Boston Edison Company Form 10-Q

Boston Edison Company
Form 10-Q - Quarterly Period Ended September 30, 2005

Table of Contents

Part I. Financial Information:				Page No.
	Item 1.	Financial Statements

			Condensed Consolidated Statements of Income	2

			Condensed Consolidated Statements of Retained Earnings	3

			Condensed Consolidated Balance Sheets	4 - 5

			Condensed Consolidated Statements of Cash Flows	6

			Notes to Condensed Consolidated Financial Statements	7 - 14

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		14 - 24

	Item 4.	Controls and Procedures		24

Part II. Other Information:

	Item 1.	Legal Proceedings		24

	Item 5.	Other Information		25

	Item 6.	Exhibits		25

	Signature			26





Important Shareholder Information

Boston Edison Company files its Forms 10-K, 10-Q and 8-K reports and other information with the Securities and Exchange Commission (SEC). You may access materials Boston Edison has filed with the SEC on the SEC's website at www.sec.gov. Boston Edison is a wholly owned subsidiary of NSTAR. Boston Edison is subject to the NSTAR Board of Trustees Corporate Guidelines on Significant Corporate Governance Issues, its Code of Ethics for the Principal Executive Officer, General Counsel, and Senior Financial Officers, and its Code of Ethics and Business Conduct for Directors, Officers and Employees. These codes and amendments to such codes which are applicable to Boston Edison's executive officers, senior officers, senior financial officers or directors can be accessed free of charge on Boston Edison's website at www.nstaronline.com. Copies of Boston Edison's SEC filings may also be obtained by writing or calling NSTAR's Investor Relations Department at One NSTAR Way, Westwood, MA 02090 or (781) 441-8100.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Boston Edison Company
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)

		Three Months Ended						Nine-Months Ended
		September 30,						September 30,
		2005			2004			2005			2004

Operating revenues	$	588,307		$	515,811		$	1,480,976		$	1,321,714

Operating expenses:
Purchased power		316,114			264,635			803,883			678,942
Operations and maintenance		56,728			56,159			183,472			166,728
Depreciation and amortization		53,850			44,327			155,848			133,456
Demand side management and renewable
energy programs		12,817			11,890			35,440			34,443
Taxes - property and other		18,935			19,242			58,927			58,784
Income taxes		44,353			40,324			73,058			76,439

Total operating expenses		502,797			436,577			1,310,628			1,148,792

Operating income		85,510			79,234			170,348			172,922

Other income (deductions):
Other income, net		862			673			2,774			2,127
Other deductions, net		(183	)		(59	)		(428	)		(161	)
Total other income, net		679			614			2,346			1,966

Interest charges:
Long-term debt		13,649			13,053			40,520			36,957
Transition property securitization		8,471			6,845			24,416			21,602
Short-term debt and other		499			1,379			931			4,302
Allowance for borrowed funds used during
construction (AFUDC)		(696	)		(178	)		(1,821	)		(572	)
Total interest charges		21,923			21,099			64,046			62,289

Net income	$	64,266 =====		$	58,749 ======		$	108,648 ======		$	112,599 =====

Per share data is not relevant because Boston Edison Company's common stock is wholly owned by NSTAR.

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

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Boston Edison Company
Condensed Consolidated Statements of Retained Earnings
(Unaudited)
(in thousands)

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2005		2004		2005		2004

Balance at the beginning of the period	$	563,563	$	512,861	$	566,161	$	502,991
Add:
Net income		64,266		58,749		108,648		112,599
Subtotal		627,829		571,610		674,809		615,590
Deduct:
Dividends declared:
Common stock dividends to Parent		23,000		26,000		69,000		69,000
Preferred stock		490		490		1,470		1,470
Subtotal		23,490		26,490		70,470		70,470
Balance at the end of the period	$	604,339 =====	$	545,120 =====	$	604,339 ======	$	545,120 =====

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

Table of Contents

Boston Edison Company
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

	September 30,		December 31,
		2005		2004
Assets

Utility plant in service, at original cost	$	3,031,384	$	2,944,725
Less: accumulated depreciation		688,029		677,398
		2,343,355		2,267,327
Construction work in progress		138,479		71,484
Net utility plant		2,481,834		2,338,811

Equity investments		9,112		9,037

Current assets:
Cash and cash equivalents		9,708		6,468
Restricted cash		4,943		3,616
Accounts receivable, net -
Affiliates		13,483		16,332
Other		192,429		167,157
Accrued unbilled revenues		45,520		28,444
Regulatory assets		231,093		188,862
Materials and supplies, at average cost		14,772		12,883
Income taxes		14,031		13,939
Other		2,280		131
Total current assets		528,259		437,832

Deferred debits:
Regulatory assets - power contracts		496,210		795,722
Regulatory asset - goodwill		432,048		-
Regulatory assets - other		592,219		460,432
Prepaid pension		313,321		297,746
Other		12,317		13,828
Total deferred debits		1,846,115		1,567,728

Total assets	$	4,865,320 ========	$	4,353,408 ========

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

Table of Contents

Boston Edison Company
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)

				September 30,		December 31,
				2005			2004
Capitalization and Liabilities

Common equity:
	Common stock, par value $1 per share
	(75 shares issued and outstanding)			$	-		$	-
	Premium on common stock (Note I)				597,843			278,795
	Retained earnings				604,339			566,161
	Total common equity				1,202,182			844,956

Cumulative non-mandatory redeemable preferred stock					43,000			43,000

Long-term debt					850,274			851,547
Transition property securitization					455,424			308,748
		Total long-term debt			1,305,698			1,160,295

Total capitalization					2,550,880			2,048,251

Current liabilities:
		Transition property securitization			91,126			41,048
		Long-term debt			101,100			100,687
		Notes payable			18,000			46,500
		Power contracts			125,807			121,033
		Accounts payable			153,616			89,819
		Deferred income taxes			19,127			16,662
		Accrued interest			21,815			10,125
		Other			43,231			30,389
		Total current liabilities			573,822			456,263


Deferred credits:
		Accumulated deferred income taxes and unamortized
		investment tax credits			907,389			664,261
		Power contracts			494,001			795,722
		Regulatory liability - cost of removal			157,882			155,497
		Payable to affiliates			150,634			150,634
		Other			30,712			82,780
Total deferred credits					1,740,618			1,848,894

Commitments and contingencies

			Total capitalization and liabilities	$	4,865,320 ========		$	4,353,408 ========

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

Table of Contents

Boston Edison Company
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

		Nine Months Ended
		September 30,
		2005			2004
Operating activities:
Net income	$	108,648		$	112,599
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization		155,848			133,456
Deferred income taxes		72,290			22,320
Allowance for borrowed funds used during construction		(1,821	)		(572	)
Effect of purchase power contract buy-out		(282,549	)		-
Deferred debits and credits		41,504			51,049
Net changes in working capital		15,535			(63,740	)
Net cash provided by operating activities		109,455			255,112

Investing activities:
Plant expenditures (excluding AFUDC)		(199,256	)		(125,770	)
Proceeds from sale of property		-			14,252
Increase in restricted cash		(1,327	)		-
Other investments		(75	)		448
Net cash used in investing activities		(200,658	)		(111,070	)

Financing activities:
Issuance of long-term debt		-			300,000
Issuance of transition property securitization		265,500			-
Debt issue costs		(2,481	)		(1,851	)
Transition property securitization redemptions		(68,746	)		(51,166	)
Redemptions of long-term debt		(860	)		(182,234	)
Net change in notes payable		(28,500	)		(137,500	)
Dividends paid		(70,470	)		(70,470	)
Net cash provided by (used in) financing activities		94,443			(143,221	)

Net increase in cash and cash equivalents		3,240			821
Cash and cash equivalents at the beginning of the year		6,468			8,426
Cash and cash equivalents at the end of the period	$	9,708 ========		$	9,247 ========
Supplemental disclosures of cash flow information:

Cash paid during the period for:
Interest, net of amounts capitalized	$	51,898 =======		$	46,950 =======
Non-cash capital transfer (Note I)	$	319,000 =======		$	- =======
Deferred debit regulatory asset - goodwill (Note I)	$	270,554 =======		$	- =======
Income taxes paid/(refunded)	$	2,373 =======		$	(15,917 =======	)

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

Table of Contents

Notes to Condensed Consolidated Financial Statements
(Unaudited)

The accompanying notes should be read in conjunction with Notes to Consolidated Financial Statements included in Boston Edison Company's 2004 Annual Report on Form 10-K.

Note A. Business Organization and Summary of Significant Accounting Policies

1. The Company

Boston Edison Company ("Boston Edison" or "the Company") is a regulated public utility incorporated in 1886 under Massachusetts law and is a wholly owned subsidiary of NSTAR. Boston Edison's wholly owned subsidiaries are Harbor Electric Energy Company, BEC Funding LLC and BEC Funding II, LLC. NSTAR is a holding company engaged through its subsidiaries in the energy delivery business. NSTAR serves 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. Boston Edison serves approximately 700,000 electric distribution customers in the City of Boston and 39 surrounding communities. NSTAR's other retail utility subsidiaries are Commonwealth Electric Company (ComElectric), Cambridge Electric Light Company (Cambridge Electric) (together with Boston Edison, collectively operating as "NSTAR Electric") and NSTAR Gas Company (NSTAR Gas). NSTAR has a services company, NSTAR Electric & Gas Corporation (NSTAR Electric & Gas), that serves as the employer of substantially all NSTAR employees and provides management and support services to substantially all NSTAR subsidiaries, including Boston Edison.

2. Basis of Presentation and Accounting

The financial information presented as of September 30, 2005 and for the three and nine-month periods ended September 30, 2005 and 2004 have been prepared from Boston Edison's books and records without audit by an independent registered public accounting firm. However, Boston Edison's independent registered public accounting firm has performed a review of these interim financial statements in accordance with standards established by the Public Company Accounting Oversight Board (United States). Financial information as of December 31, 2004 was derived from the audited consolidated financial statements of Boston Edison, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). In the opinion of Boston Edison's management, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial information for the periods indicated have been included. Certain immaterial reclassifications have been made to the prior year amounts to conform with the current presentation.

Boston Edison is subject to the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (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 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.

The preparation of financial statements in conformity with GAAP requires management of Boston Edison 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.

The results of operations for the three and nine-month periods ended September 30, 2005 and 2004 are not indicative of the results that may be expected for an entire year. Electric energy sales and revenues are typically higher in the winter and summer months than in the spring and fall months, as sales tend to vary with weather conditions.

3. Pension and Other Postretirement Benefits

Pension

Boston Edison is the sponsor of the NSTAR Pension Plan (the Plan), which is a defined benefit funded retirement plan that covers substantially all employees of NSTAR Electric & Gas. As its sponsor, Boston Edison allocates the costs of the Plan to NSTAR Electric & Gas. NSTAR Electric & Gas charges all of its benefit costs to the NSTAR operating companies, including Boston Edison, based on the proportion of total direct labor charged to the Company. During the nine months ended September 30, 2005, Boston Edison contributed approximately $35 million to the Plan. The Company does not currently anticipate contributing additional amounts to the Plan over the remaining three months of 2005.

SFAS No. 132R, "Employers" Disclosures about Pensions and Other Postretirement Benefits," requires disclosure of the net periodic pension benefits cost.

Components of net periodic pension benefits cost were as follows:

	Three Months Ended							Nine Months Ended
		September 30,						September 30,
(in millions)		2005			2004			2005			2004
Service cost	$	5.1		$	4.7		$	15.2		$	14.1
Interest cost		13.9			14.5			41.6			43.5
Expected return on Plan assets		(18.6	)		(17.7	)		(55.8	)		(53.1	)
Amortization of transition obligation		-			0.1			-			0.3
Amortization of prior service cost		(0.2	)		(0.2	)		(0.6	)		(0.6	)
Recognized actuarial loss		6.3			6.6			19.0			19.8
Net periodic pension benefit cost	$	6.5 =====		$	8.0 =====		$	19.4 =====		$	24.0 ======

Other Postretirement Benefits

NSTAR also provides health care and other benefits to retired employees who meet certain age and years of service eligibility requirements. Under certain circumstances, eligible retirees are required to make contributions for postretirement benefits.

To fund these postretirement benefits, NSTAR, on behalf of Boston Edison and other NSTAR subsidiaries, makes contributions to various VEBA trusts that were established pursuant to section 501(c)(9) of the Internal Revenue Code.

The funded status of the Plan cannot be presented separately for Boston Edison since the Company participates in the Plan trusts with other NSTAR subsidiaries. Plan assets are available to provide benefits for all Plan participants who are former employees of Boston Edison and other subsidiaries of NSTAR. During the nine months ended September 30, 2005, NSTAR contributed approximately $16 million towards these benefits. NSTAR anticipates contributing an additional $4 million for these benefits over the remaining three months of 2005.

The net periodic postretirement benefits costs allocated to Boston Edison for the three and nine-month periods ended September 30, 2005 were $4.4 million and $11.9 million, respectively, as compared to $1.9 million and $10.3 million, respectively, in the prior year.

In 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act provides for drug benefits for retirees over the age of 65 under a new Medicare Part D program. For employers like NSTAR, who currently provide retiree medical programs for eligible former employees over the age of 65, there are subsidies available that are contained in the Act. The Act entitles these employers to a direct tax-exempt federal subsidy.

In May 2004, the FASB provided guidance on the accounting for the effects of the Act. The guidance requires that, when an employer initially accounts for the effects of the Act, the impact on the accumulated postretirement benefits obligation (APBO) should be accounted for as an actuarial gain (assuming, no plan amendments are made). In accordance with this provision, NSTAR's APBO was reduced by approximately $51 million in 2004. In addition, 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. NSTAR's adoption of the accounting guidance resulted in a reduction to the net periodic postretirement benefit cost of approximately $7 million in 2004 and is reflected as a component of net periodic postretirement benefits costs. As required, NSTAR restated its net periodic postretirement benefits cost for the first two quarters of 2004. However, due to the pension and other postretirement benefits rate reconciliation adjustment mechanism that went into effect on September 1, 2003 for NSTAR and its subsidiaries including Boston Edison, this reduction in cost does not have an impact on Boston Edison's earnings.

4. New Accounting Standards

In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 clarifies when an entity would be required to recognize a liability for the fair value of an asset retirement obligation 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 would be factored into the measurement of the liability rather than the existence of the liability. FIN 47 is effective for Boston Edison at December 31, 2005. Boston Edison is currently assessing the impact that the interpretation may have on its consolidated financial position and results of operation.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" (SFAS 154). This Standard is effective January 1, 2006 and it changes the requirements for the accounting for and reporting of accounting changes and error corrections. The Standard establishes retrospective application as the required method for reporting a change in accounting principle rather than reporting a cumulative effect of change in accounting principle. Retrospective application requires the application of the new accounting principle to prior periods as if that principle had always been used. Boston Edison will adopt this Standard.

Note B. Cost of Removal

For Boston Edison, 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 September 30, 2005 and December 31, 2004, the estimated amount of the cost of removal included in regulatory liabilities was approximately $157.9 million and $155.5 million, respectively, based on the cost of removal component in current historic depreciation rates.

Note C. Derivative Instruments - Power Contracts

Boston Edison accounts for its power contracts in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) and related interpretations. At September 30, 2005, Boston Edison does not have any contracts which must be classified as derivative instruments. On March 1, 2005, Boston Edison closed on a securitization financing for $265.5 million to finance the buy-out of one contract that was classified as a derivative instrument at December 31, 2004. This one contract had a fair value of approximately $235 million at December 31, 2004 and was therefore removed as a derivative instrument from Deferred credits - Power contracts, along with the offsetting regulatory asset, on the accompanying Condensed Consolidated Balance Sheets. The securitization debt obligation was recorded along with an offsetting regulatory asset to reflect the future recovery of the debt obligation through the Company's transition charge.

Note D. Variable Interest Entities

In 2004, NSTAR created two wholly owned special purpose subsidiaries: BEC Funding II, LLC and CEC Funding, LLC, to undertake the sale of a combined $674.5 million in notes to a special purpose trust. BEC Funding II, LLC, a subsidiary of Boston Edison, and CEC Funding, LLC, a subsidiary of ComElectric, issued $265.5 million and $409 million in notes, respectively, to the trust. The trust was created by two Massachusetts state agencies. See Note G, Securitization, for more information. As part of Boston Edison's assessment of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," as revised in December 2003 (FIN 46R), Boston Edison separately reviewed the substance of BEC Funding II, LLC to determine if it is proper to consolidate this entity. Based on its review, Boston Edison concluded that BEC Funding II, LLC is a variable interest entity and therefore had been consolidated in the accompanying condensed consolidated financial statements.

Note E. Service Quality Indicators

Service quality indicators are established performance benchmarks for certain identified measures of service quality relating to customer service and billing performance, customer satisfaction, and reliability and safety performance for all Massachusetts utilities. Boston Edison is required to report annually to the Massachusetts Department of Telecommunications and Energy (MDTE) concerning its performance as to the measure and is subject to maximum penalties of up to two percent of transmission and distribution revenues should performance fail to meet the applicable benchmarks.

Boston Edison monitors its service quality continuously to determine its contingent liability, and if it is probable that a liability has been incurred and is estimable, a liability would be accrued. Annually, Boston Edison 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, Boston Edison filed its 2004 Service Quality Report with the MDTE that demonstrated the Company achieved sufficient levels of reliability and performance; the report indicates that no penalty was assessable for 2004. The MDTE is reviewing this filing and will likely issue an order prior to December 31, 2005.

As of September 30, 2005, Boston Edison's 2005 performance has exceeded the applicable established benchmarks such that no liability has been accrued for 2005. However, this result may not be indicative of the result that may be expected for the remainder of the year. Management believes that it is unlikely that Boston Edison will be in a penalty situation by year-end.

Recently, the MDTE initiated a proceeding to potentially modify the service quality indicators for all Massachusetts utilities. Until any modification occurs, the current service quality indicators will remain in place. Boston Edison currently cannot predict the outcome of this proceeding or its impact.

Note F. 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 $55.5 million and $56.8 million and corresponding net charges in accumulated deferred income taxes were recorded as of September 30, 2005 and December 31, 2004, respectively. The regulatory assets represent the additional future revenues to be collected from customers for deferred income taxes.

Boston Edison is part of a consolidated tax group. As such, income tax payments are either due to or from NSTAR.

The following table reconciles the statutory federal income tax rate to the annual estimated effective income tax rate for 2005 and the actual effective income tax rate for the year ended December 31, 2004:

	2005		2004
Statutory tax rate	35.0	%	35.0	%
State income tax, net of federal income tax benefit	4.4		4.3
Investment tax credits	(0.4	)	(0.5	)
Other	1.7		1.4
Effective tax rate	40.7 =====	%	40.2 =====	%

Note G. Securitization

On March 1, 2005, two wholly owned subsidiaries of NSTAR, Boston Edison and ComElectric, each established a special purpose subsidiary, BEC Funding II, LLC and CEC Funding, LLC, respectively. BEC Funding II, LLC issued $265.5 million and CEC Funding LLC issued $409 million 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 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. Boston Edison used the net proceeds from this transaction to make liquidation payments required in connection with the termination of certain purchase power agreements.

Note H. Commitments and Contingencies

1. Environmental Matters

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

During the second quarter of 2005,the Massachusetts Supreme Judicial Court (SJC) issued its decision in one of the environmental contamination matters. 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's decision reversed the Superior Court's 2004 ruling and held that the plaintiffs in this matter are allowed to seek joint and several liability against the defendants, including Boston Edison. The case was remanded back to the Superior Court for trial. On October 6, 2005, the Company reached a tentative settlement in principle with the plaintiffs in this matter. It is anticipated that the appropriate settlement documents will be filed with the Superior Court for approval during the fourth quarter of 2005. The Company's settlement payment is within the amount previously reserved for this matter. Boston Edison will vigorously attempt to recover monies from the other responsible third parties, including recovery from its insurance carrier.

Asof September 30, 2005 and December 31, 2004, Boston Edison had reserves of $10.6 million and $3.6 million, respectively, for all potential environmental sites, including the site specified in the paragraph above. This estimated recorded liability is based on an evaluation of all currently available facts with respect to all sites. In addition, based on a legal opinion from the Company's counsel, it is probable that Boston Edison will recover, at a minimum, approximately $2 million from other parties. Boston Edison recorded an asset in the second quarter that will ultimately offset the Company's obligation. Management believes that the ultimate disposition of this matter will not have a material adverse impact on Boston Edison's results of operation, cash flows or its financial position.

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 Boston Edison's responsibilities for such sites evolve or are resolved. Boston Edison's ultimate liability for future environmental remediation costs may vary from these estimates. Based on Boston Edison's current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, Boston Edison does not believe that these environmental remediation costs will have a material adverse effect on Boston Edison's consolidated financial position, results of operations or cash flows.

2. Capital Spending Commitments

In the second quarter of 2005, Boston Edison began construction of a substation in Stoughton, Massachusetts and a 345kV transmission line that will connect the substation to South Boston. As of September 30, 2005, construction that is part of this project is also in progress on two other substations. To date, this project is approximately 40% complete. This transmission line is expected to ensure continued reliability of electric service and improve power import capability in the Northeast Massachusetts area. This project is expected to be placed in service during the summer of 2006. A substantial portion of the cost of this project will be shared by other utilities in New England based on ISO-New England's approval and will be recovered by Boston Edison through wholesale and retail transmission rates. As of September 30, 2005, Boston Edison has contractual construction cost commitments of approximately $35 million related to this project.

3. Regulatory and Legal Matters

a. Regulatory matters

In December 2004, Boston Edison filed proposed transition rate adjustments for 2005, including a preliminary reconciliation of transition, transmission, standard offer and default service costs and revenues through 2004. The MDTE subsequently approved tariffs for Boston Edison effective January 1, 2005. The filing was updated in February 2005 to reflect final 2004 costs and revenues. The filing is subject to annual review and reconciliation.

On December 1, 2003, Boston Edison filed its annual reconciliation report on its pension and PBOP rate adjustment mechanism. Hearings were held during 2004. On June 29, 2005, the MDTE issued their order approving Boston Edison's reconciliation report. In December 2004, Boston Edison filed its annual reconciliation consistent with the rate adjustment mechanism.

As previously disclosed, a joint return on equity (ROE) filing was made by participating New England Transmission Owners, including NSTAR Electric, with the FERC. Among other things, the filing requested an increase in the base ROE component of regional and local transmission rates to a single ROE of 12.8% for all regional and local transmission rates, a 50 basis point adder to reward RTO participation, and a 100 basis point increase in regional rates as an incentive to build new transmission facilities. FERC accepted the 50 basis point adder for regional rates, and set for hearing the base ROE and the 100 basis point incentive adder for new transmission. Settlement negotiations before an administrative law judge were unsuccessful and hearings were held in early 2005. As a result of these hearings, on May 27, 2005, an initial decision was reached. The judge found that the base ROE should be 10.72% and that the 100 basis point adder for new transmission facilities should only apply to projects where innovative and less expensive technology is used. Appeal briefs by all parties, including the Transmission Owners, were filed on June 27, 2005. FERC is reviewing the judge's findings and recommendations and is expected to make a final determination later in November 2005.

b. Locational Installed Capacity (LICAP)

On March 23, 2005, the FERC unanimously approved an ISO-New England plan to implement LICAP, a new market rule designed to compensate wholesale generators for their capacity with an implementation date of January 1, 2006. FERC subsequently revised this date to no earlier than October 2006. The new LICAP rules require electric load serving entities (LSE), like Boston Edison, to procure capacity within the zones where load is served. The current market structure allows capacity located anywhere in New England to count towards a LSE's obligation, regardless of load zone. Boston Edison's service territory covers two of the five capacity zones in New England: Northeastern Massachusetts (NEMA) and Rest of Pool (ROP). NEMA is import-constrained and could potentially see higher capacity prices than the ROP. The majority of Boston Edison's customers are in the NEMA load zone. At this point, it appears likely that Boston Edison's new 345kV transmission project will reduce transmission constraints causing capacity prices between NEMA and ROP to converge, which could ultimately render this locational aspect of LICAP a minimal factor for Boston Edison customers. However, since the new market rules require that a certain amount of capacity be procured in the NEMA zone, these requirements could impact pricing for capacity in the NEMA zone. Additionally, many of the generators in the NEMA zone have filed with the FERC for cost of service-type agreements called Reliability Must Run agreements for the recovery of their costs prior to the implementation of LICAP. The new LICAP rules are likely to increase overall capacity pricing levels in New England. Since the New England market as a whole is currently in a surplus position, currently capacity trades at a relatively low price. One of the goals of LICAP is to provide a higher level of compensation to generators than what is currently being earned in this surplus market. Boston Edison is opposed to LICAP as this will likely increase the price of power to Boston Edison's customers without any assurance that new capacity will be built. As a result, Boston Edison (and other parties) have appealed the FERC's LICAP decision in federal court. Additionally, while LICAP has been approved by FERC, the specific parameters of the capacity pricing mechanism are still part of a contested hearing at FERC. A final decision on these matters is expected sometime in 2006. On October 21, 2005, FERC issued an Interim Order Regarding Settlement Procedures and Directing Compliance Filing. In this Order, the FERC gives the parties in this proceeding a further opportunity to pursue settlement on an alternative to the LICAP mechanism. FERC further directs that a settlement judge be appointed to manage the process. Boston Edison cannot predict the actual impact these changes will have on Boston Edison and its customers, but expects all costs incurred to be fully recoverable.

c. Legal Proceedings

In the normal course of its business, Boston Edison 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 except for the item disclosed in Note H, Part 1, "Environmental Matters." Based on the information currently available, Boston Edison 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.

Note I. Non-Cash Regulatory Asset and Capital Transfer

As of September 30, 2005, NSTAR, Boston Edison's Parent Company, changed the classification of its Goodwill to a Regulatory asset. This change was adopted to better align with Boston Edison's existing rate recovery mechanism that allows for the recovery of goodwill from its customers over 40 years. As a result of this change, NSTAR has reallocated a portion of the previously recorded goodwill from three other subsidiary companies: ComElectric, Cambridge Electric and NSTAR Gas to Boston Edison. This change was effective as of September 30, 2005 and was accounted for as a non-cash capital transfer to Boston Edison of $319 million from NSTAR. This transfer represents Boston Edison's proportionate share of goodwill that arose from the merger that created NSTAR in accordance with the 1999 Rate Order from the MDTE approving the merger.

In addition to this transfer of goodwill and its classification to a regulatory asset and in accordance with the requirements of SFAS 109, “Accounting for Income Taxes,” Boston Edison recognized $174.6 million of accumulated deferred income taxes related to this goodwill along with a corresponding regulatory asset as of September 30, 2005. The regulatory asset, representing the accumulated deferred income taxes, will be amortized over the remaining life of the regulatory asset -- goodwill (amounting to approximately $5.1 million annually) in accordance with NSTAR's merger rate order allowing recovery of goodwill. This additional amortization expense will be entirely offset by a corresponding deferred income tax expense - benefit.

Note J. Electric Equity Investment

During the course of carrying out the decommissioning work, the Yankee Atomic Electric Company (YA) has identified increases in the scope of soil and other remediation required to meet environmental standards, beyond the levels assumed in the 2003 Estimate. YA is continuing to evaluate the impact of the additional requirements on its decommissioning plan. While that evaluation is not complete, as of October 27, 2005, YA has determined that the schedule for the completion of physical work will need to extend until mid-2006 and the costs of completing decommissioning will be approximately $63 million greater than the estimate that formed the basis of the 2003 FERC settlement. Based on this allocation increase, Boston Edison is obligated to pay approximately $6 million to the decommissioning of YA. Most of the cost increase relates to decommissioning expenditures that will be made during 2006. In order to fund these additional costs, YA is preparing an application to FERC for increased decommissioning charges to go into effect in early 2006, subject to FERC approval. The timing and amount of the FERC application and the ultimate increase in decommissioning costs are under development, but YA expects that it will seek rate recovery of a significant component of this increase in expenditures during 2006.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

The accompanying MD&A focuses on factors that had a material effect on the financial condition, results of operations and cash flows of Boston Edison during the periods presented and should be read in conjunction with the accompanying condensed consolidated financial statements and related notes and with the MD&A in Boston Edison's 2004 Annual Report on Form 10-K.

Executive Overview

Boston Edison Company ("Boston Edison" or "the Company") is a regulated public utility incorporated in 1886 under Massachusetts law and is a wholly owned subsidiary of NSTAR. Boston Edison's wholly owned subsidiaries are Harbor Electric Energy Company, BEC Funding LLC and BEC Funding II, LLC. Boston Edison serves approximately 700,000 electric distribution customers in the City of Boston and 39 surrounding communities. Harbor Electric Energy Company provides electric distribution service and ongoing support to its only customer, the Massachusetts Water Resources Authority's Wastewater treatment facility located on Deer Island in Boston, Massachusetts. BEC Funding LLC and BEC Funding II, LLC are special purpose entities created to facilitate the sale of electric rate reduction certificates to the public. Boston Edison's core business is a traditional electric transmission and distribution company that focuses on consistent energy delivery to its customers. Boston Edison's strategy is to invest in transmission and distribution assets that will align with its core competencies.

Earnings. Boston Edison's earnings are impacted by fluctuations in unit sales of electric kWh, which directly determine the level of distribution and transmission revenues recognized. In accordance with the regulatory rate structure in which Boston Edison 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.

Net income for the three and nine-month periods ended September 30, 2005 amounted to $64.3 million and $108.6 million, respectively, as compared to $58.7 million and $112.6 million for the same periods in 2004.

Cautionary Statement

The MD&A, as well as other portions of this report, contain 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 Securities and Exchange Commission (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 Boston Edison 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:

-		impact of continued cost control procedures on operating results
-		weather conditions that directly influence the demand for electricity and major storms
-		changes in tax laws, regulations and rates
-		financial market conditions including, but not limited to, changes in interest rates and the availability and cost of capital
-		prices and availability of operating supplies
-		prevailing governmental policies and regulatory actions (including those of the Massachusetts Department of Telecommunications and Energy (MDTE) and Federal Energy Regulatory Commission (FERC)) with respect to allowed rates of return, rate structure, continued recovery of regulatory assets, financings, purchased power, 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
-		changes in financial accounting and reporting standards
-		new governmental regulations or changes to existing regulations that impose additional operating requirements or liabilities
-		changes in specific hazardous waste site conditions and the specific cleanup technology
-		impact of union contract negotiations
-		impact of uninsured losses
-		changes in available information and circumstances regarding legal issues and the resulting impact on our estimated litigation costs
-		future economic conditions in the regional and national markets
-		ability to maintain current credit ratings, and
-		the impact of terrorist acts

Any forward-looking statement speaks only as of the date of this filing and Boston Edison 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 Boston Edison makes in its filings to the SEC. Other factors in addition to those listed here could also adversely affect Boston Edison. This report also describes material contingencies and critical accounting policies and estimates in this section and in the accompanying Notes to Condensed Consolidated Financial Statements and Boston Edison encourages a review of these Notes.

Critical Accounting Policies and Estimates

For a complete discussion of critical accounting policies, refer to "Critical Accounting Policies and Estimates" in Item 7 of Boston Edison's 2004 Form 10-K. There have been no substantive changes to those policies and estimates.

Recent Events

Impact from Hurricanes. It is possible that the recent unprecedented rise in energy resulting from Hurricanes Katrina and Rita may have a negative impact on Boston Edison's future electric sales. Boston Edison cannot predict the overall impact resulting from these events on its financial position, results of operations or cash flows.

Regulated rates. On September 15, 2005, Boston Edison notified the MDTE of its intention to file new rate schedules in the future that will constitute general changes in rate schedules in the near future. This required procedural step taken by Boston Edison has put the MDTE on notice of a future filing.

Non-Cash Regulatory Asset and Capital Transfer

As of September 30, 2005, NSTAR, Boston Edison's Parent Company, changed the classification of its Goodwill to a Regulatory asset. This change was adopted to better align with Boston Edison's rate recovery mechanism that allows for the recovery of goodwill from its customers over 40 years. As a result of this change, NSTAR has reallocated a portion of the previously recorded goodwill from three other subsidiary companies: ComElectric, Cambridge Electric and NSTAR Gas (collectively, the Commonwealth entities) to Boston Edison. This change was effective as of September 30, 2005 and was accounted for as a non-cash capital transfer to Boston Edison of $319 million from NSTAR. This transfer represents Boston Edison's proportionate share of goodwill that arose from the merger that created NSTAR in accordance with the 1999 Rate Order from the MDTE approving the merger.

Rate Structure

a. Retail Electric Rates

Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers who choose not to buy energy from a competitive energy supplier. Prior to March 2005, this service was provided through either standard offer or default service. Standard offer service ended on February 28, 2005 and default service was renamed basic service. Therefore, all customers who have not chosen to receive service from a competitive supplier are being provided basic service. 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 September 30, 2005 and December 31, 2004, customers of Boston Edison had approximately 32.7% and 25%, respectively, of their load requirements provided by competitive suppliers.

On December 21, 2004, the FERC issued an order approving Boston Edison's October 2004 request to modify its Open Access Transmission Tariff (OATT). Effective January 1, 2005, Boston Edison is allowed to include 50 percent of construction work in progress in its rate base for transmission projects by including this amount in its local network service transmission rate formula. The order requires Boston Edison to file annual reports of its long-term transmission plan.

b. Service Quality Indicators

Service quality indicators are established performance benchmarks for certain identified measures of service quality relating to customer service and billing performance, customer satisfaction, and reliability and safety performance for all Massachusetts utilities. Boston Edison is required to report annually to the MDTE concerning its performance as to the measure and is subject to maximum penalties of up to two percent of transmission and distribution revenues should performance fail to meet the applicable benchmarks.

Recently, the MDTE initiated a proceeding into potentially modify the service quality indicators for all Massachusetts utilities. Until any modification occurs, the current service quality indicators will remain in place. Boston Edison currently cannot predict the outcome of this proceeding or its impact.

Union Contract

Boston Edison does not have any employees. All labor services are provided by employees of NSTAR Electric & Gas Corporation, a subsidiary services company of NSTAR. NSTAR's labor contract with Local 369 of the Utility Workers Union of America, AFL-CIO, expired on May 15, 2005. After a three week strike, on May 29, 2005, NSTAR management and union officials agreed upon a new four year contract expiring June 1, 2009. The union members, which represents approximately 1,900 employees, ratified the contract on May 31, 2005.

Results of Operations

The following section of MD&A compares the results of operations for each of the three-month periods ended September 30, 2005 and 2004 and should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Three Months Ended September 30, 2005 compared to Three Months Ended September 30, 2004

Overview

Net income was $64.3 million for the quarter ended September 30, 2005 compared to $58.7 million for the same period in 2004. Factors that contributed to the $5.6 million, or 9.5% increase in 2005 earnings include:

-		Higher revenues due to warmer weather that resulted in higher mWh sales
Offsetting this earnings increase was:
-		Higher depreciation expense due to a higher plant base
-		Higher interest costs associated with greater long-term debt outstanding

Energy sales and weather

The following is a summary of retail electric energy sales for the periods indicated:

	Three Months Ended September 30,
	2005	2004	% Change
Retail Electric Sales - MWH
Residential	1,240,836	1,083,837	14.5
Commercial	2,712,951	2,523,241	7.5
Industrial	323,925	336,986	(3.9	)
Other	31,538	31,717	(0.6	)
Total retail sales	4,309,250 =======	3,975,781 =======	8.4 ===

The 8.4% increase in retail MWH sales in the second quarter of 2005 reflects warmer temperatures than in 2004.

In terms of customer sector characteristics, industrial sales are less sensitive to weather than residential and commercial sales, which are influenced by temperature extremes. The overall warmer summer weather in the third quarter of 2005, contributed to increased energy use. Electric residential and commercial customers were approximately 29% and 63%, respectively, of Boston Edison's total retail sales mix for the third quarter of 2005 and provided 31% and 63% of distribution revenues, respectively. Refer to the "Operating revenues" section below for a more detailed discussion. Fluctuations in industrial sales are primarily influenced by local economic conditions.

			Normal
			30-Year
	2005	2004	Average

Heating degree-days	42	64	96
Percentage (warmer) colder than prior year	(34.4)%	88.2%
Percentage (warmer) colder than 30-year average	(56.3)%	(33.3)%

Cooling degree-days	698	501	593
Percentage warmer (cooler) than prior year	39.3%	(23.5)%
Percentage warmer (cooler) than 30-year average	17.7%	(15.5)%

The comparative information above relates to degree-days for the third quarter of 2005 and 2004 and the number of degree-days in a "normal" third quarter 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.

Operating revenues

Operating revenues for the third quarter of 2005 increased $72.5 million, or 14.1%, from the same period in 2004, and consisted of the following major component changes:

(in thousands)		Three Months Ended
		September 30,				Increase/(Decrease)
		2005		2004		Amount		Percent

Retail distribution and transmission	$	214,312	$	202,394	$	11,918		5.9	%
Energy, transition and other		344,043		285,275		58,768		20.6	%
Total retail revenues		558,355		487,669		70,686		14.5	%
Wholesale revenues		2,955		4,540		(1,585	)	(34.9	)%
Other revenues		26,997		23,602		3,395		14.4	%
Total revenues	$	588,307 ======	$	515,811 =======	$	72,496 ======		14.1	%

The increase in retail distribution and transmission revenues primarily reflects higher MWH sales in both the residential and the commercial sectors as well as higher demand revenues.

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

Energy revenues are received from customers for the procurement of energy on their behalf. These revenues are fully reconciled with the cost 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). The $58.8 million increase in energy, transition and other revenues is primarily attributable to higher rates for the procurement of energy for customers.

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. On September 1, 2005, Boston Edison executed a new Wholesale and Distribution Service Agreement with a regional airport, to take effect upon the expiration of the current agreement between the parties, which expired October 31, 2005. Amounts collected from wholesale customers are credited to retail customers through the transition charge. Therefore, the expiration of the municipal wholesale supply contract has no impact on results of operations or cash flows.

Other revenues increased primarily related to the Company's revenue from participants in the New England Regional Transmission Organization.

Operating expenses

Purchased power costs were $316.1 million in the third quarter of 2005 compared to $264.6 million in the same period of 2004, an increase of $51.5 million, or 19.5%. The increase is primarily due to the higher costs of procuring energy for our customers. Boston Edison adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis.

Operations and maintenance expense was $56.7 million in the third quarter of 2005 compared to $56.2 million in the same period of 2004, an increase of $0.5 million, or 0.9%. This increase primarily reflects an increase of $2 million relating to potential litigation matters, partially offset by lower employment expenses.

Depreciation and amortization expense was $53.8 million in the third quarter of 2005 compared to $44.3 million in the same period of 2004, an increase of $9.5 million, or 21.4%. The increase primarily reflects an increase in transmission plan base rate and increased amortization related to the higher amount of securitized assets of $9 million.

Demand side management (DSM) and renewable energy programs expense was $12.8 million in the third quarter of 2005 compared to $11.9 million in the same period of 2004, an increase of $0.9 million, or 7.6%, which are consistent with the collection of conservation and renewable energy revenues. These costs are in accordance with program guidelines established by MDTE and are collected from customers on a fully reconciling basis plus a small incentive plan.

Property and other taxes were $18.9 million in the third quarter of 2005 compared to $19.2 million in the same period of 2004. These costs reflect municipal property taxes representing property investments in our transmission and distribution system and payroll taxes.

Income taxes attributable to operations were $44.4 million in the third quarter of 2005 compared to $40.3 million in the same period of 2004, an increase of $4.1 million, or 10.2%, reflecting lower pre-tax operating income in 2005.

Interest charges

Interest on long-term debt and transition property securitization certificates was $22.1 million in the third quarter of 2005 compared to $19.9 million in the same period of 2004, an increase of $2.2 million, or 11.1%. The increase in interest expense primarily reflects:

-		Higher interest costs in 2005 of $0.5 million on a variable rate debenture
-		Additional interest costs associated with the issuance of new transition property securitization. Securitization interest represents interest on securitization notes of BEC Funding and BEC Funding II, LLC.

Short-term and other interest expense was $0.5 million in the third quarter of 2005 compared to $1.4 million in the same period of 2004, a decrease of $0.9 million, or 64.2%. The decrease is primarily due to lower interest costs associated with lower regulatory deferrals. This is partially offset by higher short-term borrowing costs in 2005 due to an approximate 200 basis point increase in interest rates.

Results of Operations

The following section of MD&A compares the results of operations for each of the nine-month periods ended September 30, 2005 and 2004 and should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004

Overview

Net income was $108.6 million for the nine-month period ended September 30, 2005 compared to $112.6 million for the same period in 2004. Factors that contributed to the $4.0 million, or 3.5% decrease in 2005 earnings include:

-		Higher operating and maintenance expense due to costs associated with
		- winter storms
		- costs associated with facilities consolidation,
		- costs associated with an environmental site
		- a strike by union employees
-		Higher interest costs associated with more debt outstanding

These decreases were partially offset by:

-		Higher distribution revenue due to higher mWh sales
-		Higher electric transmission rates due to regulatory approval of allowing a return on transmission projects in progress ($5.6 million)
-		Regulatory approval of an incentive entitlement resulting from the Company's demand-side management programs ($0.6 million)

On March 1, 2005, Boston Edison closed on a securitization financing transaction in which it received approximately $263.6 million in net proceeds. The proceeds were used primarily to make liquidation payments required in connection with the termination of obligations under certain purchase power contracts.

Energy sales and weather

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

Retail Electric Sales - MWH	Nine Months Ended September 30,
		2005	2004	% Change

Residential		3,365,194	3,231,519	4.1
Commercial		7,436,361	7,231,868	2.8
Industrial		937,966	964,996	(2.8)
Other		100,530	102,984	(2.4)
Total retail sales		11,840,051 =======	11,531,367 =======	2.7 ===

The 2.7% increase in retail MWH sales in the first nine-months of 2005 reflects, by customer sectors, an improvement of 4.1% and 2.8% residential and commercial sales offset somewhat by the sales decline in January and February due to the warmer temperatures that resulted in lower heating equipment use, partially offset in the month of June and the entire third quarter of 2005 when warmer temperatures resulted in greater air conditioning use when compared to the same periods in 2004.

In terms of customer sector characteristics, industrial sales are less sensitive to weather than residential and commercial sales, which are influenced by temperature extremes. The overall warmer weather in the first nine-months of 2005 caused an increase in electric sales that is attributable in part to the commercial sector where building and expansions created the additional energy use. Electric residential and commercial customers represented approximately 28% and 63%, respectively, of Boston Edison's total retail sales mix for the first nine months of 2005 and provided 37.0% and 57.8% of distribution and transmission revenues, respectively. Refer to the “Operating 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 an improving economic environment and increased manufacturing production.

			Normal
			30-Year
	2005	2004	Average

Heating degree-days	3,985	3,861	3,750
Percentage (warmer) colder than prior year	3.2%	8.2%
Percentage (warmer) colder than 30-year average	6.3%	(2.2)

Cooling degree-days	880	632	769
Percentage warmer (cooler) than prior year	39.2%	(16.3%)
Percentage warmer (cooler) than 30-year average	14.4%	(17.8%)

Weather conditions impact electric sales in Boston Edison's service area. The comparative information above relates to degree-days for the first nine months of 2005 and 2004 and the number of degree-days in a "normal" first nine-month period 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.

Operating revenues

Operating revenues for the first nine months of 2005 increased $159.3 million, or 12.0%, from the same period in 2004, and consisted of the following major component changes:

(in thousands)		Nine Months Ended
		September 30,				Increase/(Decrease)
		2005		2004		Amount		Percent

Retail distribution and transmission	$	496,380	$	492,915	$	3,465		0.7	%
Energy, transition and other		902,177		748,248		153,929		20.6	%
Total retail revenues		1,398,557		1,241,163		157,394		12.7	%
Wholesale revenues		8,612		13,557		(4,945	)	(36.5	)%
Other revenues		73,807		66,994		6,813		10.2	%
Total revenues	$	1,480,976 ======	$	1,321,714 =======	$	159,262 ======		12.0 =====	%

The increase in retail distribution and transmission revenues primarily reflects the increase in retail mWh sales in the residential and commercial sectors.

Energy revenues are received from customers for the procurement of energy on their behalf. These revenues are fully reconciled with the cost recognized by the Company and, as a result, do not have an effect on the Company's earnings. The $153.9 million increase in energy, transition and other revenues is primarily attributable to higher rates for the procurement of energy and increased recovery of transition costs.

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. On September 1, 2005, Boston Edison executed a new Wholesale and Distribution Service Agreement with a regional airport, to take effect upon the expiration of the current agreement between the parties, which expires October 31, 2005. Amounts collected from wholesale customers are credited to retail customers through the transition charge. Therefore, the expiration of the municipal wholesale supply contract has no impact on results of operations or cash flows.

The increase in other revenues primarily relates to the Company's revenue from participants in the New England Regional Transmission Organization partly offset by a decrease in rental revenues from electric property from a generator in the Boston area for its interconnection to Boston Edison's transmission system.

Operating expenses

Purchased power costs were $803.9 million in the first nine months of 2005 compared to $678.9 million in the same period of 2004, an increase of $125 million, or 18.4%. The increase is primarily due to the higher costs of procuring energy for our customers. Boston Edison adjusts its rates to collect the costs related to energy supply from customers on a fully reconciling basis.

Operations and maintenance expense was $183.5 million in the first nine months of 2005 compared to $166.7 million in the same period of 2004, an increase of $16.8 million, or 10.1%. This increase primarily reflects cost associated with a strike by union employees, a net increase to an environmental reserve, winter storms, facilities consolidation and employee costs.

Depreciation and amortization expense was $155.8 million in the first nine months of 2005 compared to $133.5 million in the same period of 2004, an increase of $22.3 million, or 16.7%. The increase primarily reflects an increase in the transmission depreciation rate and increased amortization related to the higher amount of securitized assets of $20.9 million.

Demand side management (DSM) and renewable energy programs expense was $35.4 million in the first nine months of 2005 compared to $34.4 million in the same period of 2004, an increase of $1 million, or 2.9%, and are consistent with the collection of conservation and renewable energy revenues. These costs are in accordance with program guidelines established by MDTE and are collected from customers on a fully reconciling basis plus a small incentive plan.

Property and other taxes were $58.9 million in the first nine months of 2005 compared to $58.8 million in the same period of 2004, an increase of $0.1 million, or 0.2%. This slight increase was primarily due to higher payroll taxes.

Income taxes attributable to operations were $73.1 million in the first six months of 2005 compared to $76.4 million in the same period of 2004, a decrease of $3.3 million, or 4.3%, reflecting lower pre-tax operating income in 2005.

Interest charges

Interest on long-term debt and transition property securitization certificates was $64.9 million in the first nine months of 2005 compared to $58.6 million in the same period of 2004, an increase of $6.3 million, or 10.7%. The increase in interest expense primarily reflects:

-	Higher interest costs in 2005 of $4.6 million of $300 million ten-year fixed rate 4.875% Debentures issued on April 16, 2004
-	Additional interest costs associated with the issuance of new transition property securitization. Securitization interest represents interest on securitization notes of BEC Funding and BEC Funding II, LLC.

These increases were partially offset by:

-	The absence in 2005 of expense of nearly $3 million related to the retirement of $181 million 7.80% Debentures on March 15, 2004

Short-term and other interest expense was $0.9 million in the first nine months of 2005 compared to $4.3 million in the same period of 2004, a decrease of $3.4 million, or 79.1%. The decrease is primarily due to lower interest costs associated with lower regulatory deferrals balances offset by higher short-term borrowing costs in 2005 due to a higher average rate compared to the same period of 2004.

Other events

During May 2005, Boston Edison issued a $7.5 million standby letter of credit to the general contractor of Boston Edison's 345kV project. The amount of the standby letter of credit reduces to $4.5 million on February 1, 2006. The contractor will be able to draw upon the letter of credit if Boston Edison does not comply with the payment terms of the respective executed Construction Agreement, signed by both parties. Boston Edison believes that it is very unlikely that a draw will be made on the standby letter of credit.

Item 4. Controls and Procedures

Boston Edison's disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Boston Edison carried out an evaluation, under the supervision and with the participation of Boston Edison's management, including Boston Edison's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Boston Edison's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Boston Edison's disclosure controls and procedures were effective (1) to timely alert them to material information relating to Boston Edison's information required to be disclosed by Boston Edison in the reports that it files or submits under the Securities Exchange Act of 1934 and (2) to ensure that appropriate information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

During the most recent fiscal quarter, there have been no changes in Boston Edison's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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Part II -- Other Information

Item 1. Legal Proceedings

In the normal course of its business, Boston Edison 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 except for the item disclosed in the Condensed Consolidated Financial Statements, Note H, Part 1, "Environmental Matters." Based on the information currently available, Boston Edison 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 estimates could have a material impact on its results of operations, cash flows and financial condition for a reporting period.

Item 5. Other Information

The following is furnished for informational purposes.

Ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred stock dividend requirements:

Twelve months ended September 30, 2005:
Ratio of earnings to fixed charges		2.99
Ratio of earnings to fixed charges and preferred stock dividend requirements		2.90

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Item 6. Exhibits

Exhibit	4	-	Instruments Defining the Rights of Security Holders, Including Indentures

		-	Management agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any agreement or instrument defining the rights of holders of any long-term debt whose authorization does not exceed 10% of total assets.

Exhibits filed herewith:
Exhibit	12	-	Statement re Computation of Ratios

	12.1	-	Computation of Ratio of Earnings to Fixed Charges for the Twelve Months Ended September 30, 2005

	12.2	-	Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements for the Twelve Months Ended September 30, 2005

Exhibit	15	-	Letter Re Unaudited Interim Financial Information

	15.1	-	PricewaterhouseCoopers LLP Awareness Letter

Exhibit	31	-	Rule 13a - 15/15d-15(e) Certifications

	31.1	-	Certification Statement of Chief Executive Officer of Boston Edison pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	-	Certification Statement of Chief Financial Officer of Boston Edison pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit	32	-	Section 1350 Certifications

	32.1	-	Certification Statement of Chief Executive Officer of Boston Edison pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	-	Certification Statement of Chief Financial Officer of Boston Edison pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit	99	-	Additional Exhibits

	99.1	-	Report of Independent Registered Public Accounting Firm

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SIGNATURE

Pursuant to the requirements 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.



		Boston Edison Company
		(Registrant)





Date: November 7, 2005		By: /s/ R. J. WEAFER, JR.
		Robert J. Weafer, Jr.
		Vice President, Controller and
		Chief Accounting Officer

[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended September 30, 2005
		or
[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to


Massachusetts		04-1278810
(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)