General: NU, CL&P, NSTAR Electric, PSNH and WMECO are subject to environmental laws and regulations intended to mitigate or remove the effect of past operations and improve or maintain the quality of the environment. These laws and regulations require the removal or the remedy of the effect on the environment of the disposal or release of certain specified hazardous substances at current and former operating sites. NU, CL&P, NSTAR Electric, PSNH and WMECO have an active environmental auditing and training program and believe that they are substantially in compliance with all enacted laws and regulations.

Environmental reserves are accrued when assessments indicate it is probable that a liability has been incurred and an amount can be reasonably estimated. The approach used estimates the liability based on the most likely action plan from a variety of available remediation options, including no action required or several different remedies ranging from establishing institutional controls to full site remediation and monitoring.

These estimates are subjective in nature as they take into consideration several different remediation options at each specific site. The reliability and precision of these estimates can be affected by several factors, including new information concerning either the level of contamination at the site, the extent of NU, CL&P, NSTAR Electric, PSNH and WMECO's responsibility or the extent of remediation required, recently enacted laws and regulations or a change in cost estimates due to certain economic factors.

The amounts recorded as environmental liabilities included in Other Current Liabilities and Other Long-Term Liabilities on the balance sheets represent management's best estimate of the liability for environmental costs, and take into consideration site assessment, remediation and long-term monitoring costs. The environmental liability also takes into account recurring costs of managing hazardous substances and pollutants, mandated expenditures to remediate previously contaminated sites and any other infrequent and non-recurring clean-up costs. A reconciliation of the activity in the environmental reserves is as follows:

(Millions of Dollars)	NU ⁽¹⁾		CL&P		NSTAR Electric		PSNH		WMECO
Balance as of January 1, 2012	$	31.7	$	2.9	$	1.3	$	6.6	$	0.3
Liabilities Assumed from Merger with NSTAR		11.8		-		-		-		-
Additions		4.7		1.3		0.7		0.2		0.5
Payments/Reductions		(8.8)		(0.5)		(0.3)		(1.9)		(0.2)
Balance as of December 31, 2012		39.4		3.7		1.7		4.9		0.6
Additions		3.5		0.2		0.2		1.0		-
Payments/Reductions		(7.5)		(0.5)		(0.7)		(0.5)		(0.2)
Balance as of December 31, 2013	$	35.4	$	3.4	$	1.2	$	5.4	$	0.4

These liabilities are estimated on an undiscounted basis and do not assume that any amounts are recoverable from insurance companies or other third parties. The environmental reserves include sites at different stages of discovery and remediation and do not include any unasserted claims.

It is possible that new information or future developments could require a reassessment of the potential exposure to related environmental matters. As this information becomes available, management will continue to assess the potential exposure and adjust the reserves accordingly.

The number of environmental sites and reserves related to these sites for which remediation or long-term monitoring, preliminary site work or site assessment are being performed are as follows:

Included in the NU number of sites and reserve amounts above are former MGP sites that were operated several decades ago and manufactured gas from coal and other processes, which resulted in certain by-products remaining in the environment that may pose a potential risk to human health and the environment. The reserve balance related to these former MGP sites was $31.4 million and $34.5 million as of December 31, 2013 and 2012, respectively, and relates primarily to the natural gas business segment.

As of December 31, 2013, for 6 environmental sites (2 for PSNH, and 1 for WMECO) that are included in the Company's reserve for environmental costs, the information known and nature of the remediation options at those sites allow for the Company to estimate the range of losses for environmental costs. As of December 31, 2013, $5.8 million ($0.7 million for PSNH) had been accrued as a liability for these sites, which represent management's best estimates of the liabilities for environmental costs. These amounts are the best estimates with estimated ranges of additional losses from zero to $30 million (zero to $4.2 million for PSNH, and zero to $8.6 million for WMECO).

As of December 31, 2013, for 20 environmental sites (4 for CL&P, 1 for NSTAR Electric, 3 for PSNH, and 2 for WMECO) that are included in the Company's reserve for environmental costs, management cannot reasonably estimate the exposure to loss in excess of the reserve, or range of loss, as these sites are under investigation and/or there is significant uncertainty as to what remedial actions, if any, the Company may be required to undertake. As of December 31, 2013, $16.7 million ($1.6 million for CL&P, $0.1 million for PSNH, and $0.3 million for WMECO) had been accrued as a liability for these sites. As of December 31, 2013, for the remaining 42 environmental sites (14 for CL&P, 11 for NSTAR Electric, 10 for PSNH, and 2 for WMECO) that are included in the Company's reserve for environmental costs, the $12.9 million accrual ($1.8 million for CL&P, $1.2 million for NSTAR Electric, $4.6 million for PSNH, and $0.1 million for WMECO) represents management's best estimate of the liability and no additional loss is anticipated.

CERCLA: The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and its amendments or state equivalents impose joint and several strict liabilities, regardless of fault, upon generators of hazardous substances resulting in removal and remediation costs and environmental damages. Liabilities under these laws can be material and in some instances may be imposed without regard to fault or for past acts that may have been lawful at the time they occurred. Of the 68 sites, 10 sites (2 for CL&P, 3 for NSTAR Electric, 4 for PSNH and 1 for WMECO) are superfund sites under CERCLA for which the Company has been notified that it is a potentially responsible party but for which the site assessment and remediation are not being managed by the Company. As of December 31, 2013, a liability of $1 million ($0.4 million for CL&P, and $0.3 million for PSNH) accrued on these sites represents management's best estimate of its potential remediation costs with respect to these superfund sites.

Environmental Rate Recovery: PSNH, NSTAR Gas and Yankee Gas have rate recovery mechanisms for MGP related environmental costs. CL&P recovers a certain level of environmental costs currently in rates but does not have an environmental cost recovery tracking mechanism. Accordingly, changes in CL&P's environmental reserves impact CL&P's Net Income. WMECO does not have a separate regulatory mechanism to recover environmental costs from its customers, and changes in WMECO's environmental reserves impact WMECO's Net Income.

B.	Long-Term Contractual Arrangements
Estimated Future Annual Costs: The estimated future annual costs of significant long-term contractual arrangements as of
December 31, 2013 are as follows:


NU
(Millions of Dollars)		2014		2015		2016		2017		2018		Thereafter		Total
Supply and Stranded Cost		$	224.2	$	205.2	$	177.7	$	119.9	$	110.4	$	309.3	$	1,146.7
Renewable Energy			194.5		203.8		214.1		211.9		177.3		1,885.7		2,887.3
Peaker CfDs			49.1		46.9		44.3		36.2		28.6		24.7		229.8
Natural Gas Procurement			134.4		117.6		76.5		37.7		24.2		103.9		494.3
Coal, Wood and Other			75.3		15.2		5.0		5.0		5.0		16.8		122.3
Transmission Support Commitments			27.9		26.9		20.5		18.0		22.6		45.2		161.1
Total		$	705.4	$	615.6	$	538.1	$	428.7	$	368.1	$	2,385.6	$	5,041.5

CL&P
(Millions of Dollars)		2014		2015		2016		2017		2018		Thereafter		Total
Supply and Stranded Cost		$	145.6	$	141.1	$	143.7	$	96.2	$	87.1	$	257.6	$	871.3
Renewable Energy			48.9		49.9		50.3		50.8		51.4		560.2		811.5
Peaker CfDs			49.1		46.9		44.3		36.2		28.6		24.7		229.8
Transmission Support Commitments			11.0		10.6		8.1		7.1		8.9		17.8		63.5
Yankee Billings			1.5		1.4		0.8		0.8		0.8		12.3		17.6
Total		$	256.1	$	249.9	$	247.2	$	191.1	$	176.8	$	872.6	$	1,993.7

NSTAR Electric
(Millions of Dollars)		2014		2015		2016		2017		2018		Thereafter		Total
Supply and Stranded Cost		$	36.2	$	36.1	$	15.8	$	5.6	$	5.5	$	36.8	$	136.0
Renewable Energy			87.1		86.3		85.8		81.9		45.4		207.4		593.9
Transmission Support Commitments			8.7		8.4		6.4		5.6		7.0		14.1		50.2
Yankee Billings			0.7		0.5		0.3		0.3		0.3		4.2		6.3
Total		$	132.7	$	131.3	$	108.3	$	93.4	$	58.2	$	262.5	$	786.4

PSNH
(Millions of Dollars)		2014		2015		2016		2017		2018		Thereafter		Total
Supply and Stranded Cost		$	42.4	$	28.0	$	18.2	$	18.1	$	17.8	$	14.9	$	139.4
Renewable Energy			56.8		57.7		67.9		69.0		70.1		995.2		1,316.7
Coal, Wood and Other			75.3		15.2		5.0		5.0		5.0		16.8		122.3
Transmission Support Commitments			5.9		5.7		4.3		3.8		4.8		9.6		34.1
Yankee Billings			0.3		0.3		0.3		0.3		0.3		4.9		6.4
Total		$	180.7	$	106.9	$	95.7	$	96.2	$	98.0	$	1,041.4	$	1,618.9

WMECO
(Millions of Dollars)		2014		2015		2016		2017		2018		Thereafter		Total
Renewable Energy		$	1.7	$	9.9	$	10.1	$	10.2	$	10.4	$	122.9	$	165.2
Transmission Support Commitments			2.3		2.2		1.7		1.5		1.9		3.7		13.3
Yankee Billings			0.4		0.4		0.2		0.2		0.2		3.1		4.5
Total		$	4.4	$	12.5	$	12.0	$	11.9	$	12.5	$	129.7	$	183.0

Supply and Stranded Cost: CL&P, NSTAR Electric and PSNH have various IPP contracts or purchase obligations for electricity, including payment obligations resulting from the buydown of electricity purchase contracts. Such contracts extend through 2024 for CL&P, 2030 for NSTAR Electric and 2023 for PSNH.

In addition, CL&P and UI have entered into four CfDs for a total of approximately 787 MW of capacity consisting of three generation projects and one demand response project. The capacity CfDs extend through 2026 and obligate the utilities to make or receive payments on a monthly basis to or from the generation facilities based on the difference between a set capacity price and the forward capacity market prices received by the generation facilities in the ISO-NE capacity markets. The contracts have terms of up to 15 years beginning in 2009 and are subject to a sharing agreement with UI, whereby UI will share 20 percent of the costs and benefits of these contracts. CL&P's portion of the costs and benefits of these contracts will be paid by or refunded to CL&P's customers.

The contractual obligations table does not include CL&P's SS or LRS, or NSTAR Electric's or WMECO's default service contracts, the amounts of which vary with customers' energy needs. The contractual obligations table also does not include PSNH's short-term power supply management.

Renewable Energy: Renewable energy contracts include non-cancellable commitments under contracts of CL&P, NSTAR Electric, PSNH, and WMECO for the purchase of energy and capacity from renewable energy facilities. Such contracts have terms extending for 20 years at CL&P, up to 40 years at NSTAR Electric, up to 30 years for PSNH and 15 years for WMECO.

On September 20, 2013, NSTAR Electric and WMECO, along with two other Massachusetts utilities, signed a long-term commitment, as required by the DPU, to purchase wind power from six wind farms in Maine and New Hampshire for a combined estimated generating capacity of approximately 565 MW. On November 21, 2013, the utility companies provided a supplemental filing to the DPU

to reflect the termination of three of the six wind farms. Over the 15-year life of the remaining contracts, the utilities will pay an average price of less than $0.08 per kWh. On September 19, 2013, CL&P, along with another Connecticut utility, signed long-term commitments, as required by the PURA, to purchase approximately 250 MW of wind power from a Maine wind farm and 20 MW of solar power from sites in Connecticut, at a combined average price of less than $0.08 per kWh. The table above does not include these commitments, as such commitments are contingent on the future construction of the respective energy facilities. The table above also does not include NSTAR Electric's commitment to purchase 129 MW of renewable energy from a wind facility to be constructed offshore and certain other CL&P and NSTAR Electric commitments for the purchase of renewable energy and related products that are contingent on the future construction of facilities.

Peaker CfDs: In 2008, CL&P entered into three CfDs with developers of peaking generation units approved by the PURA (Peaker CfDs). These units have a total of approximately 500 MW of peaking capacity. As directed by the PURA, CL&P and UI have entered into a sharing agreement, whereby CL&P is responsible for 80 percent and UI for 20 percent of the net costs or benefits of these CfDs. The Peaker CfDs pay the developer the difference between capacity, forward reserve and energy market revenues and a cost-of-service payment stream for 30 years. The ultimate cost or benefit to CL&P under these contracts will depend on the costs of plant operation and the prices that the projects receive for capacity and other products in the ISO-NE markets. CL&P's portion of the amounts paid or received under the Peaker CfDs will be recoverable from or refunded to CL&P's customers.

Natural Gas Procurement: NU's natural gas distribution businesses have long-term contracts for the purchase, transportation and storage of natural gas in the normal course of business as part of its portfolio of supplies. These contracts extend through 2029.

Coal, Wood and Other: PSNH has entered into various arrangements for the purchase of wood, coal and the transportation services for fuel supply for its electric generating assets. Also included in the table above is a contract for capacity on the Portland Natural Gas Transmission System (PNGTS) pipeline that extends through 2018. The costs on this contract are not recoverable from customers.

Transmission Support Commitments: Along with other New England utilities, CL&P, NSTAR Electric, PSNH and WMECO entered into agreements in 1985 to support transmission and terminal facilities that were built to import electricity from the Hydro-Québec system in Canada. CL&P, NSTAR Electric, PSNH and WMECO are obligated to pay, over a 30-year period ending in 2020, their proportionate shares of the annual operation and maintenance expenses and capital costs of those facilities.

The total costs incurred under these agreements in 2013, 2012, and 2011 were as follows:

		For the Years Ended December 31,
		2013								2012								2011
				NSTAR								NSTAR								NSTAR
(Millions of Dollars)		CL&P		Electric		PSNH		WMECO		CL&P		Electric		PSNH		WMECO		CL&P		Electric		PSNH		WMECO
Supply and
	Stranded Cost	$	77.6	$	32.4	$	29.0	$	2.0	$	158.2	$	36.3	$	30.5	$	0.9	$	114.9	$	80.9	$	40.8	$	0.3
Renewable Energy			-		84.9		6.4		-		-		60.2		4.1		-		-		61.8		5.1		-
Peaker CfDs			51.9		-		-		-		59.3		-		-		-		40.2		-		-		-
Coal, Wood and Other			-		-		112.6		-		-		-		105.2		-		-		-		113.2		-
Transmission Support
	Commitments		9.8		7.7		5.3		2.1		9.6		7.6		5.2		2.0		10.3		8.1		5.6		2.2

CL&P, NSTAR Electric, PSNH and WMECO have decommissioning and plant closure cost obligations to the Yankee Companies, which have each completed the physical decommissioning of their respective nuclear facilities and are now engaged in the long-term storage of their spent fuel. The Yankee Companies collect decommissioning and closure costs through wholesale, FERC-approved rates charged under power purchase agreements with several New England utilities, including CL&P, NSTAR Electric, PSNH and WMECO. These companies in turn recover these costs from their customers through state regulatory commission-approved retail rates.

CL&P, NSTAR Electric, PSNH and WMECO's percentage share of the obligations to support the Yankee Companies under FERC-approved rate tariffs is the same as their respective ownership percentages in the Yankee Companies. For further information on the ownership percentages, see Note 1J, "Summary of Significant Accounting Policies - Equity Method Investments," to the financial statements.

The Yankee Companies have collected or are currently collecting amounts that management believes are adequate to recover the remaining decommissioning and closure cost estimates for the respective plants. Management believes CL&P, NSTAR Electric and WMECO will recover their shares of these decommissioning and closure obligations from their customers. PSNH has already recovered its share of these costs from its customers.

DOE Phase I Damages – In 1998, the Yankee Companies filed separate complaints against the DOE in the Court of Federal Claims seeking monetary damages resulting from the DOE's failure to begin accepting spent nuclear fuel for disposal by January 31, 1998 pursuant to the terms of the 1983 spent fuel and high level waste disposal contracts between the Yankee Companies and the DOE (DOE Phase I Damages). Phase I covered damages for the period 1998 through 2002. Following multiple appeals and cross-appeals in December 2012, the judgment awarding CYAPC $39.6 million, YAEC $38.3 million and MYAPC $81.7 million became final.

In January 2013, the proceeds from the DOE Phase I Damages Claim were received by the Yankee Companies and transferred to each Yankee Company's respective decommissioning trust. As a result of NU's consolidation of CYAPC and YAEC, the financial statements reflected an increase of $77.9 million in marketable securities for CYAPC and YAEC's Phase I damage awards that were invested in the nuclear decommissioning trusts in 2013.

On May 1, 2013, CYAPC, YAEC and MYAPC filed applications with the FERC to reduce rates in their wholesale power contracts through the application of the DOE proceeds for the benefit of customers. In its June 27, 2013 order, the FERC granted the proposed rate reductions, and changes to the terms of the wholesale power contracts to become effective on July 1, 2013. In accordance with the FERC order, CL&P, NSTAR Electric, PSNH and WMECO began receiving the benefit of the DOE proceeds, and the benefits have been or will be passed on to customers.

DOE Phase II Damages - In December 2007, the Yankee Companies each filed subsequent lawsuits against the DOE seeking recovery of actual damages incurred in the years following 2001 and 2002 related to the alleged failure of the DOE to provide for a permanent facility to store spent nuclear fuel generated in years after 2001 for CYAPC and YAEC and after 2002 for MYAPC (DOE Phase II Damages). On November 18, 2011, the court ordered the record closed in the YAEC case, and closed the record in the CYAPC and MYAPC cases subject to a limited opportunity of the government to reopen the records for further limited proceedings.

On November 15, 2013, the court issued a final judgment awarding CYAPC $126.3 million, YAEC $73.3 million, and MYAPC $35.8 million. On January 14, 2014, the Yankee Companies received a letter from the U.S. Department of Justice stating that the DOE will not appeal the court's final judgment. As of December 31, 2013, CL&P, NSTAR Electric, PSNH, WMECO, CYAPC, and YAEC have not reflected the impact of these expected receivables on their financial statements.

The methodology for applying the DOE Phase II Damages recovered from the DOE for the benefit of customers of CL&P, NSTAR Electric, PSNH and WMECO will be addressed in FERC rate proceedings.

DOE Phase III Damages – On August 15, 2013, the Yankee Companies each filed subsequent lawsuits against the DOE seeking recovery of actual damages incurred in the years 2009 through 2012. Responsive pleading from the Department of Justice was filed on November 18, 2013, and discovery is expected to begin once a protective order is in place.

NU parent provides credit assurances on behalf of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, in the form of guarantees in the normal course of business.

NU provided guarantees and various indemnifications on behalf of external parties as a result of the sales of former subsidiaries of NU Enterprises, with maximum exposures either not specified or not material.

NU also issued a guaranty under which, beginning at the time the Northern Pass Transmission line goes into commercial operation, NU will guarantee the financial obligations of NPT under the TSA in an amount not to exceed $25 million. NU's obligations under the guaranty expire upon the full, final and indefeasible payment of the guaranteed obligations.

Management does not anticipate a material impact to Net Income as a result of these various guarantees and indemnifications.

The following table summarizes NU's guarantees of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, as of December 31, 2013:

(1) Surety bond expiration dates reflect termination dates, the majority of which will be renewed or extended.

Many of the underlying contracts that NU parent guarantees, as well as certain surety bonds, contain credit ratings triggers that would require NU parent to post collateral in the event that the unsecured debt credit ratings of NU are downgraded.

On September 30, 2011, several New England state attorneys general, state regulatory commissions, consumer advocates and other parties filed a joint complaint with the FERC under Sections 206 and 306 of the Federal Power Act alleging that the base ROE used in calculating formula rates for transmission service under the ISO-NE Open Access Transmission Tariff by NETOs, including CL&P, NSTAR Electric, PSNH and WMECO, is unjust and unreasonable. The complainants asserted that the current 11.14 percent rate, which became effective in 2006, is excessive due to changes in the capital markets and are seeking an order to reduce the rate, which would be effective October 1, 2011. In response, the NETOs filed testimony and analysis based on standard FERC methodology and precedent demonstrating that the base ROE of 11.14 percent remained just and reasonable. The FERC set the case for trial before a FERC ALJ after settlement negotiations were unsuccessful in August 2012.

Hearings before the FERC ALJ were held in May 2013, followed by the filing of briefs by the complainants, the Massachusetts municipal electric utilities (late interveners to the case), the FERC trial staff and the NETOs. The NETOs recommended that the current base ROE of 11.14 percent should remain in effect for the refund period (October 1, 2011 through December 31, 2012) and the prospective period (beginning when FERC issues its final decision). The complainants, the Massachusetts municipal electric utilities, and the FERC trial staff each recommended a base ROE of 9 percent or below.

On August 6, 2013, the FERC ALJ issued an initial decision, finding that the base ROE in effect from October 2011 through December 2012 was not reasonable under the standard application of FERC methodology, but leaving policy considerations and additional adjustments to the FERC. Using the established FERC methodology, the FERC ALJ determined that separate base ROEs should be set for the refund period and the prospective period. The FERC ALJ found those base ROEs to be 10.6 percent and 9.7 percent, respectively. The FERC may adjust the prospective period base ROE in its final decision to reflect movement in 10-year Treasury bond rates from the date that the case was filed (April 2013) to the date of the final decision. The parties filed briefs on this decision with the FERC, and a decision from the FERC is expected in 2014. Though NU cannot predict the ultimate outcome of this proceeding, in 2013 the Company recorded a series of reserves at its electric subsidiaries to recognize the potential financial impact from the FERC ALJ's initial decision for the refund period. The aggregate after-tax charge to earnings totaled $14.3 million at NU, which represents reserves of $7.7 million at CL&P, $3.4 million at NSTAR Electric, $1.4 million at PSNH and $1.8 million at WMECO.

On December 27, 2012, several additional parties filed a separate complaint concerning the NETOs' base ROE with the FERC. This complaint seeks to reduce the NETOs' base ROE effective January 1, 2013, effectively extending the refund period for an additional 15 months, and to consolidate this complaint with the joint complaint filed on September 30, 2011. The NETOs have asked the FERC to reject this complaint. The FERC has not yet acted on this complaint, and management is unable to predict the ultimate outcome or estimate the impacts of this complaint on financial position, results of operations or cash flows.

As of December 31, 2013, the CL&P, NSTAR Electric, PSNH, and WMECO aggregate shareholder equity invested in their transmission facilities was approximately $2.3 billion. As a result, each 10 basis point change in the prospective period authorized base ROE would change annual consolidated earnings by an approximate $2.3 million.

Since 2006, NSTAR Electric has been recovering incremental costs related to the DPU-approved Safety and Reliability Programs. From 2006 through 2011, cumulative costs associated with the CPSL program resulted in an incremental revenue requirement to customers of approximately $83 million. These amounts included incremental operations and maintenance costs and the related revenue requirement for specific capital investments relative to the CPSL programs.

On May 28, 2010, the DPU issued an order on NSTAR Electric's 2006 CPSL cost recovery filing (the May 2010 Order). In October 2010, NSTAR Electric filed a reconciliation of the cumulative CPSL program activity for the periods 2006 through 2009 with the DPU in order to determine a proposed rate adjustment. The DPU allowed the proposed rates to go into effect January 1, 2011, subject to final reconciliation of CPSL program costs through a future DPU proceeding. In February 2013, NSTAR Electric updated the October 2010 filing with final activity through 2011. NSTAR Electric recorded its 2006 through 2011 revenues under the CPSL programs based on the May 2010 Order.

NSTAR Electric cannot predict the timing of a final DPU order related to its CPSL filings for the period 2006 through 2011. While management does not believe that any subsequent DPU order would result in revenues that are materially different than the amounts already recognized, it is reasonably possible that an order could have a material impact on NSTAR Electric's results of operations, financial position and cash flows.

The April 4, 2012 DPU-approved comprehensive merger settlement agreement with the Massachusetts Attorney General stipulates that NSTAR Electric must incur a revenue requirement of at least $15 million per year for 2012 through 2015 related to these programs. CPSL revenues will end once NSTAR Electric has recovered its 2015-related CPSL costs. Realization of these revenues is subject to maintaining certain performance metrics over the four-year period and DPU approval. As of December 31, 2013, NSTAR Electric was in compliance with the performance metrics and has recognized the entire $15 million revenue requirement during 2013 and 2012.

In accordance with a generic DPU order, electric utilities in Massachusetts recover the energy-related portion of bad debt costs in their Basic Service rates. In 2007, NSTAR Electric filed its 2006 Basic Service reconciliation with the DPU proposing an adjustment related to the increase of its Basic Service bad debt charge-offs. The DPU issued an order approving the implementation of a revised Basic Service rate but instructed NSTAR Electric to reduce distribution rates by an amount equal to the increase in its Basic Service bad debt charge-offs. This adjustment to NSTAR Electric's distribution rates would eliminate the fully reconciling nature of the Basic Service bad debt adder.

In 2010, NSTAR Electric filed an appeal of the DPU's order with the SJC. In 2012, the SJC vacated the DPU order and remanded the matter to the DPU for further review. The DPU has not taken any action on the remand.

NSTAR Electric deferred approximately $34 million of costs associated with energy-related bad debt as a regulatory asset through 2011 as NSTAR Electric had concluded that it was probable that these costs would ultimately be recovered from customers. Due to the delays and the duration of the proceedings, NSTAR Electric concluded that while an ultimate outcome on the matter in its favor remained "more likely than not," it could no longer be deemed "probable." As a result, NSTAR Electric recognized a reserve related to the regulatory asset in 2012. NSTAR Electric will continue to maintain the reserve until the proceeding has been concluded with the DPU.

NU, including CL&P, NSTAR Electric, PSNH and WMECO, are involved in legal, tax and regulatory proceedings regarding matters arising in the ordinary course of business, which involve management's assessment to determine the probability of whether a loss will occur and, if probable, its best estimate of probable loss. The Company records and discloses losses when these losses are probable and reasonably estimable, discloses matters when losses are probable but not estimable or reasonably possible, and expenses legal costs related to the defense of loss contingencies as incurred.