electricity. These contracts would normally meet the definition of a derivative instrument requiring mark-to-market accounting. However, because electricity cannot be stored and utilities are obligated to maintain sufficient capacity to meet the electricity needs of their customer base, an option contract for the purchase of electricity typically qualifies for the normal purchases and sales exception as described in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) and Derivative Implementation Group interpretations and, therefore, does not require mark-to-market accounting. As a result, these agreements are not reflected as an asset or liability on the accompanying Consolidated Balance Sheets as they qualify for the normal purchases and sales exception. NSTAR accounts for its energy contracts in accordance with SFAS 133 and SFAS No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities” (SFAS 149).

Hedging Agreements

As approved by the MDTE, NSTAR Gas began purchasing financial contracts based upon NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase price for approximately one-third of its natural gas purchases. This practice minimizes fluctuations in prices to NSTAR firm gas sales customers. NSTAR Gas does not take physical delivery of gas when the financial contracts are executed. These contracts qualify as derivative financial instruments and specifically cash flow hedges under SFAS 133, as amended by SFAS 149. Accordingly, the fair value of these instruments is recognized on the accompanying Consolidated Balance Sheets as an asset or liability representing amounts due from or payable to the counter parties of NSTAR Gas, if such contracts were settled. All costs incurred are included in the firm sales CGAC and are fully recoverable in rates. Therefore, NSTAR Gas records an offsetting regulatory asset or liability. Management implemented this practice with five major financial institutions. Currently, these derivative contracts extend through April 2008. At December 31, 2006 and 2005, NSTAR has recorded a liability and a corresponding regulatory asset of $32.7 million and $0.3 million, respectively, reflecting the fair value of these contracts.

Note G. Variable Interest Entities

In 2004, the FASB issued its interpretation, “Consolidation of Variable Interest Entities,” as revised in December 2003 (FIN 46R), which addresses the consolidation of VIE by business enterprises that are the primary

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beneficiaries. A VIE is an entity that does not have sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise with the majority of the risks or rewards associated with the VIE. Based on NSTAR’s review of FIN 46 and FIN 46R, it consolidates three wholly-owned special purpose subsidiaries - BEC Funding LLC., established in 1999, BEC Funding II, LLC and CEC Funding, LLC, both established in 2004, to undertake the completed sale of $725 million, $265.5 million and $409 million, respectively, in notes to a special purpose trust created by two Massachusetts state agencies. NSTAR determined that the substance of these entities is appropriate to continue to consolidate these entities.

Note H. Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred tax assets and liabilities for the future tax effects of temporary differences between the carrying amounts and the tax basis of assets and liabilities. In accordance with SFAS 71 and SFAS 109, net regulatory assets of $30.9 million and $50.1 million and corresponding net increases in accumulated deferred income taxes were recorded as of December 31, 2006 and 2005, respectively. The regulatory assets represent the additional future revenues to be collected from customers for deferred income taxes.

Accumulated deferred income taxes and unamortized investment tax credits consisted of the following:

	December 31,
(in thousands)	2006		2005
Deferred tax liabilities:
Plant-related	$	643,521	$	560,445
Goodwill		258,312		266,219
Power contracts		218,478		250,824
Transition costs		88,242		123,149
Other		171,262		197,151
		1,379,815		1,397,788
Deferred tax assets:
Plant-related		41,016		46,224
Investment tax credits		13,942		15,428
Other		100,282		78,925
		155,240		140,577
Net accumulated deferred income taxes		1,224,575		1,257,211
Accumulated unamortized investment tax credits		21,785		23,477
	$	1,246,360	$	1,280,688

Previously deferred investment tax credits are amortized over the estimated remaining lives of the property that generated the credits.

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Components of income tax expense were as follows:

(in thousands)	2006			2005			2004
Current income tax expense (benefit)	$	119,827		$	(52,959	)	$	36,668
Deferred income tax expense		1,207			165,364			73,378
Investment tax credit amortization		(1,692	)		(1,715	)		(1,716	)
Income taxes charged to operations		119,342			110,690			108,330
Tax expense (benefit) on other income net:
Current income tax expense		4,964			3,703			2,989
Deferred income tax (benefit) expense		2,571			(4,735	)		—
Income tax expense (benefit) on other income, net		7,535			(1,032	)		2,989
Total income tax expense	$	126,877		$	109,658		$	111,319

The effective income tax rates reflected in the accompanying consolidated financial statements and the reasons for their differences from the statutory federal income tax rate were as follows:

	2006		2005		2004
Statutory tax rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal income tax benefit	4.5		4.6		4.0
Investment tax credits	(0.5	)	(0.6	)	(0.6	)
Tax adjustment	—		(1.5	)	—
Other	(1.0	)	(1.6	)	(1.3	)
Effective tax rate	38.0	%	35.9	%	37.1	%

During 2005, the Company recognized approximately $4.7 million in tax benefits relating to capital tax gain transactions. As a result, the Company reduced its tax loss contingency by a corresponding amount. This impact is reflected in the above schedule as a tax adjustment.

Uncertain Tax Positions

Deduction of Construction-Related Costs

In 2004, NSTAR filed an amended income tax return for 2002 to change the method of accounting for certain construction-related overhead costs previously capitalized to plant to the SSCM that allowed for accelerated deduction. NSTAR has claimed additional deductions related to the tax accounting method change in its 2002-2004 returns of $368.9 million. In 2005, NSTAR received formal notification from the IRS that the claim on its amended income tax return would be denied and NSTAR never received the requested refund amount due.

In August 2005, the IRS issued Revenue Ruling 2005-53 and Treasury Regulations under Code Section 263A related to the SSCM to curtail these levels of construction-related cost deductions by utilities and others. Under this Regulation, the SSCM is not available for the majority of NSTAR’s constructed property for the years 2005 and forward. As a result, NSTAR was required to make a cash tax payment to the IRS of $129.1 million by December 2006 representing the disallowed SSCM deductions taken for 2002-2004 even though the tax refund was never received. This payment will be fully refunded with interest to NSTAR, once this tax position is settled. As of December 31, 2006, this refund has been recorded as a non-current Refundable income tax on the accompanying Consolidated Balance Sheet. This tax payment, along with any potential deduction ultimately sustained, is not anticipated to have a material impact on NSTAR’s results of operations, its financial position, or cash flows.

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NSTAR has determined that it is less than more likely than not that it will prevail on sustaining a significant deduction level for SSCM.

RCN Corporation (RCN) Share Abandonment Tax Treatment

On December 24, 2003, NSTAR exited its investment in RCN by formally abandoning its 11.6 million shares of RCN common stock. As a result of this action, NSTAR recorded a pre-tax charge of approximately $6.8 million reflecting the write down of its investment to zero as of December 31, 2003. NSTAR determined that the abandonment at that time was the most tax efficient, cost effective and expedient means to exit its RCN investment. NSTAR also determined that the benefit of a tax realization event at that time and in that manner outweighed any benefit that it would likely realize from any other alternative, including the future sale of such shares in an orderly fashion consistent with all laws, rules and regulations.

As a result of the RCN share abandonment, the Company claimed an ordinary loss on its 2003 tax return for this item. The ordinary loss tax treatment resulted in the Company realizing the benefits represented by the deferred tax asset recorded on its books that resulted from the previous write-down of this investment for financial reporting purposes. The requirement for a tax valuation allowance recorded prior to this abandonment, therefore, is no longer applicable. Accordingly, the Company reversed this reserve as of December 31, 2003.

It is NSTAR’s current tax accounting policy not to recognize tax benefits associated with an uncertain tax position until it is probable that such tax benefit will ultimately be realized. Since NSTAR is under continuous audit by the IRS, NSTAR consulted with its independent tax advisors and determined that it could not conclude that it is probable that the tax deduction related to the abandonment of its RCN investment will be sustained. Accordingly, NSTAR accrued a tax reserve so as to not record the tax benefit of the uncertain tax position. Refer to the accompanying Notes to Consolidated Financial Statements, Note A, Item 16, “New Accounting Standards” for the impact of this uncertain tax position upon the adoption of FIN 48, effective January 1, 2007.

The Company believes it is more likely than not that it is entitled to this ordinary loss deduction, and in accordance with the Company’s tax policy as it relates to uncertain tax positions, NSTAR established a loss contingency of approximately $44.4 million at December 31, 2003. This amount represents the tax impact to the Company should the ordinary loss ultimately be recharacterized to a capital loss and would be reclassified as a tax valuation allowance. During 2006 and 2005, the Company recognized approximately $4.8 million in tax benefits relating to capital tax gain transactions. As a result, the Company reduced its tax loss contingency by a corresponding amount. Therefore, as of December 31, 2006, the tax loss contingency is approximately $39.6 million. This contingent liability is recorded as part of Deferred credits - Other on the accompanying Consolidated Balance Sheets.

On December 22, 2006, NSTAR received from the IRS agent a preliminary notice indicating their intention not to accept NSTAR’s position regarding the RCN ordinary loss deduction. If the Company’s position is not upheld, the Company may be required to make future cash expenditures to the IRS that may impact NSTAR’s cash requirements in future periods. NSTAR cannot predict the timing or ultimate resolution of this uncertain tax position.

Note I. Pension and Other Postretirement Benefits

NSTAR adopted the funded status recognition provision of SFAS 158 effective December 31, 2006. This standard amends SFAS Nos. 87, 88, 106 and 132(R). SFAS 158 requires an employer with a defined benefit plan or other postretirement plan to recognize an asset or liability on its balance sheet for the over funded or under funded status of the plan as defined by SFAS 158. The pension asset or liability is the difference between the fair value of the pension plan’s assets and the projected benefit obligation as of year-end. For other postretirement benefit plans, the asset or liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation as of year-end. As a result of NSTAR’s approved regulatory rate mechanism for recovery of pension and postretirement costs, NSTAR has recognized a regulatory asset for certain of its pension and postretirement costs in lieu of taking a charge to AOCI. A charge of approximately $5.2 million, net of taxes, was taken to AOCI related to NSTAR’s unregulated subsidiaries and its non-qualified

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pension plan. The following table illustrates the effect on individual financial statement line items of applying this standard, relating to pension and postretirement benefits costs:

(in thousands)	December 31, 2006
	Before Application of SFAS 158			Adjustment			After Application of SFAS 158
Assets:
Deferred debits - regulatory assets	$	1,965,851		$	468,886		$	2,434,737
Prepaid pension		321,883			(321,883	)		—
Deferred debits - other		79,632			(2,570	)		77,062
Liabilities and Equity:
Accumulated other comprehensive income		(6,833	)		(5,185	)		(12,018	)
Current liabilities - other		44,904			3,062			47,966
Deferred credits - Pension and other postretirement liabilities		114,386			149,860			264,246
Accumulated deferred income taxes		1,213,038			(3,304	)		1,209,734

1. Pension

NSTAR sponsors a defined benefit retirement plan, the NSTAR Pension Plan (the Plan), that covers substantially all employees. Retirement benefits are based on various final average pay formulae. NSTAR also maintains nonqualified retirement plans for certain management employees.

The Plans use a December 31^st for the measurement date to determine its projected benefit obligation and fair value of plan assets for the purposes of determining the Plans’ funded status and the net periodic benefit costs for the following year.

The following tables for NSTAR’s Pension benefit plans present the change in benefit obligation, change in Plan assets, the funded status, the components of net periodic benefit cost and key assumptions used:

	December 31,
(in thousands)	2006			2005
Change in benefit obligation:
Benefit obligation, beginning of the year	$	1,035,558		$	1,059,398
Service cost		20,865			20,689
Interest cost		59,507			57,634
Plan participants’ contributions		36			42
Plan amendments		699			—
Actuarial loss (gain)		22,966			(24,664	)
Settlement payments		(10,953	)		(23,726	)
Benefits paid		(53,677	)		(53,815	)
Projected benefit obligation, end of the year	$	1,075,001		$	1,035,558
Change in Plan assets:
Fair value of Plan assets, beginning of the year	$	964,613		$	894,754
Actual gain on Plan assets, net		126,210			69,812
Employer contribution		2,830			77,546
Plan participants’ contributions		36			42
Settlement payments		(10,953	)		(23,726	)
Benefits paid		(53,677	)		(53,815	)
Fair value of Plan assets at end of the year	$	1,029,059		$	964,613
Funded status at end of year (under)/over	$	(45,942	)	$	(70,945	)
Unrecognized actuarial net loss					397,149
Unrecognized prior service cost					(3,228	)
Net amount recognized				$	322,976

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The market-related value of NSTAR’s pension plans’ assets is determined based on the actual fair value as of the balance sheet date for all classes of assets. Therefore, the entire difference between the actual and expected return on Plan assets is reflected as a component of unrecognized actuarial net loss.

Amounts recognized in the accompanying Consolidated Balance Sheets consisted of:

	December 31,
(in thousands)	2006			2005
Total pension liability	$	—		$	(37,351	)
Intangible asset		—			2,570
Accumulated other comprehensive income		—			10,868
Prepaid pension		—			346,889
Current liabilities - other		(3,000	)		—
Deferred credits - pension and other postretirement liabilities		(42,942	)		—
	$	(45,942	)	$	322,976
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income and regulatory asset:
Prior service credit (cost)	$	2,658
Accumulated actuarial (loss)		(344,481	)
Cumulative employer contributions in excess of net periodic benefit cost		295,881
Net unrecognized periodic pension benefit cost and reflected on the accompanying Consolidated Balance Sheet	$	(45,942	)

The estimated prior service cost and net actuarial loss that will be amortized from AOCI and regulatory asset into net periodic benefit cost in 2007 are $16,000 and $20,133,000, respectively.

The accumulated benefit obligations for the qualified pension plan as of December 31, 2006 and 2005 were $905.1 million and $880.8 million, respectively.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the nonqualified retirement plan were $41.3 million, $39.2 million and $0, respectively, as of December 31, 2006 and were $40.6 million, $37.4 million and $0, respectively, as of December 31, 2005.

Weighted average assumptions were as follows:

	2006		2005		2004
Discount rate at the end of the year	6.0	%	5.75	%	5.75	%
Expected return on Plan assets for the year (net of expenses)	8.4	%	8.4	%	8.4	%
Rate of compensation increase at the end of the year	4.0	%	4.0	%	4.0	%

The Plans’ discount rates are based on a rate modeling of a bond portfolio that approximates the Plan liabilities. In addition, management considers rates of high quality corporate bonds of appropriate maturities as published by nationally recognized rating agencies consistent with the duration of the Company’s plans and through periodic bond portfolio matching. The Plans’ long-term rates of return are based on past performance and economic forecasts for the types of investments held in the Plan as well as the target allocation of the investments over a 20-year time period. This rate is presented net of both administrative expenses and investment expenses, which have averaged approximately 0.6% for 2006 and 2005.

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Components of net periodic benefit cost were as follows:

	Years ended December 31,
(in thousands)	2006			2005			2004
Service cost	$	20,865		$	20,689		$	19,038
Interest cost		59,507			57,634			60,165
Expected return on Plan assets		(78,013	)		(74,390	)		(70,794	)
Amortization of prior service cost		129			133			133
Amortization of transition obligation		—			—			379
Recognized actuarial loss		27,437			26,202			26,931
Net periodic benefit cost	$	29,925		$	30,268		$	35,852

The following reflects the weighted average asset allocation percentage of the fair value of total Plan assets for each major type of Plan asset as of December 31^st as well as the Plans’ target percentages and the targeted ranges:

	Plan Assets				Target %		Targeted Ranges
	2006		2005					Benchmark
Asset Category
Equity securities	51	%	51	%	45	%	40% - 50%	Russell 300 Index
Debt securities	17		28		14		12% - 22%	Lehman Aggregate
Real Estate	12		7		17		10% - 20%	Wilshire NAREIT Index
Alternative	20		14		24		20% - 30%	Various
Total	100	%	100	%	100	%

Alternative asset category consists of hedge funds and common/collective trusts.

The primary investment goal of the Plan is to achieve a total annualized return of 9% (before expenses) over the long-term and to minimize unsystematic risk so that no single security or class of securities will have a disproportionate impact on the Plan. Risk is regularly evaluated, compared and benchmarked to plans with a similar investment strategy. NSTAR currently uses 18 asset managers to manage its plan assets. Assets are diversified by both asset class (i.e., equities, bonds) and within these classes (i.e., economic sector, industry), such that, for each equity activities asset manager:

• No more than 6% of an asset manager’s equity portfolio market value may be invested in one company

• Each portfolio should be invested in at least 20 different companies in different industries, and

• No more than 50% of each portfolio’s market value may be invested in one industry sector.

Each asset manager may invest in domestic and international fixed income investments and may include government obligations, corporate bonds, preferred stock, and asset-backed securities. In addition, no one asset manager may invest in more than 5% of any one security of an issuer, except the U.S. Government and its agencies.

Employer contributions in 2006 represent benefit payments under its non-qualified plan. NSTAR does not anticipate making any contributions to its qualified Plan in 2007.

The estimated benefit payments for the years after 2006 are as follows:

(in thousands)
2007	$	65,011
2008		66,294
2009		72,421
2010		72,000
2011		74,662
2012 - 2016		423,211
Total	$	773,599

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2. Other Postretirement Benefits

NSTAR also provides health care and other benefits to retired employees who meet certain age and years of service eligibility requirements. These benefits include health and life insurance coverage. Under certain circumstances, eligible retirees are required to contribute to the cost of postretirement benefits.

NSTAR’s other postretirement benefits are not vested and the Company has the right to modify any benefit provision, including contribution requirements, with respect to any current or former employee, dependent or beneficiary, subject to applicable laws at that time.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was reflected as of January 1, 2004 by NSTAR assuming continuation of prescription drug benefits to retirees that are at least actuarially equivalent to the benefits provided under Medicare Part D. The Act provides for drug benefits for participants age 65 and over under a new Medicare Part D program. For employers like NSTAR, who continue to provide prescription drug programs for eligible former employees age 65 and over, there are subsidies available that are contained in the Act in the form of direct tax-exempt cash payments.

Since the subsidy affects the employer’s share of its plan’s costs, the subsidy is included in measuring the costs of benefits attributable to current service. Therefore, the subsidy reduces service cost when it is recognized as a component of net periodic postretirement benefits cost. The impact of this subsidy reduced NSTAR’s net periodic postretirement benefit cost by approximately $11.5 million and $9.7 million in 2006 and 2005, respectively, and is reflected as a component of net periodic postretirement benefits costs. However, as a result of the Company’s pension and other postretirement benefits rate adjustment mechanism, these reductions do not have a material impact on reported earnings.

NSTAR’s other postretirement plans use December 31^st for the measurement date to determine its benefit obligation and fair value of plan assets for the purposes of determining the plans’ funded status and the net periodic benefit costs for the following year.

The following tables for NSTAR’s postretirement plans present the change in benefit obligation, change in the plans’ assets, the funded status, the components of net periodic benefit cost and key assumptions used:

	December 31,
(in thousands)	2006			2005
Change in benefit obligation:
Benefit obligation, beginning of the year	$	595,672		$	600,430
Service cost		5,490			5,733
Interest cost		32,890			33,342
Plan participants’ contributions		2,428			2,204
Plan amendments		(12,695	)		(17,789	)
Actuarial (gain) loss		(18,874	)		3,002
Benefits paid		(31,902	)		(31,250	)
Federal subsidy		1,791			—
Benefit obligation, end of the year	$	574,800		$	595,672
Change in the plans’ assets:
Fair value of the plans’ assets, beginning of the year	$	335,338		$	305,309
Actual gain on plan assets		47,521			19,028
Employer contribution		49			40,047
Plan participants’ contributions		2,428			2,204
Benefits paid		(31,902	)		(31,250	)
Fair value of the plans’ assets, end of the year	$	353,434		$	335,338

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The plans’ funded status was as follows:

(in thousands)
Funded status at end of year	$	(221,366	)	$	(260,334	)
Unrecognized actuarial net loss					205,569
Unrecognized transition obligation					5,810
Unrecognized prior service cost					(916	)
Net amount recognized				$	(49,871	)
Amounts recognized in the accompanying Consolidated Balance Sheet:
Current liabilities - other	$	(62	)
Deferred credits - pension and other postretirement liabilities		(221,304	)
	$	(221,366	)
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income and regulatory assets:
Transition asset (obligation)	$	(4,877	)
Prior service credit (cost)		13,504
Accumulated actuarial (loss)		(155,499	)
Cumulative employer contributions in excess of net periodic benefit costs		(74,494	)
Net amount recognized in statement of financial position	$	(221,366	)

The estimated transition obligation, prior service credit, net actuarial loss that will be amortized from AOCI and regulatory asset into net periodic benefit costs in 2007 are $812,000, $3,151,000, and $8,338,000, respectively.

Weighted average assumptions were as follows:

	2006		2005		2004
Discount rate at the end of the year	6.0	%	5.75	%	5.75	%
Expected return on the plans’ assets for the year	9.0	%	9.0	%	8.0	%

For measurement purposes, a 8.0% weighted annual rate increase in per capita cost of covered medical claims was assumed for 2006. This rate is assumed to decrease gradually to 5% in 2013 and remain at that level thereafter. Dental claims are assumed to increase at a weighted annual rate of 4%.

A 1% change in the assumed health care cost trend rate would have the following effects:

	One-Percentage-Point
(in thousands)	Increase		Decrease
Effect on total service and interest cost components for 2006	$	6,502	$	(5,136	)
Effect on December 31, 2006 postretirement benefit obligation	$	87,622	$	(70,573	)

Components of net periodic benefit cost were as follows:

	Years ended December 31,
(in thousands)	2006			2005			2004
Service cost	$	5,490		$	5,733		$	5,828
Interest cost		32,890			33,342			33,395
Expected return on plan assets		(27,015	)		(25,027	)		(23,759	)
Amortization of prior service cost		13			222			1,285
Amortization of transition obligation		812			1,241			1,821
Recognized actuarial loss		10,691			11,216			9,598
Net periodic benefit cost	$	22,881		$	26,727		$	28,168

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NSTAR anticipates making an estimated contribution of approximately $20 million to its other postretirement benefit plans in 2007.

The estimated future cash flows for the years after 2006 are as follows:

	Gross estimated benefit payments		Estimated expected cash inflows from Medicare subsidy
(in thousands)
2007	$	29,227	$	2,325
2008		30,627		2,571
2009		32,180		2,809
2010		33,548		3,039
2011		35,140		3,246
2012 - 2016		193,936		19,673
Total	$	354,658	$	33,663

The following reflects the weighted average asset allocation percentages of the fair value of total Plan assets for each major type of Plan asset as of December 31^st as well as the Plan’s target percentages and the targeted range:

	Plan Assets				Target %		Targeted             Ranges
Asset Category	2006		2005					Benchmark
Equity securities	49	%	47	%	50	%	45% - 55%	Russell 3000 Index
Debt securities	30		35		30		25% -35%	Lehman Aggregate
Real Estate	11		9		10		5% - 15%	Wilshire NAREIT Index
Alternative	10		9		10		5% - 15%	Various
Total	100	%	100	%	100	%

Alternative asset category consists of hedge funds and common/collective trusts.

The assets of NSTAR’s PBOP Plan are held in voluntary employees’ beneficiary association trusts and in the Pension Plan 401(h) account which is a subset of the Pension Plan assets and are not reflected as a component of the PBOP Plan assets.

The plan’s primary investment goal is to outperform the return of the composite benchmark. The portfolio also seeks a level of volatility, which approximates that of the composite benchmark returns.

3. Savings Plan

NSTAR also provides a defined contribution 401(k) plan for substantially all employees. Matching contributions (which are equal to 50% of the employees’ deferral up to 8% of eligible base and cash incentive compensation) included in the accompanying Consolidated Statements of Income amounted to $9 million in 2006, $9 million in 2005 and $8 million in 2004. The plan was amended to allow for increased maximum annual pre-tax contributions and additional “catch-up” pre-tax contributions for participants age 50 or older, acceptance of other types of “roll-over” pre-tax funds from other plans and the option of reinvesting dividends paid on the NSTAR Common Share Fund or receiving such dividends in cash. The election to reinvest dividends paid on the NSTAR Common Share Fund or receive the dividends in cash is subject to a freeze period beginning seven days prior to the date any dividend is paid. During this period, participants cannot change their election. NSTAR dividends are paid to this plan four times a year in February, May, August and November.

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Note J. Stock-Based Compensation

The Plan

The NSTAR 1997 Share Incentive Plan (the 1997 Plan) permitted a variety of stock and stock-based awards, including stock options and deferred stock awards granted to key employees. The 1997 Plan, which expired as to further grants on January 23, 2007, limited the terms of awards to ten years. Subject to adjustment for stock-splits and similar events, the aggregate number of common shares that that were available for award under the 1997 Plan was four million. There were 1,212,172 unissued shares available under the 1997 Plan as of December 31, 2006. All options were granted at the full market price of the common shares on the date of the grant when approved by the NSTAR Board of Trustees’ or its Executive Personnel Committee. In general, stock options and deferred stock awards vest ratably over a three-year period from date of grants, and options may be exercised during the ten-year period from grant date.

On January 25, 2007, the NSTAR Board of Trustees approved the NSTAR 2007 Long Term Incentive Plan, (the 2007 Plan), subject to approval by NSTAR common shareholders at the 2007

Annual Meeting of Shareholders to be held on May 3, 2007. The 2007 Plan also limits the terms of awards to ten years and is substantially similar to the 1997 Plan, except that the aggregate number of common shares that may be awarded under the 2007 Plan is 3.5 million. The 2007 Plan also has additional shareholder protections, such as a prohibition on stock repricing and minimum vesting requirements.

Stock-based compensation activity of the Plan was as follows:

Deferred Shares:

	2006 Activity		Weighted Average Grant Date Fair Value Price
Nonvested deferred shares at January 1	575,105		$	27.36
Deferred shares granted	213,900		$	27.73
Deferred shares vested	(198,186	)	$	25.07
Deferred shares forfeited	(5,300	)	$	26.29
Nonvested deferred shares at December 31	585,519		$	28.28

On April 27, 2006, awards totaling 213,900 deferred shares were granted to executives and senior managers. The total fair value on the vested date of deferred shares that vested during 2006 was $5.7 million.

Stock Options:

	2006 Activity		Weighted Average Exercise Price
Options outstanding at January 1	2,588,401		$	24.05
Options granted	503,000		$	27.73
Options exercised	(794,068	)	$	21.81
Options forfeited	(32,000	)	$	26.47
Options outstanding at December 31	2,265,333		$	25.66

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Summarized information regarding stock options outstanding at December 31, 2006:

	Options Outstanding						Options Exercisable (Vested)
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (000’s)		Number Exercisable	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (000’s)
$19.88	19,800	1.26	$	19.88	$	287	19,800	1.26	$	19.88	$	287
$22.19	43,200	3.40	$	22.19		526	43,200	3.40	$	22.19		526
$19.85	10,000	4.40	$	19.85		145	10,000	4.40	$	19.85		145
$22.06 -$22.67	292,000	5.30	$	22.58		3,439	292,000	5.30	$	22.58		3,439
$21.60	298,000	6.33	$	21.60		3,802	298,000	6.33	$	21.60		3,802
$24.21	545,333	7.33	$	24.21		5,538	340,293	7.33	$	24.21		3,456
$29.60	554,000	8.44	$	29.60		2,637	172,100	8.44	$	29.60		819
$27.73	503,000	9.32	$	27.73		3,335	—	—		—		—
	2,265,333	7.51	$	25.66	$	19,709	1,175,393	6.46	$	23.75	$	12,474

There were 1,175,393, 1,420,465 and 1,689,978 stock options exercisable as of December 31, 2006, 2005 and 2004 respectively. As of December 31, 2006, 2005 and 2004, the associated weighted average exercise price of these exercisable options is $23.75, $22.09 and $20.75, respectively. The total intrinsic value (the market price of the common shares on the date exercised, less the option exercise prices) of options exercised during the year ended December 31, 2006, 2005 and 2004 was $9.7 million, $8.3 million and $0.6 million, respectively.

The stock options granted in 2006, 2005 and 2004 have a weighted average grant date fair value of $3.86, $2.74 and $3.74, respectively. The fair value was estimated using the Black-Scholes option-pricing model that uses the assumptions in the table below. The expected option lives are based on the average historical time frame that options are expected to remain unexercised. Expected volatilities are based on the historical performance of NSTAR’s stock price. The risk-free interest rate is based on the U.S. Treasury Strip in effect on grant date. The fair values were computed using the following range of assumptions for NSTAR’s stock options for the years ended December 31:

	2006		2005		2004
Expected life (years)	6.0		6.0		4.0
Risk-free interest rate	4.91	%	3.76	%	3.39	%
Volatility	16	%	15	%	15	%
Dividends	4.06	%	4.69	%	4.90	%

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NSTAR is using the modified prospective application transition method without restatement of periods prior to 2006. Prior to the adoption of SFAS 123(R), NSTAR applied the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its 1997 Share Incentive Plan. Accordingly, no stock-based employee compensation expense for option grants was recognized in net income, as all options granted under this plan had an exercise price equal to the market value of the underlying common shares on the date of grant. The following table illustrates the effect on net income and earnings per share, for periods prior to the adoption of SFAS 123(R), if NSTAR had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

(in thousands, except earnings per common share amounts)	Year ended December 31, 2005			Year ended December 31, 2004
Net income	$	196,135		$	188,481
Add: Share grant incentive compensation expense included in reported net income, net of related tax effects		3,347			2,608
Deduct: Total share grant and stock option compensation expense determined under fair value method for all awards, net of related tax effects		(4,110	)		(3,385	)
Pro forma net income	$	195,372		$	187,704
Earnings per common share:
Basic - as reported	$	1.84		$	1.77
Basic - pro forma	$	1.83		$	1.77
Diluted - as reported	$	1.83		$	1.76
Diluted - pro forma	$	1.82		$	1.75

Stock-Based Compensation

As of December 31, 2006, the total stock-based compensation cost related to nonvested stock options and deferred share awards not yet recognized was $13.3 million. The remaining weighted average period over which total stock-based compensation will be recognized is 2.01 years.

Total stock-based compensation cost recognized in the accompanying Consolidated Statements of Income in 2006, 2005 and 2004 was $8.2 million, $5.5 million and $4.3 million, respectively. Included in the 2006 stock-based compensation is approximately $1.5 million of cost related to stock options.

Note K. Capital Stock and Accumulated Other Comprehensive Income

Dividends declared per common share were $1.535, $0.87 and $1.1225 in 2006, 2005 and 2004, respectively. As a result of a change in NSTAR’s Board of Trustee meetings schedule in 2005, the fourth quarter dividend, typically declared in December, of $0.3025 per share was approved on January 26, 2006. The dividend payment schedule remains unchanged.

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1. Common Shares

Common share and accumulated other comprehensive income activity in 2005 and 2006 was as follows:

(in thousands)	Number of Shares	Total Par Value		Premium on Common Shares			Accumulated Other Comprehensive Income
Balance at December 31, 2004	106,550	$	106,550	$	819,454		$	(3,373	)
Share Incentive Plan	—		—		(13,243	)		—
Dividend Reinvestment and Direct Common Shares Purchase Plan	258		258		6,888			—
Additional minimum pension liability, net	—		—		—			(3,019	)
Balance at December 31, 2005	106,808		106,808		813,099			(6,392	)
Share Incentive Plan	—		—		10,351			—
Additional minimum pension liability, net	—		—		—			(441	)
Adoption of SFAS 158	—		—		—			(5,185	)
Balance at December 31, 2006	106,808	$	106,808	$	823,450		$	(12,018	)

In connection with the NSTAR Dividend Reinvestment and Direct Common Shares Purchase Plan, NSTAR issued approximately 258,000 shares under this registration and received approximately $7.1 million in 2005.

2. Cumulative Preferred Stock of Subsidiary

Non-mandatory redeemable series:

Par value $100 per share, 2,890,000 shares authorized and 430,000 shares issued and outstanding:

(in thousands, except per share amounts)
Series	Current Shares     Outstanding	Redemption Price/Share		December 31, 2006		December 31, 2005
4.25%	180,000	$	103.625	$	18,000	$	18,000
4.78%	250,000	$	102.80		25,000		25,000
Total non-mandatory redeemable series				$	43,000	$	43,000

NSTAR Electric has two outstanding series of non-mandatory redeemable preferred stock. Both series are part of a class of NSTAR Electric’s Cumulative Preferred Stock. Upon any liquidation of NSTAR Electric, holders of the Cumulative Preferred stock are entitled to receive the liquidation preference for their shares before any distribution to the holder of the common stock. The liquidation preference for each outstanding series of Cumulative Preferred Stock is equal to the par value ($100.00 per share), plus accrued and unpaid dividends.

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Note L. Indebtedness

1. Long-Term Debt

NSTAR’s long-term debt consisted of the following:

	December 31,
(in thousands)	2006			2005
Mortgage Bonds/Notes, collateralized by property of operating subsidiaries:
6.54%, due September 2007	$	1,429		$	2,857
7.04%, due September 2017		25,000			25,000
9.95%, due December 2020		25,000			25,000
7.11%, due December 2033		35,000			35,000
6.924%, due June 2021		100,087			103,947
Notes:
7.62%, due November 2006		—			20,000
8.70%, due March 2007		—			5,000
9.55%, due December 2007 *		1,429			2,857
7.70%, due March 2008 *		10,000			10,000
8.0%, due February 2010		500,000			500,000
9.37%, due January 2012 *		6,316			7,368
7.98%, due March 2013 *		25,000			25,000
9.53%, due December 2014 *		10,000			10,000
9.60%, due December 2019 *		10,000			10,000
8.47%, due March 2023 *		15,000			15,000
Debentures:
7.80%, due May 2010		125,000			125,000
4.875%, due October 2012		400,000			400,000
4.875%, due April 2014		300,000			300,000
5.75%, due February 2031		200,000			—
Sewage facility revenue bonds, due through 2015		13,214			14,902
Massachusetts Industrial Finance Agency (MIFA) bonds:
5.75%, due February 2014		15,000			15,000
Transition Property Securitization Certificates:
3.40%, due September 2006		—			36,836
6.91%, due September 2007		41,430			108,923
3.78%, due September 2008		104,998			154,018
7.03%, due March 2010		171,624			171,624
4.13%, due September 2011		266,477			266,477
4.40%, due September 2013		144,771			144,771
		2,546,775			2,534,580
Unamortized debt discount		(9,918	)		(9,063	)
Amounts due within one year *		(176,082	)		(123,140	)
Total long-term debt	$	2,360,775		$	2,402,377

* For financial reporting purposes, NSTAR reclassified its ComElectric subsidiary’s entire long-term debt principal balance of $77.7 million as due within one year on the accompanying Consolidated Balance Sheets at December 31, 2006 as a result of NSTAR’s merger of its electric subsidiaries, ComElectric, Cambridge Electric and Canal into NSTAR Electric. The merger was effective January 1, 2007 and ComElectric’s debt was fully paid off on the following day and included a make-whole premium and accrued interest payment of $17.6 million and $1.5 million, respectively.

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On September 1, 2006, Cambridge Electric redeemed the entire $5 million aggregate principal amount of its 8.7%, Series H Notes, due March 11, 2007, for a redemption price of 101.439% of the principal amount there of plus accrued interest.

On November 1, 2006, Cambridge Electric redeemed the entire outstanding balance of $20 million aggregate principal amount of its 7.62%, seven-year Notes due on that date.

Sewage facility revenue bonds are tax-exempt, subject to annual mandatory sinking fund redemption requirements and mature through 2015. Scheduled redemptions of $1.65 million were made in 2006 and 2005. The interest rate of the bonds was 7.375% for both 2006 and 2005.

The 5.75% tax-exempt unsecured MIFA bonds due 2014 were redeemable beginning in February 2004 at a redemption price of 102%. The redemption price decreased to 101% in February 2005 and to par in February 2006.

The aggregate principal amounts of NSTAR long-term debt (including securitization certificates and sinking fund requirements) due in the five years subsequent to 2006 are approximately $176 million in 2007, $159 million in 2008, $159 million in 2009, $751 million in 2010 and $91 million in 2011.

The Transition Property Securitization Certificates held by NSTAR Electric’s subsidiaries, BEC Funding LLC, BEC Funding II, LLC and CEC Funding, LLC (Funding companies), are each collaterized with separate securitized regulatory assets with combined balances of $739.6 million and $892.5 million as of December 31, 2006 and 2005, respectively. NSTAR Electric, as servicing agent for the Funding companies, collected $194.4 million and $186.9 million in 2006 and 2005, respectively. Funds collected from the companies’ respective customers are transferred to each Funding companies’ Trust on a daily basis. These Certificates are non-recourse to NSTAR Electric.

On March 16, 2006, Boston Edison sold $200 million of thirty-year fixed rate (5.75%) Debentures. The net proceeds were primarily used to repay outstanding short-term debt balances. This most recent financing activity completes a process that began in December 2003 when Boston Edison filed a shelf registration with the SEC to issue up to $500 million in debt securities. The MDTE approved the issuance by Boston Edison of up to $500 million of debt securities from time to time on or before December 31, 2005. On December 29, 2005, the MDTE approved Boston Edison’s request to extend the term of its financing plan until June 30, 2006 for the remaining $200 million in securities.

2. Financial Covenant Requirements and Lines of Credit

NSTAR and NSTAR Electric have no financial covenant requirements under their respective long-term debt arrangements. NSTAR Gas has financial covenant requirements under its long-term debt arrangements and was in compliance at December 31, 2006 and 2005. NSTAR’s long-term debt other than the Mortgage Bonds of NSTAR Gas and Medical Area Total Energy Plant, Inc., a wholly-owned subsidiary of NSTAR, is unsecured.

NSTAR has executed a five-year, $175 million revolving credit agreement that expires January 2, 2012. At December 31, 2006 and 2005, there were no amounts outstanding under the revolving credit agreement. This credit facility serves as a backup to NSTAR’s $175 million commercial paper program that, at December 31, 2006 and 2005, had $53.5 million and $66 million outstanding, respectively. Under the terms of the credit agreement, NSTAR is required to maintain a maximum total consolidated debt to total capitalization ratio of not greater than 65% at all times, excluding Transition Property Securitization Certificates, and excluding Accumulated other comprehensive income (loss) from common equity. Commitment fees must be paid on the total agreement amount. At December 31, 2006 and 2005, NSTAR was in full compliance with the aforementioned covenant as the ratios were 58.3% and 56.7% respectively.

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NSTAR Electric has approval from the FERC to issue short-term debt securities from time to time on or before October 23, 2008, with maturity dates no later than October 23, 2009, in amounts such that the aggregate principal does not exceed $655 million at any one time. NSTAR Electric has a five-year, $450 million revolving credit agreement that expires January 2, 2012. However, unless NSTAR Electric receives necessary approvals from the MDTE, the credit agreement will expire 364 days from the date of the first draw under the agreement. At December 31, 2006 and 2005, there were no amounts outstanding under the revolving credit agreement. This credit facility serves as backup to NSTAR Electric’s $450 million commercial paper program that had a $200 million and $197 million outstanding balance at December 31, 2006 and 2005, respectively. On January 2, 2007, with the effect of the NSTAR Electric merger, the commercial paper program had an outstanding balance of $326 million. Under the terms of the revolving credit agreement, NSTAR Electric is required to maintain a consolidated maximum total debt to capitalization ratio of not greater than 65% at all times, excluding Transition Property Securitization Certificates, and excluding Accumulated other comprehensive income (loss) from common equity. At December 31, 2006 and 2005, NSTAR Electric was in full compliance with its covenants in connection with its short-term credit facilities as the ratios were 49.0% and 45.9%, respectively.

Effective with the NSTAR Electric merger, NSTAR Gas has $200 million available under one line of credit. As of December 31, 2006 and 2005, NSTAR Gas had $150.7 million and $154.5 million outstanding balances, respectively. NSTAR Gas is not required to seek approval from FERC to issue short-term debt.

Historically, NSTAR and its subsidiaries have had a variety of external sources of financing available, as indicated above, at favorable rates and terms to finance its external cash requirements. However, the availability of such financing at favorable rates and terms depends heavily upon prevailing market conditions and NSTAR’s or its subsidiaries’ financial condition and credit ratings.

NSTAR’s goal is to maintain a capital structure that preserves an appropriate balance between debt and equity. Based on NSTAR’s key cash resources available as discussed above, management believes its liquidity and capital resources are sufficient to meet its current and projected requirements.

Interest rates on the outstanding short-term borrowings generally are money market rates and averaged 5.11% and 3.54% in 2006 and 2005, respectively. In aggregate, short-term borrowings totaled $436.4 million and $417.5 million at December 31, 2006 and 2005, respectively.

Note M. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of securities for which it is practicable to estimate the value:

1. Cash and Cash Equivalents

The carrying amounts of $16 million and $15.6 million as of December 31, 2006 and 2005, respectively, approximate fair value due to the short-term nature of these securities.

2. Indebtedness (Excluding Notes Payable)

The fair values of long-term indebtedness are based upon the quoted market prices of similar issues. Carrying amounts and fair values as of December 31, 2006 and 2005 were as follows:

	2006				2005
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term indebtedness (including current maturities)	$	2,536,857	$	2,623,100	$	2,525,517	$	2,642,190

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Note N. Segment and Related Information

For the purpose of providing segment information, NSTAR’s principal operating segments, or its traditional core businesses, are the electric and natural gas utilities that provide energy delivery services in 107 cities and towns in Massachusetts. The unregulated operating segment engages in business activities that include district energy operations, telecommunications and liquefied natural gas service.

Amounts shown on the following table for 2006, 2005 and 2004 include the allocation of NSTAR’s (parent company) results of operations (primarily interest costs) and assets, net of inter-company transactions, and primarily consist of interest charges and investment assets, respectively, to these business segments. The allocation of parent company charges is based on an indirect allocation of the parent company’s investment relating to these various business segments.

The unregulated segment net income for 2006 as compared to 2005 reflects higher revenues for steam, chilled water and electricity sales offset by the partial absence in 2005 and the total absence in 2006 of NSTAR Steam Corporation that ceased operations in September 2005.

(in thousands)	2006		2005		2004
Operating revenues
Electric utility operations	$	2,912,115	$	2,543,541	$	2,350,185
Gas utility operations		517,855		571,199		492,338
Unregulated operations		147,732		128,380		111,809
Consolidated total	$	3,577,702	$	3,243,120	$	2,954,332
Depreciation and amortization
Electric utility operations	$	323,701	$	299,741	$	218,915
Gas utility operations		24,051		22,435		21,310
Unregulated operations		14,470		14,494		14,627
Consolidated total	$	362,222	$	336,670	$	254,852
Operating income tax expense
Electric utility operations	$	103,634	$	92,239	$	90,891
Gas utility operations		6,368		13,589		13,979
Unregulated operations		9,340		4,862		3,460
Consolidated total	$	119,342	$	110,690	$	108,330
Equity income in investments accounted for by the equity method (a)
Electric utility operations	$	644	$	1,480	$	1,607
Interest charges
Electric utility operations	$	145,987	$	143,044	$	128,306
Gas utility operations		22,932		14,643		15,677
Unregulated operations		8,938		9,876		9,722
Consolidated total	$	177,857	$	167,563	$	153,705
Segment net income
Electric utility operations	$	174,898	$	157,235	$	156,679
Gas utility operations		14,184		25,310		25,801
Unregulated operations		17,692		13,590		6,001
Consolidated total	$	206,774	$	196,135	$	188,481
Equity Investments
Electric utility operations	$	8,113	$	13,705	$	13,887
Expenditures for property
Electric utility operations	$	378,709	$	340,909	$	273,729
Gas utility operations		38,761		40,680		35,330
Unregulated operations		8,676		5,676		5,331
Consolidated total	$	426,146	$	387,265	$	314,390
Segment assets
Electric utility operations	$	6,764,157	$	6,643,783	$	6,494,568
Gas utility operations		805,880		797,945		695,329
Unregulated operations		199,358		196,604		201,459
Consolidated total	$	7,769,395	$	7,638,332	$	7,391,356

(a) The equity income from equity investments is included in other income, net on the accompanying Consolidated Statements of Income.

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Note O. Contracts for the Purchase of Energy

1. NSTAR Electric Purchase Power Agreements

As a Massachusetts distribution company, NSTAR Electric is required to obtain and resell power to retail customers through basic service for those who choose not to buy energy from a competitive energy supplier. Basic service rates are reset every six months (every three months for large commercial and industrial customers). The price of basic service is intended to reflect the average competitive market price for power. For basic service power supply, NSTAR Electric makes periodic market solicitations consistent with MDTE regulations. During 2006, NSTAR Electric entered into short-term power purchase agreements to meet its entire basic service supply obligation, other than to its largest customers, for the period January 1, 2007 through June 30, 2007 and for 50% of its obligation, other than to these large customers, for the second-half of 2007. NSTAR Electric has entered into short-term power purchase agreements to meet its entire basic service supply obligation for large customers through March 2007. A request for proposals will be issued quarterly in 2007 for the remainder of the obligation for large customers and semi-annually for non-large customers. For 2006, NSTAR Electric entered into agreements ranging in length from three to twelve-months. NSTAR Electric fully recovers its payments to suppliers through MDTE-approved rates billed to customers.

During late 2004 and early 2005, NSTAR Electric completed several buy-out transactions or restructure certain of its long-term purchase power agreements that pre-dated the 1999 restructuring of the electric market in Massachusetts. These agreements constituted purchase power commitments and reduced the amount of above-market energy costs that NSTAR Electric will incur and collect from its customers through its transition charges.

The Rate Settlement Agreement required NSTAR Electric to design a policy for the procurement of basic service supply for residential customers effective July 1, 2006, permitting NSTAR Electric to execute energy supply contacts for one, two and three-years procuring fifty, twenty-five and twenty-five percent, respectively, of its total energy load requirements for residential customers. NSTAR Electric, after working with the AG and a low-income support organization, developed a schedule to implement this provision. This proposal included a method for further review and modification to potentially include longer-term contracts that are anticipated to reduce price volatility for small consumers, solicited long-term contracts as part of its last 2006 solicitation. However, after review of the proposals, NSTAR Electric, again after consultation with the AG, determined that it would enter into short-term contract alternatives.

2. NSTAR Gas Firm Transportation and Storage Agreements

NSTAR Gas purchases transportation, storage and balancing services from Tennessee Gas Pipeline Company and Algonquin Gas Transmission Company, as well as other upstream pipelines that bring gas from major producing regions in the U.S., Gulf of Mexico and Canada to the final delivery points in the NSTAR Gas service area. NSTAR Gas purchases all of its gas supply from third-party vendors. Most of the supplies are purchased under a firm portfolio management contract with a term of one year. NSTAR Gas has one multiple year contract, which is used for the purchase of its Canadian supplies. Based on its firm pipeline transportation capacity entitlements, NSTAR Gas contracts for up to 139,373 MMbtu per day of domestic production. In addition, NSTAR Gas has an agreement for up to 4,500 MMbtu per day of Canadian supplies.

NSTAR Gas has various contractual agreements covering the transportation of natural gas and underground natural gas storage facilities, which are recoverable from customers under the MDTE-approved CGAC. The contracts expire at various times from 2008 to 2016. NSTAR Gas’ firm contract demand charges associated with firm pipeline transportation and storage capacity contracts in 2006, 2005 and 2004 were approximately $50.6 million, $47.7 million and $48.4 million, respectively. Refer to the accompanying Notes to Consolidated Financial Statements, Note P, “Commitments and Contingencies,” “Energy Supply” section for NSTAR Gas’ firm contract demand charges at current rates under these contracts for the years after 2006.

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Note P. Commitments and Contingencies

1. Service Quality Indicators

SQI are established performance benchmarks for certain identified measures of service quality relating to customer service and billing performance, safety and reliability and consumer division statistics performance for all Massachusetts utilities. NSTAR Electric and NSTAR Gas are required to report annually to the MDTE concerning their performance as to each measure and are subject to maximum penalties of up to two percent of total transmission and distribution revenues should performance fail to meet the applicable benchmarks.

NSTAR monitors its service quality continuously to determine its contingent liability. If it is probable that a liability has been incurred and is estimable, a liability is accrued. Annually, each NSTAR utility subsidiary makes a service quality performance filing with the MDTE. Any settlement or rate order that would result in a different liability level from what has been accrued would be adjusted in the period that the MDTE issues an order determining the amount of any such liability.

On March 1, 2005, NSTAR Electric and NSTAR Gas filed their 2004 Service Quality Reports with the MDTE that demonstrated the Companies achieved sufficient levels of reliability and performance; the reports indicate that no penalty was assessable for 2004. On December 30, 2005, the MDTE issued a formal approval of this filing.

For 2005, only one of the electric subsidiaries was in a penalty situation and recorded a liability of approximately $0.1 million. On March 1, 2006, NSTAR Electric filed its SQI performance measures for 2005 and on December 21, 2006, the MDTE issued a final order in this matter.

As of December 31, 2006, the NSTAR Electric subsidiaries and NSTAR Gas’ 2006 performance exceeded the applicable established benchmarks such that no net liability has been accrued for 2006.

In late 2004, the MDTE initiated a proceeding to eventually modify and improve the SQI guidelines for all Massachusetts utilities. On December 23, 2006, the MDTE issued its final order and guidelines in the generic SQI evaluation. The new guidelines somewhat alter existing requirements but it does not appear that the changes will have a material impact on NSTAR’s operating results or financial position in the future. Utilities in Massachusetts gather data and report statistics to the MDTE on customer service and billing performance, measures for customer satisfaction, electric service interruption and duration statistics, circuit performance and employee lost time accident rate measures. In addition, gas utilities report their response times to odor calls. Monetary penalties and penalty offsets, which may only be used to offset monetary penalties, as determined, will continue to be based on deviations from established benchmarks and are apportioned to specific penalty measures.

The Rate Settlement Agreement approved by the MDTE on December 30, 2005 established additional performance measures applicable to NSTAR’s rate regulated subsidiaries. The Rate Settlement Agreement outlines that NSTAR Gas will establish and submit a service quality measure based on separate leaks per mile metrics for bare-steel mains and unprotected, coated-steel mains. A specific proposal to implement this performance benchmark is to be submitted to the MDTE for approval and subjects NSTAR Gas to a maximum penalty or incentive of up to $500,000. This provision is still under discussion between the AG and NSTAR Gas. The Rate Settlement Agreement also establishes, for NSTAR Electric, a performance benchmark relating to poor performing circuits, with a maximum penalty or incentive of up to $500,000. Since NSTAR Electric’s filing of its 2005 Annual Service Quality filing earlier in 2006, the MDTE has issued several sets of discovery questions in this matter. NSTAR Electric has responded to the MDTE on a timely basis, including providing updates in September 2006 on detailed electric circuit data. For 2006, NSTAR Electric determined that its performance related to these applicable circuits has exceeded the established benchmarks and therefore, has accrued its incentive entitlement of $500,000.

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2. Contractual Commitments

Leases

NSTAR has leases for facilities and equipment. The estimated minimum rental commitments under non-cancellable capital and operating leases for the years after 2006 are as follows:

(in thousands)
2007	$	18,103
2008		16,673
2009		15,168
2010		13,277
2011		10,336
Years thereafter		35,163
	$	108,720

The total expense for both leases and transmission agreements was $26.8 million in 2006, $28.3 million in 2005 and $27.0 million in 2004, net of capitalized expenses of $2.3 million in 2006, $1.8 million in 2005 and $1.5 million in 2004.

Total rent expense for all operating leases, except those with terms of a month or less, amounted to $15.2 million in 2006, $17.8 million in 2005 and $16.3 million in 2004.

Transmission

As a member of ISO-NE, NSTAR Electric is subject to the terms and conditions of the ISO-NE tariff through February 2010, as NSTAR Electric is obligated to remain a member through this period. NSTAR Electric is obligated to pay for regional network services through that period to support the pooled transmission facilities requirements of other New England transmission owners whose facilities are used by NSTAR Electric. These payments amounted to $89.4 million, $89.6 million and $71.1 million in 2006, 2005 and 2004, respectively. This membership also obligates NSTAR Electric, along with other transmission owners and market participants, to fund a proportionate share of the RTO’s operating and capital expenditures.

Energy Supply

NSTAR Electric entered into short-term power purchase agreements to meet its entire basic service supply obligation, other than to largest customers, for the period January 1, 2007 through June 30, 2007 and for 50% of its obligation, other than to these large customers, for the second-half of 2007. NSTAR Electric has entered into short-term power purchase agreements to meet its entire basic service supply obligation for large customers through March 2007. For 2006, NSTAR Electric entered into agreements ranging in length from three to twelve-months with suppliers to provide full basic service energy and ancillary service requirements at contract rates approved by the MDTE. NSTAR Electric is currently recovering payments it is making to suppliers from its customers and has financial and performance assurances and financial guarantees in place with those suppliers to protect NSTAR Electric from risk in the unlikely event any of its suppliers encounter financial difficulties or fail to maintain an investment grade credit rating. In connection with certain of these agreements, should, in the unlikely event, an individual NSTAR Electric distribution company receive a credit rating below investment grade, that company potentially could be required to obtain certain financial commitments, including but not limited to, letters of credit. Refer to the accompanying Notes to Consolidated Financial Statements, Note O, “Contracts for the Purchase of Energy” for a further discussion.

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The following represents NSTAR’s long-term energy related contractual commitments:

(in millions)	2007		2008		2009		2010		2011		Years Thereafter		Total
Electric capacity obligations	$	2	$	2	$	2	$	2	$	3	$	19	$	30
Gas contractual obligations		52		51		49		49		46		34		281
Purchase power buy-out obligations		160		162		142		140		75		131		810
	$	214	$	215	$	193	$	191	$	124	$	184	$	1,121

Electric capacity obligations represent remaining capacity costs of long-term contracts that reflect NSTAR Electric’s proportionate share of capital and fixed operating costs of two generating units. These contracts expire in 2012 and 2019. In 2006 and 2005, these costs were attributed to 47.9 MW of capacity purchased. Energy costs are paid to generators based on a price per kWh actually received into NSTAR Electric’s distribution system and are in addition to the costs above.

Gas contractual obligations represent agreements covering the transportation of natural gas and underground natural gas storage facilities that are recoverable from customers under the MDTE- approved CGAC. These contracts expire at various times from 2008 through 2016.

Purchase power buy-out obligations represent the buy-out/restructuring agreements for contract termination costs that reduce the amount of above-market costs that NSTAR Electric will collect from its customers through its transition charges. These agreements require NSTAR Electric to make monthly payments through September 2016.

3. Electric Equity Investments and Joint Ownership Interest

NSTAR has an equity investment of approximately 14.5% in two companies that own and operate transmission facilities to import electricity from the Hydro-Quebec system in Canada. As an equity participant, NSTAR is required to guarantee, in addition to each company’s own share, the obligations of those participants who do not meet certain credit criteria. At December 31, 2006, NSTAR’s portion of these guarantees amounted to $7.9 million. NEH and NHH have agreed to use their best efforts to limit their equity investment to 40% of their total capital during the time NEH and NHH have outstanding debt in their capital structure. In order to meet their best efforts obligations pursuant to the Equity Funding Agreement dated June 1, 1985, as amended, for NEH and NHH, in 2006, NEH repurchased a total of 140,000 of its outstanding shares from all equity holders and NHH repurchased a total of 850 outstanding shares from all equity holders. In 2006, NSTAR Electric’s reduction of its equity ownership resulting from NEH buy-back of 20,254 shares and NHH buy-back of 123 shares was approximately $0.5 million.

NSTAR Electric collectively has an equity ownership of 14% in CY, 14% in YA, and 4% in MY, (collectively, the “Yankee Companies”). Periodically, NSTAR obtains estimates from the management of the Yankee Companies on the cost of decommissioning the CY and the YA nuclear units that are completely shut down and currently conducting decommissioning activities.

MY was notified on October 3, 2005 by the NRC that its former plant site was decommissioned in accordance with NRC procedures. The NRC amended MY’s license, reducing the land under the license from approximately 179 acres to the 12 acre ISFSI that includes a dry cask storage facility, and marked the first time a commercial nuclear power plant in the United States was fully decommissioned with all plant buildings removed. MY’s amended license continues to apply to the ISFSI where spent nuclear fuel from the plant’s 23 years of operation is stored. MY remains responsible for the security and protection of the ISFSI and is required to maintain a radiation monitoring program at the site.

Based on estimates from the Yankee Companies’ management as of December 31, 2006, the total remaining approximate cost for decommissioning and/or security or protection of each nuclear unit is as follows: $410.3

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million for CY, $93.9 million for YA and $170.4 million for MY. Of these amounts, NSTAR Electric is obligated to pay $57.4 million towards the decommissioning of CY, $13.2 million toward YA, and $6.8 million toward MY. These estimates are recorded in the accompanying Consolidated Balance Sheets as Energy contract liabilities with a corresponding Regulatory asset and do not impact the current results of operations and cash flows. These estimates may be revised from time to time based on information available to the Yankee Companies regarding future costs. The Yankee Companies have received approval from FERC for recovery of these costs and NSTAR expects any additional increases to these costs to be included in future rate applications with the FERC, with any resulting adjustments being charged to their respective sponsors, including NSTAR Electric. NSTAR Electric would recover its share of any allowed increases from customers through the transition charge.

The various decommissioning trusts for which NSTAR or it subsidiaries are responsible through their equity ownership are established pursuant to Federal regulations. The investment of decommissioning funds that have been established, are managed in accordance with these federal guidelines, state jurisdictions and with the applicable Internal Revenue Service requirements. Some of the requirements state that these investments be managed independently by a prudent fund manager and that funds are to be invested in conservative, minimum risk investment securities. Any gains or losses are anticipated to be refunded to or collected from customers, respectively.

CY’s estimated decommissioning costs have increased reflecting the fact that CY is now self-performing all work to complete the decommissioning of the plant due to the termination of the decommissioning contract with Bechtel. In July 2004, CY filed with FERC for recovery of these increased costs. In August 2004, FERC issued an order accepting the new rates, beginning in February 2005, subject to the outcome of a hearing and refund to allow for this recovery. In November 2005, the Administrative Law Judge overseeing the hearing issued a ruling favorable to CY, including findings that the allegations of imprudence raised by interveners were not substantiated. Subsequently, on August 15, 2006, CY filed a settlement agreement among various interveners that settled all issues in the FERC proceeding. The full Commission approved the settlement on November 16, 2006.

On March 7, 2006, CY and Bechtel executed a settlement agreement that fully, mutually and immediately settled a dispute in a Connecticut state court among the parties and signed releases against all future claims. Bechtel agreed to settle with CY, and CY withdrew its termination of the decommissioning contract for default and instead deemed it terminated by agreement. NSTAR Electric’s portion of the settlement proceeds will reduce its ultimate future decommissioning obligation. NSTAR Electric recovers decommissioning costs from its customers and therefore, this settlement will not have an impact on NSTAR’s results of operations, financial position or cash flows.

On December 21, 2006, the shareholders of CY approved a resolution to repurchase 276,575 of its outstanding shares from all equity holders at a price of $108.4681 per share and declared those shares payable at the close of business on that date. The total value of this buy-back transaction was approximately $30 million. NSTAR Electric’s reduction of its equity ownership resulting from the CY buy-back of 38,721 shares was approximately $4.2 million.

During the course of carrying out the decommissioning work, YA identified increases in the scope of soil remediation and certain other remediation required to meet environmental standards beyond the levels assumed in a 2003 Estimate. On November 23, 2005, YA submitted a filing to the FERC for adjustments to its Rate Schedules to revise the level of collections to recover the costs of completing the decommissioning of YA’s retired nuclear generating plant (the 2005 Estimate). The schedule for the completion of physical work was extended until the end of August 2006 and the costs of completing decommissioning was estimated to be approximately $63 million greater than the estimate that formed the basis of the 2003 FERC settlement. Based on this allocation increase, NSTAR Electric will be obligated to pay an additional $8.8 million for the decommissioning of YA. Most of the cost increase relates to decommissioning expenditures that were made during 2006, followed by a significant reduction in those charges during the years 2007 through 2010. On

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January 31, 2006, FERC issued an order accepting the rates for filing, effective February 1, 2006, subject to hearing and refund. FERC ordered the hearing held in abeyance pending the outcome of settlement negotiations. The parties to these negotiations subsequently reached a settlement agreement that was filed with FERC on May 1, 2006. The settlement agreement extends the collection period to 2014, but revises the schedule of decommissioning charges to reflect a reduction of nearly $28 million compared to the 2005 estimate, based on a modification to the annual escalation factor, elimination of the litigation costs associated with a protracted FERC proceeding and a modification to the contingency assumption. Based on this allocation decrease, NSTAR Electric’s obligation is reduced by $4 million. The settlement agreement was approved by FERC on July 31, 2006.

The accounting for decommissioning costs of nuclear power plants involves significant estimates related to costs to be incurred many years in the future. Changes in these estimates will not affect NSTAR’s results of operations or cash flows because these costs will be collected from customers through NSTAR Electric’s transition charge filings with the MDTE.

On October 4, 2006, the U.S. Court of Federal Claims issued judgment in a spent nuclear fuel litigation in the amounts of $34.2 million, $32.9 million and $75.8 million for CY, YA and MY, respectively. The Yankee Companies alleged the failure of the DOE to provide for a permanent facility to store spent nuclear fuel. NSTAR Electric’s portion of the judgment amounted to $4.8 million, $4.6 million and $3 million, respectively. The decision awards the Yankee Companies the above stated damages for spent fuel storage costs that they incurred through 2001 for CY and YA and through 2002 for MY. CY, YA and MY had sought $37.7 million, $60.8 million and $78.1 million, respectively, of damages through the same period.

On December 4, 2006, the DOE filed its notice of appeal of the trial court’s decision. The Yankee Companies filed notices of cross appeal with the U.S. Circuit Court on December 14, 2006. Given these appeals, the Yankee Companies have not recognized the damage awards on their financial statements. The Yankee Companies’ respective FERC settlements require that such damage awards, once realized, net of taxes and net of further spent fuel trust funding, be credited to ratepayers, including NSTAR.

The decision, if upheld, establishes the DOE’s responsibility for reimbursing the Yankee Companies for their actual costs (through 2001 for CY and YA and through 2002 for MY) for the incremental spent fuel storage, security, construction and other costs of the ISFSI. Although the decision leaves open the question regarding damages in subsequent years, the decision does support future claims for the remaining ISFSI construction costs. NSTAR cannot predict the ultimate outcome of this decision on appeal.

4. Financial and Performance Guarantees

On a limited basis, NSTAR and certain of its subsidiaries may enter into agreements providing financial assurance to third parties. Such agreements include letters of credit, surety bonds, and other guarantees.

At December 31, 2006, outstanding guarantees totaled $31.2 million as follows:

(in thousands)
Letters of Credit	$	5,560
Surety Bonds		17,753
Other Guarantees		7,859
Total Guarantees	$	31,172

Letters of Credit

NSTAR has issued a $5.6 million letter of credit for the benefit of a third party, as trustee in connection with the 6.924% Notes of one of its subsidiaries. The letter of credit is available if the subsidiary has insufficient funds to pay the debt service requirements. As of December 31, 2006, there have been no amounts drawn under this letter of credit.

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Surety Bonds

As of December 31, 2006, certain of NSTAR’s subsidiaries have purchased a total of $1.6 million of performance surety bonds for the purpose of obtaining licenses, permits and rights-of-way in various municipalities. In addition, NSTAR and certain of its subsidiaries have purchased approximately $16.2 million in workers’ compensation self-insurer bonds. These bonds support the guarantee by NSTAR and certain of its subsidiaries to the Commonwealth of Massachusetts required as part of the Company’s workers’ compensation self-insurance program. NSTAR and certain of its subsidiaries have indemnity agreements to provide additional financial security to its bond company in the form of a contingent letter of credit to be triggered in the event of a downgrade in the future of NSTAR’s Senior Note rating to below BBB by S&P and/or to below Baa1 by Moody’s. These Indemnity Agreements cover both the performance surety bonds and workers’ compensation bonds.

Other

NSTAR and its subsidiaries have also issued $7.9 million of residual value guarantees related to its equity interest in the Hydro-Quebec transmission companies.

Management believes the likelihood NSTAR would be required to perform or otherwise incur any significant losses associated with any of these guarantees is remote.

5. Environmental Matters

NSTAR subsidiaries face possible liabilities as a result of involvement in several multi-party disposal sites, state-regulated sites or third-party claims associated with contamination remediation. NSTAR generally expects to have only a small percentage of the total potential liability for the majority of these sites.

In accordance with a court approved settlement agreement relating to litigation brought against Boston Edison by various governmental entities, Boston Edison paid $8.6 million in September, 2006 upon final judgment of the Massachusetts Superior Court. This payment did not have a current earnings impact, as NSTAR recognized of this liability in the second quarter of 2005. In December 2006, Boston Edison settled with its insurance carrier for $4.5 million relating to this claim. In 2004, a Superior Court had issued a decision favorable to Boston Edison that put the burden of proof on the plaintiffs to determine Boston Edison’s liability for contamination. The SJC reversed the Superior Court’s 2004 ruling and held that the plaintiffs in this matter were allowed to seek joint and several liability against the defendants, including Boston Edison. On March 8, 2006, a settlement resolving Boston Edison’s liability was finalized and filed with the Superior Court, which approved and entered final judgment on August 8, 2006.

As of December 31, 2006 and 2005, NSTAR had reserves of $2.9 million and $10.3 million, respectively, for all potential remaining environmental sites. This estimated recorded liability is based on an evaluation of all currently available facts with respect to all of its sites.

NSTAR Gas is participating in the assessment or remediation of certain former MGP sites and alleged MGP waste disposal locations to determine if and to what extent such sites have been contaminated and whether NSTAR Gas may be responsible to undertake remedial action. The MDTE has approved recovery of costs associated with MGP sites over a 7-year period, without carrying costs. As of December 31, 2006 and 2005, NSTAR recorded a liability of approximately $3.2 million and $3.6 million, respectively, as an estimate for site cleanup costs for several MGP sites for which NSTAR Gas was previously cited as a potentially responsible party. A corresponding regulatory asset was recorded that reflects the future rate recovery for these costs.

Estimates related to environmental remediation costs are reviewed and adjusted as further investigation and assignment of responsibility occurs and as either additional sites are identified or NSTAR’s responsibilities for such sites evolve or are resolved. NSTAR’s ultimate liability for future environmental remediation costs may vary from

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these estimates. Based on NSTAR’s current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, NSTAR does not believe that these environmental remediation costs will have a material adverse effect on NSTAR’s consolidated financial position, results of operations or cash flows.

6. Regulatory and Legal Proceedings

a. Rate Settlement Agreement and Other Rate Filings

On December 30, 2005, the MDTE approved the seven-year Rate Settlement Agreement (through 2012) between NSTAR, the AG and several interveners. During 2006, NSTAR Electric lowered its transition rates by $20 million effective January 1 and on May 1, increased its distribution rates by $30 million with a corresponding reduction in transition charges. The Rate Settlement Agreement requires NSTAR Electric to lower its transition rates from what would otherwise have been billed, and then any annual adjustment to distribution rates will be offset by an equal and opposite change in the transition rates. Uncollected transition charges as a result of the reductions in transition rates are being deferred and collected through future rates with a carrying charge at a rate of 10.88%. On December 1, 2006, NSTAR filed blended Basic Service rates with the MDTE, effective January 1, 2007. The individual Boston Edison, ComElectric and Cambridge Electric Basic Service rates are blended into rates applicable to the entire NSTAR Electric service territory pursuant to the MDTE’s approval of the NSTAR Electric merger.

NSTAR Electric filed its 2006 Distribution Rate Adjustment/Reconciliation Filing on September 29, 2006 to further implement the provisions of the Rate Settlement Agreement that supports the establishment of new distribution and transition rates that became effective January 1, 2007. For 2007, as further discussed below, NSTAR Electric’s distribution rates include elements of a SIP and a CPSL program that require an offsetting adjustment to the transition rate. The performance-based SIP factors in the gross domestic product price index minus a productivity offset and rate adjustment factor that results in a 2.64% increase in distribution rates. Also included effective January 1, 2007 is Cambridge Electric’s 13.8kV transmission facility with estimated revenues of $13.4 million to be classified as distribution facilities and included in distribution rates that require an offsetting adjustment to the transmission rate. The CPSL program required that NSTAR Electric spend not less than $10 million in 2006 on capital additions and incremental operation and maintenance expense related to specific projects designed to improve reliability and safety. For 2007, the CPSL cost recovery is estimated to be $13.3 million. The total of the SIP and CPSL will result in higher total distribution rates of 4.3%, with a corresponding reduction in transition rates. The CPSL and 13.8kV amounts are subject to subsequent MDTE review and reconciliation to actual costs for 2006.

On December 1, 2006, NSTAR filed blended Basic Service and transmission rates with the MDTE, effective January 1, 2007. The blended Basic Service rate was approved on December 19, 2006 and the blended transmission rate was approved on January 3, 2007. The individual Boston Edison, ComElectric and Cambridge Electric Basic Service rates were blended into rates applicable to the entire NSTAR Electric service territory pursuant to the MDTE’s approval of the NSTAR Electric merger.

On March 24, 2006, the MDTE approved a second settlement relating to ComElectric’s and Cambridge Electric’s reconciliation of transmission costs and revenues. As a result of this settlement, NSTAR Electric will refund in 2007 $6 million and $2.5 million to the customers of the former ComElectric and Cambridge Electric companies, respectively. This agreement had no impact on NSTAR’s consolidated results of operations for 2006, as this refund has been previously recognized.

As of December 31, 2006, settlement discussions with an intervener and the AG are ongoing with respect to the former Boston Edison’s 2004 and 2005 reconciliation filings. A determination by the MDTE regarding the reconciliation of Boston Edison’s 2004 and 2005 costs for transmission, transition, standard offer and basic service have been delayed and will be decided by the MDTE in a proceeding. Similarly, a determination by the MDTE regarding the reconciliation of Cambridge Electric’s and ComElectric’s 2005 reconciliation filings will be decided in separate proceedings. NSTAR cannot predict the timing or the ultimate outcome of these proceedings.

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In December 2005, NSTAR Electric filed proposed transition rate adjustments for 2006, including a preliminary reconciliation of transition, transmission, standard offer and default service costs and revenues through 2005. The MDTE subsequently approved tariffs for each retail electric subsidiary effective January 1, 2006. Updated reconciliations to reflect final 2005 costs and revenues were filed during the second quarter for Boston Edison, ComElectric and Cambridge Electric.

On October 19, 2005, the MDTE approved a settlement agreement between Cambridge Electric, ComElectric and the AG to resolve issues relating to the reconciliation of transition, standard offer and basic service costs for 2003 and 2004. This settlement agreement had no material effect on NSTAR’s consolidated results of operations, cash flows and financial condition.

On October 31, 2006, the FERC authorized for the participating New England Transmission Owners, including NSTAR Electric, an ROE on regional transmission facilities of 10.2% plus a 50 basis point adder for joining a RTO from February 1, 2005 (the RTO effective date) through October 31, 2006, and an ROE of 11.4% thereafter. In addition, FERC granted a 100 basis point incentive adder to ROE for qualified investments made in new regional transmission facilities, that when combined with FERC’s approved ROEs, provide 11.7% and 12.4% returns for the respective time frames. RTO-NE ratepayers will benefit as a result of this order because it responds to the need to enhance the New England transmission grid to alleviate congestion costs and reliability issues. Transmission projects that are in progress including NSTAR Electric’s 345kV project, are expected to significantly minimize these congestion costs and enhance reliability in the region. The New England Transmission Owners accepted the terms of the October 31, 2006 FERC decision, with one exception, and on November 30, 2006, filed for a request for rehearing involving the calculation of the base ROE, for which the FERC did not provide an explanation for its action and which the New England Transmission Owner’s believe is not supported by the record evidence. The New England Transmission Owners contend that the base ROE should be 10.5%. The Company is unable to determine the ultimate timing or result of the rehearing process or of the ultimate FERC decision.

Cambridge Electric and ComElectric filed proposed changes to their OATT with the FERC on March 30, 2005 to provide for consistent application of the OATT among those companies. The new tariffs become effective on June 1, 2005; however, the FERC set certain rate-related issues raised in the proceeding for hearing, but held the hearing in abeyance pending settlement discussions with the AG, the sole intervener. On November 17, 2006, a settlement agreement that resolved all issues in the proceeding was filed at FERC. The settlement must be approved by the full Commission prior to becoming final. NSTAR cannot predict the timing or ultimate resolution of this proceeding.

b. Legal Matters

In the normal course of its business, NSTAR and its subsidiaries are involved in certain legal matters, including civil litigation. Management is unable to fully determine a range of reasonably possible court-ordered damages, settlement amounts, and related litigation costs (“legal liabilities”) that would be in excess of amounts accrued and amounts covered by insurance. Based on the information currently available, NSTAR does not believe that it is probable that any such legal liabilities will have a material impact on its consolidated financial position. However, it is reasonably possible that additional legal liabilities that may result from changes in circumstances could have a material impact on its results of operations, cash flows and financial condition for a reporting period.

7. Capital Expenditures and Financings

The most recent estimates of capital expenditures and long-term debt maturities for the years 2007 and 2008-2011 are as follows:

(in thousands)	2007		2008-2011
Capital expenditures	$	404,300	$	1,215,000
Long-term debt	$	176,081	$	1,160,715

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In the five-year period 2007 through 2011, plant expenditures are forecasted to be used for system reliability and performance improvements, customer service enhancements and capacity expansion to meet expected growth in the NSTAR service territory. In 2006, these factors contributed significantly to the $38.9 million increase in plant expenditures from 2005. Included in these amounts are expenditures of $69 million and $120 million in 2006 and 2005, respectively, for NSTAR Electric’s 345kV transmission line project ($11 million spent in 2004). This project involves the construction of two 345kV transmission lines from a switching station in Stoughton, Massachusetts to substations in the Hyde Park section of Boston and to South Boston, respectively (phase one). Total spending on this project through December 31, 2006 is approximately $200 million, with approximately $20 million to be spent in 2007. The first line of this project was placed in service in October 2006 and the second line of phase one is expected to be placed in service by the end of the first quarter of 2007. Phase two of the 345kV project, which will add a third and final line to the project, is expected to be in service in 2008. Expenditures on this phase of the project are expected to amount to $55 million and $38 million in 2007 and 2008, respectively. This transmission line ensures continued reliability of electric service and improvement of power import capability in the Northeast Massachusetts area. A substantial portion of the cost of this project will be shared by other utilities in New England based on ISO-NE’s approval and will be recovered by NSTAR through wholesale and retail transmission rates.

Management continuously reviews its capital expenditure and financing programs. These programs and, therefore, the estimates included in this Form 10-K are subject to revision due to changes in regulatory requirements, operating requirements, environmental standards, availability and cost of capital, interest rates and other assumptions.

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Report of Independent Registered Public Accounting Firm

To Shareholders and Trustees of NSTAR:

We have completed integrated audits of NSTAR’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1), present fairly, in all material respects, the financial position of NSTAR and its subsidiaries at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note I to the accompanying consolidated financial statements, effective December 31, 2006, the Company adopted Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R), as of December 31, 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts

February 16, 2007

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

No event that would be described in response to this item 9 has occurred with respect to NSTAR or its subsidiaries.

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, NSTAR management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2006 based on the criteria established in a report entitled “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.” Based on this evaluation, NSTAR management has evaluated and concluded that NSTAR’s internal control over financial reporting was effective as of December 31, 2006.

NSTAR is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in modifications to its processes throughout the Company. However, there has been no change in its internal control over financial reporting that occurred during the Company’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s assessment of the effectiveness of NSTAR’s internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm that audited NSTAR’s consolidated financial statements included herewith in this Form 10-K.

Item 9B. Other Information

None

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Part III

The information called for by Part III (Items 10(a), 11, 12, 13, and 14) will be included in NSTAR’s 2007 Proxy Statement (as specified below) to be filed in connection with the Annual Meeting of Shareholders to be held on May 3, 2007 and is incorporated herein by reference. Such Proxy Statement will be filed with the Securities and Exchange Commission on or about March 15, 2007.

Item 10. Trustees, Executive Officers and Corporate Governance

The information with respect to Trustees of NSTAR, information with respect to compliance with the reporting obligations under Section 16(a) of the Exchange Act, information concerning NSTAR’s code of ethics applicable to senior management, information on NSTAR’s compliance with corporate governance regulations, and information on NSTAR’s Board of Trustees’ audit committee financial expert, is incorporated herein by reference from disclosures contained in NSTAR’s Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders to be held on May 3, 2007 under the captions “Information about the NSTAR Board, Nominees and Incumbent Trustees,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Governance of the Company.” NSTAR’s Definitive Proxy Statement is expected to be filed on or about March 15, 2007. Information regarding NSTAR’s executive officers found in the section captioned “Executive Officers of the Registrant” in Item 4A of Part 1 hereof is also incorporated herein by reference into this Item 10.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference from disclosures contained in NSTAR’s Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders under the caption “Executive Compensation,” including NSTAR’s “Compensation Discussion and Analysis” and “Executive Personnel Committee Report.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding securities authorized for issuance under equity compensation plans located in Item 5, Section (d) of Part II hereof is also incorporated by reference into this Item 12. Other information required by this Item is incorporated herein by reference from disclosures contained in NSTAR’s Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders under the captions “Trustee Compensation,” “Common Share Ownership by Trustees and Executive Officers, “ and “Change in Control Agreements.”

Item 13. Certain Relationships and Related Transactions, and Trustee Independence

The information required by this Item is incorporated herein by reference from disclosures contained in NSTAR’s Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders under the caption “Governance of the Company - Board Independence.”

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference from disclosures contained in NSTAR’s Definitive Proxy Statement for the 2007 Annual Meeting of Shareholders under the caption “2006-2005 Audit and Related Fees.”

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Part IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Form 10-K:

1. Financial Statements:

	Page
Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004	56
Consolidated Statements of Comprehensive Income for the years ended December 31, 2006, 2005 and 2004	57
Consolidated Statements of Retained Earnings for the years ended December 31, 2006, 2005 and 2004	57
Consolidated Balance Sheets as of December 31, 2006 and 2005	58-59
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	60
Notes to Consolidated Financial Statements	61
Selected Consolidated Quarterly Financial Data (Unaudited)	20
Report of Independent Registered Public Accounting Firm	97-98
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2006, 2005 and 2004	106
3. Exhibits:
Refer to the exhibits listing beginning below.

Incorporated herein by reference unless designated otherwise:

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NSTAR and its subsidiaries

Exhibit 3	Articles of Incorporation and By-Laws
3.1	Declaration of Trust of NSTAR (dated as of April 20, 1999, as amended April 28, 2005)(NSTAR Form 10-Q for the quarter ended June 30, 2005, File No. 1-14768)
3.2	Bylaws of NSTAR (Annex E to the Joint Proxy Statement/Prospectus, which forms part of the Registration Statement on Form S-4 of NSTAR (No. 333-78285))
3.3	Boston Edison Restated Articles of Organization (Form 10-Q for the quarter ended June 30, 1994, File No. 1-2301)
3.4	Boston Edison Company Bylaws dated April 19, 1977, as amended January 22, 1987, January 28, 1988, May 24, 1988, and November 22, 1989 (Form 10-Q for the quarter ended June 30, 1990, File No. 1-2301)
Exhibit 4	Instruments Defining the Rights of Security Holders, Including Indentures
4.1	Indenture dated as of January 12, 2000 between NSTAR and Bank One Trust Company N.A. (Exhibit 4.1 to NSTAR Registration Statement on Form S-3, File No. 333-94735)
4.2	Votes of the Board of Trustees of NSTAR, dated January 27, 2000, supplementing the Indenture dated as of January 12, 2000 between NSTAR and Bank One Trust Company N. A. (NSTAR Form 10-K for the year ended December 31, 2002, File No. 1-14768)
4.3	Votes of the Board of Trustees of NSTAR, dated September 28, 2000 supplementing the Indenture dated as of January 12, 2000 between NSTAR and Bank One Trust Company N. A. (NSTAR Form 10-K for the year ended December 31, 2002, File No. 1-14768)
4.4	Boston Edison Company Revolving Credit Agreement dated November 15, 2002 (Boston Edison Form 10-Q for the quarter ended March 31, 2003, File No. 1-2301)
4.5	Indenture between Boston Edison Company and the Bank of New York (as successor to Bank of Montreal Trust Company)(Form 10-Q for the quarter ended September 30, 1988, File No. 1-2301)
4.6	Votes of the Pricing Committee of the Board of Directors of Boston Edison Company taken May 10, 1995 re 7.80% debentures due May 15, 2010 (Form 10-K for the year ended December 31, 1995, File No. 1-2301)
4.7	Votes of the Board of Directors of Boston Edison Company taken October 8, 2002 re $500 million aggregate principal amount of unsecured debentures ($400 million, 4.875% due in 2012 and $100 million, Floating rate due in 2005)(Form 8-K dated October 11, 2002, File No. 1-2301)
	Management agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any other agreements or instruments of NSTAR and its subsidiaries defining the rights of holders of any long-term debt whose authorization does not exceed 10% of total assets.
Exhibit 10	Material Contracts
10.1	NSTAR Excess Benefit Plan, effective August 25, 1999 (NSTAR Form 10-K/A for the year ended December 31, 1999, File No. 1-14768)
10.2	NSTAR Supplemental Executive Retirement Plan, effective August 25, 1999 (NSTAR Form 10-K/A for the year ended December 31, 1999, File No. 1-14768)
10.3	Special Supplemental Executive Retirement Agreement between Boston Edison Company and Thomas J. May dated March 13, 1999, regarding Key Executive Benefit Plan and Supplemental Executive Retirement Plan (NSTAR Form 10-K/A for the year ended December 31, 1999, File No. 1-14768)

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10.4	Executive Retirement Plan Agreement between NSTAR and Werner J. Schweiger dated as of February 25, 2002, regarding Supplemental Executive Retirement Plan (NSTAR Form 10-K for the year ended December 31, 2004, File No. 1-14768)
10.5	Amended and Restated Change in Control Agreement between NSTAR and Thomas J. May dated February 15, 2007 (filed herewith)
10.6	NSTAR Deferred Compensation Plan (Restated Effective August 25, 1999) (NSTAR Form 10-K/A for the year ended December 31, 1999, File No. 1-14768)
10.7	NSTAR 1997 Share Incentive Plan, as amended June 30, 1999 and assumed by NSTAR effective August 28, 2000 (NSTAR Form 10-K/A for the year ended December 31, 1999, File No. 1-14768)
10.7.1	NSTAR 1997 Share Incentive Plan, as amended January 24, 2002 (NSTAR Form 10-K for the year ended December 31, 2002, File No. 1-14768)
10.8	Amended and Restated Change in Control Agreement between James J. Judge and NSTAR, dated February 15, 2007 (filed herewith)
10.9	NSTAR Trustee’s Deferred Plan (Restated Effective August 25, 1999), dated October 20, 2000 (NSTAR Form 10-Q for the quarter ended September 30, 2000, File No. 1-14768)
10.10	Master Trust Agreement between NSTAR and State Street Bank and Trust Company (Rabbi Trust), effective August 25, 1999 (NSTAR Form 10-Q for the quarter ended September 30, 2000, File No. 1-14768)
10.11	Amended and Restated Change in Control Agreement between Douglas S. Horan and NSTAR, dated February 15, 2007 (filed herewith)
10.12	Amended and Restated Change in Control Agreement between Joseph R. Nolan, Jr. and NSTAR, dated February 15, 2007 (filed herewith)
10.13	Amended and Restated Change in Control Agreement between Werner J. Schweiger and NSTAR, dated February 15, 2007 (filed herewith)
10.14	Amended and Restated Change in Control Agreement between NSTAR’s other Senior Vice Presidents (in form) and NSTAR, dated February 15, 2007 (filed herewith)
10.15	Amended and Restated NSTAR Annual Incentive Plan as of January 1, 2003 (NSTAR Form 10-K for the year ended December 31, 2004, File No. 1-14768)
10.16	Amended and Restated Power Purchase Agreement (NEA A PPA), dated August 19, 2004, by and between Boston Edison and Northeast Energy Associates L.P. (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.17	Amended and Restated Power Purchase Agreement (NEA B PPA), dated August 19, 2004, by and between Boston Edison and Northeast Energy Associates L.P. (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.18	Amended and Restated Power Purchase Agreement (CECO 1 PPA), dated August 19, 2004, by and between ComElectric and Northeast Energy Associates L.P. (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.19	Amended and Restated Power Purchase Agreement (CECO 2 PPA), dated August 19, 2004, by and between ComElectric and Northeast Energy Associates L.P. (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)

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10.20	The Bellingham Execution Agreement, dated August 19, 2004 between Boston Edison and ComElectric and Northeast Energy Associates L.P. (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.21	Purchase and Sale Agreement, dated June 23, 2004, between Boston Edison and Transcanada Energy Ltd. (Ocean State Power Contract) (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.22	Termination Agreement, dated June 2, 2004, by and between Cambridge Electric and Pittsfield Generating Company, L. P. (f/k/a Altresco Pittsfield, L.P.) (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.23	Termination Agreement, dated June 2, 2004, by and between ComElectric and Pittsfield Generating company, L. P. (f/k/a Altresco Pittsfield, L.P.) (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
	Transmission Agreements
10.2.1	Second Restated NEPOOL Agreement among Boston Edison, Cambridge Electric, Canal and ComElectric and various other electric utilities operating in New England, dated August 16, 2004 (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.2.1.1	Transmission Operating Agreement among Boston Edison, Cambridge Electric, Canal, ComElectric and various other electric transmission providers in New England and ISO New England Inc., dated February 1, 2005 (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.2.1.2	Market Participants Service Agreement among Boston Edison, Cambridge Electric, Canal, ComElectric, various other electric utilities operating in New England, NEPOOL and ISO New England Inc., dated February 1, 2005 (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.2.1.3	Rate Design and Funds Disbursement Agreement among Boston Edison, Cambridge Electric, Canal, ComElectric and various other electric transmission providers in New England, dated February 1, 2005 (NSTAR Form 10-K for the year ended December 31, 2005, File No. 1-14768)
10.2.1.4	Participants Agreement among Boston Edison, Cambridge Electric, Canal, ComElectric, various other electric utilities operating in New England, NEPOOL and ISO New England Inc., dated February 1, 2005 (filed herewith)
Exhibit 21	Subsidiaries of the Registrant
21.1	(filed herewith)
Exhibit 23	Consent of Independent Accountants
23.1	(filed herewith)
Exhibit 31	Rule 13a - 15/15d-15(e) Certifications (filed herewith)
31.1	Certification Statement of Chief Executive Officer of NSTAR pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Statement of Chief Financial Officer of NSTAR pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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Exhibit 32	Section 1350 Certifications (filed herewith)
32.1	Certification Statement of Chief Executive Officer of NSTAR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Statement of Chief Financial Officer of NSTAR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99	Additional Exhibits
99.1	Annual Reports on Form 11-K for certain employee savings plans for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, as dated June 27, 2006, June 28, 2005, June 25, 2004, June 30, 2003 and June 28, 2002, respectively, (File No. 1-14768)
99.2	MDTE Order approving Settlement Agreement dated December 31, 2005 (NSTAR Form 8-K for the event reported December 30, 2005, dated January 4, 2006, File No. 1-14768).

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004

(In Thousands)

			Additions
Description	Balance at Beginning of Year		Provisions Charged to Operations		Recoveries		Deductions Accounts Written Off		Balance At End of Year
Allowance for Doubtful Accounts
Year Ended December 31, 2006	$	24,504	$	31,552	$	7,277	$	36,093	$	27,240
Year Ended December 31, 2005	$	21,804	$	28,585	$	8,215	$	34,100	$	24,504
Year Ended December 31, 2004	$	23,424	$	24,569	$	7,371	$	33,560	$	21,804

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FORM 10-K NSTAR DECEMBER 31, 2006

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NSTAR
		(Registrant)
Date: February 16, 2007	By:	/s/    ROBERT J. WEAFER, JR.
		Robert J. Weafer, Jr.
		Vice President, Controller and
		Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the 16th day of February 2007.

Signature	Title
/s/    THOMAS J. MAY         Thomas J. May	Chairman, President, Chief Executive Officer and Trustee
/s/    JAMES J. JUDGE         James J. Judge	Senior Vice President, Treasurer and Chief Financial Officer
/s/    G. L. COUNTRYMAN         Gary L. Countryman	Trustee
/s/    DANIEL DENNIS         Daniel Dennis	Trustee
/s/    THOMAS G. DIGNAN, JR.         Thomas G. Dignan, Jr.	Trustee
/s/    CHARLES K. GIFFORD         Charles K. Gifford	Trustee
/s/    MATINA S. HORNER         Matina S. Horner	Trustee
/s/    PAUL A. LA CAMERA         Paul A. La Camera	Trustee
/s/    SHERRY H. PENNEY         Sherry H. Penney	Trustee
/s/    WILLIAM C. VAN FAASEN         William C. Van Faasen	Trustee
/s/    G. L. WILSON         Gerald L. Wilson	Trustee

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EX-10.5

Exhibit 10.5

NSTAR

Amended and Restated Change in Control Agreement

AGREEMENT, made this 15^th day of February, 2007, by and between

Thomas J. May (“Executive”) and NSTAR (the “Company”).

WITNESSETH

WHEREAS, the Board of Trustees of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under the circumstances described below to Executive and other executives who are responsible for the policy-making functions of the Company and/or one or more of its subsidiaries and the overall viability of the business of the Company and its subsidiaries; and

WHEREAS, the Board recognizes that the possibility of a Change in Control of the Company is unsettling to such executives and desires to make arrangements at this time to help assure their continuing dedication to their duties to the Company and its shareholders, notwithstanding any attempts by outside parties to gain control of the Company; and

WHEREAS, the Board believes it important, should the Company receive proposals from outside parties, to enable such executives, without being distracted by the uncertainties of their own employment situation, to perform their regular duties, and where appropriate to assess such proposals and advise the Board as to the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board determines to be appropriate; and

WHEREAS, the Board also desires to demonstrate to the executives that the Company is concerned with their welfare and intends to provide that loyal executives are treated fairly; and

WHEREAS, the Board wishes to assure that executives of the Company receive fair and competitive severance benefits and receive fair severance should any of their employment with the Company or its subsidiaries terminate in specified circumstances following a Change in Control of the Company and to assure the executives of other benefits upon a Change in Control.

WHEREAS, in recognition of the foregoing, the Executive and the Company wish to enter into this Agreement, which is hereby acknowledged to supersede any and all previous Change in Control Agreements executed between the Executive and the Company.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other entity (“Person”), which term shall include a “group” (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the “Act”)), begins a tender or exchange offer, circulates a proxy to the Company’s shareholders, or takes other steps to effect a “Change in Control” (as defined in Exhibit A attached hereto and made a part hereof), Executive agrees that he will not voluntarily leave the employ of the Company and will render the services contemplated in the recitals to this Agreement until such Person has terminated the efforts to effect a Change in Control or until a Change in Control has occurred.

2. If, within 36 months following a Change in Control (the “Post Change in Control Period”) Executive’s employment with the Company or one of the Company’s subsidiaries is terminated by the Company for any reason other than for “Cause” or “Disability” (as defined in paragraph 4 below), or as a result of Executive’s death, and Executive terminates such employment for Good Reason (as defined in paragraph 5 below):

(a) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to the sum of (i) the Executive’s annual base salary (“Annual Base Salary”) through the date of such termination of employment to the extent not theretofore paid, (ii) a prorated portion of the target award payable under the Company’s Executive Annual Incentive Compensation Plan, or any comparable or successor plan (the “Annual Plan”) determined by calculating the product of (A) the target bonus award payable for the fiscal year in which the date of termination occurs under the Annual Plan, times (B) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination of employment, and the denominator of which is 365, (iii) a prorated portion of the target award payable under any long-term performance or incentive plan (the “Long-Term Plan”) for the performance period ending on the last day of the fiscal year during which the date of termination of employment occurs determined by calculating the product of (A) the target award payable for such performance period and (B) a fraction, the numerator of which is the number of days in the current performance period through the date of termination, and the denominator of which is the actual number of days in the performance period (provided that if any awards are expressed in shares of common stock rather than cash, the Company will pay the cash equivalent of such awards based on the closing price per share as reported in the Wall Street Journal (Eastern Edition) New York Stock Exchange Composite Transactions determined on the date prior to the date of the Change in Control or the average per share price for the 10 trading days preceding the date of the Change in Control (whichever is higher)) and (iv) any accrued vacation pay, in each case to the extent not theretofore paid; and

(b) any stock, stock option or cash awards granted to the Executive by the Company that would have become vested upon continued employment by the Executive shall immediately vest in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the earlier of the fifth anniversary of such termination and the latest date on which such grant could have been exercised; and

(c) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to three times: (A) the amount of the Executive’s Annual Base Salary at the rate in effect immediately prior to the date of termination or at the rate in effect immediately prior to the Change in Control, whichever is higher, and (B) the amount of the actual bonus paid to the Executive under the Annual Plan for the most recently completed fiscal year ended before the Change in Control, or the target bonus payable under the Annual Plan for the fiscal year during which the termination of employment occurs, whichever is higher ; and

(d) the Company will pay to the Executive within 30 days of such termination of employment a lump-sum cash payment equal to the full balance standing to his credit with the Company under any and all deferred compensation plans or arrangements and the lump-sum actuarial equivalent of the Executive’s accrued benefit under any supplemental retirement plan or arrangement (a “SERP”) in which the Executive participates (the sum of the amounts described in subsections (a) and (d) shall be hereinafter referred to as the “Accrued Obligations”), which payments shall be in lieu of any amounts otherwise payable to Executive under any such plans; and

(e) the Company will pay to the Executive within 30 days of such termination of employment an amount equal to the excess of (i) the lump sum actuarial equivalent of the accrued benefit under (a) the Company’s qualified defined benefit pension plan (the “Pension Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Pension Plan immediately prior to the date of the Change in Control), and (b) any SERP which the Executive would receive if the Executive’s employment continued for three years after the date of termination assuming for these purposes that all accrued benefits are fully vested, and further assuming that the Executive’s annual compensation for purposes of determining benefits under the Pension Plan and SERP (“Covered Compensation”) in each of the three years is at least equal to the higher of Executive’s annual rate of Covered Compensation for the most recently completed fiscal year ending prior to the date of the Change in Control or the year in which the Change in

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Control occurs, over (ii) the lump sum actuarial equivalent of the Executive’s actual accrued benefit (paid or payable), if any, under the Pension Plan and the SERP (including SERP payments made under subparagraph (d) above) as of the date of termination; and

(f) Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company’s expense in all welfare benefit plans, programs, practices and policies, including without limitation, life, medical, disability, dental, accidental death and travel insurance plans, maintained or sponsored by the Company immediately prior to the Change in Control, or receive substantially the equivalent coverage from the Company, until the longer of the third anniversary of such termination or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for any retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the date of termination and to have retired on the last day of such period; and

(g) to the extent not theretofore paid or provided for, the Company shall within 30 days of such termination of employment pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (“Other Benefits”); and

(h) the Company will promptly reimburse Executive for any and all legal fees and expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred to enforce the provisions of this Agreement or contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof); provided, however, that in no event shall any amount of reimbursement be paid to the Executive later than the fifteenth day of the third month following the year in which such legal fee or expense was incurred.

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Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control.

3. Death, Disability, Cause, Other Than For Good Reason.

(a) Death. If the Executive’s employment shall terminate during the Post Change in Control Period by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of death.

(b) Disability. If the Executive’s employment is terminated during the Post Change in Control Period by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of termination of employment. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Change in Control Period, it may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.

(c) Cause. If the Executive’s employment shall be terminated for Cause (as defined in Section 4 below) during the Post Change in Control Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Post Change in Control Period, excluding a

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termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for Accrued Obligations and the timely payment or provisions of Other Benefits.

In either case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of the termination of employment.

4. “Cause” means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of a crime involving moral turpitude, or (c) willful failure by the Executive of his duties to the Company which failure is deliberate on the Executive’s part, results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been “willful” unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company.

5. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following:

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change in Control; or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(b) Any reduction in the Executive’s rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary paid to him in the completed fiscal year immediately preceding the Change in Control, or reduction in Executive’s total cash and stock compensation opportunities, including salary and incentives, for any fiscal year to less than 100% of the total cash and stock compensation opportunities made available to him in the completed fiscal year immediately preceding the Change in Control (for this purpose, such opportunities shall be deemed reduced if the

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objective standards by which the Executive’s incentive compensation measured become more stringent or the amount of such compensation is materially reduced on a discretionary basis from the amount that would be payable solely by reference to the objective standards); or

(c) Failure of the Company to continue in effect any retirement, life, medical, dental, disability, accidental death or travel insurance plan, in which Executive was participating immediately prior to the Change in Control unless the Company provides Executive with a plan or plans that provide substantially similar benefits, or the taking of any action by the Company that would adversely effect Executive’s participation in or materially reduce Executive’s benefits under any of such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change in Control other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(d) The Company requires Executive to be based at any office or location outside the Greater Boston Metropolitan Area or the Company requires the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date of Change in Control; or

(e) Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(f) Any failure by the Company to comply with and satisfy Section 9 of this Agreement.

For purposes of this Section 5, any good faith determination of Good Reason made by the Executive shall be conclusive.

6. Notwithstanding any provision of this Agreement to the contrary, if at the time of the Executive’s termination of employment with the Company or one of the Company’s subsidiaries, the Executive is a specified employee as hereinafter defined, any and all amounts payable under this Agreement in connection with such termination from employment that constitute deferred compensation subject to section 409A of the Code, as determined by the Company in its sole discretion, shall be made or commence on the first day of the seventh month following the Executive’s termination of employment. For purposes of the preceding sentence, the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of section 409A of the Code.

7. If any payment or benefit received by Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) would be

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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the Executive with respect to such excise tax), the Company will pay to Executive an additional amount in cash (the “Additional Amount”) equal to the amount necessary to cause the aggregate payments and benefits received by Executive, including such Additional Amount (net of all federal, state, and local income taxes and all taxes payable as a result of the application of Sections 280G and 4999 of the Code and including any interest and penalties with respect to such taxes) to be equal to the aggregate payments and benefits Executive would have received, excluding such Additional Amount (net of all federal, state and local income taxes) as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law.

Following the termination of Executive’s employment, Executive may submit to the Company a written opinion (the “Opinion”) of a nationally recognized accounting firm, employment consulting firm, or law firm selected by Executive setting forth a statement and a calculation of the Additional Amount. The determination of such firm concerning the extent of the Additional Amount (which determination need not be free from doubt), shall be final and binding on both Executive and the Company. The Company will pay to Executive the Additional Amount not later than 10 days after such firm has rendered the Opinion. The Company agrees to pay the fees and expenses of such firm in preparing and rendering the Opinion.

If, following the payment to Executive of the Additional Amount, Executive’s liability for the excise tax imposed by Section 4999 of the Code on the payments and benefits received by Executive is finally determined (at such time as the Internal Revenue Service is unable to make any further adjustment to the amount of such liability) to be less than the amount thereof set forth in the Opinion, Executive shall reimburse the Company, without interest, in an amount equal to the amount by which the Additional Amount should be reduced to reflect such decrease in the actual excise tax liability. The calculation of such reimbursement shall be made by a nationally recognized accounting firm, an employment consulting firm, or a law firm selected by Executive, whose determination shall be binding on Executive and the Company and whose fees and expenses therefore shall be paid by the Company.

8. In the case of any dispute under this Agreement, Executive may initiate binding arbitration in Boston, Massachusetts, before the American Arbitration Association by serving a notice to arbitrate upon the Company or, at Executive’s election, institute judicial proceedings, in either case within 90 days of the effective date of his termination or, if later, his receipt of notice of termination, or such longer period as may be reasonably necessary for Executive to take such action if illness or incapacity should impair his taking such action within the 90-day period. The Company shall not have the right to initiate binding arbitration, and agrees that upon the initiation of binding arbitration by Executive pursuant to this paragraph 8 the Company shall cause to be dismissed any judicial proceedings it has brought against Executive relating to this Agreement. The Company authorizes Executive from time to time to retain counsel of his choice to represent Executive in connection with any and all actions, proceedings, and/or arbitration, whether by

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or against the Company or any trustee, officer, shareholder, or other person affiliated with the Company, which may affect Executive’s rights under this Agreement. The Company agrees (i) to pay the fees and expenses of such counsel, (ii) to pay the cost of such arbitration and/or judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending arbitration and/or judicial proceedings. Such interest will be at the prime rate for corporate loans by the nation’s largest banks as published from time to time under “Money Rates” in the Wall Street Journal, Eastern Edition.

In addition, notwithstanding any existing prior attorney-client relationship between the Company and counsel retained by Executive, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel and agrees that a confidential relationship shall exist between Executive and such counsel.

9. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the “Successor Entity”), and this paragraph 9 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such transaction had taken place. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise.

In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive’s right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company.

In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company.

10. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 15 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this

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Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

“Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the effective date of the Disability, as the case may be.

11. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.

12 There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment.

13. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge.

14. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties.

15. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a “Renewal

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Date”), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Change in Control which takes place after the termination of this Agreement.

Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement.

The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. In addition, this Agreement supersedes any and all previous Change in Control Agreements executed between the Executive and the Company.

The validity, interpretation and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. Any ambiguities in this Agreement shall be construed in favor of the Executive.

The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

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The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement.

No right or interest to or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate.

No right, benefit, or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect.

All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	Thomas J. May
	22 Longmeadow Drive
	Westwood, MA 02090
If to the Company:	NSTAR
	800 Boylston Street
	Boston, MA 02199
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

The name “NSTAR” means the trustee or trustees for the time being (as trustee or trustees but not personally) under a Declaration of Trust dated April 20, 1999, as amended from time to time, which is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of State of The Commonwealth of Massachusetts. Any obligation, agreement, or liability made, entered into, or incurred by or on behalf of NSTAR binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.

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IN WITNESS WHEREOF, NSTAR and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above.

NSTAR
By:	/S/ Thomas J. May
Name:
Title:	Chairman and Chief Executive Officer
	/S/ Douglas S. Horan

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EXHIBIT A

Change in Control. For the purposes of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any Person of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding common shares (or shares of common stock) of Parent (the “Outstanding Parent Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of trustees (or directors) (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Parent, (ii) any acquisition by the Parent or any affiliate of Parent, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent, the Company or any affiliate of Parent or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Exhibit A; or

(b) Individuals who, as of the date hereof, constitute the Board of Trustees of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of such board; provided, however, that any individual becoming a trustee (or director) subsequent to the date hereof whose election, or nomination for election by the Parent’s shareholders, was approved by a vote of at least a majority of the trustees (or directors) then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of trustees (or directors) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the then outstanding common shares (or shares of common stock) and the combined voting power of the

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then outstanding voting securities entitled to vote generally in the election of trustees (or directors), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent or all or substantially all of the Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Parent or the Company or such entity resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% of more of, respectively, the then outstanding common shares or shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of trustees (or board of directors) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Trustees of the Parent, providing for such Business Combination; or

(d) Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

For purposes of this Appendix A, the term “Parent” shall mean NSTAR, or, if any entity shall own, directly or indirectly through one or more subsidiaries, more than 50% of the outstanding common shares of NSTAR, such entity.

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EX-10.8

Exhibit 10.8

NSTAR

Amended and Restated Change in Control Agreement

AGREEMENT, made this 15^th day of February, 2007, by and between

James J. Judge (“Executive”) and NSTAR (the “Company”).

WITNESSETH

WHEREAS, the Board of Trustees of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under the circumstances described below to Executive and other executives who are responsible for the policy-making functions of the Company and/or one or more of its subsidiaries and the overall viability of the business of the Company and its subsidiaries; and

WHEREAS, the Board recognizes that the possibility of a Change in Control of the Company is unsettling to such executives and desires to make arrangements at this time to help assure their continuing dedication to their duties to the Company and its shareholders, notwithstanding any attempts by outside parties to gain control of the Company; and

WHEREAS, the Board believes it important, should the Company receive proposals from outside parties, to enable such executives, without being distracted by the uncertainties of their own employment situation, to perform their regular duties, and where appropriate to assess such proposals and advise the Board as to the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board determines to be appropriate; and

WHEREAS, the Board also desires to demonstrate to the executives that the Company is concerned with their welfare and intends to provide that loyal executives are treated fairly; and

WHEREAS, the Board wishes to assure that executives of the Company receive fair and competitive severance benefits and receive fair severance should any of their employment with the Company or its subsidiaries terminate in specified circumstances following a Change in Control of the Company and to assure the executives of other benefits upon a Change in Control.

WHEREAS, in recognition of the foregoing, the Executive and the Company wish to enter into this Agreement, which is hereby acknowledged to supersede any and all previous Change in Control Agreements executed between the Executive and the Company.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other entity (“Person”), which term shall include a “group” (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the “Act”)), begins a tender or exchange offer, circulates a proxy to the Company’s shareholders, or takes other steps to effect a “Change in Control” (as defined in Exhibit A attached hereto and made a part hereof), Executive agrees that he will not voluntarily leave the employ of the Company and will render the services contemplated in the recitals to this Agreement until such Person has terminated the efforts to effect a Change in Control or until a Change in Control has occurred.

2. If, within 36 months following a Change in Control (the “Post Change in Control Period”) Executive’s employment with the Company or one of the Company’s subsidiaries is terminated by the Company for any reason other than for “Cause” or “Disability” (as defined in paragraph 4 below), or as a result of Executive’s death, and Executive terminates such employment for Good Reason (as defined in paragraph 5 below):

(a) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to the sum of (i) the Executive’s annual base salary (“Annual Base Salary”) through the date of such termination of employment to the extent not theretofore paid, (ii) a prorated portion of the target award payable under the Company’s Executive Annual Incentive Compensation Plan, or any comparable or successor plan (the “Annual Plan”) determined by calculating the product of (A) the target bonus award payable for the fiscal year in which the date of termination occurs under the Annual Plan, times (B) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination of employment, and the denominator of which is 365, (iii) a prorated portion of the target award payable under any long-term performance or incentive plan (the “Long-Term Plan”) for the performance period ending on the last day of the fiscal year during which the date of termination of employment occurs determined by calculating the product of (A) the target award payable for such performance period and (B) a fraction, the numerator of which is the number of days in the current performance period through the date of termination, and the denominator of which is the actual number of days in the performance period (provided that if any awards are expressed in shares of common stock rather than cash, the Company will pay the cash equivalent of such awards based on the closing price per share as reported in the Wall Street Journal (Eastern Edition) New York Stock Exchange Composite Transactions determined on the date prior to the date of the Change in Control or the average per share price for the 10 trading days preceding the date of the Change in Control (whichever is higher)) and (iv) any accrued vacation pay, in each case to the extent not theretofore paid; and

(b) any stock, stock option or cash awards granted to the Executive by the Company that would have become vested upon continued employment by the Executive shall immediately vest in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the earlier of the fifth anniversary of such termination and the latest date on which such grant could have been exercised; and

(c) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to three times: (A) the amount of the Executive’s Annual Base Salary at the rate in effect immediately prior to the date of termination or at the rate in effect immediately prior to the Change in Control, whichever is higher, and (B) the amount of the actual bonus paid to the Executive under the Annual Plan for the most recently completed fiscal year ended before the Change in Control, or the target bonus payable under the Annual Plan for the fiscal year during which the termination of employment occurs, whichever is higher ; and

(d) the Company will pay to the Executive within 30 days of such termination of employment a lump-sum cash payment equal to the full balance standing to his credit with the Company under any and all deferred compensation plans or arrangements and the lump-sum actuarial equivalent of the Executive’s accrued benefit under any supplemental retirement plan or arrangement (a “SERP”) in which the Executive participates (the sum of the amounts described in subsections (a) and (d) shall be hereinafter referred to as the “Accrued Obligations”), which payments shall be in lieu of any amounts otherwise payable to Executive under any such plans; and

(e) the Company will pay to the Executive within 30 days of such termination of employment an amount equal to the excess of (i) the lump sum actuarial equivalent of the accrued benefit under (a) the Company’s qualified defined benefit pension plan (the “Pension Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Pension Plan immediately prior to the date of the Change in Control), and (b) any SERP which the Executive would receive if the Executive’s employment continued for three years after the date of termination assuming for these purposes that all accrued benefits are fully vested, and further assuming that the Executive’s annual compensation for purposes of determining benefits under the Pension Plan and SERP (“Covered Compensation”) in each of the three years is at least equal to the higher of Executive’s annual rate of Covered Compensation for the most recently completed fiscal year ending prior to the date of the Change in Control or the year in which the Change in

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Control occurs, over (ii) the lump sum actuarial equivalent of the Executive’s actual accrued benefit (paid or payable), if any, under the Pension Plan and the SERP (including SERP payments made under subparagraph (d) above) as of the date of termination; and

(f) Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company’s expense in all welfare benefit plans, programs, practices and policies, including without limitation, life, medical, disability, dental, accidental death and travel insurance plans, maintained or sponsored by the Company immediately prior to the Change in Control, or receive substantially the equivalent coverage from the Company, until the longer of the third anniversary of such termination or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for any retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the date of termination and to have retired on the last day of such period; and

(g) to the extent not theretofore paid or provided for, the Company shall within 30 days of such termination of employment pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (“Other Benefits”); and

(h) the Company will promptly reimburse Executive for any and all legal fees and expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred to enforce the provisions of this Agreement or contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof); provided, however, that in no event shall any amount of reimbursement be paid to the Executive later than the fifteenth day of the third month following the year in which such legal fee or expense was incurred.

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Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control.

3. Death, Disability, Cause, Other Than For Good Reason.

(a) Death. If the Executive’s employment shall terminate during the Post Change in Control Period by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of death.

(b) Disability. If the Executive’s employment is terminated during the Post Change in Control Period by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of termination of employment. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Change in Control Period, it may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.

(c) Cause. If the Executive’s employment shall be terminated for Cause (as defined in Section 4 below) during the Post Change in Control Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Post Change in Control Period, excluding a

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termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for Accrued Obligations and the timely payment or provisions of Other Benefits.

In either case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of the termination of employment.

4. “Cause” means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of a crime involving moral turpitude, or (c) willful failure by the Executive of his duties to the Company which failure is deliberate on the Executive’s part, results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been “willful” unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company.

5. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following:

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change in Control; or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(b) Any reduction in the Executive’s rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary paid to him in the completed fiscal year immediately preceding the Change in Control, or reduction in Executive’s total cash and stock compensation opportunities, including salary and incentives, for any fiscal year to less than 100% of the total cash and stock compensation opportunities made available to him in the completed fiscal year immediately preceding the Change in Control (for this purpose, such opportunities shall be deemed reduced if the

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objective standards by which the Executive’s incentive compensation measured become more stringent or the amount of such compensation is materially reduced on a discretionary basis from the amount that would be payable solely by reference to the objective standards); or

(c) Failure of the Company to continue in effect any retirement, life, medical, dental, disability, accidental death or travel insurance plan, in which Executive was participating immediately prior to the Change in Control unless the Company provides Executive with a plan or plans that provide substantially similar benefits, or the taking of any action by the Company that would adversely effect Executive’s participation in or materially reduce Executive’s benefits under any of such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change in Control other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(d) The Company requires Executive to be based at any office or location outside the Greater Boston Metropolitan Area or the Company requires the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date of Change in Control; or

(e) Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(f) Any failure by the Company to comply with and satisfy Section 9 of this Agreement.

For purposes of this Section 5, any good faith determination of Good Reason made by the Executive shall be conclusive.

6. Notwithstanding any provision of this Agreement to the contrary, if at the time of the Executive’s termination of employment with the Company or one of the Company’s subsidiaries, the Executive is a specified employee as hereinafter defined, any and all amounts payable under this Agreement in connection with such termination from employment that constitute deferred compensation subject to section 409A of the Code, as determined by the Company in its sole discretion, shall be made or commence on the first day of the seventh month following the Executive’s termination of employment. For purposes of the preceding sentence, the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of section 409A of the Code.

7. If any payment or benefit received by Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) would be

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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the Executive with respect to such excise tax), the Company will pay to Executive an additional amount in cash (the “Additional Amount”) equal to the amount necessary to cause the aggregate payments and benefits received by Executive, including such Additional Amount (net of all federal, state, and local income taxes and all taxes payable as a result of the application of Sections 280G and 4999 of the Code and including any interest and penalties with respect to such taxes) to be equal to the aggregate payments and benefits Executive would have received, excluding such Additional Amount (net of all federal, state and local income taxes) as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law.

Following the termination of Executive’s employment, Executive may submit to the Company a written opinion (the “Opinion”) of a nationally recognized accounting firm, employment consulting firm, or law firm selected by Executive setting forth a statement and a calculation of the Additional Amount. The determination of such firm concerning the extent of the Additional Amount (which determination need not be free from doubt), shall be final and binding on both Executive and the Company. The Company will pay to Executive the Additional Amount not later than 10 days after such firm has rendered the Opinion. The Company agrees to pay the fees and expenses of such firm in preparing and rendering the Opinion.

If, following the payment to Executive of the Additional Amount, Executive’s liability for the excise tax imposed by Section 4999 of the Code on the payments and benefits received by Executive is finally determined (at such time as the Internal Revenue Service is unable to make any further adjustment to the amount of such liability) to be less than the amount thereof set forth in the Opinion, Executive shall reimburse the Company, without interest, in an amount equal to the amount by which the Additional Amount should be reduced to reflect such decrease in the actual excise tax liability. The calculation of such reimbursement shall be made by a nationally recognized accounting firm, an employment consulting firm, or a law firm selected by Executive, whose determination shall be binding on Executive and the Company and whose fees and expenses therefore shall be paid by the Company.

8. In the case of any dispute under this Agreement, Executive may initiate binding arbitration in Boston, Massachusetts, before the American Arbitration Association by serving a notice to arbitrate upon the Company or, at Executive’s election, institute judicial proceedings, in either case within 90 days of the effective date of his termination or, if later, his receipt of notice of termination, or such longer period as may be reasonably necessary for Executive to take such action if illness or incapacity should impair his taking such action within the 90-day period. The Company shall not have the right to initiate binding arbitration, and agrees that upon the initiation of binding arbitration by Executive pursuant to this paragraph 8 the Company shall cause to be dismissed any judicial proceedings it has brought against Executive relating to this Agreement. The Company authorizes Executive from time to time to retain counsel of his choice to represent Executive in connection with any and all actions, proceedings, and/or arbitration, whether by

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or against the Company or any trustee, officer, shareholder, or other person affiliated with the Company, which may affect Executive’s rights under this Agreement. The Company agrees (i) to pay the fees and expenses of such counsel, (ii) to pay the cost of such arbitration and/or judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending arbitration and/or judicial proceedings. Such interest will be at the prime rate for corporate loans by the nation’s largest banks as published from time to time under “Money Rates” in the Wall Street Journal, Eastern Edition.

In addition, notwithstanding any existing prior attorney-client relationship between the Company and counsel retained by Executive, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel and agrees that a confidential relationship shall exist between Executive and such counsel.

9. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the “Successor Entity”), and this paragraph 9 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such transaction had taken place. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise.

In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive’s right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company.

In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company.

10. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 15 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this

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Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

“Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the effective date of the Disability, as the case may be.

11. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.

12 There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment.

13. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge.

14. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties.

15. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a “Renewal

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Date”), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Change in Control which takes place after the termination of this Agreement.

Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement.

The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. In addition, this Agreement supersedes any and all previous Change in Control Agreements executed between the Executive and the Company.

The validity, interpretation and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. Any ambiguities in this Agreement shall be construed in favor of the Executive.

The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

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The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement.

No right or interest to or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate.

No right, benefit, or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect.

All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	James J. Judge
	30 Cushing Hill Road
	Hanover, MA 02339
If to the Company:	NSTAR
	800 Boylston Street
	Boston, MA 02199
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

The name “NSTAR” means the trustee or trustees for the time being (as trustee or trustees but not personally) under a Declaration of Trust dated April 20, 1999, as amended from time to time, which is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of State of The Commonwealth of Massachusetts. Any obligation, agreement, or liability made, entered into, or incurred by or on behalf of NSTAR binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.

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IN WITNESS WHEREOF, NSTAR and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above.

NSTAR
By:	/S/ James J. Judge
Name:
Title:	SVP, Treasurer and Chief Financial Officer
	/S/ Thomas J. May
	Thomas J. May
	Chairman and Chief Executive Officer

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EXHIBIT A

Change in Control. For the purposes of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any Person of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding common shares (or shares of common stock) of Parent (the “Outstanding Parent Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of trustees (or directors) (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Parent, (ii) any acquisition by the Parent or any affiliate of Parent, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent, the Company or any affiliate of Parent or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Exhibit A; or

(b) Individuals who, as of the date hereof, constitute the Board of Trustees of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of such board; provided, however, that any individual becoming a trustee (or director) subsequent to the date hereof whose election, or nomination for election by the Parent’s shareholders, was approved by a vote of at least a majority of the trustees (or directors) then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of trustees (or directors) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the then outstanding common shares (or shares of common stock) and the combined voting power of the

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then outstanding voting securities entitled to vote generally in the election of trustees (or directors), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent or all or substantially all of the Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Parent or the Company or such entity resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% of more of, respectively, the then outstanding common shares or shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of trustees (or board of directors) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Trustees of the Parent, providing for such Business Combination; or

(d) Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

For purposes of this Appendix A, the term “Parent” shall mean NSTAR, or, if any entity shall own, directly or indirectly through one or more subsidiaries, more than 50% of the outstanding common shares of NSTAR, such entity.

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EX-10.11

Exhibit 10.11

NSTAR

Amended and Restated Change in Control Agreement

AGREEMENT, made this 15^th day of February, 2007, by and between

Douglas S. Horan (“Executive”) and NSTAR (the “Company”).

WITNESSETH

WHEREAS, the Board of Trustees of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under the circumstances described below to Executive and other executives who are responsible for the policy-making functions of the Company and/or one or more of its subsidiaries and the overall viability of the business of the Company and its subsidiaries; and

WHEREAS, the Board recognizes that the possibility of a Change in Control of the Company is unsettling to such executives and desires to make arrangements at this time to help assure their continuing dedication to their duties to the Company and its shareholders, notwithstanding any attempts by outside parties to gain control of the Company; and

WHEREAS, the Board believes it important, should the Company receive proposals from outside parties, to enable such executives, without being distracted by the uncertainties of their own employment situation, to perform their regular duties, and where appropriate to assess such proposals and advise the Board as to the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board determines to be appropriate; and

WHEREAS, the Board also desires to demonstrate to the executives that the Company is concerned with their welfare and intends to provide that loyal executives are treated fairly; and

WHEREAS, the Board wishes to assure that executives of the Company receive fair and competitive severance benefits and receive fair severance should any of their employment with the Company or its subsidiaries terminate in specified circumstances following a Change in Control of the Company and to assure the executives of other benefits upon a Change in Control.

WHEREAS, in recognition of the foregoing, the Executive and the Company wish to enter into this Agreement, which is hereby acknowledged to supersede any and all previous Change in Control Agreements executed between the Executive and the Company.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other entity (“Person”), which term shall include a “group” (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the “Act”)), begins a tender or exchange offer, circulates a proxy to the Company’s shareholders, or takes other steps to effect a “Change in Control” (as defined in Exhibit A attached hereto and made a part hereof), Executive agrees that he will not voluntarily leave the employ of the Company and will render the services contemplated in the recitals to this Agreement until such Person has terminated the efforts to effect a Change in Control or until a Change in Control has occurred.

2. If, within 36 months following a Change in Control (the “Post Change in Control Period”) Executive’s employment with the Company or one of the Company’s subsidiaries is terminated by the Company for any reason other than for “Cause” or “Disability” (as defined in paragraph 4 below), or as a result of Executive’s death, and Executive terminates such employment for Good Reason (as defined in paragraph 5 below):

(a) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to the sum of (i) the Executive’s annual base salary (“Annual Base Salary”) through the date of such termination of employment to the extent not theretofore paid, (ii) a prorated portion of the target award payable under the Company’s Executive Annual Incentive Compensation Plan, or any comparable or successor plan (the “Annual Plan”) determined by calculating the product of (A) the target bonus award payable for the fiscal year in which the date of termination occurs under the Annual Plan, times (B) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination of employment, and the denominator of which is 365, (iii) a prorated portion of the target award payable under any long-term performance or incentive plan (the “Long-Term Plan”) for the performance period ending on the last day of the fiscal year during which the date of termination of employment occurs determined by calculating the product of (A) the target award payable for such performance period and (B) a fraction, the numerator of which is the number of days in the current performance period through the date of termination, and the denominator of which is the actual number of days in the performance period (provided that if any awards are expressed in shares of common stock rather than cash, the Company will pay the cash equivalent of such awards based on the closing price per share as reported in the Wall Street Journal (Eastern Edition) New York Stock Exchange Composite Transactions determined on the date prior to the date of the Change in Control or the average per share price for the 10 trading days preceding the date of the Change in Control (whichever is higher)) and (iv) any accrued vacation pay, in each case to the extent not theretofore paid; and

(b) any stock, stock option or cash awards granted to the Executive by the Company that would have become vested upon continued employment by the Executive shall immediately vest in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the earlier of the fifth anniversary of such termination and the latest date on which such grant could have been exercised; and

(c) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to three times: (A) the amount of the Executive’s Annual Base Salary at the rate in effect immediately prior to the date of termination or at the rate in effect immediately prior to the Change in Control, whichever is higher, and (B) the amount of the actual bonus paid to the Executive under the Annual Plan for the most recently completed fiscal year ended before the Change in Control, or the target bonus payable under the Annual Plan for the fiscal year during which the termination of employment occurs, whichever is higher ; and

(d) the Company will pay to the Executive within 30 days of such termination of employment a lump-sum cash payment equal to the full balance standing to his credit with the Company under any and all deferred compensation plans or arrangements and the lump-sum actuarial equivalent of the Executive’s accrued benefit under any supplemental retirement plan or arrangement (a “SERP”) in which the Executive participates (the sum of the amounts described in subsections (a) and (d) shall be hereinafter referred to as the “Accrued Obligations”), which payments shall be in lieu of any amounts otherwise payable to Executive under any such plans; and

(e) the Company will pay to the Executive within 30 days of such termination of employment an amount equal to the excess of (i) the lump sum actuarial equivalent of the accrued benefit under (a) the Company’s qualified defined benefit pension plan (the “Pension Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Pension Plan immediately prior to the date of the Change in Control), and (b) any SERP which the Executive would receive if the Executive’s employment continued for three years after the date of termination assuming for these purposes that all accrued benefits are fully vested, and further assuming that the Executive’s annual compensation for purposes of determining benefits under the Pension Plan and SERP (“Covered Compensation”) in each of the three years is at least equal to the higher of Executive’s annual rate of Covered Compensation for the most recently completed fiscal year ending prior to the date of the Change in Control or the year in which the Change in

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Control occurs, over (ii) the lump sum actuarial equivalent of the Executive’s actual accrued benefit (paid or payable), if any, under the Pension Plan and the SERP (including SERP payments made under subparagraph (d) above) as of the date of termination; and

(f) Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company’s expense in all welfare benefit plans, programs, practices and policies, including without limitation, life, medical, disability, dental, accidental death and travel insurance plans, maintained or sponsored by the Company immediately prior to the Change in Control, or receive substantially the equivalent coverage from the Company, until the longer of the third anniversary of such termination or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for any retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the date of termination and to have retired on the last day of such period; and

(g) to the extent not theretofore paid or provided for, the Company shall within 30 days of such termination of employment pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (“Other Benefits”); and

(h) the Company will promptly reimburse Executive for any and all legal fees and expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred to enforce the provisions of this Agreement or contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof); provided, however, that in no event shall any amount of reimbursement be paid to the Executive later than the fifteenth day of the third month following the year in which such legal fee or expense was incurred.

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Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control.

3. Death, Disability, Cause, Other Than For Good Reason.

(a) Death. If the Executive’s employment shall terminate during the Post Change in Control Period by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of death.

(b) Disability. If the Executive’s employment is terminated during the Post Change in Control Period by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of termination of employment. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Change in Control Period, it may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.

(c) Cause. If the Executive’s employment shall be terminated for Cause (as defined in Section 4 below) during the Post Change in Control Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Post Change in Control Period, excluding a

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termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for Accrued Obligations and the timely payment or provisions of Other Benefits.

In either case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of the termination of employment.

4. “Cause” means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of a crime involving moral turpitude, or (c) willful failure by the Executive of his duties to the Company which failure is deliberate on the Executive’s part, results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been “willful” unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company.

5. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following:

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change in Control; or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(b) Any reduction in the Executive’s rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary paid to him in the completed fiscal year immediately preceding the Change in Control, or reduction in Executive’s total cash and stock compensation opportunities, including salary and incentives, for any fiscal year to less than 100% of the total cash and stock compensation opportunities made available to him in the completed fiscal year immediately preceding the Change in Control (for this purpose, such opportunities shall be deemed reduced if the

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objective standards by which the Executive’s incentive compensation measured become more stringent or the amount of such compensation is materially reduced on a discretionary basis from the amount that would be payable solely by reference to the objective standards); or

(c) Failure of the Company to continue in effect any retirement, life, medical, dental, disability, accidental death or travel insurance plan, in which Executive was participating immediately prior to the Change in Control unless the Company provides Executive with a plan or plans that provide substantially similar benefits, or the taking of any action by the Company that would adversely effect Executive’s participation in or materially reduce Executive’s benefits under any of such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change in Control other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(d) The Company requires Executive to be based at any office or location outside the Greater Boston Metropolitan Area or the Company requires the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date of Change in Control; or

(e) Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(f) Any failure by the Company to comply with and satisfy Section 9 of this Agreement.

For purposes of this Section 5, any good faith determination of Good Reason made by the Executive shall be conclusive.

6. Notwithstanding any provision of this Agreement to the contrary, if at the time of the Executive’s termination of employment with the Company or one of the Company’s subsidiaries, the Executive is a specified employee as hereinafter defined, any and all amounts payable under this Agreement in connection with such termination from employment that constitute deferred compensation subject to section 409A of the Code, as determined by the Company in its sole discretion, shall be made or commence on the first day of the seventh month following the Executive’s termination of employment. For purposes of the preceding sentence, the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of section 409A of the Code.

7. If any payment or benefit received by Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) would be

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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the Executive with respect to such excise tax), the Company will pay to Executive an additional amount in cash (the “Additional Amount”) equal to the amount necessary to cause the aggregate payments and benefits received by Executive, including such Additional Amount (net of all federal, state, and local income taxes and all taxes payable as a result of the application of Sections 280G and 4999 of the Code and including any interest and penalties with respect to such taxes) to be equal to the aggregate payments and benefits Executive would have received, excluding such Additional Amount (net of all federal, state and local income taxes) as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law.

Following the termination of Executive’s employment, Executive may submit to the Company a written opinion (the “Opinion”) of a nationally recognized accounting firm, employment consulting firm, or law firm selected by Executive setting forth a statement and a calculation of the Additional Amount. The determination of such firm concerning the extent of the Additional Amount (which determination need not be free from doubt), shall be final and binding on both Executive and the Company. The Company will pay to Executive the Additional Amount not later than 10 days after such firm has rendered the Opinion. The Company agrees to pay the fees and expenses of such firm in preparing and rendering the Opinion.

If, following the payment to Executive of the Additional Amount, Executive’s liability for the excise tax imposed by Section 4999 of the Code on the payments and benefits received by Executive is finally determined (at such time as the Internal Revenue Service is unable to make any further adjustment to the amount of such liability) to be less than the amount thereof set forth in the Opinion, Executive shall reimburse the Company, without interest, in an amount equal to the amount by which the Additional Amount should be reduced to reflect such decrease in the actual excise tax liability. The calculation of such reimbursement shall be made by a nationally recognized accounting firm, an employment consulting firm, or a law firm selected by Executive, whose determination shall be binding on Executive and the Company and whose fees and expenses therefore shall be paid by the Company.

8. In the case of any dispute under this Agreement, Executive may initiate binding arbitration in Boston, Massachusetts, before the American Arbitration Association by serving a notice to arbitrate upon the Company or, at Executive’s election, institute judicial proceedings, in either case within 90 days of the effective date of his termination or, if later, his receipt of notice of termination, or such longer period as may be reasonably necessary for Executive to take such action if illness or incapacity should impair his taking such action within the 90-day period. The Company shall not have the right to initiate binding arbitration, and agrees that upon the initiation of binding arbitration by Executive pursuant to this paragraph 8 the Company shall cause to be dismissed any judicial proceedings it has brought against Executive relating to this Agreement. The Company authorizes Executive from time to time to retain counsel of his choice to represent Executive in connection with any and all actions, proceedings, and/or arbitration, whether by

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or against the Company or any trustee, officer, shareholder, or other person affiliated with the Company, which may affect Executive’s rights under this Agreement. The Company agrees (i) to pay the fees and expenses of such counsel, (ii) to pay the cost of such arbitration and/or judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending arbitration and/or judicial proceedings. Such interest will be at the prime rate for corporate loans by the nation’s largest banks as published from time to time under “Money Rates” in the Wall Street Journal, Eastern Edition.

In addition, notwithstanding any existing prior attorney-client relationship between the Company and counsel retained by Executive, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel and agrees that a confidential relationship shall exist between Executive and such counsel.

9. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the “Successor Entity”), and this paragraph 9 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such transaction had taken place. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise.

In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive’s right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company.

In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company.

10. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 15 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this

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Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

“Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the effective date of the Disability, as the case may be.

11. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.

12 There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment.

13. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge.

14. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties.

15. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a “Renewal

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Date”), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Change in Control which takes place after the termination of this Agreement.

Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement.

The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. In addition, this Agreement supersedes any and all previous Change in Control Agreements executed between the Executive and the Company.

The validity, interpretation and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. Any ambiguities in this Agreement shall be construed in favor of the Executive.

The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

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The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement.

No right or interest to or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate.

No right, benefit, or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect.

All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	Douglas S. Horan
	171 Asbury Street
	Hamilton, MA 01982
If to the Company:	NSTAR
	800 Boylston Street
	Boston, MA 02199
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

The name “NSTAR” means the trustee or trustees for the time being (as trustee or trustees but not personally) under a Declaration of Trust dated April 20, 1999, as amended from time to time, which is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of State of The Commonwealth of Massachusetts. Any obligation, agreement, or liability made, entered into, or incurred by or on behalf of NSTAR binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.

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IN WITNESS WHEREOF, NSTAR and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above.

NSTAR
By:	/S/ Douglas Horan
Name:
Title:	SVP, Strategy, Law & Policy, Secretary and General Counsel
	/S/ Thomas J. May
	Thomas J. May
	Chairman and Chief Executive Officer

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EXHIBIT A

Change in Control. For the purposes of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any Person of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding common shares (or shares of common stock) of Parent (the “Outstanding Parent Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of trustees (or directors) (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Parent, (ii) any acquisition by the Parent or any affiliate of Parent, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent, the Company or any affiliate of Parent or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Exhibit A; or

(b) Individuals who, as of the date hereof, constitute the Board of Trustees of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of such board; provided, however, that any individual becoming a trustee (or director) subsequent to the date hereof whose election, or nomination for election by the Parent’s shareholders, was approved by a vote of at least a majority of the trustees (or directors) then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of trustees (or directors) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the then outstanding common shares (or shares of common stock) and the combined voting power of the

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then outstanding voting securities entitled to vote generally in the election of trustees (or directors), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent or all or substantially all of the Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Parent or the Company or such entity resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% of more of, respectively, the then outstanding common shares or shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of trustees (or board of directors) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Trustees of the Parent, providing for such Business Combination; or

(d) Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

For purposes of this Appendix A, the term “Parent” shall mean NSTAR, or, if any entity shall own, directly or indirectly through one or more subsidiaries, more than 50% of the outstanding common shares of NSTAR, such entity.

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EX-10.12

Exhibit 10.12

NSTAR

Amended and Restated Change in Control Agreement

AGREEMENT, made this 15^th day of February, 2007, by and between

Joseph R. Nolan, Jr. (“Executive”) and NSTAR (the “Company”).

WITNESSETH

WHEREAS, the Board of Trustees of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under the circumstances described below to Executive and other executives who are responsible for the policy-making functions of the Company and/or one or more of its subsidiaries and the overall viability of the business of the Company and its subsidiaries; and

WHEREAS, the Board recognizes that the possibility of a Change in Control of the Company is unsettling to such executives and desires to make arrangements at this time to help assure their continuing dedication to their duties to the Company and its shareholders, notwithstanding any attempts by outside parties to gain control of the Company; and

WHEREAS, the Board believes it important, should the Company receive proposals from outside parties, to enable such executives, without being distracted by the uncertainties of their own employment situation, to perform their regular duties, and where appropriate to assess such proposals and advise the Board as to the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board determines to be appropriate; and

WHEREAS, the Board also desires to demonstrate to the executives that the Company is concerned with their welfare and intends to provide that loyal executives are treated fairly; and

WHEREAS, the Board wishes to assure that executives of the Company receive fair and competitive severance benefits and receive fair severance should any of their employment with the Company or its subsidiaries terminate in specified circumstances following a Change in Control of the Company and to assure the executives of other benefits upon a Change in Control.

WHEREAS, in recognition of the foregoing, the Executive and the Company wish to enter into this Agreement, which is hereby acknowledged to supersede any and all previous Change in Control Agreements executed between the Executive and the Company.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other entity (“Person”), which term shall include a “group” (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the “Act”)), begins a tender or exchange offer, circulates a proxy to the Company’s shareholders, or takes other steps to effect a “Change in Control” (as defined in Exhibit A attached hereto and made a part hereof), Executive agrees that he will not voluntarily leave the employ of the Company and will render the services contemplated in the recitals to this Agreement until such Person has terminated the efforts to effect a Change in Control or until a Change in Control has occurred.

2. If, within 36 months following a Change in Control (the “Post Change in Control Period”) Executive’s employment with the Company or one of the Company’s subsidiaries is terminated by the Company for any reason other than for “Cause” or “Disability” (as defined in paragraph 4 below), or as a result of Executive’s death, and Executive terminates such employment for Good Reason (as defined in paragraph 5 below):

(a) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to the sum of (i) the Executive’s annual base salary (“Annual Base Salary”) through the date of such termination of employment to the extent not theretofore paid, (ii) a prorated portion of the target award payable under the Company’s Executive Annual Incentive Compensation Plan, or any comparable or successor plan (the “Annual Plan”) determined by calculating the product of (A) the target bonus award payable for the fiscal year in which the date of termination occurs under the Annual Plan, times (B) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination of employment, and the denominator of which is 365, (iii) a prorated portion of the target award payable under any long-term performance or incentive plan (the “Long-Term Plan”) for the performance period ending on the last day of the fiscal year during which the date of termination of employment occurs determined by calculating the product of (A) the target award payable for such performance period and (B) a fraction, the numerator of which is the number of days in the current performance period through the date of termination, and the denominator of which is the actual number of days in the performance period (provided that if any awards are expressed in shares of common stock rather than cash, the Company will pay the cash equivalent of such awards based on the closing price per share as reported in the Wall Street Journal (Eastern Edition) New York Stock Exchange Composite Transactions determined on the date prior to the date of the Change in Control or the average per share price for the 10 trading days preceding the date of the Change in Control (whichever is higher)) and (iv) any accrued vacation pay, in each case to the extent not theretofore paid; and

(b) any stock, stock option or cash awards granted to the Executive by the Company that would have become vested upon continued employment by the Executive shall immediately vest in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the earlier of the fifth anniversary of such termination and the latest date on which such grant could have been exercised; and

(c) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to three times: (A) the amount of the Executive’s Annual Base Salary at the rate in effect immediately prior to the date of termination or at the rate in effect immediately prior to the Change in Control, whichever is higher, and (B) the amount of the actual bonus paid to the Executive under the Annual Plan for the most recently completed fiscal year ended before the Change in Control, or the target bonus payable under the Annual Plan for the fiscal year during which the termination of employment occurs, whichever is higher ; and

(d) the Company will pay to the Executive within 30 days of such termination of employment a lump-sum cash payment equal to the full balance standing to his credit with the Company under any and all deferred compensation plans or arrangements and the lump-sum actuarial equivalent of the Executive’s accrued benefit under any supplemental retirement plan or arrangement (a “SERP”) in which the Executive participates (the sum of the amounts described in subsections (a) and (d) shall be hereinafter referred to as the “Accrued Obligations”), which payments shall be in lieu of any amounts otherwise payable to Executive under any such plans; and

(e) the Company will pay to the Executive within 30 days of such termination of employment an amount equal to the excess of (i) the lump sum actuarial equivalent of the accrued benefit under (a) the Company’s qualified defined benefit pension plan (the “Pension Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Pension Plan immediately prior to the date of the Change in Control), and (b) any SERP which the Executive would receive if the Executive’s employment continued for three years after the date of termination assuming for these purposes that all accrued benefits are fully vested, and further assuming that the Executive’s annual compensation for purposes of determining benefits under the Pension Plan and SERP (“Covered Compensation”) in each of the three years is at least equal to the higher of Executive’s annual rate of Covered Compensation for the most recently completed fiscal year ending prior to the date of the Change in Control or the year in which the Change in

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Control occurs, over (ii) the lump sum actuarial equivalent of the Executive’s actual accrued benefit (paid or payable), if any, under the Pension Plan and the SERP (including SERP payments made under subparagraph (d) above) as of the date of termination; and

(f) Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company’s expense in all welfare benefit plans, programs, practices and policies, including without limitation, life, medical, disability, dental, accidental death and travel insurance plans, maintained or sponsored by the Company immediately prior to the Change in Control, or receive substantially the equivalent coverage from the Company, until the longer of the third anniversary of such termination or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for any retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the date of termination and to have retired on the last day of such period; and

(g) to the extent not theretofore paid or provided for, the Company shall within 30 days of such termination of employment pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (“Other Benefits”); and

(h) the Company will promptly reimburse Executive for any and all legal fees and expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred to enforce the provisions of this Agreement or contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof); provided, however, that in no event shall any amount of reimbursement be paid to the Executive later than the fifteenth day of the third month following the year in which such legal fee or expense was incurred.

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Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control.

3. Death, Disability, Cause, Other Than For Good Reason.

(a) Death. If the Executive’s employment shall terminate during the Post Change in Control Period by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of death.

(b) Disability. If the Executive’s employment is terminated during the Post Change in Control Period by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of termination of employment. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Change in Control Period, it may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.

(c) Cause. If the Executive’s employment shall be terminated for Cause (as defined in Section 4 below) during the Post Change in Control Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Post Change in Control Period, excluding a

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termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for Accrued Obligations and the timely payment or provisions of Other Benefits.

In either case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of the termination of employment.

4. “Cause” means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of a crime involving moral turpitude, or (c) willful failure by the Executive of his duties to the Company which failure is deliberate on the Executive’s part, results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been “willful” unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company.

5. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following:

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change in Control; or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(b) Any reduction in the Executive’s rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary paid to him in the completed fiscal year immediately preceding the Change in Control, or reduction in Executive’s total cash and stock compensation opportunities, including salary and incentives, for any fiscal year to less than 100% of the total cash and stock compensation opportunities made available to him in the completed fiscal year immediately preceding the Change in Control (for this purpose, such opportunities shall be deemed reduced if the

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objective standards by which the Executive’s incentive compensation measured become more stringent or the amount of such compensation is materially reduced on a discretionary basis from the amount that would be payable solely by reference to the objective standards); or

(c) Failure of the Company to continue in effect any retirement, life, medical, dental, disability, accidental death or travel insurance plan, in which Executive was participating immediately prior to the Change in Control unless the Company provides Executive with a plan or plans that provide substantially similar benefits, or the taking of any action by the Company that would adversely effect Executive’s participation in or materially reduce Executive’s benefits under any of such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change in Control other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(d) The Company requires Executive to be based at any office or location outside the Greater Boston Metropolitan Area or the Company requires the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date of Change in Control; or

(e) Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(f) Any failure by the Company to comply with and satisfy Section 9 of this Agreement.

For purposes of this Section 5, any good faith determination of Good Reason made by the Executive shall be conclusive.

6. Notwithstanding any provision of this Agreement to the contrary, if at the time of the Executive’s termination of employment with the Company or one of the Company’s subsidiaries, the Executive is a specified employee as hereinafter defined, any and all amounts payable under this Agreement in connection with such termination from employment that constitute deferred compensation subject to section 409A of the Code, as determined by the Company in its sole discretion, shall be made or commence on the first day of the seventh month following the Executive’s termination of employment. For purposes of the preceding sentence, the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of section 409A of the Code.

7. If any payment or benefit received by Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) would be

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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the Executive with respect to such excise tax), the Company will pay to Executive an additional amount in cash (the “Additional Amount”) equal to the amount necessary to cause the aggregate payments and benefits received by Executive, including such Additional Amount (net of all federal, state, and local income taxes and all taxes payable as a result of the application of Sections 280G and 4999 of the Code and including any interest and penalties with respect to such taxes) to be equal to the aggregate payments and benefits Executive would have received, excluding such Additional Amount (net of all federal, state and local income taxes) as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law.

Following the termination of Executive’s employment, Executive may submit to the Company a written opinion (the “Opinion”) of a nationally recognized accounting firm, employment consulting firm, or law firm selected by Executive setting forth a statement and a calculation of the Additional Amount. The determination of such firm concerning the extent of the Additional Amount (which determination need not be free from doubt), shall be final and binding on both Executive and the Company. The Company will pay to Executive the Additional Amount not later than 10 days after such firm has rendered the Opinion. The Company agrees to pay the fees and expenses of such firm in preparing and rendering the Opinion.

If, following the payment to Executive of the Additional Amount, Executive’s liability for the excise tax imposed by Section 4999 of the Code on the payments and benefits received by Executive is finally determined (at such time as the Internal Revenue Service is unable to make any further adjustment to the amount of such liability) to be less than the amount thereof set forth in the Opinion, Executive shall reimburse the Company, without interest, in an amount equal to the amount by which the Additional Amount should be reduced to reflect such decrease in the actual excise tax liability. The calculation of such reimbursement shall be made by a nationally recognized accounting firm, an employment consulting firm, or a law firm selected by Executive, whose determination shall be binding on Executive and the Company and whose fees and expenses therefore shall be paid by the Company.

8. In the case of any dispute under this Agreement, Executive may initiate binding arbitration in Boston, Massachusetts, before the American Arbitration Association by serving a notice to arbitrate upon the Company or, at Executive’s election, institute judicial proceedings, in either case within 90 days of the effective date of his termination or, if later, his receipt of notice of termination, or such longer period as may be reasonably necessary for Executive to take such action if illness or incapacity should impair his taking such action within the 90-day period. The Company shall not have the right to initiate binding arbitration, and agrees that upon the initiation of binding arbitration by Executive pursuant to this paragraph 8 the Company shall cause to be dismissed any judicial proceedings it has brought against Executive relating to this Agreement. The Company authorizes Executive from time to time to retain counsel of his choice to represent Executive in connection with any and all actions, proceedings, and/or arbitration, whether by

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or against the Company or any trustee, officer, shareholder, or other person affiliated with the Company, which may affect Executive’s rights under this Agreement. The Company agrees (i) to pay the fees and expenses of such counsel, (ii) to pay the cost of such arbitration and/or judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending arbitration and/or judicial proceedings. Such interest will be at the prime rate for corporate loans by the nation’s largest banks as published from time to time under “Money Rates” in the Wall Street Journal, Eastern Edition.

In addition, notwithstanding any existing prior attorney-client relationship between the Company and counsel retained by Executive, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel and agrees that a confidential relationship shall exist between Executive and such counsel.

9. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the “Successor Entity”), and this paragraph 9 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such transaction had taken place. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise.

In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive’s right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company.

In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company.

10. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 15 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this

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Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

“Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the effective date of the Disability, as the case may be.

11. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.

12 There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment.

13. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge.

14. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties.

15. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a “Renewal

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Date”), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Change in Control which takes place after the termination of this Agreement.

Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement.

The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. In addition, this Agreement supersedes any and all previous Change in Control Agreements executed between the Executive and the Company.

The validity, interpretation and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. Any ambiguities in this Agreement shall be construed in favor of the Executive.

The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

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The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement.

No right or interest to or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate.

No right, benefit, or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect.

All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	Joseph R. Nolan, Jr.
	11 Philip Road
	Belmont, MA 02478
If to the Company:	NSTAR
	800 Boylston Street
	Boston, MA 02199
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

The name “NSTAR” means the trustee or trustees for the time being (as trustee or trustees but not personally) under a Declaration of Trust dated April 20, 1999, as amended from time to time, which is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of State of The Commonwealth of Massachusetts. Any obligation, agreement, or liability made, entered into, or incurred by or on behalf of NSTAR binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.

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IN WITNESS WHEREOF, NSTAR and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above.

NSTAR
By:	/S/ Joseph R. Nolan, Jr.
Name:
Title:	SVP, Customer & Corporate Relations
	/S/ Thomas J. May
	Thomas J. May
	Chairman and Chief Executive Officer

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EXHIBIT A

Change in Control. For the purposes of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any Person of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding common shares (or shares of common stock) of Parent (the “Outstanding Parent Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of trustees (or directors) (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Parent, (ii) any acquisition by the Parent or any affiliate of Parent, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent, the Company or any affiliate of Parent or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Exhibit A; or

(b) Individuals who, as of the date hereof, constitute the Board of Trustees of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of such board; provided, however, that any individual becoming a trustee (or director) subsequent to the date hereof whose election, or nomination for election by the Parent’s shareholders, was approved by a vote of at least a majority of the trustees (or directors) then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of trustees (or directors) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the then outstanding common shares (or shares of common stock) and the combined voting power of the

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then outstanding voting securities entitled to vote generally in the election of trustees (or directors), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent or all or substantially all of the Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Parent or the Company or such entity resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% of more of, respectively, the then outstanding common shares or shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of trustees (or board of directors) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Trustees of the Parent, providing for such Business Combination; or

(d) Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

For purposes of this Appendix A, the term “Parent” shall mean NSTAR, or, if any entity shall own, directly or indirectly through one or more subsidiaries, more than 50% of the outstanding common shares of NSTAR, such entity.

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EX-10.13

Exhibit 10.13

NSTAR

Amended and Restated Change in Control Agreement

AGREEMENT, made this 15^th day of February, 2007, by and between

Werner J. Schweiger (“Executive”) and NSTAR (the “Company”).

WITNESSETH

WHEREAS, the Board of Trustees of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under the circumstances described below to Executive and other executives who are responsible for the policy-making functions of the Company and/or one or more of its subsidiaries and the overall viability of the business of the Company and its subsidiaries; and

WHEREAS, the Board recognizes that the possibility of a Change in Control of the Company is unsettling to such executives and desires to make arrangements at this time to help assure their continuing dedication to their duties to the Company and its shareholders, notwithstanding any attempts by outside parties to gain control of the Company; and

WHEREAS, the Board believes it important, should the Company receive proposals from outside parties, to enable such executives, without being distracted by the uncertainties of their own employment situation, to perform their regular duties, and where appropriate to assess such proposals and advise the Board as to the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board determines to be appropriate; and

WHEREAS, the Board also desires to demonstrate to the executives that the Company is concerned with their welfare and intends to provide that loyal executives are treated fairly; and

WHEREAS, the Board wishes to assure that executives of the Company receive fair and competitive severance benefits and receive fair severance should any of their employment with the Company or its subsidiaries terminate in specified circumstances following a Change in Control of the Company and to assure the executives of other benefits upon a Change in Control.

WHEREAS, in recognition of the foregoing, the Executive and the Company wish to enter into this Agreement, which is hereby acknowledged to supersede any and all previous Change in Control Agreements executed between the Executive and the Company.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other entity (“Person”), which term shall include a “group” (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the “Act”)), begins a tender or exchange offer, circulates a proxy to the Company’s shareholders, or takes other steps to effect a “Change in Control” (as defined in Exhibit A attached hereto and made a part hereof), Executive agrees that he will not voluntarily leave the employ of the Company and will render the services contemplated in the recitals to this Agreement until such Person has terminated the efforts to effect a Change in Control or until a Change in Control has occurred.

2. If, within 36 months following a Change in Control (the “Post Change in Control Period”) Executive’s employment with the Company or one of the Company’s subsidiaries is terminated by the Company for any reason other than for “Cause” or “Disability” (as defined in paragraph 4 below), or as a result of Executive’s death, and Executive terminates such employment for Good Reason (as defined in paragraph 5 below):

(a) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to the sum of (i) the Executive’s annual base salary (“Annual Base Salary”) through the date of such termination of employment to the extent not theretofore paid, (ii) a prorated portion of the target award payable under the Company’s Executive Annual Incentive Compensation Plan, or any comparable or successor plan (the “Annual Plan”) determined by calculating the product of (A) the target bonus award payable for the fiscal year in which the date of termination occurs under the Annual Plan, times (B) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination of employment, and the denominator of which is 365, (iii) a prorated portion of the target award payable under any long-term performance or incentive plan (the “Long-Term Plan”) for the performance period ending on the last day of the fiscal year during which the date of termination of employment occurs determined by calculating the product of (A) the target award payable for such performance period and (B) a fraction, the numerator of which is the number of days in the current performance period through the date of termination, and the denominator of which is the actual number of days in the performance period (provided that if any awards are expressed in shares of common stock rather than cash, the Company will pay the cash equivalent of such awards based on the closing price per share as reported in the Wall Street Journal (Eastern Edition) New York Stock Exchange Composite Transactions determined on the date prior to the date of the Change in Control or the average per share price for the 10 trading days preceding the date of the Change in Control (whichever is higher)) and (iv) any accrued vacation pay, in each case to the extent not theretofore paid; and

(b) any stock, stock option or cash awards granted to the Executive by the Company that would have become vested upon continued employment by the Executive shall immediately vest in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the earlier of the fifth anniversary of such termination and the latest date on which such grant could have been exercised; and

(c) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to three times: (A) the amount of the Executive’s Annual Base Salary at the rate in effect immediately prior to the date of termination or at the rate in effect immediately prior to the Change in Control, whichever is higher, and (B) the amount of the actual bonus paid to the Executive under the Annual Plan for the most recently completed fiscal year ended before the Change in Control, or the target bonus payable under the Annual Plan for the fiscal year during which the termination of employment occurs, whichever is higher ; and

(d) the Company will pay to the Executive within 30 days of such termination of employment a lump-sum cash payment equal to the full balance standing to his credit with the Company under any and all deferred compensation plans or arrangements and the lump-sum actuarial equivalent of the Executive’s accrued benefit under any supplemental retirement plan or arrangement (a “SERP”) in which the Executive participates (the sum of the amounts described in subsections (a) and (d) shall be hereinafter referred to as the “Accrued Obligations”), which payments shall be in lieu of any amounts otherwise payable to Executive under any such plans; and

(e) the Company will pay to the Executive within 30 days of such termination of employment an amount equal to the excess of (i) the lump sum actuarial equivalent of the accrued benefit under (a) the Company’s qualified defined benefit pension plan (the “Pension Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Pension Plan immediately prior to the date of the Change in Control), and (b) any SERP which the Executive would receive if the Executive’s employment continued for three years after the date of termination assuming for these purposes that all accrued benefits are fully vested, and further assuming that the Executive’s annual compensation for purposes of determining benefits under the Pension Plan and SERP (“Covered Compensation”) in each of the three years is at least equal to the higher of Executive’s annual rate of Covered Compensation for the most recently completed fiscal year ending prior to the date of the Change in Control or

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the year in which the Change in Control occurs, over (ii) the lump sum actuarial equivalent of the Executive’s actual accrued benefit (paid or payable), if any, under the Pension Plan and the SERP (including SERP payments made under subparagraph (d) above) as of the date of termination; and

(f) Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company’s expense in all welfare benefit plans, programs, practices and policies, including without limitation, life, medical, disability, dental, accidental death and travel insurance plans, maintained or sponsored by the Company immediately prior to the Change in Control, or receive substantially the equivalent coverage from the Company, until the longer of the third anniversary of such termination or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for any retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the date of termination and to have retired on the last day of such period; and

(g) to the extent not theretofore paid or provided for, the Company shall within 30 days of such termination of employment pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (“Other Benefits”); and

(h) the Company will promptly reimburse Executive for any and all legal fees and expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred to enforce the provisions of this Agreement or contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof); provided, however, that in no event shall any amount of reimbursement be paid to the Executive later than the fifteenth day of the third month following the year in which such legal fee or expense was incurred.

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Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control.

3. Death, Disability, Cause, Other Than For Good Reason.

(a) Death. If the Executive’s employment shall terminate during the Post Change in Control Period by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of death.

(b) Disability. If the Executive’s employment is terminated during the Post Change in Control Period by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of termination of employment. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Change in Control Period, it may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.

(c) Cause. If the Executive’s employment shall be terminated for Cause (as defined in Section 4 below) during the Post Change in Control Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Post Change in Control Period, excluding a

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termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for Accrued Obligations and the timely payment or provisions of Other Benefits.

In either case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of the termination of employment.

4. “Cause” means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of a crime involving moral turpitude, or (c) willful failure by the Executive of his duties to the Company which failure is deliberate on the Executive’s part, results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been “willful” unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company.

5. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following:

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change in Control; or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(b) Any reduction in the Executive’s rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary paid to him in the completed fiscal year immediately preceding the Change in Control, or reduction in Executive’s total cash and stock compensation opportunities, including salary and incentives, for any fiscal year to less than 100% of the total cash and stock compensation opportunities made available to him in the completed fiscal year immediately preceding the Change in Control

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(for this purpose, such opportunities shall be deemed reduced if the objective standards by which the Executive’s incentive compensation measured become more stringent or the amount of such compensation is materially reduced on a discretionary basis from the amount that would be payable solely by reference to the objective standards); or

(c) Failure of the Company to continue in effect any retirement, life, medical, dental, disability, accidental death or travel insurance plan, in which Executive was participating immediately prior to the Change in Control unless the Company provides Executive with a plan or plans that provide substantially similar benefits, or the taking of any action by the Company that would adversely effect Executive’s participation in or materially reduce Executive’s benefits under any of such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change in Control other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(d) The Company requires Executive to be based at any office or location outside the Greater Boston Metropolitan Area or the Company requires the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date of Change in Control; or

(e) Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(f) Any failure by the Company to comply with and satisfy Section 9 of this Agreement.

For purposes of this Section 5, any good faith determination of Good Reason made by the Executive shall be conclusive.

6. Notwithstanding any provision of this Agreement to the contrary, if at the time of the Executive’s termination of employment with the Company or one of the Company’s subsidiaries, the Executive is a specified employee as hereinafter defined, any and all amounts payable under this Agreement in connection with such termination from employment that constitute deferred compensation subject to section 409A of the Code, as determined by the Company in its sole discretion, shall be made or commence on the first day of the seventh month following the Executive’s termination of employment. For purposes of the preceding sentence, the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of section 409A of the Code.

7. If any payment or benefit received by Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) would be

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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the Executive with respect to such excise tax), the Company will pay to Executive an additional amount in cash (the “Additional Amount”) equal to the amount necessary to cause the aggregate payments and benefits received by Executive, including such Additional Amount (net of all federal, state, and local income taxes and all taxes payable as a result of the application of Sections 280G and 4999 of the Code and including any interest and penalties with respect to such taxes) to be equal to the aggregate payments and benefits Executive would have received, excluding such Additional Amount (net of all federal, state and local income taxes) as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law.

Following the termination of Executive’s employment, Executive may submit to the Company a written opinion (the “Opinion”) of a nationally recognized accounting firm, employment consulting firm, or law firm selected by Executive setting forth a statement and a calculation of the Additional Amount. The determination of such firm concerning the extent of the Additional Amount (which determination need not be free from doubt), shall be final and binding on both Executive and the Company. The Company will pay to Executive the Additional Amount not later than 10 days after such firm has rendered the Opinion. The Company agrees to pay the fees and expenses of such firm in preparing and rendering the Opinion.

If, following the payment to Executive of the Additional Amount, Executive’s liability for the excise tax imposed by Section 4999 of the Code on the payments and benefits received by Executive is finally determined (at such time as the Internal Revenue Service is unable to make any further adjustment to the amount of such liability) to be less than the amount thereof set forth in the Opinion, Executive shall reimburse the Company, without interest, in an amount equal to the amount by which the Additional Amount should be reduced to reflect such decrease in the actual excise tax liability. The calculation of such reimbursement shall be made by a nationally recognized accounting firm, an employment consulting firm, or a law firm selected by Executive, whose determination shall be binding on Executive and the Company and whose fees and expenses therefore shall be paid by the Company.

8. In the case of any dispute under this Agreement, Executive may initiate binding arbitration in Boston, Massachusetts, before the American Arbitration Association by serving a notice to arbitrate upon the Company or, at Executive’s election, institute judicial proceedings, in either case within 90 days of the effective date of his termination or, if later, his receipt of notice of termination, or such longer period as may be reasonably necessary for Executive to take such action if illness or incapacity should impair his taking such action within the 90-day period. The Company shall not have the right to initiate binding arbitration, and agrees that upon the initiation of binding arbitration by Executive pursuant to this paragraph 8 the Company shall cause to be dismissed any judicial proceedings it has brought against Executive relating to this Agreement. The Company authorizes Executive from time to time to retain counsel of his choice to represent Executive in connection with any and all actions, proceedings, and/or arbitration, whether by

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or against the Company or any trustee, officer, shareholder, or other person affiliated with the Company, which may affect Executive’s rights under this Agreement. The Company agrees (i) to pay the fees and expenses of such counsel, (ii) to pay the cost of such arbitration and/or judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending arbitration and/or judicial proceedings. Such interest will be at the prime rate for corporate loans by the nation’s largest banks as published from time to time under “Money Rates” in the Wall Street Journal, Eastern Edition.

In addition, notwithstanding any existing prior attorney-client relationship between the Company and counsel retained by Executive, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel and agrees that a confidential relationship shall exist between Executive and such counsel.

9. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the “Successor Entity”), and this paragraph 9 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such transaction had taken place. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise.

In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive’s right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company.

In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company.

10. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 15 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this

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Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

“Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the effective date of the Disability, as the case may be.

11. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.

12 There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment.

13. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge.

14. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties.

15. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a “Renewal

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Date”), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Change in Control which takes place after the termination of this Agreement.

Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement.

The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. In addition, this Agreement supersedes any and all previous Change in Control Agreements executed between the Executive and the Company.

The validity, interpretation and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. Any ambiguities in this Agreement shall be construed in favor of the Executive.

The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

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The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement.

No right or interest to or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate.

No right, benefit, or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect.

All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	Werner J. Schweiger
	23 Eisenhower Drive
	Franklin, MA 02038
If to the Company:	NSTAR
	800 Boylston Street
	Boston, MA 02199
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

The name “NSTAR” means the trustee or trustees for the time being (as trustee or trustees but not personally) under a Declaration of Trust dated April 20, 1999, as amended from time to time, which is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of State of The Commonwealth of Massachusetts. Any obligation, agreement, or liability made, entered into, or incurred by or on behalf of NSTAR binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.

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IN WITNESS WHEREOF, NSTAR and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above.

NSTAR
By:	/S/ Werner J. Schweiger
Name:
Title:	SVP, Operations
	/S/ Thomas J. May
	Thomas J. May
	Chairman and Chief Executive Officer

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EXHIBIT A

Change in Control. For the purposes of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any Person of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding common shares (or shares of common stock) of Parent (the “Outstanding Parent Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of trustees (or directors) (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Parent, (ii) any acquisition by the Parent or any affiliate of Parent, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent, the Company or any affiliate of Parent or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Exhibit A; or

(b) Individuals who, as of the date hereof, constitute the Board of Trustees of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of such board; provided, however, that any individual becoming a trustee (or director) subsequent to the date hereof whose election, or nomination for election by the Parent’s shareholders, was approved by a vote of at least a majority of the trustees (or directors) then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of trustees (or directors) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the then outstanding common shares (or shares of common stock) and the combined voting power of the

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then outstanding voting securities entitled to vote generally in the election of trustees (or directors), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent or all or substantially all of the Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Parent or the Company or such entity resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% of more of, respectively, the then outstanding common shares or shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of trustees (or board of directors) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Trustees of the Parent, providing for such Business Combination; or

(d) Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

For purposes of this Appendix A, the term “Parent” shall mean NSTAR, or, if any entity shall own, directly or indirectly through one or more subsidiaries, more than 50% of the outstanding common shares of NSTAR, such entity.

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EX-10.14

Exhibit 10.14

NSTAR

Amended and Restated Change in Control Agreement

AGREEMENT, made this 15^th day of February, 2007, by and between

                     (“Executive”) and NSTAR (the “Company”).

WITNESSETH

WHEREAS, the Board of Trustees of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under the circumstances described below to Executive and other executives who are responsible for the policy-making functions of the Company and/or one or more of its subsidiaries and the overall viability of the business of the Company and its subsidiaries; and

WHEREAS, the Board recognizes that the possibility of a Change in Control of the Company is unsettling to such executives and desires to make arrangements at this time to help assure their continuing dedication to their duties to the Company and its shareholders, notwithstanding any attempts by outside parties to gain control of the Company; and

WHEREAS, the Board believes it important, should the Company receive proposals from outside parties, to enable such executives, without being distracted by the uncertainties of their own employment situation, to perform their regular duties, and where appropriate to assess such proposals and advise the Board as to the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board determines to be appropriate; and

WHEREAS, the Board also desires to demonstrate to the executives that the Company is concerned with their welfare and intends to provide that loyal executives are treated fairly; and

WHEREAS, the Board wishes to assure that executives of the Company receive fair and competitive severance benefits and receive fair severance should any of their employment with the Company or its subsidiaries terminate in specified circumstances following a Change in Control of the Company and to assure the executives of other benefits upon a Change in Control.

WHEREAS, in recognition of the foregoing, the Executive and the Company wish to enter into this Agreement, which is hereby acknowledged to supersede any and all previous Change in Control Agreements executed between the Executive and the Company.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

1. In the event that any individual, corporation, partnership, company, or other entity (“Person”), which term shall include a “group” (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the “Act”)), begins a tender or exchange offer, circulates a proxy to the Company’s shareholders, or takes other steps to effect a “Change in Control” (as defined in Exhibit A attached hereto and made a part hereof), Executive agrees that he will not voluntarily leave the employ of the Company and will render the services contemplated in the recitals to this Agreement until such Person has terminated the efforts to effect a Change in Control or until a Change in Control has occurred.

2. If, within 36 months following a Change in Control (the “Post Change in Control Period”) Executive’s employment with the Company or one of the Company’s subsidiaries is terminated by the Company for any reason other than for “Cause” or “Disability” (as defined in paragraph 4 below), or as a result of Executive’s death, and Executive terminates such employment for Good Reason (as defined in paragraph 5 below):

(a) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to the sum of (i) the Executive’s annual base salary (“Annual Base Salary”) through the date of such termination of employment to the extent not theretofore paid, (ii) a prorated portion of the target award payable under the Company’s Executive Annual Incentive Compensation Plan, or any comparable or successor plan (the “Annual Plan”) determined by calculating the product of (A) the target bonus award payable for the fiscal year in which the date of termination occurs under the Annual Plan, times (B) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination of employment, and the denominator of which is 365, (iii) a prorated portion of the target award payable under any long-term performance or incentive plan (the “Long-Term Plan”) for the performance period ending on the last day of the fiscal year during which the date of termination of employment occurs determined by calculating the product of (A) the target award payable for such performance period and (B) a fraction, the numerator of which is the number of days in the current performance period through the date of termination, and the denominator of which is the actual number of days in the performance period (provided that if any awards are expressed in shares of common stock rather than cash, the Company will pay the cash equivalent of such awards based on the closing price per share as reported in the Wall Street Journal (Eastern Edition) New York Stock Exchange Composite Transactions determined on the date prior to the date of the Change in Control or the average per share price for the 10 trading days preceding the date of the Change in Control (whichever is higher)) and (iv) any accrued vacation pay, in each case to the extent not theretofore paid; and

(b) any stock, stock option or cash awards granted to the Executive by the Company that would have become vested upon continued employment by the Executive shall immediately vest in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the earlier of the fifth anniversary of such termination and the latest date on which such grant could have been exercised; and

(c) the Company will pay to Executive within 30 days of such termination of employment a lump sum cash payment equal to three times: (A) the amount of the Executive’s Annual Base Salary at the rate in effect immediately prior to the date of termination or at the rate in effect immediately prior to the Change in Control, whichever is higher, and (B) the amount of the actual bonus paid to the Executive under the Annual Plan for the most recently completed fiscal year ended before the Change in Control, or the target bonus payable under the Annual Plan for the fiscal year during which the termination of employment occurs, whichever is higher; and

(d) the Company will pay to the Executive within 30 days of such termination of employment a lump-sum cash payment equal to the full balance standing to his credit with the Company under any and all deferred compensation plans or arrangements and the lump-sum actuarial equivalent of the Executive’s accrued benefit under any supplemental retirement plan or arrangement (a “SERP”) in which the Executive participates (the sum of the amounts described in subsections (a) and (d) shall be hereinafter referred to as the “Accrued Obligations”), which payments shall be in lieu of any amounts otherwise payable to Executive under any such plans; and

(e) the Company will pay to the Executive within 30 days of such termination of employment an amount equal to the excess of (i) the lump sum actuarial equivalent of the accrued benefit under (a) the Company’s qualified defined benefit pension plan (the “Pension Plan”) (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Pension Plan immediately prior to the date of the Change in Control), and (b) any SERP which the Executive would receive if the Executive’s employment continued for three years after the date of termination assuming for these purposes that all accrued benefits are fully vested, and further assuming that the Executive’s annual compensation for purposes of determining benefits under the Pension Plan and SERP (“Covered Compensation”) in each of the three years is at least equal to the higher of Executive’s annual rate of Covered Compensation for the most recently completed fiscal year ending prior to the date of the Change in Control or the

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year in which the Change in Control occurs, over (ii) the lump sum actuarial equivalent of the Executive’s actual accrued benefit (paid or payable), if any, under the Pension Plan and the SERP (including SERP payments made under subparagraph (d) above) as of the date of termination; and

(f) Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company’s expense in all welfare benefit plans, programs, practices and policies, including without limitation, life, medical, disability, dental, accidental death and travel insurance plans, maintained or sponsored by the Company immediately prior to the Change in Control, or receive substantially the equivalent coverage from the Company, until the longer of the third anniversary of such termination or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for any retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the date of termination and to have retired on the last day of such period; and

(g) to the extent not theretofore paid or provided for, the Company shall within 30 days of such termination of employment pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company (“Other Benefits”); and

(h) the Company will promptly reimburse Executive for any and all legal fees and expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred to enforce the provisions of this Agreement or contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof); provided, however, that in no event shall any amount of reimbursement be paid to the Executive later than the fifteenth day of the third month following the year in which such legal fee or expense was incurred.

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Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control.

3. Death, Disability, Cause, Other Than For Good Reason.

(a) Death. If the Executive’s employment shall terminate during the Post Change in Control Period by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of death.

(b) Disability. If the Executive’s employment is terminated during the Post Change in Control Period by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of termination of employment. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Change in Control Period, it may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties.

(c) Cause. If the Executive’s employment shall be terminated for Cause (as defined in Section 4 below) during the Post Change in Control Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Post Change in Control Period, excluding a

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termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for Accrued Obligations and the timely payment or provisions of Other Benefits.

In either case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the date of the termination of employment.

4. “Cause” means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of a crime involving moral turpitude, or (c) willful failure by the Executive of his duties to the Company which failure is deliberate on the Executive’s part, results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been “willful” unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company.

5. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following:

(a) The assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately prior to the Change in Control; or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(b) Any reduction in the Executive’s rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary paid to him in the completed fiscal year immediately preceding the Change in Control, or reduction in Executive’s total cash and stock compensation opportunities, including salary and incentives, for any fiscal year to less than 100% of the total cash and stock compensation opportunities made available to him in the completed fiscal year immediately preceding the Change in Control (for this purpose, such opportunities shall be

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deemed reduced if the objective standards by which the Executive’s incentive compensation measured become more stringent or the amount of such compensation is materially reduced on a discretionary basis from the amount that would be payable solely by reference to the objective standards); or

(c) Failure of the Company to continue in effect any retirement, life, medical, dental, disability, accidental death or travel insurance plan, in which Executive was participating immediately prior to the Change in Control unless the Company provides Executive with a plan or plans that provide substantially similar benefits, or the taking of any action by the Company that would adversely effect Executive’s participation in or materially reduce Executive’s benefits under any of such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to the Change in Control other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or

(d) The Company requires Executive to be based at any office or location outside the Greater Boston Metropolitan Area or the Company requires the Executive to travel on Company business to a substantially greater extent than required immediately prior to the date of Change in Control; or

(e) Any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(f) Any failure by the Company to comply with and satisfy Section 9 of this Agreement.

For purposes of this Section 5, any good faith determination of Good Reason made by the Executive shall be conclusive.

6. Notwithstanding any provision of this Agreement to the contrary, if at the time of the Executive’s termination of employment with the Company or one of the Company’s subsidiaries, the Executive is a specified employee as hereinafter defined, any and all amounts payable under this Agreement in connection with such termination from employment that constitute deferred compensation subject to section 409A of the Code, as determined by the Company in its sole discretion, shall be made or commence on the first day of the seventh month following the Executive’s termination of employment. For purposes of the preceding sentence, the term “specified employee” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of section 409A of the Code.

7. If any payment or benefit received by Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) would be

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subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the Executive with respect to such excise tax), the Company will pay to Executive an additional amount in cash (the “Additional Amount”) equal to the amount necessary to cause the aggregate payments and benefits received by Executive, including such Additional Amount (net of all federal, state, and local income taxes and all taxes payable as a result of the application of Sections 280G and 4999 of the Code and including any interest and penalties with respect to such taxes) to be equal to the aggregate payments and benefits Executive would have received, excluding such Additional Amount (net of all federal, state and local income taxes) as if Sections 280G and 4999 of the Code (and any successor provisions thereto) had not been enacted into law.

Following the termination of Executive’s employment, Executive may submit to the Company a written opinion (the “Opinion”) of a nationally recognized accounting firm, employment consulting firm, or law firm selected by Executive setting forth a statement and a calculation of the Additional Amount. The determination of such firm concerning the extent of the Additional Amount (which determination need not be free from doubt), shall be final and binding on both Executive and the Company. The Company will pay to Executive the Additional Amount not later than 10 days after such firm has rendered the Opinion. The Company agrees to pay the fees and expenses of such firm in preparing and rendering the Opinion.

If, following the payment to Executive of the Additional Amount, Executive’s liability for the excise tax imposed by Section 4999 of the Code on the payments and benefits received by Executive is finally determined (at such time as the Internal Revenue Service is unable to make any further adjustment to the amount of such liability) to be less than the amount thereof set forth in the Opinion, Executive shall reimburse the Company, without interest, in an amount equal to the amount by which the Additional Amount should be reduced to reflect such decrease in the actual excise tax liability. The calculation of such reimbursement shall be made by a nationally recognized accounting firm, an employment consulting firm, or a law firm selected by Executive, whose determination shall be binding on Executive and the Company and whose fees and expenses therefore shall be paid by the Company.

8. In the case of any dispute under this Agreement, Executive may initiate binding arbitration in Boston, Massachusetts, before the American Arbitration Association by serving a notice to arbitrate upon the Company or, at Executive’s election, institute judicial proceedings, in either case within 90 days of the effective date of his termination or, if later, his receipt of notice of termination, or such longer period as may be reasonably necessary for Executive to take such action if illness or incapacity should impair his taking such action within the 90-day period. The Company shall not have the right to initiate binding arbitration, and agrees that upon the initiation of binding arbitration by Executive pursuant to this paragraph 8 the Company shall cause to be dismissed any judicial proceedings it has brought against Executive relating to this Agreement. The Company authorizes Executive from time to time to retain counsel of his choice to represent Executive in connection with any and all actions, proceedings, and/or arbitration, whether by

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or against the Company or any trustee, officer, shareholder, or other person affiliated with the Company, which may affect Executive’s rights under this Agreement. The Company agrees (i) to pay the fees and expenses of such counsel, (ii) to pay the cost of such arbitration and/or judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending arbitration and/or judicial proceedings. Such interest will be at the prime rate for corporate loans by the nation’s largest banks as published from time to time under “Money Rates” in the Wall Street Journal, Eastern Edition.

In addition, notwithstanding any existing prior attorney-client relationship between the Company and counsel retained by Executive, the Company irrevocably consents to Executive entering into an attorney-client relationship with such counsel and agrees that a confidential relationship shall exist between Executive and such counsel.

9. If the Company is at any time before or after a Change in Control merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the “Successor Entity”), and this paragraph 9 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such transaction had taken place. As used in this Agreement, Company shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise.

In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive’s right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the corporation resulting from such merger or consolidation or the corporation acquiring such assets of the Company.

In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company.

10. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 15 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this

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Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

“Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the effective date of the Disability, as the case may be.

11. All payments required to be made by the Company hereunder to Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.

12 There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment.

13. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge.

14. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties.

15. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a “Renewal

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Date”), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Change in Control which takes place after the termination of this Agreement.

Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement.

The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. In addition, this Agreement supersedes any and all previous Change in Control Agreements executed between the Executive and the Company.

The validity, interpretation and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. Any ambiguities in this Agreement shall be construed in favor of the Executive.

The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

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The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement.

No right or interest to or in any payments shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate.

No right, benefit, or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect.

All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:
If to the Company:	NSTAR
	800 Boylston Street
	Boston, MA 02199
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

The name “NSTAR” means the trustee or trustees for the time being (as trustee or trustees but not personally) under a Declaration of Trust dated April 20, 1999, as amended from time to time, which is hereby referred to, and a copy of which, as amended, has been filed with the Secretary of State of The Commonwealth of Massachusetts. Any obligation, agreement, or liability made, entered into, or incurred by or on behalf of NSTAR binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.

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IN WITNESS WHEREOF, NSTAR and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above.

NSTAR
By:
Name:
Title:
	Thomas J. May
	Chairman and Chief Executive Officer

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EXHIBIT A

Change in Control. For the purposes of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any Person of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding common shares (or shares of common stock) of Parent (the “Outstanding Parent Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of trustees (or directors) (the “Outstanding Parent Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Parent, (ii) any acquisition by the Parent or any affiliate of Parent, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent, the Company or any affiliate of Parent or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Exhibit A; or

(b) Individuals who, as of the date hereof, constitute the Board of Trustees of the Parent (the “Incumbent Board”) cease for any reason to constitute at least a majority of such board; provided, however, that any individual becoming a trustee (or director) subsequent to the date hereof whose election, or nomination for election by the Parent’s shareholders, was approved by a vote of at least a majority of the trustees (or directors) then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of trustees (or directors) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Parent (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the then outstanding common shares (or shares of common stock) and the combined voting

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power of the then outstanding voting securities entitled to vote generally in the election of trustees (or directors), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Parent or all or substantially all of the Parent’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Parent Common Shares and Outstanding Parent Voting Securities, as the case may be, (ii) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Parent or the Company or such entity resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% of more of, respectively, the then outstanding common shares or shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of trustees (or board of directors) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Trustees of the Parent, providing for such Business Combination; or

(d) Approval by the shareholders of the Parent of a complete liquidation or dissolution of the Parent.

For purposes of this Appendix A, the term “Parent” shall mean NSTAR, or, if any entity shall own, directly or indirectly through one or more subsidiaries, more than 50% of the outstanding common shares of NSTAR, such entity.

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EX-10.2.1.4

Exhibit 10.2.1.4

PARTICIPANTS AGREEMENT

among

ISO New England Inc.

as the Regional Transmission Organization

for New England

and

the New England Power Pool

and

the entities that are from time to time

parties hereto constituting the

Individual Participants

Table of Contents

		Page
SECTION 1.	DEFINITIONS	2
SECTION 2.	PURPOSE, INTENT AND OBJECTIVES	15
SECTION 3.	OPERATIONS DATE	16
SECTION 4.	TERM	16
SECTION 5.	AGREEMENT ADMINISTRATION	16
SECTION 6.	PARTIES	17
SECTION 7.	PARTICIPANT PROCESSES	18
SECTION 8.	COMMITTEES	23
SECTION 9.	ORGANIZATION OF ISO	31
SECTION 10.	INTERACTION OF GOVERNANCE PARTICIPANTS AND ISO	35
SECTION 11.	CHANGES TO MARKET RULES, OPERATING PROCEDURES, MANUALS, RELIABILITY STANDARDS, INFORMATION POLICY, INSTALLED CAPACITY REQUIREMENTS, GENERAL TARIFF PROVISIONS, AND NON-TO OATT PROVISIONS	36
SECTION 12.	ISO BUDGET	40
SECTION 13.	NOMINATION AND ELECTION OF ISO DIRECTORS	40
SECTION 14.	FINANCIAL OBLIGATIONS OF GOVERNANCE PARTICIPANTS	42
SECTION 15.	ANNUAL REPORTS AND PERFORMANCE AUDITS	42
SECTION 16.	FINANCIAL STATEMENTS	43
SECTION 17.	MISCELLANEOUS	43
Schedule 1 – Individual Participants
Schedule 2 – Operating Procedures in Effect on the Operations Date

i

PARTICIPANTS AGREEMENT

This Participants Agreement (this “Agreement”) is made and entered into this      day of             , 2004, by and among ISO New England Inc., a Delaware corporation (“ISO”), the New England Power Pool, an unincorporated association created pursuant to the RNA (“NEPOOL”), and the Entities that are parties to this Agreement from time to time pursuant to Section 6.3 hereof (each, an “Individual Participant”). Collectively, ISO, NEPOOL and the Individual Participants may be referred to herein as the “Parties” and, individually, each may be referred to as a “Party.” Each of the capitalized terms used herein shall have the meaning ascribed to it in Section 1 of this Agreement.

WHEREAS, ISO has been approved as the RTO for the New England region consisting of the states of Connecticut, Massachusetts, New Hampshire, Rhode Island, Vermont and substantial portions of Maine;

WHEREAS, consistent with the requirements of Order 2000, ISO will be responsible for maintaining the reliability of the System by, among other things, exercising operational authority over the Transmission Facilities of the System, administering and seeking to enhance sustainable, competitive and efficient energy markets in New England and providing non-discriminatory, open-access transmission service over the Transmission Facilities;

WHEREAS, the Parties desire to establish a collaborative process for receiving input from and responding to the concerns of, among others, Governance Participants and government officials on issues affecting System reliability, markets or transmission;

WHEREAS, the Parties wish to facilitate the receipt of input from Governance Participants by structuring this Agreement in such a manner that NEPOOL may execute it on behalf of those Governance Participants that wish to act through NEPOOL, and those Governance Participants that wish to act independently of NEPOOL may execute it individually;

WHEREAS, the Parties recognize the vital importance to ISO, including the ISO Board, of both formal and informal processes to solicit, receive, consider and respond to such input from the Governance Participants on reliability, market and transmission issues in New England;

WHEREAS, the Parties desire to establish Participant Processes that fully satisfy the Commission’s independence requirements for an RTO;

WHEREAS, the Parties desire to set forth certain other obligations and responsibilities of NEPOOL, the Governance Participants and ISO;

WHEREAS, the Parties wish to ensure that ISO is an organization that satisfies the objectives of Order 2000 with prospects for long-term stability;

WHEREAS, the Parties desire an ISO Board that is independent, responsive, informed, unbiased, accessible and accountable for its actions; and

WHEREAS, the Parties desire Participant Processes that reflect self-governance, encourage full and timely participation by all stakeholders, coordinate and clarify input to ISO, clarify and refine ISO positions as appropriate to account for input, and facilitate the formation of consensus positions that have both practical and legal significance.

NOW, THEREFORE, ISO, NEPOOL and each of the Individual Participants, in consideration of the mutual agreements set forth herein, agree as follows.

SECTION 1. DEFINITIONS

1.1 Defined Terms. Each of the capitalized terms used in this Agreement shall have the meaning ascribed to it in this Section 1.

“Agreement” shall mean this Participants Agreement, as it may be amended or supplemented from time to time.

“Alternative Resources” shall mean Renewable Generation Resources, Distributed Generation Resources, and Load Response Resources.

“AR Provider” shall mean a NEPOOL Participant with a “Substantial Business Interest” in Alternative Resources located within the New England Control Area. For the purposes of this Agreement,

(a) a NEPOOL Participant has a Substantial Business Interest in Alternative Resources if:

(i) either (A) the NEPOOL Participant owns or controls any Alternative Resource and at least 75% of its Energy resources within the New England Control Area are Alternative Resources; or (B) the NEPOOL Participant (1) owns or controls at least 50 MW (or its equivalent) of Alternative Resources within the New England Control Area or (2) has an independently verifiable capital investment in its Alternative Resources in the New England Control Area as of the end of the most recent calendar year of at least $30,000,000, regardless of the percentage of its business interests those Alternative Resources represent; and

(ii) either (A) the quantity of Alternative Resources (in megawatts) and other generation resources owned or controlled by the NEPOOL Participant exceeds the highest quantity of hourly Governance Load responsibility held by the NEPOOL Participant in the prior twelve (12) months; or (B) the quantity of generation (in megawatt hours) in the past twelve months from Alternative Resources and other generation resources that the NEPOOL Participant owns or controls exceeds the total quantity of Governance Load responsibility held by the NEPOOL Participant in the prior twelve months; or (C) the NEPOOL Participant has not held any Governance Load responsibility in the prior twelve (12) months but otherwise meets one of the tests set forth in (i)(A) or (i)(B) above.

the only Alternative Resources that shall be taken into account for purposes of determining whether an Entity qualifies as an AR Provider are (i) those generating resources that are within the New England Control Area that are (A) currently in operation, (B) under construction, or (C) proposed for operation as generation and that have received approvals under Sections 18.4 and/or 18.5

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of the First Restated NEPOOL Agreement between July 1, 2002 and the Effective Date or received approvals on or after the Effective Date under Sections I.3.9 and/or I.3.10 of the Tariff or for which completed environmental air or environmental siting applications have been filed or permits exist; or (ii) Demand Response Resources that are enrolled in the Load Response Program and have not been inactive in that Program for a period exceeding six (6) months; or (iii) Energy Efficiency Resources that have not been inactive in an energy efficiency program of a New England state for a period exceeding six (6) months..

“AR Sector” or “Alternative Resources Sector” shall have the meaning set forth in Section 7.3.2(d) of this Agreement.

“AR Sector Voting Share” shall mean the sum of the Sub-Sector Voting Shares of the AR Sub-Sectors.

“AR Sub-Sector” shall mean the Renewable Generation Sub-Sector, Distributed Generation Sub-Sector, or the Load Response Sub-Sector of the AR Sector created pursuant to the terms of the RNA and this Agreement.

“Balloting Agent” shall have the meaning given it in the RNA..

“Budget & Finance Subcommittee” shall mean the Budget & Finance Subcommittee established pursuant to the RNA and the responsibilities of which are specified in Section 8.4.

“Commission” shall mean the Federal Energy Regulatory Commission.

“Demand Response Resource” is any resource in the New England Control Area that (a) produces quantifiable and verified, time-specific and location-specific load reductions from implementation of demand response measures for which the Entity that provides or controls the resource receives compensation; or (b) qualifies as a demand response resource, including distributed generation, pursuant to the Load Response Program; or (c) qualifies to receive an Installed Capacity payment pursuant to the Load Response Program; or (d) is determined by the Participants Committee to be a Demand Response Resource.

“Distributed Generation Resource” shall mean any electric generating facility in the New England Control Area that: (a) generates electricity pursuant to a distributed generation tariff or contract; or (b) is interconnected to the Transmission Facilities or a New England distribution system pursuant to a distributed generation agreement; or (c) the Participants Committee determines is a Distributed Generation Resource.

“Distributed Generation Resource Provider” shall mean an AR Provider which, together with its Related Persons, owns or controls Distributed Generation Resources.

“Distributed Generation Sub-Sector” shall mean the AR Sub-Sector established pursuant to Section 7.3.2(d)(i)(B) of this Agreement.

“DRP” shall mean a NEPOOL Participant that (a) is eligible and has enrolled itself and/or one or more eligible end users to provide a reduction in energy usage in the New England Control Area (whether through reduced energy consumption or the

3

operation of on-site generation which when operated does not result in net electric export to the grid) pursuant to the Load Response Program; (b) does not participate in the New England Market other than as permitted or required pursuant to the Load Response Program; (c) elected to be treated as a DRP before it became a Participant; and (d) was a DRP before the Effective Date.

“DRP Group Member” shall have the meaning set forth in Section 7.3.2(d)(i)(B) of this Agreement.

“Effective Date” shall mean the Operations Date that occurs in accordance with Paragraph 1 of the Settlement Agreement dated August 20, 2004 entered into by and among the Settling Parties (as that term is defined in the Settlement Agreement)..

“End User Organization” is an End User Participant which is (a) a registered tax-exempt non-profit organization with (i) an organized board of directors and (ii) a membership (A) of at least 100 Entities that buy electricity at wholesale or retail in the New England states or (B) with an aggregate peak monthly demand (non-coincident) for load in New England, including load served by Governance Only End User Behind-the-Meter Generation, of at least ten (10) megawatts or (b) a municipality or other governmental agency located in New England which does not meet the definition of Publicly Owned Entity.

“End User Participant” shall mean a NEPOOL Participant which is (a) a consumer of electricity in the New England Control Area that generates or purchases electricity primarily for its own consumption, (b) a non-profit group representing such consumers, or (c) a Related Person of another End User Participant and which (i) is licensed as a competitive supplier under the statutes and regulations of the state in which the End User Participant which is its Related Person is located and (ii) participates in the New England Market solely to serve the load of the End User which is its Related Person.

“End User Sector” shall have the meaning set forth in Section 7.3.2(f) of this Agreement.

“Energy” shall mean power produced in the form of electricity, measured in kilowatt-hours or megawatt-hours.

“Energy Efficiency Resource” shall mean any resource in the New England Control Area that is not a generator and either (a) produces quantifiable and verified, time-specific and location-specific load reductions from implementation of measures that reduce the Energy used by end-use devices and systems while maintaining comparable service for which the Entity that provides or controls the resource receives compensation pursuant to an energy efficiency program of a New England state; or (b) is determined by the Participants Committee to be an Energy Efficiency Resource.

“Entity” shall mean any person or organization, whether the United States of America or Canada or a state or province or a political subdivision thereof or a duly established agency of any of them, a private corporation, a partnership, an individual, an electric cooperative or any other person or organization recognized in law as capable of owning property and contracting with respect thereto that is either:

(a) engaged in the electric power business (the generation and/or transmission and/or distribution of electricity for consumption by the public; or the purchase, as a principal or broker, of installed capability, Energy, operating reserve, or ancillary services; or the ownership or control of Load Response Resources); or

4

(b) a consumer of electricity in the New England Control Area that generates or purchases electricity primarily for its own consumption or a non-profit group representing such consumers.

“Exigent Circumstances” shall mean circumstances such that ISO determines in good faith that (i) failure to immediately implement a new Market Rule, Operating Procedure, Reliability Standard, provision of the Information Policy, Non-TO OATT Provision or Manual would substantially and adversely affect (A) System reliability or security, or (B) the competitiveness or efficiency of the New England Markets, and (ii) invoking the procedures set forth in Section 11.1, 11.3 or 11.4 would not allow for timely redress of ISO’s concerns.

“First Restated NEPOOL Agreement” shall mean the version of the RNA in effect prior to the Effective Date.

“Fully Activated Sub-Sector Voting Share” shall mean eight and one-third percent (8 ¹/3%) in the case of the Renewable Generation Sub-Sector and four and one-sixth percent (4 ¹/6%) in the case of each of the Distributed Generation and Load Response Sub-Sectors.

“GAAP” shall mean generally accepted accounting principles in the United States.

“General Tariff Provisions” shall mean all of the provisions of the Tariff other than the OATT provisions, the Market Rules and Section IV of the Tariff (RTO operating and capital funding provisions).

“Generation Facilities” shall mean generating Resources (as defined in the Market Rules).

“Generation Group Member” shall have the meaning set forth in Section 7.3.2(a) of this Agreement.

“Generation Sector” shall have the meaning set forth in Section 7.3.2(a) of this Agreement.

“GIS” shall mean the generation information database and certificate system that accounts for certain attributes of energy consumed within the New England Control Area and exported outside the New England Control Area, including all software, equipment, enhancements, and interfaces related thereto.

“Good Utility Practice” shall mean any of the practices, methods, and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods, and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the

5

desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not limited to a single, optimum practice method or act to the exclusion of others, but rather is intended to include all acceptable practices, methods, or acts generally accepted in the region.

“Governance Load” (in kilowatts) of a Governance Participant during any particular hour and solely for purposes of determining eligibility for participation in the AR Sector is the greater of (A) Real-Time Load Obligation (as defined in the Market Rules) for the period in question, or (B) the total during such hour, of (a) kilowatthours provided by such Participant to its retail customers for consumption, plus (b) kilowatthours of use by such Participant, plus (c) kilowatthours of electrical losses and unaccounted for use by the Participant on its system, plus (d) kilowatthours used by such Participant for pumping Energy for its entitlements in pumped storage hydroelectric generating facilities, plus (e) kilowatthours delivered by such Participant to Non-Participants. The Governance Load of a Governance Participant may be calculated in any reasonable manner which substantially complies with this definition.

“Governance Only End User Behind-the-Meter Generation” shall mean generation that has all three (3) of the following attributes: (i) it is owned by a Governance Only Member; and (ii) it is used to meet that Governance Only Member’s load or, for any hour in which the output of the Governance Only End User Behind-the-Meter Generation owned by the Governance Only Member exceeds its Regional Network Load (as defined in Section II of the Tariff), another Governance Participant which is not a Governance Only Member is obligated under tariff or contract to report such excess to ISO pursuant to the Market Rules; and (iii) it is delivered to the Governance Only Member without the use of PTF or another Entity’s transmission or distribution facilities.

“Governance Only Member” shall mean an End User Participant that participates hereunder for governance purposes only; provided, however, that a Governance Only Member may elect to participate in the Load Response Program without losing the benefits of Governance Only Member status for any other purpose under this Agreement. An End User Participant may elect to be a Governance Only Member before its application is approved by NEPOOL or by a written notice delivered to the Secretary of the Participants Committee. Other than for an election made prior to the approval of its application by NEPOOL, the election to be a Governance Only Member shall become effective beginning on the first annual meeting of the Participants Committee following notice of such election.

“Governance Participants” shall mean the Individual Participants and the NEPOOL Participants.

“Governance Rating” is (a) with respect to an electric generating unit or combination of units (other than a Distributed Generation Resource), (i) the Winter Capability of such unit or combination of units, or (ii) if no Winter Capability has been determined by the System Operator, the aggregate name plate rating of such unit or combination of units ; (b) with respect to Demand Response Resources, the highest adjusted capability value (determined in accordance with the Load Response Program) for those Demand Response Resources in the prior twelve (12) months; (c) for Distributed Generation Resources not participating in the New

6

England Markets or the Load Response Program, the name plate rating of the Distributed Generation Resource; or (d) for Energy Efficiency Resources, the highest verified co-incident peak savings provided during the hours of the Load Response Program during the prior twelve (12) months. The Governance Rating of a Participant may be determined by the ISO in any reasonable manner which substantially complies with this definition.

“Governance Transmission Owner” for the purposes of this Agreement is an owner of PTF which makes its PTF available under the Tariff and owns a Local Network (as that term is defined in the Tariff) listed in Attachment E to the Tariff which is not a Publicly Owned Entity, including any affiliate of an owner of PTF that owns transmission facilities that are made available as part of such owner’s Local Network; provided that if an owner of PTF was not listed in Attachment E to the NEPOOL Open Access Transmission Tariff as that Tariff was in effect on May 10, 1999, the owner of PTF must also (1) own, or lease with rights equivalent to ownership, PTF with an original capital investment in its PTF as of the end of the most recent year for which figures are available from annual reports submitted to the Commission in Form 1 or any similar form containing comparable annualized data of at least $30,000,000, and (2) provide transmission service to non-affiliated customers pursuant to an open access transmission tariff on file with the Commission.

“Governmental Authority” shall mean the government of any nation, state, province or other political subdivision thereof, including any Entity exercising executive, military, legislative, judicial, regulatory, or administrative functions of or pertaining to a government.

“IMMU” shall have the meaning set forth in Section 9.4.2 of the Agreement.

“Individual Participants” shall have the meaning set forth in the first paragraph hereof. As of the date of this Agreement, the Individual Participants are those Entities listed as such on Schedule 1 hereto.

“Information Policy” shall mean the policy on file with the Commission as part of the Tariff establishing guidelines regarding the information received, created and distributed by Governance Participants and ISO in connection with the New England Markets and the New England Transmission System.

“Installed Capacity Requirements” shall have the meaning set forth in Section III of the Tariff.

“INTMMU” shall have the meaning set forth in Section 9.4.2 of the Agreement.

“ISO” shall have the meaning set forth in the first paragraph above.

“ISO Board” shall mean the Board of Directors of ISO.

“ITC” shall mean an independent transmission company, as defined by the Commission.

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“Large End User” shall mean an End User Participant which is considered for this purpose to be (a) a single end user with a peak monthly demand (non-coincident) for load in New England, including load served by Governance Only End User Behind-the-Meter Generation, of at least one (1) megawatt, or (b) a group of two or more corporate entities each with a peak monthly demand (non-coincident) for load in New England, including load served by Governance Only End User Behind-the-Meter Generation, of at least 0.35 megawatts that together totals at least one (1) megawatt.

“Load Response Program” shall mean the load response program included in the Market Rules.

“Load Response Resource” shall mean an Energy Efficiency Resource or Demand Response Resource.

“Load Response Resource Provider” shall mean an AR Provider which, together with its Related Persons, owns or controls Load Response Resources.

“Load Response Sub-Sector” shall mean the AR Sub-Sector established pursuant to Section 7.3.2(d)(i)(C) of this Agreement.

“Manuals” shall mean the manuals posted on the ISO website implementing the Market Rules that are adopted in accordance with this Agreement, as in effect from time to time. On the Operations Date, the Manuals shall consist in substance of the NEPOOL Manuals in effect immediately prior to the Operations Date.

“Market Monitoring and Mitigation Plan” shall mean those provisions of the Market Rules which provide for ISO’s market monitoring and market power mitigation for the New England Markets. On the Operations Date, the Market Monitoring and Mitigation Plan shall consist of Appendix A to the Market Rule 1.

“Markets Committee” shall mean the Markets Committee established pursuant to the RNA and the responsibilities of which are specified in Section 8.2.2.

“Market Rules” shall mean the rules for the administration of the New England Markets filed with the Commission in accordance with this Agreement and accepted by the Commission.

“Member Adjusted Voting Share” shall mean:

(a) for a voting member of each active Sector (other than the AR Sector) which casts an affirmative or negative vote on a proposed action or amendment and which has been appointed by a Participant or group of Participants which are members of a Sector satisfying its Sector Quorum requirement for the proposed action or amendment, is the quotient obtained by dividing (i) the Sector Voting Share of that Sector for the Participants Committee or the Adjusted Sector Voting Share of that Sector for the Technical Committees by (ii) the number of voting members appointed by members of that Sector which cast affirmative or negative votes on the matter, adjusted, if necessary, for End User Participants and group voting members as provided in the definition of “Member Fixed Voting Share”; and

8

(b) for a voting member of an AR Sub-Sector which casts an affirmative or negative vote on a proposed action or amendment and which has been appointed by a Participant or group of Participants which are members of an AR Sub-Sector satisfying its AR Sub-Sector Quorum Requirement for a proposed action or amendment, is the quotient obtained by dividing (i) the Adjusted AR Sub-Sector Voting Share of that Sub-Sector by (ii) the number of voting members appointed by members of that Sub-Sector which cast affirmative or negative votes on the matter.

“Member Fixed Voting Share” shall mean:

(a) for a voting member of each active Sector (other than the AR Sector), whether or not the member is in attendance, is the quotient obtained by dividing (i) the Sector Voting Share of the Sector to which the NEPOOL Participant or group of NEPOOL Participants which appointed the voting member belongs by (ii) the total number of voting members appointed by members of that Sector, adjusted, if necessary, to take into account (A) the manner in which the voting shares of End User Participants are to be determined while they are members of the Publicly Owned Entity Sector, and (B) any required change in the voting share of the Transmission Group Member, as determined in accordance with Section 7.3.2(b); and

(b) for a voting member of an AR Sub-Sector whether or not the member is in attendance and until the sum of the Member Fixed Voting Shares of the AR Sub-Sector voting members equals or exceeds the Fully Activated Sub-Sector Voting Share, is either 1 ²/3% if the voting member represents a NEPOOL Participant or NEPOOL Participants which own or control, together with their Related Persons, more than 15 MW (or its equivalent) of Alternative Resources or 1% if the voting member represents less than 15 MW (or its equivalent) of Alternative Resources. When the sum of the Member Fixed Voting Shares of the AR Sub-Sector voting members equals or exceeds the Fully Activated Sub-Sector Voting Share, the Member Fixed Voting Share for the voting member whether or not the voting member is in attendance will be the quotient obtained by dividing (i) the Fully Activated Sub-Sector Voting Share by (ii) the total number of voting members appointed by NEPOOL Participants of that AR Sub-Sector.

“Minimum Response Requirement” shall mean, with respect to a proposed amendment to this Agreement pursuant to Section 17.2.3, that the ballots received by the Balloting Agent from Governance Participants relating to the proposed amendment of this Agreement before the end of the appropriate time specified in Section 17.2.3(d) must satisfy the following thresholds:

(a) the sum of the Member Fixed Voting Shares, as adjusted to accommodate the Individual Participants pursuant to the requirements of Section 17.2.3(c), of the Governance Participant voting members whose ballots are received must equal at least fifty percent (50%); and

(b) the Governance Participants whose voting members timely return ballots for or against the amendment must include Governance Participants that are represented by voting members having at least fifty percent (50%) of the Member Fixed Voting Shares, as adjusted to accommodate the Individual Participants pursuant to the requirements of Section 17.2.3(c), in each of a majority of the Sectors.

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“MW” shall mean megawatts.

“Natural Person Participant” shall mean a Governance Participant who is also a natural person.

“NECPUC” shall mean the New England Conference of Public Utilities Commissioners, Inc., including any successor organization.

“NEPOOL” shall have the meaning set forth in the first paragraph hereof.

“NEPOOL Participants” shall mean the current and future parties to the RNA.

“NERC” shall mean the North American Electric Reliability Council, including any successor organization.

“New England Control Area” shall have the meaning set forth in Section II of the Tariff.

“New England Markets” shall mean the markets for electric Energy, capacity and certain ancillary services within the New England Control Area as set forth in the Market Rules.

“Non-TO OATT Provisions” shall mean all of the provisions of the OATT for which ISO has Section 205 rights under the Federal Power Act pursuant to the TOA.

“NPCC” shall mean the Northeast Power Coordinating Council, including any successor organization.

“OATT” shall mean Section II of the Tariff.

“Operating Procedures” shall mean the detailed operating procedures for operation of the System as in effect from time to time. On the Operations Date, the Operating Procedures shall consist of the procedures identified in Schedule 2.

“Operating Year” shall mean a calendar year. The first Operating Year shall commence on the Operations Date and continue until the following December 31, and the last Operating Year shall conclude on the date that this Agreement terminates.

“Operations Date” shall have the meaning set forth in the TOA.

“Order 2000” shall mean the Commission’s Order No. 2000, i.e., Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 809 (January 6, 2000), FERC Stats. & Regs. ¶31,089 (1999), order on reh’g, Order No. 2000-A, 65 Fed. Reg. 12,088 (March 8, 2000), FERC Stats. & Regs. ¶31,092 (2000), aff’d, Public Utility District No. 1 of Snohomish County, Washington v. FERC, 272 F.3d 607 (D.C. Cir. 2001).

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“Participant Expenses” shall mean those costs and expenses that are incurred pursuant to authorization of the Participants Committee and are not considered costs and expenses of ISO.

“Participant Processes” shall mean those processes for Governance Participants outlined in Section 7.1.1.

“Participant Vote” shall mean:

(a) with respect to an amendment or proposed action of the Participants Committee, the sum of (i) the Member Adjusted Voting Shares of the voting members of the Committee which cast an affirmative vote on the proposed action or amendment and which have been appointed by a NEPOOL Participant or group of NEPOOL Participants which are members of a Sector satisfying its Sector Quorum requirements and, in the case of amendments, including Member Adjusted Voting Shares of Individual Participants; and (ii) the Member Fixed Voting Shares of the voting members of the Committee which cast an affirmative vote on the proposed action or amendment and which have been appointed by a NEPOOL Participant or group of NEPOOL Participants which are members of a Sector which fails to satisfy its Sector Quorum requirements plus, in the case of amendments, the Member Fixed Voting Shares of Individual Participants; and

(b) with respect to a proposed action of a Technical Committee, the sum of the Member Adjusted Voting Shares of the voting members of the Committee which cast an affirmative vote on the proposed action.

“Participants Committee” shall mean the Participants Committee established pursuant to the RNA and the responsibilities of which are specified in Section 8.1 hereof.

“Party” or “Parties” shall have the meaning identified in the first paragraph of this Agreement.

“Planning Procedures” shall mean the guides, manuals, procedures and protocols for planning and expansion of the Transmission Facilities, as the same may be modified from time to time.

“Pool Transmission Facilities” or “PTF” shall have the meaning set forth in the Tariff.

“Participating Transmission Owner” or “PTO” shall have the meaning set forth in the Tariff.

“Power Year” shall mean a period of twelve (12) months commencing on June 1 of each year and ending on May 31 of the next calendar year.

“Principal Committees” shall mean the Participants Committee and the Technical Committees.

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“Publicly Owned Entity” shall mean an Entity which is either a municipality or an agency thereof, or a body politic and public corporation created under the authority of one of the New England states, authorized to own, lease and operate electric generation, transmission or distribution facilities, or an electric cooperative, or an organization of any such entities.

“Publicly Owned Entity Sector” shall have the meaning set forth in Section 7.3.2(e) of this Agreement.

“PURPA” shall mean the Public Utility Regulatory Policies Act of 1978.

“Related Person” of a Governance Participant shall mean:

(a) for all Governance Participants, either (i) a corporation, partnership, business trust, limited liability company or other business organization 10% or more of the stock or equity interest in which is owned directly or indirectly by the Governance Participant, or (ii) a corporation, partnership, business trust or other business organization which owns directly or indirectly 10% or more of the stock or equity interest in the Governance Participant, (iii) a corporation, partnership, business trust or other business organization 10% or more of the stock or equity interest in which is owned directly or indirectly by a corporation, partnership, business trust or other business organization which also owns 10% or more of the stock or equity interest in the Governance Participant; or (iv) a natural person, or a member of such natural person’s immediate family, who is, or within the last 12 months has been, an officer, director, partner, employee, or representative in ISO activities of, or natural person having a material ongoing business or professional relationship directly related to New England Markets activities with, the Governance Participant or any corporation, partnership, business trust or other business organization related to the Governance Participant pursuant to clauses (i), (ii) or (iii) of this paragraph (a); and

(b) for all Natural Person Participants, a Related Person is (i) a member of such Natural Person Participant’s immediate family, or (ii) any corporation, partnership, business trust or other business organization of which such Natural Person Participant, or a member of such Natural Person Participant’s immediate family, is, or within the last 12 months has been, an officer, director, partner, employee, or with which a Natural Person Participant has, or within the last 12 months has had, a material ongoing business or professional relationship directly related to New England Markets activities, or (iii) another Governance Participant which, within the last 12 months has paid a portion of the Natural Person Participant’s expenses under Section 14 of this Agreement, or (iv) a corporation, partnership, business trust or other business organization in which the Natural Person Participant owns equity with a fair market value in excess of $50,000.

(c) Notwithstanding the foregoing, for the purposes of this definition, an individual shall not be deemed to have or had a material ongoing business relationship directly related to New England Markets activities with any corporation, partnership, business trust, other business organization solely as a result of being served, as a customer, with electricity or gas.

“Reliability Committee” shall mean the Reliability Committee established pursuant to the RNA and the responsibilities of which are specified in Section 8.2.3.

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“Reliability Standards” shall mean those rules, standards, procedures and protocols posted on the ISO website, as in effect from time to time, other than Operating Procedures, that establish the parameters relating to reliability matters for ISO’s exercise of its authority over the System.

“Renewable Generation Resource” shall mean any electric generating facility in the New England Control Area that: (a) is defined as renewable generation under any New England state renewable portfolio standard; or (b) satisfies the criteria for a Small Power Production Facility under PURPA; or (c) primarily uses one or more of the following fuels, energy resources, or technologies: solar, wind, hydro, tidal, geothermal, or biomass; or (d) the Participants Committee determines is a Renewable Generation Resource.

“Renewable Generation Resource Provider” shall mean an AR Provider which, together with its Related Persons, owns or controls Renewable Generation Resources.

“Renewable Generation Sub-Sector” shall mean the AR Sub-Sector established pursuant to Section 7.3.2(d)(i)(A) of this Agreement.

“RNA” shall mean the Second Restated New England Power Pool Agreement, which restated for a second time by an amendment dated as of August 16, 2004 the New England Power Pool Agreement dated September 1, 1971, as the same may be amended and restated from time to time, governing the relationship among the NEPOOL Participants.

“RTO” shall mean an entity that complies with the requirements of Order 2000 and the Commission’s corresponding regulations for a regional transmission organization, as determined by the Commission, or a successor organization performing comparable functions.

“Sector” shall mean the AR Sector, End User Sector, Generation Sector, Publicly Owned Entity Sector, Supplier Sector, Transmission Sector, or any other Sector created pursuant to the terms of the RNA and Section 6.2.2(a) hereof.

“Sector Quorum” for a Sector shall mean the lesser of (a) fifty percent (50%) or more (rounded to the next higher whole number) of the voting members of the Sector, or (b) five (5) or more voting members of the Sector for the Participants Committee or three (3) or more voting members of the Sector for the Technical Committees.

“Sector Voting Share” shall mean:

(a) for the AR Sector, the sum of the Member Fixed Voting Shares; and

(c) for each active Sector (other than the AR Sector), the quotient obtained by dividing one hundred percent (100%) minus the Sector Voting Share for the AR Sector by the number of active Sectors (other than the AR Sector). For example, if there are five active Sectors (other than the AR Sector) and the AR Sector Voting Share is sixteen and two-thirds percent (16 ²/3%), the Sector Voting Share of each of the other Sectors is also sixteen and two-thirds percent (16 ²/3%). The aggregate Sector Voting Shares shall equal one hundred percent (100%).

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“Settlement Agreement” shall mean the agreement dated August 20, 2004 among NEPOOL, ISO and the other parties thereto.

“Small End User” shall mean an End User Participant which does not otherwise meet the definition of Large End User or End User Organization.

“Supplier Sector” shall have the meaning set forth in Section 7.3.2(c) of this Agreement.

“System” shall mean Generation Facilities and Transmission Facilities.

“Tariff” shall mean ISO’s Transmission, Markets and Services Tariff, FERC Electric Tariff, Volume No.1, as amended from time to time.

“Technical Committees” shall have the meaning set forth in Section 8.2 of this Agreement.

“TOA” shall mean the Transmission Operating Agreement among ISO and the Participating Transmission Owners that are parties thereto, as the same may be amended from time to time.

“Transmission Committee” shall mean the committee whose responsibilities are specified in Section 8.2.4.

“Transmission Facilities” shall mean the Merchant Transmission Facilities, Other Transmission Facilities and Pool Transmission Facilities, as each such term is defined in the Tariff.

“Transmission Group Member” shall have the meaning set forth in Section 7.3.2(b) of this Agreement.

“Transmission Sector” shall have the meaning set forth in Section 7.3.2(b) of this Agreement.

“Winter Capability” shall mean, with respect to an electric generating unit or combination of units, the maximum dependable load carrying ability in kilowatts of such unit or units (exclusive of capacity required for station use) during the Winter Period, as determined by ISO.

“Winter Period” shall mean the eight-month period from October through May for each Power Year.

1.2 Interpretation. The terms “hereof,” “hereunder,” and any similar terms, as used in this Agreement, refer to this Agreement.

The terms “include” or “including” shall be interpreted as if the word “without limitation” immediately followed such terms.

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Any reference to any Section, Subsection, Exhibit or Schedule contained in this Agreement shall refer to such Section, Subsection, Exhibit or Schedule as set forth in this Agreement, notwithstanding use of or failure to use the term “above,” “below,” “hereof,” “hereto,” or “herein” in connection with such reference.

Words of the masculine gender shall mean and include correlative words of the feminine and neuter genders and words importing the singular number shall mean and include the plural number or vice versa.

Any headings preceding the texts of the several Sections, Subsections, Exhibits and Schedules of this Agreement, and any table of contents appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

Unless expressly limited, all references to documents are references to documents as the provisions thereof may be amended, modified or waived from time to time or successor documents thereof.

SECTION 2. PURPOSE, INTENT AND OBJECTIVES

2.1 Purpose. The purpose of this Agreement is to (i) establish processes by which Governance Participants will provide and ISO will receive, consider and respond to input and advice, (ii) set forth the rights and obligations of the Parties with respect to the Participant Processes created by this Agreement, and (iii) establish certain rights and obligations of the Governance Participants with respect to ISO.

2.2 Intent of the Parties. It is the intent of the Parties that NEPOOL provide the sole Participant Processes for advisory voting on ISO matters and the selection of ISO Board members, except for input from state regulatory authorities and as otherwise may be provided in the Tariff, TOA and the Market Participant Services Agreement included in the Tariff; provided that nothing in this Agreement will preclude any Entity from interacting, individually or collectively with other Entities, with the ISO staff and ISO Board to the same extent an individual NEPOOL Participant is permitted to do so.

2.3 Objectives of ISO. The objectives of ISO are (through means including but not limited to planning, central dispatching, coordinated maintenance of electric supply and demand-side resources and transmission facilities, obtaining emergency power for market participants from other control areas, system restoration (when required), the development of Market Rules, the provision of an open access regional transmission tariff and the provision of a means for effective coordination with other control areas and utilities situated in the United States and Canada):

(a) to assure the bulk power supply system within the New England Control Area conforms to proper standards of reliability;

(b) to create and sustain open, non-discriminatory, competitive, unbundled, markets for energy, capacity and ancillary services (including operating reserves) that are (i) economically efficient and balanced between buyers and sellers, and (ii) provide an opportunity for a participant to receive compensation through the market for a service it provides, in a manner consistent with proper standards of reliability and the long-term sustainability of competitive markets;

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(c) to provide Market Rules that (i) promote a market based on voluntary participation, (ii) allow market participants to manage the risks involved in offering and purchasing services, and (iii) compensate at fair value (considering both benefits and risks) any required service, subject to the Commission’s jurisdiction and review;

(d) to allow informed participation and encourage ongoing market improvements;

(e) to provide transparency with respect to the operation of and the pricing in markets and purchase programs;

(f) to provide access to competitive markets within the New England Control Area and to neighboring regions; and

(g) to provide for an equitable allocation of costs, benefits and responsibilities among market participants.

The Parties agree that the preceding objectives are consistent with the Federal Power Act and do not in and of themselves create independent causes of action.

SECTION 3. EFFECTIVE DATE

This Agreement shall become effective as of the Effective Date.

SECTION 4. TERM

The term of this Agreement shall continue until such time as ISO ceases to be the RTO for New England or the TOA is terminated (unless the TOA is terminated due to the withdrawal of all of the TOs to participate in an Independent Transmission Company), in each case pursuant to a final order of the Commission. The term of this Agreement shall not be affected by the withdrawal or termination of any Party to this Agreement, other than ISO.

SECTION 5. AGREEMENT ADMINISTRATION

5.1 Representatives of the Governance Participants. The Participants Committee, or its designee(s), shall have authority to act for NEPOOL and the NEPOOL Participants in connection with the administration of this Agreement. Each Individual Participant shall supply ISO with the name and contact information for a representative authorized to act for it.

5.2 Consultation. ISO shall consult as necessary with the Participants Committee or its designee(s) and/or the representatives of the Individual Participants in order to resolve any matters that may arise in connection with this Agreement. Any matter that remains in dispute shall be resolved in accordance with the dispute resolution provisions contained in Section 17.3, subject to the right of any Party to seek to resolve the dispute through a proceeding with the Commission, as stated in Section 17.3.

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5.3 Joint Committees. The Participants Committee and the ISO may from time to time form such committees or working groups as they deem necessary to assist them in carrying out activities appropriate to the administration of this Agreement.

SECTION 6. PARTIES

6.1 ISO. On and after the Operations Date, ISO shall be the entity authorized by the Commission to exercise those functions outlined in this Agreement, the TOA, the Tariff, and any other applicable operating agreements, which functions the Commission has found satisfy the requirements of Order 2000 for RTOs. The Parties recognize that ISO is not a party to, and shall not be bound by, the terms and conditions of the RNA.

6.2 NEPOOL.

6.2.1 NEPOOL Participants. On and after the Operations Date, NEPOOL shall be a Party to this Agreement on behalf of its Participants as they exist from time to time, and each NEPOOL Participant shall be a Governance Participant pursuant to the terms and conditions hereof. In the event that the RNA is terminated, each NEPOOL Participant which is not legally prohibited from doing so shall automatically become a Party to this Agreement as an Individual Participant, and maintenance of the Committee and Sector structures outlined herein shall become the responsibility of ISO. This Agreement shall be amended accordingly by the Entities who are Parties to this Agreement at the time of such amendment.

6.2.2 Obligations of NEPOOL and the NEPOOL Participants.

(a) Amendment of RNA. NEPOOL hereby agrees that the RNA shall include a provision that prohibits, without the prior written consent of ISO, the amendment of the RNA so as to create a conflict between the provisions of the RNA and this Agreement.

(b) Inclusion of Individual Participants. The Principal Committees shall take all such actions as are reasonably necessary to facilitate the participation of the Individual Participants in the Participant Processes as set forth herein.

6.3 Individual Participants.

6.3.1 An Entity that meets the requirements for participation in NEPOOL but that does not wish to become a NEPOOL Participant may, upon compliance with such reasonable conditions as ISO may prescribe, become an Individual Participant by delivering a counterpart of this Agreement, duly executed by such Entity, to ISO, along with a check in payment of the application fee described below; provided, however, that, while Individual Participants may attend and participate in all NEPOOL meetings, including meetings of the Principal Committees, Individual Participants shall have no right to vote with any of the Principal Committees except on amendments to this Agreement as set forth in Section 17.2 hereo..

6.3.2 Any such Entity that satisfies the requirements of this Section 6.3 shall become an Individual Participant, and this Agreement shall become fully binding and effective in accordance with its terms as to such Entity, as of the first day of the calendar month immediately following its satisfaction of such requirements; provided that an earlier or later effective date may be fixed by ISO with the concurrence of such Entity or by the Commission.

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6.3.3 The application fee to be paid by each Entity seeking to become an Individual Participant pursuant to this Section 6.3 shall be in addition to the annual and other fees outlined in Section 14, and shall be calculated as if the Individual Participant were a NEPOOL Participant in an appropriate Sector, as determined by ISO in consultation with the officers of the Participants Committee. The application fee shall be $500 for an applicant which qualifies for membership only as an End User Participant, $1,000 for an applicant which together with its Related Persons owns or controls less than 5 MW (or its equivalent) of Alternative Resources and qualifies for membership as an AR Provider, and $5,000 for all other applicants, or such other amount as may be fixed by the RNA for NEPOOL Participants.

6.3.4 An Individual Participant shall cease being a Party to this Agreement upon:

(a) For an Entity taking any type of service under the Tariff, upon termination of service under the Tariff pursuant to a Commission order as a result of a default under the Tariff; or

(b) For any other Entity, upon voluntary termination of its status as a Party, bankruptcy or failure to pay annual fees; or

(c) as set forth in Section 7.3.3.

6.3.5 Termination of NEPOOL Participant Status. NEPOOL shall include a provision in the RNA which prohibits the amendment of the provisions of the RNA regarding termination of NEPOOL Participant status (currently contained in Section 16.1 of the RNA) without the consent of ISO.

SECTION 7. PARTICIPANT PROCESSES

7.1 General.

7.1.1 Outline of Processes. The Participant Processes under this Agreement shall consist of the following:

(a) Advice and input to ISO and consideration of that advice and input by ISO in accordance with Sections 10 and 11;

(b) Advice and input to ISO with respect to changes in the General Tariff Provisions, Non-TO OATT Provisions, the Market Rules, the Operating Procedures, Installed Capacity Requirement, Manuals, Reliability Standards, and the Information Policy in accordance with Section 11;

(c) Review and input on ISO’s annual operating and capital budgets and consideration of that input by ISO in accordance with Section 12;

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(d) Participation in the process for the nomination and election of ISO Board members in accordance with Section 13; and

(e) Consideration and approval of certain amendments to this Agreement in accordance with Section 17.2.3.

7.1.2 Role of Committees. Except as otherwise set forth herein, the Participant Processes shall be accomplished through the Principal Committees and other committees, subcommittees, task forces, working groups or other bodies established by the Participants Committee or jointly by ISO and the Participants Committee.

7.2 Role of Sectors. Each NEPOOL Participant shall, together with its Related Persons which are NEPOOL Participants, be a member of and participate in the Principal Committees through Sectors in accordance with Section 7.3. Individual Participants shall not participate in a Sector.

7.3 Sectors.

7.3.1 Sector Membership. Each NEPOOL Participant shall belong to a Sector, as follows. On the Operations Date of this Agreement, each NEPOOL Participant and its Related Person(s) shall belong to the Sector to which it belonged immediately prior to the Operations Date, provided that a NEPOOL Participant (and its Related Person(s)) that is eligible to join the AR Sector may elect to be a member of that Sector as of or after the Operations Date by delivering, before the Operations Date, a written notice to the Secretary of the Participants Committee of a change in its Sector. From and after the Operations Date, each new NEPOOL Participant shall be obligated to designate in a notice to the Participants Committee and ISO a Sector that it and its Related Persons are eligible to join and that it elects to join for purposes of all of the Principal Committees; provided, however, that (i) a NEPOOL Participant and the NEPOOL Participants which are its Related Persons shall not be eligible to join the End User Sector if any one of them is not eligible to join the End User Sector and (ii) a DRP and the NEPOOL Participants which are its Related Persons shall not be represented by the DRP Group Member if any one of them is not a DRP. A NEPOOL Participant and its Related Persons shall together be entitled to join only one Sector and shall have no more than one vote on each Principal Committee, provided that any voting member of a Principal Committee shall be entitled to split its vote.

7.3.2 Criteria for Sector Membership. The Sectors for each Principal Committee, the criteria for eligibility for membership in each Sector and the minimum requirement that a NEPOOL Participant must meet as a member of a Sector in order to appoint an individual voting member of the Sector and the Principal Committees are as follows:

(a) a Generation Sector, which a NEPOOL Participant shall be eligible to join if (i) it (A) owns or leases with rights equivalent to ownership facilities for the generation of electric energy that are located within the New England Control Area which are currently in operation, or (B) has proposed generation for operation within the New England Control Area either which has received approval under Sections 18.4 and/or 18.5 of the First Restated NEPOOL Agreement between July 1, 2002 and the Effective Date or received approval on or after the Effective Date under Sections I.3.9 and/or I.3.10 of the Tariff or for which completed

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environmental air or environmental siting applications have been filed or permits exist, and (ii) it is not a Publicly Owned Entity. Purchasing all or a portion of the output of a generation facility shall not be sufficient to qualify a NEPOOL Participant to join the Generation Sector. A NEPOOL Participant which joins the Generation Sector shall be entitled but not required to designate an individual voting member of each Principal Committee, and an alternate to the member, if its operating or proposed generation facilities in the New England Control Area have or will have, when placed in operation, an aggregate Governance Rating of at least 15 MW. A NEPOOL Participant which joins the Generation Sector but elects not to or is not eligible to designate an individual voting member, shall be represented by a group voting member and an alternate to that member for each Principal Committee (collectively, the “Generation Group Member”). The Generation Group Member shall be appointed by a majority of the NEPOOL Participants in the Generation Sector electing or required to be represented by that member. The Generation Group Member shall have the same percentage of the Sector vote as the individual voting members designated by other NEPOOL Participants in the Generation Sector which meet the 15 MW threshold and designate an individual voting member.

(b) a Transmission Sector, which a NEPOOL Participant shall be eligible to join if it is a Governance Transmission Owner and is not a Publicly Owned Entity. Taking transmission service shall not be sufficient to qualify a NEPOOL Participant to join the Transmission Sector. A NEPOOL Participant which joins the Transmission Sector shall be entitled to designate an individual voting member of each Principal Committee, and an alternate to the member, if it owns or leases with rights equivalent to ownership PTF with an original capital investment in its PTF as of the end of the most recent year for which figures are available from annual reports submitted to the Commission in Form 1 or any similar form containing comparable annualized data of at least $30,000,000. A Governance Transmission Owner with facilities which were included as PTF prior to December 31, 1998 only pursuant to clause (3) of the definition of PTF in the First Restated NEPOOL Agreement shall be entitled to designate an individual voting member of each Principal Committee, and an alternate to the member, whether or not PTF which it owns or leases with rights equivalent to ownership which has an original capital investment of at least $30,000,000, so long as such Governance Transmission Owner continues to own PTF. A NEPOOL Participant which joins the Transmission Sector but which is not entitled to designate an individual voting member of each Principal Committee because (i) it, together with all of its Related Persons, does not meet the $30,000,000 threshold or (ii) it no longer owns PTF and it does not have a Related Person that is entitled to designate an individual voting member for each Principal Committee in another Sector, together with the other NEPOOL Participants in the Transmission Sector which for the same reasons are unable to designate an individual voting member, shall be represented by a group voting member of each Principal Committee (the “Transmission Group Member”), and an alternate to that member. The Transmission Group Member and alternate shall be appointed by a majority vote of all NEPOOL Participants in the Transmission Sector required to be represented by that Member. The Transmission Group Member shall have the same percentage of the Sector vote as the individual voting members designated by other NEPOOL Participants in the Transmission Sector which meet the $30,000,000 threshold unless and until the original capital investment in PTF of the NEPOOL Participants represented by the Transmission Group Member equals or exceeds twice the $30,000,000 threshold amount. If the aggregate original capital investment in PTF equals or exceeds twice the $30,000,000 threshold amount, the percentage of the Sector votes assigned to the Transmission Group Member shall equal the

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number of full multiples of the $30,000,000 threshold, provided that the Transmission Group Member shall in no event be entitled to more than twenty-five percent (25%) of the Sector vote. For example, if NEPOOL Participants represented by the Transmission Group Member have an aggregate original capital investment in PTF in the New England Control Area totaling $70,000,000, the Transmission Group Member will have the same percentage of such votes as two ($70,000,000/$30,000,000 Threshold = 2.33) individual voting members designated by individual NEPOOL Participants, provided that there are at least six other members in the Sector so the Transmission Group Member does not have more than twenty-five percent (25%) of the Transmission Sector vote.

(c) a Supplier Sector, which a NEPOOL Participant shall be eligible to join if (i) it engages in, or is licensed or otherwise authorized by a state or federal agency with jurisdiction to engage in, power marketing, power brokering or load aggregation within the New England Control Area, or it had been engaged on and before December 31, 1998 solely in the distribution of electricity in the New England Control Area and (ii) it is not a Publicly Owned Entity. A Participant which joins the Supplier Sector shall be entitled to designate a voting member of each Principal Committee, and an alternate to the member.

(d) an AR Sector, which an AR Provider shall be eligible to join; provided, however, that a NEPOOL Participant that is eligible to join the End User Sector shall not join the AR Sector.

(i) The AR Sector shall be divided into the following three (3) sub-Sectors:

(A) Renewable Generation Sub-Sector, which a NEPOOL Participant shall be eligible to join if it is a Renewable Generation Resource Provider. A Renewable Generation Resource Provider which joins the Renewable Generation Sub-Sector shall be entitled but not required to designate an individual voting member of each Principal Committee, and an alternate to the member, if it owns or controls Renewable Generation Resources with an aggregate Governance Rating of at least 5 MW. A Renewable Generation Resource Provider which owns or controls Renewable Generation Resources that have an aggregate Governance Rating of at least 15 MW shall either designate an individual voting member of each Principal Committee, and an alternate to the member, or elect to be represented by a Self-Defined Renewable Group Member as described in the following sentence. A Renewable Generation Resource Provider which joins the Renewable Generation Sub-Sector but elects not to or is not eligible to designate an individual voting member, may together with one or more Renewable Generation Resource Providers be represented by a “Self-Defined Renewable Generation Group Member” and an alternate to that member for each Principal Committee, provided that the group voting member represents Renewable Generation Resource Providers that own or control Renewable Generation Resources that in the aggregate have a Governance Rating of more than 5 MW. A Renewable Generation Resource Provider which joins the Renewable Generation Sub-Sector but which (A) is not entitled to designate an individual voting member of each Principal Committee because it does not own or control Renewable Generation Resources with an aggregate Governance Rating of at least 5 MW, or (B) has not elected to be represented by a Self-Defined Renewable Generation Group Member shall be represented by the “Small Renewable Generation Group Member.”

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(B) Distributed Generation Sub-Sector, which a NEPOOL Participant shall be eligible to join if it is a Distributed Generation Resource Provider or a DRP. A Distributed Generation Resource Provider which joins the Distributed Generation Sub-Sector shall be entitled but not required to designate an individual voting member of each Principal Committee, and an alternate to the member, if it owns or controls Distributed Generation Resources that in the aggregate have a Governance Rating of at least 5 MW. A Distributed Generation Resource Provider which joins the Distributed Generation Sub-Sector but elects not to or is not eligible to designate an individual voting member, may together with one or more Distributed Generation Resource Providers be represented by a “Self-Defined Distributed Generation Group Member” and an alternate to that member for each Principal Committee, provided that the group voting member represents Distributed Generation Resource Providers that own or control Distributed Generation Resources that in the aggregate have a Governance Rating of more than 5 MW. DRPs shall be represented by a separate group voting member and an alternate to that member for each Principal Committee known as the “DRP Group Member.” A Distributed Generation Resource Provider which joins the Distributed Generation Sub-Sector but which (1) is not entitled to designate an individual voting member of each Principal Committee because it does not own or control Distributed Generation Resources that in the aggregate have a Governance Rating of at least 5 MW, or (2) has not elected to be represented by an individual voting member or a Self-Defined Distributed Generation Group Member shall be represented by the “Small Distributed Generation Group Member.”

(C) Load Response Sub-Sector, which a NEPOOL Participant shall be eligible to join if it is a Load Response Resource Provider. A Load Response Resource Provider which joins the Load Response Sub-Sector shall be entitled but not required to designate an individual voting member of each Principal Committee, and an alternate to the member, if it owns or controls Load Response Resources that in the aggregate have a Governance Rating of at least 5 MW (or its equivalent). A Load Response Resource Provider which joins the Load Response Sub-Sector but elects not to or is not eligible to designate an individual voting member, may together with one or more Load Response Resource Providers be represented by a “Self-Defined Load Response Group Member” and an alternate to that member for each Principal Committee, provided that the group voting member represents Load Response Resource Providers that own or control Load Response Resources that in the aggregate have a Governance Rating of more than 5 MW (or its equivalent). A Load Response Resource Provider which joins the Load Response Sub-Sector but which (1) is not entitled to designate an individual voting member of each Principal Committee because it does not own or control Load Response Resources that in the aggregate have a Governance Rating of at least 5 MW (or its equivalent), or (2) has not elected to be represented by an individual voting member or a Self-Defined Load Response Group Member shall be represented by the “Small Load Response Group Member.”

(ii) A group voting member in the AR Sector shall be appointed or replaced by a majority of the Participants represented by that member.

(e) a Publicly Owned Entity Sector, which all Participants which are Publicly Owned Entities are eligible to join and shall join, and which End User Participants are eligible to join if there is not an activated End User Sector. A NEPOOL Participant which joins the Publicly Owned Entity Sector shall be entitled to designate a voting member of each Principal Committee, and an alternate to the member.

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(f) an End User Sector, which an End User Participant is eligible to join provided all of its Related Persons which are either NEPOOL Participants or Individual Participants are also eligible to join the End User Sector. Participants which join the End User Sector shall be entitled to designate an individual voting member of each Principal Committee and an alternate to the member; provided, however, that a voting member, and the alternate to the member, designated by a Small End User shall not be a Related Person of another NEPOOL Participant in a Sector other than the End User Sector.

7.3.3 Sector Ineligibility; Changes. All NEPOOL Participants have the right to join and be a member of a Sector. If a NEPOOL Participant ceases to be eligible to be a member of the Sector which it previously joined and is not eligible to join another existing Sector other than the End User Sector, it shall have the right to remain and vote in the Sector in which the NEPOOL Participant is currently a member for up to one (1) year. By the end of such year, either (a) this Agreement shall be amended such that qualifications for an existing Sector are changed so that the NEPOOL Participant qualifies for membership in an existing Sector or a new Sector is created, or (b) the Participants Committee shall seek Commission approval to terminate the status of the NEPOOL Participant. A NEPOOL Participant may change the Sector of which it is a member. Other than for changes required by this Section, a change in the Sector in which a NEPOOOL Participant is a member shall become effective beginning on the first annual meeting of the Participants Committee following notice of such change.

SECTION 8. COMMITTEES

8.1 Participants Committee.

8.1.1 Identification. NEPOOL shall maintain a Participants Committee composed of the representatives of NEPOOL Participants that is organized and operated pursuant to the terms of this Section 8.1.

8.1.2 Composition. The Participants Committee shall consist of the members and alternates to such members appointed in accordance with Section 8.3.1.

8.1.3 Role. The Participants Committee shall serve in an advisory role to ISO and shall perform those functions on behalf of the NEPOOL Participants and, in relevant instances, the Individual Participants, as set forth in this Agreement, including without limitation the following:

(a) Adopt and approve at each annual meeting a budget for Participant Expenses for the ensuing calendar year, giving due consideration to budgetary requests of each committee, subcommittee, task force or working group, and modifying that budget as necessary from time to time after its adoption;

(b) Enter into contractual arrangements on behalf of the NEPOOL Participants in support of matters relating to their rights and obligations hereunder including, without limitation, the authority to retain counsel and consultants, to procure computer time, and

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to procure through contract, purchase or otherwise access to such facilities and such materials and supplies as may be needed for the Principal Committees and their subcommittees, task forces, working groups and counsel and consultants to perform their respective responsibilities;

(c) Make filings if and as appropriate before and participate on behalf of the NEPOOL Participants in proceedings before the Commission and other Governmental Authorities;

(d) Vote on new Market Rules, Operating Procedures, Manuals, Reliability Standards, Information Policy and changes thereto, and on Installed Capacity Requirements and changes to General Tariff Provisions and Non-TO OATT Provisions, consistent with the procedures set forth in Section 11.1.3;

(e) Establish or approve schedules fixing the amounts to be paid by Governance Participants to permit the recovery of Participant Expenses;

(f) Establish conditions and procedures (i) for addressing applications for Entities to become NEPOOL Participants and (ii) for terminating their NEPOOL Participant status;

(g) Delegate its powers and duties to one or more of the Technical Committees, subcommittees, working groups, task forces or other entity as it sees fit, provided that (i) such delegation is clearly stated and approved by a Participants Committee action, (ii) such delegation does not violate any other provision set forth herein, and (iii) the action of such entity on any matter delegated to it may be appealed by any NEPOOL Participant to the Participants Committee provided such an appeal is taken prior to the end of the fifth business day following the action on that matter(s) so delegated;

(h) Act on any appeals to it of any action by a Technical Committee, or subcommittee, working group, task force or other entity pursuant to delegated authority by the Participants Committee;

(i) Take action to (A) enforce the provisions of this Agreement against ISO and (B) enforce the provisions of the RNA against NEPOOL Participants;

(j) To the extent not otherwise covered under Section 8.1.2(d), and consistent with this Agreement, vote on a matter as submitted by, amend and conduct a vote on a matter submitted by, and/or resubmit a matter for additional comment to, one or more Technical Committees, subject to any limitations otherwise set forth in this Agreement;

(k) Vote on slates of nominees for the ISO Board recommended to it by the Nominating Committee in accordance with Section 13.2.1; and

(l) Provide advice and undertake such other actions as are needed to exercise any other powers and duties as are conferred or imposed upon it by other sections of this Agreement, or for which ISO may seek input and advice.

8.1.4 Officers. At its annual meeting, the Participants Committee shall select from among its members a Chair and one or more Vice-Chairs; the Participants Committee shall also select a Secretary, who shall not be a Governance Participant. These officers shall have the powers and duties usually incident to such offices and as may be established by the Participants Committee.

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8.1.5 Attendance of Governance Participants at Committee Meeting. Each Governance Participant that does not have the right to designate an individual voting member of the Participants Committee, including Individual Participants, shall be entitled to receive notice of (in accordance with the notice provisions in Section 8.3.4 hereof) and to attend any meeting of the Participants Committee or any other Principal Committee, and shall have a reasonable opportunity to express views on any matter to be acted upon at the meeting. Entities that are not Governance Participants may attend or speak at a meeting of a Principal Committee only if and to the extent invited to do so by the Chair.

8.2 Technical Committees.

8.2.1 Standing Committees. The Participants Committee shall oversee the activities of three standing Technical Committees - the Markets Committee, the Reliability Committee and the Transmission Committee. The Participants Committee or any Technical Committee may also form, select the membership and oversee the activities of such other committees, subcommittees, task forces, working groups or other bodies as it shall deem appropriate, to provide advice and recommendations to the Principal Committees and to ISO.

8.2.2 Markets Committee. The Markets Committee shall provide input and advice to ISO and the Participants Committee, and act for the Participants Committee if authority is delegated to it by the Participants Committee, with respect to the following:

(a) The Market Rules, including proposed changes thereto and the impact of the Market Rules and proposed changes thereto on the reliable and efficient operation of the New England Control Area;

(b) Studies of the market implications of maintenance scheduling procedures for the supply and demand-side resources and Transmission Facilities of the Governance Participants and operable capacity margins;

(c) The impact on the operation of the New England Markets of standards, criteria and rules relating to protective equipment, switching, voltage control, load shedding, emergency and restoration procedures, and the operation and maintenance of supply and demand-side resources and Transmission Facilities of the Governance Participants;

(d) Operating Procedures relating to the administration of the New England Markets, including proposed changes thereto;

(e) Manuals;

(f) Information Policy;

(g) GIS Operating Rules, which are the responsibility of the Participants Committee, and any changes, additions, or deletions thereto that are consistent with the goals and intent of the GIS and are reasonably determined to be necessary or appropriate for the continued effectiveness of the GIS, provided that any action of the Markets Committee in this regard shall be subject to appeal to the Participants Committee in accordance with the requirements of Section 8.1.2(h); and

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(h) Such other matters as the Participants Committee may delegate to the Markets Committee or for which ISO may seek input and advice.

8.2.3 Reliability Committee. The Reliability Committee shall provide input and advice to ISO and the Participants Committee with respect to the following:

(a) Consultation with the Planning Advisory Committee established under the Tariff with respect to the development of a regional system plan;

(b) Short-term and long-term load forecasts for use in ISO studies and operations and to meet requirements of regulatory agencies;

(c) The collection and exchange of necessary system data and future plans related to reliability for use in ISO planning and to meet requirements of regulatory agencies;

(d) Coordination of studies of, and provision of information to Governance Participants on, maintenance schedules for the supply and demand-side resources and Transmission Facilities of the Governance Participants;

(e) Based on appropriate studies, the Reliability Standards to assure the reliable operation, and facilitate the efficient operation, of the New England Control Area, the Planning Procedures and those Operating Procedures that guide the implementation of the Reliability Standards;

(f) Review of proposed supply and demand-side resource plans and the proposed transmission and interconnection plans of Governance Participants;

(g) Applications to ISO pursuant to Section 3.9 of Section I of the Tariff;

(h) Procedures for dispatch infrastructure (i.e., voice and data communications protocols, AGC pulsing arrangements, energy management system and system control and data acquisition interfaces, local control center relations, etc.);

(i) Reliability considerations of general System operations (i.e., commitment/decommitment, real time dispatch, review and approval of distribution of reserves, etc.);

(j) Interconnection procedures and documents related to such procedures;

(k) Criteria, guidelines and methodologies to assure consistency in monitoring and assessing conformance of Governance Participants’ and regional transmission plans to accepted reliability criteria;

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(l) To the extent appropriate, conducting and/or reviewing such studies and making such determinations as are assigned to the Reliability Committee pursuant to this Agreement and the Tariff with respect to financial treatment of additions to or upgrades of PTF;

(m) Installed Capacity Requirements; and

(n) Such other matters as the Participants Committee may delegate to the Reliability Committee or for which ISO may seek input and advice.

8.2.4 Transmission Committee. The Transmission Committee shall provide input and advice to ISO, the Participants Committee, and/or the TOs with respect to the following:

(a) Billing procedures for transmission and ancillary services pursuant to the Tariff;

(b) Amendments, additions and other changes to General Tariff Provisions, Non-TO OATT Provisions and related rules;

(c) Proposed amendments of the TOA; and

(d) Such other matters as the Participants Committee may delegate to the Transmission Committee or for which ISO may seek input or advice.

8.2.5 Technical Committee Officers.

(a) ISO shall, after its Chief Executive Officer has conferred with the Participants Committee regarding such appointment(s), appoint the Chair and Secretary of each of the Technical Committees. Each individual appointed by ISO shall be an independent person not affiliated with any Governance Participant. ISO shall seek input from the Technical Committee to which such officer is being appointed on the technical expertise and qualifications needed for such position, and endeavor to appoint a person with such technical expertise and qualifications. Before appointing an individual to the position of Chair or Secretary, ISO shall notify the Technical Committee to which such officer is being appointed of the proposed assignment and, consistent with its personnel practices, provide any other information about the individual reasonably requested by the Technical Committee. Each of the Technical Committees shall elect from among its members a Vice-Chair.

(b) If a Technical Committee determines that the performance of its Chair or Secretary is not satisfactory, the Committee shall provide notice to the Chair of the Participants Committee, identifying perceived performance deficiencies of such officer. The Chair of the Participants Committee shall discuss the performance of such officer with the Chief Executive Officer of ISO, who shall take such action as he or she deems necessary and appropriate based on such discussions. If the perceived officer performance deficiencies continue for thirty (30) days or more after such discussion between the Participants Committee Chair and ISO’s Chief Executive Officer, the Participants Committee Chair may provide notice of the officer performance concerns to the Board of Directors of the ISO. The ISO Board shall meet with the Participants Committee Chair at its next regularly scheduled meeting following the giving of such notice and shall provide to the Participants Committee Chair a written response to address the concerns

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with respect to the Committee officer’s performance not later than five (5) Business Days following such meeting. If the perceived performance deficiencies are with the Chair of a Technical Committee, and a written response is not received from the ISO Board within such five (5) Business Day period, the Vice-Chair shall serve as the acting Chair until such response is received.

8.3 Principal Committee Provisions.

8.3.1 Appointment of Members and Alternates. A NEPOOL Participant or group of NEPOOL Participants shall designate, by a written notice delivered to the Secretary of the appropriate Principal Committee, the voting member appointed by it for the Principal Committee and an alternate of the member. In the absence of the member, the alternate shall have all the powers of the member, including the power to vote.

8.3.2 Term of Members. Each voting member of a Principal Committee shall hold office until (a) such member is replaced by the NEPOOL Participant or group of NEPOOL Participants that appointed the member, or (b) the appointing NEPOOL Participant ceases to be a NEPOOL Participant, or (c) the appointing NEPOOL Participant (or its Related Person) joins a new Sector in accordance with the terms of Section 7.3.3. Replacement of a member shall be effected by delivery by a NEPOOL Participant or group of NEPOOL Participants of written notice of such replacement to the Secretary of the appropriate Principal Committee.

8.3.3 Regular and Special Meetings. Each Principal Committee shall hold an annual meeting at such time and place as the Chair shall designate and shall hold other meetings in accordance with a schedule adopted by the Principal Committee or at the call of the Chair. Five or more voting members of a Principal Committee may call, subject to the notice provisions of Section 8.3.4, a special meeting of the Principal Committee in the event that the Chair fails to schedule such a meeting within three business days following the Chair’s receipt from such members of a request specifying the subject matters to be acted upon at the meeting.

8.3.4 Notice of Meetings. Written or electronic notice of each meeting of a Principal Committee shall be given to each Governance Participant, whether or not such Governance Participant is entitled to appoint an individual voting member of the Principal Committee, not less than three business days prior to the date of the meeting in the case of the Technical Committees and five business days prior to the date of the meeting for the Participants Committee. A notice of meeting shall specify the principal subject matters expected to be presented for consideration at the meeting. In addition, such notice shall include, or specify internet location of, all draft resolutions to be voted at the meeting (which draft resolutions may be subject to amendment of intent but not subject matter during the meeting), and all background materials deemed by the Chair of the Participants Committee and ISO or the Chair or Vice Chair of the Technical Committee to be necessary to the Principal Committee to have an informed opinion on such matters. Principal Committees may not formally consider any motions raised for which no draft resolutions or background materials have been provided for the meeting and shall not formally consider such motions until a subsequent meeting that is properly noticed.

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8.3.5 Attendance. Regular and special meetings may be conducted in person, by telephone, or other electronic means by means of which all persons participating in the meeting can communicate in real time with each other. In order to vote during the course of a meeting, attendance is required in person or by telephone or other real time electronic means by a voting member or its alternate or a duly designated agent who has been given, in writing, the authority to vote for the member on all matters or on specific matters in accordance with Section 8.3.8.

8.3.6 Quorum. All actions by a Principal Committee, other than a vote by the Participants Committee by written ballot to amend this Agreement, shall be taken at a meeting at which the members in attendance pursuant to Section 8.3.5 constitute a Quorum. A Quorum requires the attendance by members that satisfy the Sector Quorum requirements for a majority of the activated Sectors. No action may be taken by a Principal Committee unless a Quorum is present; provided, however, that if a Quorum is not present, the voting members then present shall have the power to adjourn the meeting from time to time until a Quorum shall be present.

8.3.7 Voting by Committees. All matters to be acted upon by a Principal Committee shall be stated in the form of a motion by a voting member, which must be seconded. Only one motion and any one amendment to that motion may be pending at one time. Votes taken for the purpose of providing advisory input to ISO shall be recorded by Sector and/or by individual NEPOOL Participant. Except as otherwise expressly set forth herein, passage of a motion requires a Participant Vote equal to or greater than two-thirds of the aggregate Sector Voting Shares. Voting members not in attendance or represented at a meeting as specified in Section 8.3.5 or abstaining shall not be counted as affirmative or negative votes.

8.3.8 Designated Representatives and Proxies. The vote of any member of a Principal Committee or the member’s alternate, other than a ballot on an amendment to this Agreement, may be cast by another person pursuant to a written, standing designation or proxy; provided, however, that (i) the vote of a member or alternate to that member representing a Small End User may not be cast by a NEPOOL Participant or a Related Person of a NEPOOL Participant in a Sector other than the End User Sector and (ii) the vote of the member or alternate to that member representing an AR Provider which pays less than the lowest amount of Participant Expenses paid by an individual voting NEPOOL Participant in the Generation, Transmission or Supplier Sectors may not be cast by a NEPOOL Participant or a Related Person of a NEPOOL Participant in a Sector other than the AR Sector. A designation or proxy shall be dated not more than one year previous to the meeting and shall be delivered by the member or alternate to the Secretary of the Principal Committee at or prior to any votes being taken at the meeting at which the vote is cast pursuant to such designation or proxy. Subject to Section 8.3.9, a single individual may be the designated representative of or be given the proxy of the voting members representing any number of NEPOOL Participants of any one Sector or NEPOOL Participants from multiple Sectors.

8.3.9 Limits on Representatives. In the End User Sector, no one person may vote on behalf of more than five (5) Small End Users. Except as otherwise provided herein, other Sectors may by unanimous written agreement elect to impose limits on the voting power any one individual may have in that Sector as the designated representative of multiple voting members or the grantee of multiple proxies from voting members of that Sector. Notice of any such limits on voting power must be posted on ISO’s website and must be capable of being accessed by all NEPOOL Participants.

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8.3.10 Adoption of Bylaws. The Participants Committee shall adopt bylaws, consistent with this Agreement, governing procedural matters including the conduct of its meetings and those of the other Principal Committees. If there is any conflict between such bylaws and this Agreement, this Agreement shall control. A Principal Committee may vote to waive its bylaws for a particular meeting, provided the motion to effect the waiver is approved in accordance with Section 8.3.7.

8.3.11 ISO Assistance to NEPOOL and Membership on Principal Committees. ISO shall provide general technical and administrative support to the Principal Committees as contemplated by the ISO budget established therefor. ISO also shall provide such additional technical and administrative support to the Principal Committees, subcommittees, working groups and other entities properly formed by the Principal Committees as is requested by the Participants Committee and agreed to by ISO, which requests for support shall not be unreasonably denied; provided, however, that the costs incurred by ISO in providing such additional support to the extent not otherwise contemplated by the ISO budget shall be paid by Governance Participants as Participant Expenses. ISO shall have the right to appoint a non-voting member and an alternate to each Principal Committee. The member appointed to each committee shall have all of the rights of any other member of the committee except the right to vote.

8.4 Budget & Finance Subcommittee. There shall be a Budget & Finance Subcommittee of the Participants Committee which shall provide input and advice to ISO and the Participants Committee with respect to the following:

(a) ISO’s operating and capital budgets;

(b) ISO’s billing and settlement system;

(c) ISO’s financial assurance policy;

(d) ISO’s billing policy;

(e) Budgets for the Principal Committees; and

(f) Such other matters as the Participants Committee may delegate to the Budget & Finance Subcommittee.

8.5 Advisory Role of Committees to ISO. Except as expressly agreed by NEPOOL and ISO, each of the Principal Committees, including such other committees, subcommittees, task forces, working groups or other bodies as may be formed by it, shall serve only in an advisory role, and shall have no decisional authority with respect to ISO. Notwithstanding the foregoing, the Participants Committee shall have primary decisional authority with respect to the GIS.

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SECTION 9. ORGANIZATION OF ISO

9.1 ISO. On the Operations Date, ISO New England Inc., a Delaware corporation, shall become the RTO for New England.

9.2 Board of Directors of ISO.

9.2.1 Management. The business and affairs of ISO will be managed by the ISO Board.

9.2.2 Board Composition. The ISO Board shall be composed of ten members, nine of whom shall be voting members selected in accordance with Section 13, and the ISO Chief Executive Officer who, by virtue of his office, shall serve as a non-voting member of the ISO Board. On the Operations Date, the ISO Board shall be composed of the ten members of the Board of Directors of ISO New England Inc. The members of the ISO Board shall possess a cross-section of skills and experience (such as, for purposes of illustration but not by way of mandate or limitation, experience in Commission electric regulatory affairs, energy industry management, corporate finance, bulk power systems, human resource administration, power pool operations, public policy, distributed generation or demand response technologies, renewable energy, consumer advocacy, environmental affairs, business management and information technologies), to ensure that ISO has sufficient knowledge and expertise to act as the RTO for New England. At least three of the directors shall have prior relevant experience in the electric industry. In addition, to ensure sensitivity to regional concerns, strong preference shall be given to electing members from New England to the extent qualified candidates are available and such representation can be accomplished consistent with ISO’s Code of Conduct, which is described in Section 9.3.1.

9.2.3 Terms of Directors.

(a) Voting directors will serve staggered, three-year terms and will be subject to (i) an age limitation prohibiting the election or re-election of any such director unless such director is age seventy (70) or less at the time of such election or re-election, and (ii) a term limit of three consecutive three-year terms, which term limit may be waived by the Nominating Committee. Service as a director of ISO New England Inc. prior to the Operations Date shall be included in the calculation of the term limits.

(b) Notwithstanding clause 9.2.3(a)(ii) and any waiver by the Nominating Committee pursuant thereto, the ISO Board shall have the right to designate, in the aggregate, no more than two voting directors who may serve four, rather than three, consecutive three-year terms.

(c) Except for directors removed from office, directors shall serve until their successors are duly elected and qualified.

9.3 Conflict of Interest Policy.

9.3.1 Code of Conduct. To ensure the independence of ISO, ISO shall adopt and enforce a Code of Conduct, which will comply with the requirements of the Commission. No director of ISO shall be affiliated with any Governance Participant in the New England Control Area in violation of the Code of Conduct.

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9.3.2 No Financial Interest. ISO as a corporate entity shall not have any financial interest in the economic performance of any Governance Participant or other market participant in the New England Control Area or any Related Person of either, nor shall it engage in any transactions, directly or indirectly, for its own account in the New England Markets. Notwithstanding the foregoing provision, ISO shall be permitted to purchase electricity, power and energy as a retail customer for its own account and consumption.

9.4 Market Monitoring.

9.4.1 Market Monitoring and Mitigation. ISO’s responsibility to administer the New England Markets pursuant to the Tariff, the Operating Procedures and the Manuals also includes market monitoring and market power mitigation pursuant to Order 2000, the Commission’s regulations thereunder and the Market Rules.

9.4.2 Market Monitoring Framework. Until changed in accordance with a Commission order, ISO will continue to fulfill its market monitoring and market power mitigation functions through an internal market monitoring unit (the “INTMMU”) reporting to the ISO Chief Executive Officer and the ISO Board and by contracting with an independent market monitoring unit (the “IMMU”) selected by and reporting to the ISO Board.

9.4.3 Functions of the IMMU. The contract between ISO and the IMMU shall provide for the following IMMU functions:

(a) Review the competitiveness of the New England Markets, the impact that the Market Rules and/or changes to the Market Rules will have on the New England Markets and the impact that ISO’s actions have had on the New England Markets. In the event that the IMMU uncovers problems with the New England Markets, the IMMU shall promptly inform the Commission, ISO Board, state public utility commissions for each of the six New England states, and the Governance Participants of its findings, provided that in the case of Governance Participants and the public utility commissions, information in such findings shall be redacted as necessary to comply with the Information Policy.

(b) Perform independent evaluations and prepare annual and ad hoc reports on the overall competitiveness and efficiency of the New England Markets or particular aspects of the New England Markets, including the adequacy of Market Monitoring and Mitigation Plan. The IMMU shall have the sole discretion to determine whether and when to prepare ad hoc reports and may prepare such reports on its own initiative or pursuant to requests by ISO, state public utility commissions or one or more Governance Participants. Final versions of such reports shall be disseminated contemporaneously to the Commission, the ISO Board, the Governance Participants, and state public utility commissions for each of the six New England states, provided that in the case of the Governance Participants and public utility commissions, such information shall be redacted as necessary to comply with the Information Policy. Such reports shall, at a minimum, include:

(i) Review and assessment of the practices, Market Rules, procedures, protocols and other activities of ISO insofar as such activities, and the manner in which ISO implements such activities, affect the competitiveness and efficiency of New England Markets.

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(ii) Review and assessment of the practices, procedures, protocols and other activities of any ITC or ITCs, transmission provider or similar entity insofar as its activities affect the competitiveness and efficiency of the New England Markets.

(iii) Review and assessment of the activities of Governance Participants insofar as these activities affect the competitiveness and efficiency of the New England Markets.

(iv) Review and assessment of the effectiveness of the Market Monitoring and Mitigation Plan and the administration of the Market Monitoring and Mitigation Plan by the INTMMU for consistency and compliance with the terms of the Market Monitoring and Mitigation Plan.

(v) Review and assessment of the relationship of the New England Markets with any ITC or ITCs and with adjacent markets.

The IMMU in its sole discretion may decide whether and to what extent to share drafts of any report or portions thereof with the Commission, ISO, one or more state public utility commission(s) in New England or Governance Participants for input and verification before the report is finalized. The IMMU shall keep the Governance Participants informed of the progress of any report being prepared pursuant to the terms of this Agreement.

(c) Conduct evaluations and prepare reports on its own initiative or at the request of others.

(d) Prepare recommendations to the ISO Board and the Governance Participants on how to improve the overall competitiveness and efficiency of the New England Markets or particular aspects of the New England Markets, including improvements to the Market Monitoring and Mitigation Plan.

(e) Recommend actions to the ISO Board and the Governance Participants to increase liquidity and efficient trade between regions and improve the efficiency of the New England Markets.

(f) Review ISO’s filings with the Commission from the standpoint of the effects of any such filing on the competitiveness and efficiency of the New England Markets. The IMMU will have the opportunity to comment on any filings under development by ISO during the Participant Processes and may file comments with the Commission when the filings are made by ISO. The subject of any such comments will be the IMMU’s assessment of the effects of any proposed filing on the competitiveness and efficiency of the New England Markets, or the effectiveness of the Market Monitoring and Mitigation Plan, as appropriate.

(g) Provide information to be directly included in the monthly market updates that are provided at the meetings of the Participants Committee.

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(h) If and when established, participate in a committee of regional market monitors to review issues associated with interregional transactions, including any barriers to efficient trade and competition.

9.4.4 Functions of the INTMMU. The INTMMU shall have the following functions:

(a) Develop and maintain the Market Monitoring and Mitigation Plan. The INTMMU will consider whether the Market Monitoring and Mitigation Plan requires amendment as of the Operations Date. The amendments and any other changes to the Market Monitoring and Mitigation Plan deemed to be necessary by the INTMMU shall be undertaken after consultation with Governance Participants in accordance with Section 11.

(b) Day-to-day, real-time review of market behavior and implement its functions as delineated in the Market Monitoring and Mitigation Plan.

(c) Consult with the IMMU, as needed, with respect to implementing and applying the Market Monitoring and Mitigation Plan.

(d) Refer market concerns to the ISO Board and/or the IMMU for their consideration.

(e) Make recommendations concerning changes to improve the competitiveness and efficiency of the New England Markets or particular aspects of the New England Markets.

(f) Provide support and information to the ISO Board and the IMMU.

(g) Produce weekly, quarterly and annual reports regarding the New England Markets.

(h) Be primarily responsible for interaction with external Control Areas, the Commission, other regulators and Governance Participants with respect to the Market Monitoring and Mitigation Plan.

9.4.5 Filing of IMMU Contract. ISO shall file its contract with the IMMU with the Commission. In order to facilitate the performance of the IMMU’s functions, ISO’s contract with the IMMU shall provide for reasonable access by the IMMU to ISO data and personnel, including ISO management responsible for market monitoring, operations and billing and settlement functions. Any proposed termination of the contract with the IMMU or modification of, or other limitation on, the IMMU’s scope of work shall be subject to prior Commission approval. The contract shall prohibit the IMMU (i) from providing any consulting services to the Governance Participants or any services to ISO that are unrelated to the IMMU’s functions under the contract to ISO, provided that this prohibition shall not limit in any way the ability of the IMMU to prepare and file testimony or work on improvements to the New England Markets or (ii) from providing consulting services to any Governance Participant. The contract will also contain restrictions comparable to those on independent auditors (e.g., prohibiting any other business relationship with ISO or any Governance Participant).

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9.4.6 IMMU Budget. The IMMU budget will be separately identified, included and considered in the overall ISO budget process set forth in Section 12.

SECTION 10. INTERACTION OF GOVERNANCE PARTICIPANTS AND ISO

10.1 Participant Processes. The Participant Processes are intended to facilitate a collaborative process between the Governance Participants and ISO to assist ISO in fulfilling its responsibilities as the RTO for New England. The Participant Processes are intended to (i) provide the Governance Participants with timely and adequate opportunities to provide input and present their views to ISO on issues and to make recommendations to ISO and the ISO Board and (ii) describe how ISO shall receive, consider, and respond to input, review and recommendations from the Governance Participants.

10.2 Interaction with Board. To assist in meaningful communications between the Governance Participants and ISO, the Parties shall follow the following processes and procedures:

10.2.1 Participants Committee Meetings. Board members are welcome to attend meetings of the Participants Committee and it is expected that ISO’s Chief Executive Officer will generally attend each Participants Committee meeting; provided that one or more members of the ISO Board will attend a meeting of the Participants Committee upon reasonable request of the Participants Committee. If a member of the ISO Board attends a Participants Committee meeting, that member shall, at the next scheduled ISO Board meeting after such Participants Committee meeting, report to the entire ISO Board the issues raised and other discussions held at the Participants Committee meeting.

10.2.2 Dates of Board Meetings. The Governance Participants and ISO shall coordinate the dates of regularly scheduled meetings to the extent reasonably possible so that meetings of the Participants Committee are held within a reasonable period of time before regularly scheduled Board meetings.

10.2.3 Meeting Agenda. Before each Participants Committee meeting, ISO shall use its best efforts to make available on its website or by other means of distribution to Governance Participants an agenda for the next scheduled ISO Board meeting identifying those matters presented for Governance Participant consideration in accordance with Section 11 which the ISO Board is expected to consider and act upon at its meeting.

10.2.4 Report of Board Action. After each ISO Board meeting, the Chief Executive Officer of ISO shall report to Governance Participants, by posting on ISO’s website or otherwise, all actions related to Market Rules or Tariff issues taken by the ISO Board.

10.2.5 Governance Participant Submission of Documents to the ISO Board. In advance of an ISO Board meeting, the ISO Board shall accept written materials from Governance Participants regarding an agenda item. ISO shall promptly make such written materials available on its website. Such written materials must be submitted in accordance with reasonable parameters established by ISO, which parameters shall be posted on the ISO website. These parameters shall establish time frames for the submission of documents (i.e., sufficiently in advance of the ISO Board meetings so that they can be synopsized and distributed to the ISO Board).

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10.2.6 Periodic Meetings with Governance Participants. At least twice a year, the ISO Board shall meet with the Governance Participants. The agenda for such meetings shall be established by ISO in consultation with the Chair and Vice-Chairs of the Participants Committee. When practicable, the meetings shall be scheduled in conjunction with a Participants Committee or ISO Board meeting (e.g., the day before or the day of a Participants Committee or ISO Board meeting).

10.2.7 Other Meetings with Governance Participants. As mutually agreed, representatives of the ISO Board shall meet with Participants Committee officers and/or representative groups of Governance Participants on an “as needed” basis. The ISO Board, at its sole discretion, may invite one or more representatives of Governance Participants to join a meeting of the ISO Board or a committee thereof, and may accept requests from Governance Participants to meet with ISO Board committees, provided that the ISO Board or committee shall notify all Governance Participants of such meeting, and provided further that the ISO Board or committee shall invite representatives of all other Governance Participants to that or another meeting.

10.3 Amendments to the TOA. ISO shall notify the Governance Participants of the commencement of negotiations between ISO and the Participating Transmission Owners regarding any material amendment of the TOA.

10.4 Reserved Rights of Governance Participants.

10.4.1 Communications with ISO. Except for communications with the ISO Board which are covered by Section 10.2, nothing in this Agreement is intended to limit a Governance Participant’s right to notify ISO in writing and with specificity of any market design or Market Rule and/or administration by ISO thereof that is adversely affecting the Governance Participant.

10.4.2 Communications with IMMU. Nothing in this Agreement is intended to limit a Governance Participant’s right to request the IMMU to report whether the current market design/rules support efficient and competitive outcomes. If the IMMU determines that the Market Rules do not support competitive outcomes, the IMMU may recommend changes to ISO that will address the problem.

10.4.3 Section 206 Filings. Nothing in this Agreement is intended to limit a Governance Participant’s rights pursuant to Section 206 of the Federal Power Act.

SECTION 11. CHANGES TO MARKET RULES, OPERATING PROCEDURES, MANUALS, RELIABILITY STANDARDS, INFORMATION POLICY, INSTALLED CAPACITY REQUIREMENTS, GENERAL TARIFF PROVISIONS, AND NON-TO OATT PROVISIONS

11.1 General Provisions (Absent Exigent Circumstances). ISO shall be required and Governance Participants shall have the opportunity, but not the obligation, in response to an ISO proposal or independent of any ISO proposal (with or without initial ISO

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support for a Governance Participant proposal), to present proposals for changes to Market Rules, Operating Procedures, Manuals, Reliability Standards, General Tariff Provisions, or Non-TO OATT Provisions for Governance Participant consideration and NEPOOL Participant vote in accordance with the following procedures set forth in this Section 11.

11.1.1 Notice Preceding Proposed Changes to Market Rules. Absent Exigent Circumstances, before making any proposal to revise the Market Rules to change the design of the New England Markets or substantially affect the operation of the New England Markets or prices thereunder, ISO shall provide notice to the Governance Participants, through a market planning process or otherwise, of issues potentially requiring such revisions, and shall consult with and receive feedback from the Governance Participants concerning the relative priority and alternative means to address those issues.

11.1.2 Technical Committee Review. Absent Exigent Circumstances, every ISO proposal and each Governance Participant proposal proposing a change to the Market Rules, Operating Procedures, Manuals, Reliability Standards, General Tariff Provisions, or Non-TO OATT Provisions shall be presented by ISO or such Governance Participant, as appropriate (the “Proponent”), to the appropriate Technical Committee(s) for consideration and an advisory vote. The Technical Committee, at its next regular meeting following the one in which the initial presentation by the Proponent is made (which shall be no later than thirty-five (35) days after any proposal is made) shall: (i) by motion and Participant Vote of at least 66 ²/3%, defer action on any proposal presented if it reasonably determines that additional information should and could be provided to more adequately inform the members of such Technical Committee before a vote on the merits is taken, or (ii) conduct an advisory vote on (A) the merits of the proposal as it may be amended by the Proponent or by a Participant Vote of at least 60% for any proposed Market Rule change and 66 ²/3% for any other proposed change, and (B) if any ISO proposal is modified in a way that ISO does not support, the ISO’s proposal and any changes thereto ISO finds acceptable. Any deferral shall generally be until the next regularly scheduled meeting, at which time the Proponent may move for a vote upon its proposal; provided, however, that such deferral shall be for no more than thirty-five (35) days from the vote to defer. At that time, the Technical Committee shall: (x) take an advisory vote on (A) the merits of the proposal as it may be amended by the Proponent or by a Participant Vote of at least 60% for any proposed Market Rule change and 66 ²/3% for any other proposed change, and (B) if any ISO proposal is modified in a way that ISO does not support, the ISO’s proposal and any changes thereto ISO finds acceptable; or (y) vote to oppose a proposal on the grounds that sufficient information has still not been provided, but may not defer consideration of the proposal for any further period without the consent of the Proponent. Failure of the Technical Committee to vote within the time frames set forth in this paragraph shall advance the process to the next step.

11.1.3 Participants Committee Review. Absent Exigent Circumstances, after the fulfillment of the procedures outlined in Section 11.1.2, every ISO proposal and each Governance Participant proposal to change a Market Rule, Operating Procedure, Manual, Reliability Standard, Installed Capacity Requirement, General Tariff Provision, or Non-TO OATT Provision shall be promptly presented to the Participants Committee, along with a report of any advisory vote or other action taken by any Technical Committee(s) or failure to act within the prescribed time frames outlined herein. Such proposal shall be considered by the Participants

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Committee no later than the first regularly scheduled meeting following the submission of such proposal (which meeting shall be held within thirty-five (35) days of the submission of the proposal); provided that such proposal is submitted with sufficient time to permit proper notice in accordance with Section 8.3.4. The Participants Committee shall: (i) by motion and vote defer action on any proposal if it reasonably determines that the proposal presented is materially different from the proposal presented to the Technical Committee and was not voted on by the Technical Committee, or (ii) vote on (A) the merits of the proposal as it may be amended by the Proponent or by a Participant Vote of at least 60% for any proposed Market Rule change and 66 ²/3% for any other proposed change, and (B) if any ISO proposal is modified in a way that ISO does not support, the ISO’s proposal and any changes thereto ISO finds acceptable. Any deferral shall result in a repeat of the processes outlined above. Notwithstanding the foregoing, the Participants Committee may, at its discretion, consider and vote upon any proposal submitted to it and such a vote shall have the same effect as if the proposal had first been voted upon by a Technical Committee. The Participants Committee may not defer a vote on any item that has been voted on by a Technical Committee and presented to the Participants Committee for a vote unless the Proponent consents to such deferral.

11.1.4 Termination of Governance Participant Proceedings. A vote by the Participants Committee on the merits of any proposal terminates the Participant Processes absent voluntary resubmission of the same or a modified proposal by the Proponent at a future time. A failure by the Participants Committee to vote within the time frames outlined above also terminates the Participant Processes absent voluntary resubmission of the same or a modified proposal by the Proponent at a future time. ISO shall report to the ISO Board and in any relevant filing made by ISO with the Commission the results of any Participants Committee vote or the Participants Committee’s failure to act within the prescribed time frames. Any ISO proposal that has completed the processes in Sections 11.1.2 through 11.1.4 above may be filed by ISO with the Commission under Section 205 of the Federal Power Act or implemented by ISO without filing if no filing is required. Any Governance Participant-sponsored proposal that has completed the processes in Sections 11.1.2 through 11.1.4 and received a Participant Vote of at least 66 ²/3% shall be submitted by ISO to the ISO Board for consideration. If the proposal is not approved or rejected by ISO within 45 days of the Participants Committee’s vote, ISO consideration thereof shall be deemed to be complete.

11.1.5 Alternative Committee Market Rule Proposal. If the Participants Committee vote relating to an ISO Market Rule proposal results in the approval by the Participants Committee by a Participants Vote equal to or greater than 60% of a Market Rule proposal that is different from the one proposed by ISO, including, but not limited to, a Governance Participant proposal, ISO shall, as part of any required Section 205 filing, describe the alternate Market Rule proposal in detail sufficient to permit reasonable review by the Commission, explain ISO’s reasons for not adopting the proposal, and provide an explanation as to why ISO believes its own proposal is superior to the proposal approved by the Participants Committee. The Commission will not be required to consider whether the then-existing filed rate is unlawful, and may adopt any or all of ISO’s Market Rule proposal or the alternate Market Rule proposal as it finds, in its discretion, to be just and reasonable and preferable.

11.2 Exigent Circumstances. In Exigent Circumstances, ISO may unilaterally, upon written notice to the Participants Committee and Individual Participants, file with the Commission pursuant to Section 205, if necessary, and implement a new or amended

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Market Rule, Operating Procedure, Manual, Reliability Standard, provision of the Information Policy (subject to 11.3), General Tariff Provision, or Non-TO OATT Provision. Notwithstanding the generality of the foregoing, any change in the Information Policy shall be effective prospectively only and only for information received after such change becomes effective.

11.3 Changes to Information Policy. All of the processes described in Sections 11.1.2 and 11.1.3 for Governance Participants’ consideration of proposed changes in Market Rules shall be followed for consideration of any proposed changes to the Information Policy, and any changes to the Information Policy must then be presented to the Participants Committee for a vote. ISO shall file the Information Policy and any changes thereto with the Commission pursuant to Section 205 of the Federal Power Act. No change to the Information Policy shall become effective unless and until it is first accepted or approved by the Commission. In no event shall any change in the Information Policy that is not approved by the Participants Committee apply retroactively or apply to confidential information under the Information Policy that was furnished to ISO before such change becomes effective.

11.4 Installed Capacity Requirements. ISO shall, in its discretion, determine and file with the Commission pursuant to Section 205 of the Federal Power Act the Installed Capacity Requirements for each Power Year. ISO shall present Installed Capacity Requirements for each Power Year toGovernance Participants pursuant to the processes described in Sections 11.1.2 and 11.1.3 for consideration of proposed changes in Market Rules, and the Participants Committee shall take an advisory vote on the proposed Installed Capacity Requirements for any Power Year. ISO’s filing with the Commission of the Installed Capacity Requirements shall report on the advisory vote of the Participants Committee.

11.5 Compliance Filings. No provision of this Section 11 is intended to or shall restrict ISO’s right to make any compliance filing with the Commission within the time frame required by the Commission for such compliance filing. If the time required for such compliance filing does not permit ISO to undertake the entire stakeholder process contemplated by this Section 11, ISO will consult with the Chair or Vice Chair of the Participants Committee or the Vice Chair of the appropriate Technical Committee on appropriate procedures for receiving Governance Participant input under the circumstances.

11.6 NEPOOL Review Board. If the Review Board created pursuant to the RNA grants an appeal of a NEPOOL Participant and makes a recommendation on how to address the subject matter of the appeal, ISO shall respond in writing to any such recommendation within ten (10) business days after it has been issued to ISO by the Review Board. Nothing in this Section 11.6 shall be deemed to require ISO to delay making a filing or require the Commission to delay deciding any matter because an appeal is pending before the Review Board. The Review Board shall not have the right to review or otherwise participate in actions of ISO or to take any action with respect to any matter involving a dispute between ISO and NEPOOL or any Governance Participant.

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SECTION 12. ISO BUDGET

12.1 Preparation of Budget. No later than one hundred twenty (120) days before the start of each Operating Year, ISO shall prepare and submit to the Budget & Finance Subcommittee for comment a proposed budget for the upcoming Operating Year. The budget shall contain separate sections for ISO’s (a) operating expenses, (b) proposed capital expenses, if any, and (c) other extraordinary nonrecurring expenses, if any. To the extent that any proposed capital or other extraordinary expenses involve commitments which extend beyond the next Operating Year, the budget shall contain the projected expenses, including carrying charges for the length of the project.

12.2 Participants Committee Review. After taking into consideration the comments of the Budget & Finance Subcommittee, ISO shall submit the budget to the Participants Committee and the Individual Participants, which shall consider the proposed budget no later than seventy-five (75) days before the start of the Operating Year.

12.3 Participant Votes. ISO shall report the results of all Participants Committee votes, if any, on the ISO budget to the ISO Board.

12.4 ISO Authority. The ISO Board shall have the sole authority to approve the final ISO budget.

12.5 Filing of Budget. No later than sixty (60) days before the start of each Operating Year, ISO shall file rates reflecting the final ISO budget with the Commission and shall report the results of all Participants Committee votes on the ISO budget to the Commission. If the Participants Committee does not recommend to the ISO Board to approve all or a part of ISO’s proposed budget, ISO shall request that the Commission expedite its review of the filing and shall provide with its filing such factual and other information available to ISO as is necessary to permit the Commission to address expeditiously those issues that were raised during the Participants Committee meeting at which ISO’s proposed budget was considered and were identified by the Governance Participants and recorded by the Secretary of the Committee in the final minutes of that Participants Committee meeting as reasons for opposing such budget.

SECTION 13. NOMINATION AND ELECTION OF ISO DIRECTORS

13.1 Nomination of Voting ISO Directors.

13.1.1 Nomination of Voting Directors. All nominees for election or re-election as a voting director of the ISO Board shall be nominated by the Nominating Committee. The nomination process shall take place sufficiently in advance of the ISO Board’s annual meeting.

13.1.2 Composition of Nominating Committee. The composition of the Nominating Committee shall be as follows: (i) up to seven (7) members of the ISO Board, none of whom can be incumbent directors standing for re-election to the Board; (ii) up to six (6) representatives of the NEPOOL Participants; and (iii) one (1) representative of NECPUC; provided that, if there are less than five (5) voting members in the AR Sector, the number of representatives of the ISO Board and of the NEPOOL Participants shall each be reduced by one (1). Of the NEPOOL Participant representatives, (x) all such representatives shall be officers of the Participants

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Committee or their designees; (y) such representatives shall not include more than one (1) representative from any Sector; and (z) all designees of the officers of the Participants Committee shall meet certain criteria designated by the ISO Board’s representatives on the Nominating Committee and the officers of the Participants Committee. The Chair of the Nominating Committee shall be one of the incumbent members of the ISO Board.

13.1.3 Input from Governance Participants. The Nominating Committee will solicit input from Governance Participants and regulators on the types of expertise (such as, for purposes of illustration but not by way of mandate or limitation, experience in Commission electric regulatory affairs, energy industry management, corporate finance, bulk power systems, human resource administration, power pool operations, public policy, distributed generation or demand response technologies, renewable energy, consumer advocacy, environmental affairs, business management and information technologies) needed to ensure that ISO has sufficient knowledge and expertise to act as the RTO for New England.

13.1.4 Search for Candidates. The Nominating Committee shall engage a nationally recognized executive search firm to identify candidates to fill any vacancies for voting directors on the ISO Board. The Nominating Committee may choose a subset of the full Committee to interview candidates to fill vacancies.

13.1.5 Nominating Process. The Nominating Committee shall develop a slate of candidates for election as voting directors to the ISO Board composed of (i) incumbent ISO Board members whose term is expiring and who have been identified by the ISO Board for reelection and (ii) candidates to fill vacancies, if any, with assistance from the executive search firm engaged pursuant to Section 13.1.4. The slate shall be selected by a consensus of the Nominating Committee. The Nominating Committee shall present the slate of candidates for election or re-election to the Participants Committee for a vote on such slate at the Participants Committee’s next scheduled meeting.

13.2 Election of Directors.

13.2.1 NEPOOL Participant Vote. Following the nomination of the slate by the Nominating Committee, such slate shall be submitted to the Participants Committee for vote. A vote of 70% of the aggregate Sector Voting Shares shall be required for Participants Committee endorsement of the slate. If the Participants Committee endorses the slate, the Nominating Committee shall present such slate to the ISO Board, or a Committee thereof, for a final vote at the next regularly scheduled meeting of the ISO Board.

13.2.2 Failure of Endorsement. If the Participants Committee does not endorse the initial slate, the Nominating Committee shall consider feedback from NECPUC, the ISO Board, Individual Participants and the Participants Committee. The Nominating Committee shall then repeat the process set forth in Sections 13.1.5 and 13.2.1, with the presentation of the second slate to occur at the next regularly scheduled Participants Committee meeting held after the vote rejecting the initial slate; provided that the Nominating Committee shall, in the second slate, substitute a new nominee for at least one of the nominees included in the initial slate without regard to whether such initial nominee was an incumbent included on the initial slate pursuant to clause (i) of Section 13.1.5. If the Participants Committee does not endorse either slate, then the Nominating Committee shall present to the ISO Board, or a Committee thereof, for a final vote one of the two slates presented to the Participants Committee.

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13.2.3 Rejection of Slate by ISO Board. If the ISO Board, acting as the members of ISO, fails to elect a slate presented to it pursuant to Section 13.2.1 or Section 13.2.2, the processes outlined in Section 13.1.5 and this Section 13.2 shall be repeated, provided that (i) the Nominating Committee shall present the next slate for a final vote at the next regularly scheduled ISO Board meeting, and (ii) the Nominating Committee shall have no obligation to include or exclude any nominee from a previous slate.

13.2.4 Failure to Present a Slate to the ISO Board. Notwithstanding any other provision of this Agreement, if the Participants Committee fails to present a slate of nominees to the ISO Board prior to the annual meeting of members of ISO held for purpose of electing directors, the ISO Board, acting as members of ISO, will nominate and elect the directors of ISO at the annual meeting. ISO will advise the Participants Committee on or prior to its first regular meeting of each calendar year of the date of the annual meeting of members of ISO.

SECTION 14. FINANCIAL OBLIGATIONS OF GOVERNANCE PARTICIPANTS

14.1 Billing and Collection Agent. NEPOOL hereby appoints ISO, and ISO agrees to act, as billing and collection agent for NEPOOL in respect of Participants Expenses to be collected from Governance Participants pursuant to the terms of the RNA and this Agreement.

14.2 NEPOOL Participants. Pursuant to the terms of the RNA, NEPOOL shall calculate, and each NEPOOL Participant shall be obligated to pay, for the relevant portion of the calendar year in which the Entity initially becomes a NEPOOL Participant and in January of each subsequent calendar year (i) an annual fee which shall be applied toward Participants Expenses, and (ii) the NEPOOL Participant’s share of the remaining Participant Expenses. These sums shall be collected by ISO pursuant to the terms of Section 14.1 above.

14.3 Individual Participants. ISO shall calculate, and each Individual Participant shall be obligated to pay, for the relevant portion of the calendar year in which the Entity initially becomes an Individual Participant and in January of each subsequent calendar year (i) an annual fee which shall be applied toward Participants Expenses, and (ii) the Individual Participant’s share of the remaining Participant Expenses; provided that an Individual Participant and Related Persons of an Individual Participant will in the aggregate pay only the amount they would otherwise be required to pay if all the Related Persons were NEPOOL Participants (i.e., only one total expense share in the aggregate). For purposes of determining an Individual Participant’s annual fee and share of the Participant Expenses, each Individual Participant will be deemed to be a member of an appropriate Sector, as determined by ISO in consultation with the officers of the Participants Committee.

SECTION 15. ANNUAL REPORTS AND PERFORMANCE AUDITS

15.1 Performance Audits. At the request of the Participants Committee, ISO shall engage an independent third party to be chosen by mutual agreement of ISO and the Participants Committee to conduct a periodic audit of ISO’s performance and shall cooperate fully in the conduct of such audits. Such audits shall be conducted at such intervals as shall be determined by the

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Participants Committee, but no more frequently than every three years unless a specified issue has been identified for audit by the Participants Committee and ISO. The report resulting from this audit shall be submitted to the ISO Board. The ISO Board will share such report with the Participants Committee.

15.2 Response to Audit Recommendations. ISO shall respond in writing to any recommendations from a performance audit and shall include periodic reports regarding the status of any uncompleted commitments in response to such recommendations. Such responses and reports shall be shared with the Participants Committee.

15.3 Performance Measurements. If and to the extent the Commission establishes standards to measure the performance of RTOs and/or independent system operators, ISO shall provide the Participants Committee and Individual Participants with reports of its performance against those standards. In addition, ISO shall identify in writing any action it plans to take in response to its measured performance relative to those standards and shall include in its periodic reports the status of any uncompleted commitments so identified.

SECTION 16. FINANCIAL STATEMENTS

16.1 Provision of Financial Statements. To the extent not made publicly available by ISO, ISO shall make available to each Governance Participant: (a) quarterly unaudited financial statements within sixty (60) days after the end of each quarter, and (b) annual audited financial statements within one hundred twenty (120) days after the end of each fiscal year. In each instance, the financial statements made available by ISO pursuant to (a) and (b) above shall be prepared in accordance with GAAP and shall be true and correct in all material respects.

16.2 Other Publicly Available Documents. If financial statements, permit applications or any other filing with any Governmental Authority are publicly available, ISO shall, upon request by a Governance Participant, provide such Governance Participant information sufficient to allow such Governance Participant to locate such documents, including the date and place of the filing of the relevant documents.

SECTION 17. MISCELLANEOUS

17.1 Confidentiality. The Parties shall comply with the requirements of the Information Policy with respect to any proprietary or confidential information received from or about any Governance Participant or ISO, and, through the terms of the RNA, NEPOOL shall require the NEPOOL Participants to comply with the requirements of the Information Policy with respect to any proprietary or confidential information received from or about any Governance Participant or ISO.

17.2 Amendments.

17.2.1 Amendments in Writing; Exceptions. Except as otherwise provided for in this Section 17.2.1, this Agreement may be amended only in writing and as agreed to by ISO and the Governance Participants, provided that additional Entities may become Governance Participants without any amendment to this Agreement or any consent or approval of the Governance Participants.

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17.2.2 Categorization of Amendments. Any amendment of this Agreement to cure any ambiguity or correct or supplement any defective provision or to make any other change that does not affect the rights or obligations of any Governance Participant shall be authorized on behalf of the Parties to this Agreement other than ISO by the unanimous approval of the Chair and Vice-Chairs of the Participants Committee. All other amendments shall require a vote as set forth in Section 17.2.3.

17.2.3 Voting on Amendments to this Agreement. A Participants Committee vote to amend this Agreement pursuant to Section 17.2.3 shall be accomplished as follows:

(a) Amendments proposed by ISO, a Principal Committee or ad hoc committee, or a Governance Participant shall be sent to the Participants Committee for its consideration.

(b) The Balloting Agent shall circulate ballots for amendments that are both agreeable to ISO and directed by the Participants Committee for balloting to each Governance Participant for execution by its voting member or alternate on the Participants Committee or such Governance Participant’s duly authorized representative.

(c) Solely for purposes of this Section 17.2, the Individual Participants shall have a vote on the Participants Committee. Such vote shall be calculated as if each Individual Participant belonged to the Sector in accordance with which its portion of the Participant Expenses is assessed.

(d) In order to be counted, ballots must be executed and returned to the Balloting Agent in accordance with the following schedule:

(i) If the ballots are delivered to each Governance Participant by regular mail, properly executed ballots must be returned to and received by the Balloting Agent within ten (10) business days after deposit of such ballots in the mail by the Balloting Agent.

(ii) If the ballots are delivered to each Governance Participant by overnight delivery, facsimile, electronic mail or hand delivery, then properly executed ballots must be returned to and received by the Balloting Agent within five (5) business days after (A) deposit of such ballots with an overnight delivery courier if delivered by overnight delivery, or (B) transmission of such ballots by the Balloting Agent if delivered by facsimile or electronic mail, or (C) receipt by the Governance Participant if delivered by hand delivery.

(iii) If the Minimum Response Requirement for an amendment has not been received by the Balloting Agent within the schedule identified in subsections (i) or (ii) above, the Balloting Agent shall send notice by overnight delivery, facsimile, electronic mail or hand delivery to all non-responding Governance Participants and shall count any additional properly executed ballots which it receives within five (5) business days after such notice. The date by which properly executed ballots must be returned and received by the Balloting Agent shall be specified by the Balloting Agent in the notice accompanying such ballots.

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(e) In order for a proposed amendment to this Agreement to be approved by the Participants Committee, the Minimum Response Requirement must be satisfied with respect to the proposed amendment, and the affirmative ballot votes with respect to the proposed amendment must equal or exceed 70% of the Participant Vote.

17.2.4 Binding Effect of Amendments. Any amendment of this Agreement pursuant to this Section 17.2 shall bind all Governance Participants regardless of whether they have executed a ballot in favor of such amendment, on the date specified in the amendment, subject to acceptance or approval by the Commission. Nothing herein shall be construed to prevent any Governance Participant from challenging any proposed amendment before the Commission on the grounds that the proposed amendment or its application to the Governance Participants is in violation of the Federal Power Act or of the Agreement.

17.3 Dispute Resolution. The Parties agree that any dispute arising under this Agreement shall be the subject of good-faith negotiations among the affected Parties and that each affected Party shall designate one or more representatives with the authority to negotiate the matter in dispute to participate in such negotiations. If the dispute involves NEPOOL, NEPOOL’s designated representative shall be the Chair of the Participants Committee. The Parties shall engage in such good-faith negotiations for a period of not less than sixty (60) calendar days, unless: (a) a Party identifies exigent circumstances reasonably requiring expedited resolution of the dispute by the Commission; or (b) the provisions of this Agreement otherwise provide a Party the right to submit a dispute directly to the Commission for resolution. Any other dispute that is not resolved through good-faith negotiations may be submitted by any Party for resolution to the Commission upon the conclusion of such negotiations. Any Party may request that any dispute submitted to the Commission for resolution be subject to the Commission’s settlement procedures.

17.4 Disclaimer of Liabilities/Force Majeure.

17.4.1 Disclaimer of Liabilities. The limitation of liability provisions of Section I of the Tariff are hereby incorporated by reference.

17.4.2 Force Majeure. A Party shall not be considered to be in default or breach under this Agreement, and shall be excused from performance or liability for damages to any other Party, if and to the extent it shall be delayed in or prevented from performing or carrying out any of the provisions of this Agreement, except the obligation to pay any amount when due, in consequence of any act of God, labor disturbance, failure of contractors or suppliers of materials (not including as a result of non-payment), act of the public enemy, terrorist, war, invasion, insurrection, riot, fire, storm, flood, ice, explosion, breakage or accident to machinery or equipment (not by reason of negligence) or by any other cause or causes (not including a lack of funds or other financial causes) beyond such Party’s reasonable control, including any order, regulation, or restriction imposed by governmental, military or lawfully established civilian authorities. Any Party claiming a force majeure event shall use reasonable diligence to remove the condition that prevents performance, except that the settlement of any labor disturbance shall be in the sole judgment of the affected Party, and shall notify the affected Parties of such force majeure event. No Party shall be required to take any action or refrain from taking any action that would result in a violation of any applicable law, regulation or order of any Governmental Authority.

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17.5 Governing Law. The terms of this Agreement shall be construed and enforced in accordance with the laws of the State of Delaware.

17.6 Jurisdiction; Venue; Service of Process. Each Party hereby irrevocably (1) submits to the jurisdiction of any Massachusetts state court or the United States District Court for the District of Massachusetts over any action or proceeding arising out of or relating to this Agreement that is not subject to the exclusive jurisdiction of the Commission, (2) agrees that all claims with respect to such action or proceeding shall be heard and determined in such Massachusetts state court or the United States District Court for the District of Massachusetts, (3) waives any objection to venue or any action or proceeding in Massachusetts on the basis of forum non conveniens, (4) agrees that service of process may be made on a Party outside Massachusetts by certified mail, postage prepaid, mailed to the Party at the address of its principal place of business, and agrees to waive service of a summons in federal court as provided by Rule 4(d) of the Federal Rules of Civil Procedure, and (5) waives the right to contest that service of process as contemplated by Section 17.6(4) is invalid.

17.7 Assignment. The Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of the respective signatories hereto, but no assignment of ISO’s interests or obligations under this Agreement or any portion thereof shall be made without the written consent of the Participants Committee and no assignment of an Individual Participant’s or NEPOOL’s interest or obligations under this Agreement or any portion thereof shall be made without the consent of ISO, except as otherwise permitted by the Tariff, or except in connection with a sale, merger, or consolidation which results in the transfer of all or a portion of an Individual Participant’s generation or transmission assets to, and the assumption of all of the obligations of the Individual Participant under this Agreement (or in the case of a transfer of a portion of an Individual Participant’s generation or transmission assets, the assumption of obligations of the Individual Participant under this Agreement with respect to such assets) by, an acquiring or surviving Entity which either is, or concurrently becomes, an Individual Participant, or agrees to assume such of the Individual Participant’s obligations with respect to such assets as ISO may reasonably require, or except in connection with the grant of a security interest in an Individual Participant’s assets as security for bonds or other financing.

17.8 Relationship of Parties. Nothing in this Agreement is intended to create a partnership, joint venture or other joint legal entity making any Party jointly or severally liable for the acts or omissions of any other Party. Nothing in this Agreement is intended to create a principal/agency relationship between or among any of the Parties and, except as expressly provided herein, no Party shall have any authority, in any way, to bind any other Party. Notwithstanding the Participant Processes hereunder, including the provisions of Section 8.1.3(i), each Party is acting in its individual capacity and has the full right to enforce its rights against the other under this Agreement.

17.9 Waiver. Delay by any Party in enforcing its rights under this Agreement shall not be deemed a waiver of such rights. Any waiver of rights by any Party with respect to any default or other matter arising under this Agreement shall not be deemed a waiver with respect to any additional default or other matter arising under this Agreement.

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17.10 Severability. If any term, condition, covenant, restriction or other provision of this Agreement is held by a court or regulatory agency of competent jurisdiction or by legislative enactment to be invalid, void, otherwise unenforceable or, with respect to any provision relating to ISO’s corporate governance, a court of competent jurisdiction or ISO, in good faith, determines that such provision is not authorized by Delaware corporate law, the remainder of the terms, conditions, covenants, restrictions and other provisions of this Agreement shall remain in full force and effect unless such an interpretation would materially alter the rights and privileges of any Party hereto. If any term, condition, covenant, restriction or other provision of this Agreement is held to be invalid, void, otherwise unenforceable or, with respect to any provision relating to ISO’s corporate governance, determined not to be authorized by Delaware corporate law, the Parties shall attempt to negotiate an appropriate replacement provision or other revisions to this Agreement to restore the rights and obligations conferred under the original Agreement. In advance of the Parties’ agreement on renegotiated terms, the Parties shall comply with the relevant laws.

17.11 Notices to ISO, Governance Participants, Committees, or Committee Members.

(a) Any notice, demand, request or other communication required or authorized by this Agreement to be given to ISO shall be in writing, and shall be (1) personally delivered to the ISO’s Chief Executive Officer; (2) mailed, postage prepaid, to ISO at the address of ISO’s principal office, Attention: Chief Executive Officer; (3) sent by facsimile (“faxed”) to ISO at the fax number of its Chief Executive Officer; or (4) delivered electronically to ISO’s Chief Executive Officer at his or her electronic mail address at ISO.

(b) Any notice, demand, request or other communication required or authorized by this Agreement to be given to any Governance Participant shall be in writing, and shall be (1) personally delivered to the Participants Committee member or alternate representing that Governance Participant or, in the case of an Individual Participant, to the representative specified by the Individual Participant pursuant to Section 5.1 hereof; (2) mailed, postage prepaid, to the Governance Participant at the address of its member on the Participants Committee as set out in the Governance Participant roster, at the address of its principal office, or, in the case of an Individual Participant, to the address specified by the Individual Participant pursuant to Section 5.1 hereof; (3) sent by facsimile (“faxed”) to the Governance Participant at the fax number of its member on the Participants Committee as set out in the Governance Participant roster, or, in the case of an Individual Participant, to the number specified by the Individual Participant pursuant to Section 5.1 hereof; or (4) delivered electronically to the Governance Participant at the electronic mail address of its member on the Participants Committee, or, in the case of an Individual Participant, to the electronic mail address specified by the Individual Participant pursuant to Section 5.1 hereof. The designation of any such address may be changed at any time by written notice delivered to the Secretary of the Participants Committee, in the case of a NEPOOL Participant, or to the ISO, in the case of an Individual Participant, in each case who shall cause such change to be reflected in the relevant roster.

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(c) Any notice, demand, request or other communication required or authorized by this Agreement to be given to any Principal Committee shall be in writing and shall be delivered to the Secretary of the committee. Each such notice shall either be personally delivered to the Secretary, mailed, postage prepaid, or sent by facsimile (“faxed”) to the Secretary at the address or fax number set out in the NEPOOL Participant roster, or delivered electronically to the Secretary. The designation of such address may be changed at any time by written notice delivered to each Governance Participant.

(d) Any notice, demand, request or other communication required or authorized by this Agreement to be given to a member or alternate to that member of a Principal Committee (for the purposes of this Section 17.11, individually or collectively, the “Committee Member”) shall be (1) personally delivered to the Committee Member; (2) mailed, postage prepaid, to the Committee Member at the address of the Committee Member set out in the NEPOOL Participant roster; (3) sent by facsimile (“faxed”) to the Committee Member at the fax number of the Committee Member set out in the NEPOOL Participant roster; or (4) delivered electronically to the Committee Member at the electronic mail address of the Committee Member set out in the NEPOOL Participant roster. The designation of any such address may be changed at any time by written notice delivered to the Secretary of the Principal Committee on which the Committee Member serves, who shall cause such change to be reflected in the NEPOOL Participant roster.

(e) To the extent that ISO is required to serve upon any Governance Participant a copy of any document or correspondence filed with the Commission under the Federal Power Act or the Commission’s rules and regulations thereunder, such service may be accomplished by electronic delivery to the Governance Participant at the electronic mail address of its Participants Committee member and alternate or, in the case of an Individual Participant, to the electronic mail address specified by the Individual Participant pursuant to Section 5.1 hereof. The designation of any such address may be changed at any time by written notice delivered to ISO’s General Counsel.

(f) To the extent that a Governance Participant is required to serve upon ISO a copy of any document or correspondence filed with the Commission under the Federal Power Act or the Commission’s rules and regulations thereunder, such service may be accomplished by electronic delivery to ISO’s General Counsel. The designation of any such address may be changed at any time by written notice delivered to each Governance Participant.

(g) Any such notice, demand or request so addressed and mailed by registered or certified mail shall be deemed to be given when so mailed. Any such notice, demand, request or other communication sent by regular mail or by facsimile (“faxed”) or delivered electronically shall be deemed given when received by ISO, the Governance Participant, Secretary of the committee, or Committee Member, whichever is applicable.

17.12 No Third-Party Beneficiaries. This Agreement is intended to be solely for the benefit of the Parties and their respective successors and permitted assigns and, unless expressly stated herein, is not intended to and shall not confer any rights or benefits on any third party (other than successors and permitted assigns) not a signatory hereto, including without limitation the NEPOOL Participants.

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17.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same agreement.

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SCHEDULE 1

Individual Participants

SCHEDULE 2

Operating Procedures in Effect on the Operations Date

ISO New England Operating Procedure no. 1 (Central Dispatch Operating Responsibility and Authority of ISO New England, the Local Control Centers and Market Participants)

ISO New England Operating Procedure no. 2 (Maintenance of Communications, Computers, Metering and Computer Support Equipment)

ISO New England Operating Procedure no. 3 (Transmission Outage Scheduling)

ISO New England Operating Procedure no. 4 (Action During a Capacity Deficiency)

ISO New England Operating Procedure no. 5 (Generation Maintenance and Outage Scheduling)

ISO New England Operating Procedure no. 6 (System Restoration)

ISO New England Operating Procedure no.7 (Action in an Emergency)

ISO New England Operating Procedure no. 8 (Operating Reserve and Regulation)

ISO New England Operating Procedure no. 9 (Scheduling and Dispatch of External Transactions)

ISO New England Operating Procedure no. 10 (Analysis and Reporting of Power System Emergencies)

ISO New England Operating Procedure no. 11 (Black Start Capability Testing Requirements)

ISO New England Operating Procedure no. 12 (Voltage and Reactive Control)

ISO New England Operating Procedure no. 13 (Standards for Voltage Reduction and Load Shedding Capability)

ISO New England Operating Procedure no. 14 (Technical Requirements for Generation, Dispatchable and Interruptible Loads)

ISO New England Operating Procedure no.16 (Transmission System Data)

ISO New England Operating Procedure no. 17 (Load Power Factor Correction)

ISO New England Operating Procedure no. 18 (Metering and Telemetering Criteria)

ISO New England Operating Procedure no. 19 (Transmission Operations)

EX-21.1

Exhibit 21.1

Subsidiaries of NSTAR

	State of Incorporation
NSTAR Electric Company	Massachusetts
NSTAR Gas Company	Massachusetts
Hopkinton LNG Corp.	Massachusetts
Advanced Energy Systems, Inc.	Massachusetts
Harbor Electric Energy Company	Massachusetts
BEC Funding LLC	Delaware
BEC Funding II, LLC	Delaware
CEC Funding, LLC	Delaware
NSTAR Communications, Inc.	Massachusetts
MATEP, LLC	Delaware
NSTAR Electric & Gas Corporation	Massachusetts

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-117014), Form S-4 (No. 333-78285) and on Form S-8 (Nos. 333-85559 and 333-87272), of NSTAR of our report dated February 16, 2007 relating to the financial statements, the financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 16, 2007

EX-31.1

Exhibit 31.1

Sarbanes - Oxley Section 302 Certification

I, Thomas J. May, certify that:

1. I have reviewed this annual report on Form 10-K of NSTAR;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of NSTAR as of, and for, the periods presented in this annual report;

4. NSTAR’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for NSTAR and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to NSTAR, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of NSTAR’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report, based on such evaluation; and

d) disclosed in this annual report any change in NSTAR’s internal control over financial reporting that occurred during NSTAR’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NSTAR’s internal control over financial reporting; and

5. NSTAR’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to NSTAR’s auditors and the audit committee of NSTAR’s board of trustees:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect NSTAR’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in NSTAR’s internal control over financial reporting.

Date: February 16, 2007	/s/ THOMAS J. MAY
	Thomas J. May
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Sarbanes - Oxley Section 302 Certification

I, James J. Judge, certify that:

1. I have reviewed this annual report on Form 10-K of NSTAR;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of NSTAR as of, and for, the periods presented in this annual report;

4. NSTAR’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for NSTAR and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to NSTAR, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of NSTAR’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report, based on such evaluation; and

d) disclosed in this annual report any change in NSTAR’s internal control over financial reporting that occurred during NSTAR’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NSTAR’s internal control over financial reporting; and

5. NSTAR’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to NSTAR’s auditors and the audit committee of NSTAR’s board of trustees:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect NSTAR’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in NSTAR’s internal control over financial reporting.

Date: February 16, 2007	/s/ JAMES J. JUDGE
	James J. Judge
	Senior Vice President, Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned hereby certifies, in my capacity as an officer of NSTAR, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the enclosed Annual Report of NSTAR on Form 10-K for the period ended December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operation of NSTAR.

Dated: February 16, 2007	/s/ THOMAS J. MAY
	Thomas J. May
	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned hereby certifies, in my capacity as an officer of NSTAR, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the enclosed Annual Report of NSTAR on Form 10-K for the period ended December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operation of NSTAR.

Dated: February 16, 2007	/s/ JAMES J. JUDGE
	James J. Judge
	Senior Vice President, Treasurer and Chief Financial Officer