The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related combined notes included in this Quarterly Report on Form 10-Q, the Northeast Utilities and subsidiaries combined Quarterly Reports on Form 10-Q for the first and second quarters of 2009 (2009 Forms 10-Q) and the Northeast Utilities and subsidiaries combined 2008 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) (2008 Form 10-K). References in this Form 10-Q to "NU," the "Company," "we," "us" and "our" refer to Northeast Utilities and its consolidated subsidiaries. All per share amounts are reported on a fully diluted basis.

The only common equity securities that are publicly traded are common shares of NU. The earnings and earnings per share (EPS) of each segment discussed below do not represent a direct legal interest in the assets and liabilities allocated to such segment but rather represent a direct interest in our assets and liabilities as a whole. EPS by segment is a financial measure not recognized under accounting principles generally accepted in the United States of America (GAAP) that is calculated by dividing the net income or loss attributable to controlling interests of each segment by the weighted average fully diluted NU common shares outstanding for the period. We use this non-GAAP financial measure to provide segmented earnings results and guidance and believe that this measurement is useful to investors to evaluate the actual and projected financial performance and contribution of our business segments. This non-GAAP financial measure should not be considered as an alternative to our consolidated fully diluted EPS determined in accordance with GAAP as an indicator of operating performance.

The discussion below also includes non-GAAP financial measures referencing our 2008 earnings and EPS excluding a significant charge resulting from the settlement of litigation. We use these non-GAAP financial measures to more fully explain and compare the 2009 and 2008 results without including the impact of this settlement. Due to the nature and significance of the litigation settlement charge, management believes that this non-GAAP presentation is more representative of our performance and provides additional and useful information to readers of this report in analyzing historical and future performance. These non-GAAP financial measures should not be considered as alternatives to reported net income attributable to controlling interests or EPS determined in accordance with GAAP as indicators of operating performance.

Reconciliations of the above non-GAAP financial measures to the most directly comparable GAAP measures of consolidated fully diluted EPS and net income attributable to controlling interests are included under "Financial Condition and Business Analysis-Overview-Consolidated" and "Financial Condition and Business Analysis-Future Outlook" in this Management's Discussion and Analysis.

Forward-Looking Statements: This Management's Discussion and Analysis includes statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our "forward-looking statements" through the use of words or phrases such as "estimate," "expect," "anticipate," "intend," "plan," "project," "believe," "forecast," "should," "could," and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results.
Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to, actions or inaction of local, state and federal regulatory and taxing bodies, changes in business and economic conditions, including their impact on interest rates, bad debt expense, and demand for our products and services, changes in weather patterns, changes in laws, regulations or regulatory policy, changes in levels and timing of capital expenditures, disruptions in the capital markets or other events that make our access to necessary capital more difficult or costly, developments in legal or public policy doctrines, technological developments, changes in accounting standards and financial reporting regulations, fluctuations in the value of our remaining competitive electricity positions, actions of rating agencies, and other presently unknown or unforeseen factors. Other risk factors are detailed from time to time in our reports filed with the SEC and we encourage you to consult such disclosures.

All such factors are difficult to predict, contain uncertainties that may materially affect our actual results and are beyond our control. You should not place undue reliance on the forward-looking statements, each of which speaks only as of the date on which such statement is made, and we undertake no obligation to update the information contained in any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For more information, see Item 1A, "Risk Factors," included in our 2008 Form 10-K and updated in this Quarterly Report and our other 2009 Forms 10-Q. This Quarterly Report on Form 10-Q, our

2008 Form 10-K and our 2009 Forms 10-Q also describe material contingencies and critical accounting policies and estimates in the respective "Management's Discussion and Analysis" and "Combined Notes to Consolidated Financial Statements." We encourage you to review these items.

Financial Condition and Business Analysis

Executive Summary

The following items in this executive summary are explained in more detail in this Quarterly Report:

Results, Strategy and Outlook:

·

We earned $64.8 million, or $0.37 per share, in the third quarter of 2009 and $245.3 million, or $1.43 per share, in the first nine months of 2009, compared with $72.7 million, or $0.47 per share, in the third quarter of 2008 and $188.9 million, or $1.21 per share, in the first nine months of 2008. The decrease in 2009 third quarter results was due primarily to greater income tax expense as a result of lower tax benefits (and a higher effective income tax rate) from reduced capital expenditures and the absence of a benefit from the resolution of routine federal and state tax matters in 2008, as well as higher expenses related to uncollectible receivable balances. The results for the first nine months of 2009 were also impacted by a higher effective income tax rate from lower tax benefits as a result of reduced capital expenditures. The EPS for 2009 also reflects the issuance of approximately 19 million common shares on March 20, 2009. Results for the first nine months of 2008 included an after-tax charge of $29.8 million, or $0.19 per share, associated with the settlement of litigation.

·

Our regulated companies, which consist of The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO), and Yankee Gas Services Company (Yankee Gas), earned $65.3 million, or $0.37 per share, in the third quarter of 2009 and $240 million, or $1.40 per share, in the first nine months of 2009, compared with $71.4 million, or $0.46 per share, in the third quarter of 2008 and $218.5 million, or $1.40 per share, in the first nine months of 2008. The 2009 third quarter and year-to-date results were impacted by greater income tax expense for the reasons described above and higher expenses related to uncollectible receivable balances, partially offset by recognition of gains on securities in the NU Trust Under Supplemental Executive Retirement Plan (NU supplemental benefit trust).

·

Earnings at the distribution segments of our regulated companies (which include Yankee Gas and the generation business of PSNH) totaled $22.5 million in the third quarter of 2009 and $120 million in the first nine months of 2009, compared with $35.5 million in the third quarter of 2008 and $114.9 million in the first nine months of 2008. Earnings at the transmission segments of our regulated companies totaled $42.8 million in the third quarter of 2009 and $120 million in the first nine months of 2009, compared with $35.9 million in the third quarter of 2008 and $103.6 million in the first nine months of 2008.

·

Our competitive businesses held by NU Enterprises, Inc. (NU Enterprises) earned $0.3 million in the third quarter of 2009 and $11.6 million, or $0.07 per share, in the first nine months of 2009, compared with $4.6 million, or $0.03 per share, in the third quarter of 2008 and $8.7 million, or $0.05 per share, in the first nine months of 2008. Year-to-date 2009 results included an after-tax mark-to-market gain of $3.7 million associated with wholesale marketing contracts. The first nine months of 2008 results included a net after-tax charge to earnings of $2.8 million associated with the implementation of accounting guidance for fair value measurements and an after-tax mark-to-market gain of $2.7 million. Third quarter 2009 results included an after-tax mark-to-market loss of $0.9 million, as compared to an after-tax mark-to-market gain of $3.6 million in the third quarter of 2008.

·

NU parent and other companies recorded net expenses of $0.8 million in the third quarter of 2009 and $6.3 million, or $0.04 per share, in the first nine months of 2009, compared with net expenses of $3.3 million, or $0.02 per share, in the third quarter of 2008 and $38.3 million, or $0.24 per share, in the first nine months of 2008. Results for the first nine months of 2008 included the after-tax charge of $29.8 million associated with the settlement of litigation.

·

We continue to project consolidated 2009 earnings of between $1.80 per share and $1.90 per share. We project consolidated 2010 earnings of between $1.80 per share and $2.00 per share, including distribution segment earnings of between $0.95 per share and $1.05 per share, transmission segment earnings of between $0.90 per share and $0.95 per share, competitive business earnings of between $0.00 per share and $0.05 per share, and net expenses at NU parent and other companies of approximately $0.05 per share. PSNH filed a distribution rate case in June 2009 and CL&P plans to file a distribution rate case in late 2009 or early 2010. There are uncertainties in the distribution segment guidance over the outcomes of these distribution rate cases, both of which are expected to conclude in mid-2010. The filing of a distribution rate case for Yankee Gas is also under consideration but additional earnings from such a filing are not included in the 2010 projection. We also project that we will achieve a compound average annual EPS growth rate for the five-year period of 2010 to 2014 of between 6 percent and 9 percent, using 2009 projected EPS as the base level.
We had

previously estimated a compound average annual EPS growth rate at the low end of an 8 percent to 11 percent range from 2009 to 2013, using 2007 EPS as the base level. Refer to "Future Outlook" in this Management's Discussion and Analysis for further discussion.

·

Regulated company capital expenditures are expected to total approximately $6.4 billion from 2010 through 2014, which would enable our total rate base to grow at a compound average annual growth rate of 9.5 percent from approximately $7.1 billion at the end of 2009 to $11.1 billion at the end of 2014. This projection assumes the projects we have included in our five-year plan are built according to our schedule and on budget.

Legal, Regulatory and Other Items:

·

On August 6, 2009, CL&P, PSNH, and WMECO filed an application with the U.S. Department of Energy (DOE) seeking federal stimulus funding for 50 percent of $253 million in capital investment programs, including the installation of smart grid technology in Connecticut, New Hampshire and Massachusetts. The DOE elected not to approve this application in October 2009. We continue to proceed with the smart meter initiatives at CL&P and WMECO further described below.

·

On August 12, 2009, the Massachusetts Department of Public Utilities (DPU) approved the installation of 6 megawatts (MW) of solar energy generation in WMECO's service territory at an estimated cost of $41 million. These generation facilities are expected to be commissioned beginning in 2010, and the return on equity (ROE) on these assets will be 9 percent.

·

On August 31, 2009, CL&P completed a three-month dynamic pricing smart meter pilot program that involved nearly 3,000 customers. CL&P is required to file a report on the results of the pilot with the Connecticut Department of Public Utility Control (DPUC) on December 1, 2009. In the first quarter of 2010, CL&P expects to file an Advanced Metering Infrastructure (AMI) deployment recommendation with the DPUC.

·

On October 16, 2009, WMECO filed its proposal for a dynamic pricing smart meter pilot program with the DPU. The program proposes to involve 1,750 customers in WMECO's service region for a term of six months beginning in April 2011. The total cost of the project is projected to be $7 million, which would be recovered through WMECO rates. A decision is expected from the DPU in the first half of 2010.

Liquidity:

·

On October 5, 2009, the New Hampshire Public Utilities Commission (NHPUC) approved an application by PSNH to issue $150 million of first mortgage bonds and increase its short-term debt limit to $60 million above the statutory limit of 10 percent of net plant, which represents approximately $157 million. We currently expect PSNH to issue the bonds by the end of 2009.

·

We expect to issue an aggregate amount of approximately $340 million of long-term debt in 2010 ($170 million at PSNH, $90 million at WMECO and $80 million at Yankee Gas). We currently anticipate a single public offering of approximately $300 million in NU common shares in the next five years, which is expected no earlier than 2012.

·

Primarily as a result of NU's March 2009 common share offering and CL&P's February 2009 first mortgage bond issuance, which resulted in total gross proceeds of approximately $630 million, our cash and cash equivalents totaled $249 million as of September 30, 2009, compared with $89.8 million as of December 31, 2008. As of September 30, 2009, we also had $446.9 million of aggregate borrowing availability on our revolving credit lines, as compared to $157.8 million of availability as of December 31, 2008.

·

Our cash capital expenditures totaled $634.4 million in the first nine months of 2009, compared with $951.8 million in the first nine months of 2008. The decrease in our cash capital expenditures was primarily the result of lower transmission segment capital expenditures, particularly at CL&P, due to the completion in 2008 of three major transmission projects in southwest Connecticut. We project total capital expenditures of approximately $960 million in 2009 (including non-cash factors).

·

After rate reduction bond (RRB) payments included in financing activities, we had cash flows provided by operating activities in the first nine months of 2009 of $577.9 million, which represented an increase of $325.7 million from the first nine months of 2008. The improved cash flows were due primarily to the increase in operating results from higher transmission revenues at CL&P, as well as NU cost management efforts; a shift in accounts receivable and unbilled revenue balances of approximately $159 million; a lower level of operating costs that will be recovered from customers in future periods ("regulatory underrecoveries") of approximately $141 million; and the absence in 2009 of the litigation settlement payment of $49.5 million made in March 2008. We project consolidated cash flows provided by operating activities of approximately $700 million in 2009, after RRB payments of approximately $244 million. Consolidated cash flows provided by operating activities after RRB

payments are expected to total approximately $4 billion from 2010 through 2014, ranging from approximately $700 million in 2010 to approximately $1.1 billion in 2014.

Overview

Consolidated: We earned $64.8 million, or $0.37 per share, in the third quarter of 2009 and $245.3 million, or $1.43 per share, in the first nine months of 2009, compared with $72.7 million, or $0.47 per share, in the third quarter of 2008 and $188.9 million, or $1.21 per share, in the first nine months of 2008.
The decrease in 2009 third quarter results was due primarily to greater income tax expense as a result of lower tax benefits (and a higher effective income tax rate) from reduced capital expenditures and the absence of a benefit from the resolution of routine federal and state tax matters in 2008, as well as higher expenses related to uncollectible receivable balances. The results for the first nine months of 2009 were also impacted by a higher effective income tax rate from lower tax benefits as a result of reduced capital expenditures. The EPS for 2009 also reflects the issuance of approximately 19 million common shares on March 20, 2009. The 2008 results include a first-quarter, after-tax charge of $29.8 million, or $0.19 per share, resulting from the settlement of litigation. A summary of our earnings by segment, which also reconciles the non-GAAP financial measures of consolidated non-GAAP earnings and EPS, as well as EPS by segment, to the most directly comparable GAAP measures of consolidated net income attributable to controlling interests and fully diluted EPS, for the third quarter and first nine months of 2009 and 2008 is as follows:

                              For the Three Months Ended September 30,                 For the Nine Months Ended September 30,
(Millions of                      2009                                                      2009
Dollars, except                                                2008                                                     2008
 per share amounts)      Amount        Per Share       Amount       Per Share      Amount        Per Share      Amount     Per Share
Net income             $                                                         $
attributable to
controlling
 interests (GAAP)            64.8     $     0.37     $     72.7    $     0.47         245.3     $     1.43     $ 188.9    $     1.21

Regulated companies    $     65.3     $     0.37     $     71.4    $     0.46    $    240.0     $     1.40     $ 218.5    $     1.40
Competitive
businesses                    0.3              -            4.6          0.03          11.6           0.07         8.7          0.05
NU parent and other
companies                    (0.8)             -           (3.3)        (0.02)         (6.3)         (0.04)       (8.5)        (0.05)
Non-GAAP earnings            64.8           0.37           72.7          0.47         245.3           1.43       218.7          1.40
Litigation charge
(after-tax)                     -              -              -             -             -              -       (29.8)        (0.19)
Net income             $                                                         $
attributable to
controlling
 interests (GAAP)            64.8     $     0.37     $     72.7    $     0.47         245.3     $     1.43     $ 188.9    $     1.21

Regulated Companies: Our regulated companies operate in two segments: electric transmission and electric and gas distribution, with PSNH generation included in the distribution segment. A summary of regulated company earnings by segment for the third quarter and first nine months of 2009 and 2008 is as follows:

                                    For the Three Months Ended September 30,    For the Nine Months Ended September 30,
(Millions of Dollars)                   2009                    2008                 2009                  2008
CL&P Transmission                  $         33.7       $               30.7    $        98.9      $              86.5
PSNH Transmission                             5.5                        3.6             14.1                     12.4
WMECO Transmission                            3.6                        1.6              7.0                      4.7
   Total Transmission                        42.8                       35.9            120.0                    103.6
CL&P Distribution                            11.4                       23.5             55.0                     57.2
PSNH Distribution                            10.7                       10.7             36.2                     32.3
WMECO Distribution                            4.9                        3.6             13.5                     10.1
Yankee Gas                                   (4.5)                      (2.3)            15.3                     15.3
   Total Distribution                        22.5                       35.5            120.0                    114.9
Net Income - Regulated Companies   $         65.3       $               71.4    $       240.0      $             218.5

The higher third quarter and first nine months of 2009 transmission segment earnings reflect a higher level of investment in this segment as we continued to build out our transmission infrastructure to meet our customers' and the region's reliability needs. The results primarily reflect the effect of CL&P's investment of approximately $1.6 billion since the beginning of 2005 in the southwest Connecticut transmission projects that were completed in late 2008.
The first nine months of 2008 transmission segment results included earnings of approximately $2.9 million related to the February 1, 2005 through December 31, 2007 time period as a result of a first quarter 2008 order issued by the Federal Energy Regulatory Commission (FERC).

CL&P's third quarter 2009 distribution segment earnings were $12.1 million lower than the same period in 2008 due primarily to greater income tax related expense of approximately $11 million primarily related to the absence of a benefit from the resolution of routine tax matters in 2008. Third quarter 2009 earnings were also lower as a result of certain higher operating costs, including expenses related to uncollectible receivable balances, pension, depreciation and interest expense, partially offset by specific cost management efforts. Retail electric sales were 5 percent lower than 2008, but revenues were higher due primarily to the distribution rate increase that took effect on February 1, 2009. Third quarter 2009 earnings also benefited from the recognition of gains on securities in the NU supplemental benefit trust.

For the first nine months of 2009, CL&P's distribution segment earnings were $2.2 million lower than the same period in 2008 due primarily to increased income tax expense from a higher effective tax rate and certain higher operating costs, partially offset by higher revenues and recognition of gains on securities in the NU supplemental benefit trust. Certain operating costs were higher in 2009 including expenses related to uncollectible receivable balances, depreciation and amortization, and interest expense, partially offset by specific cost management efforts, and lower storm costs. CL&P's retail electric sales were 3.9 percent lower for the first nine months of 2009, but revenues were higher due primarily to distribution rate increases effective February 1, 2008 and February 1, 2009. For the 12 months ended September 30, 2009, CL&P's distribution segment Regulatory ROE was 7 percent, and for the full year 2009, we expect it to be approximately 7 percent.

PSNH's third quarter 2009 distribution segment earnings were the same as the third quarter of 2008. Positive factors in the third quarter of 2009 included higher revenues attributable to the temporary distribution rate increase effective August 1, 2009, higher generation-related earnings, recognition of gains on securities in the NU supplemental benefit trust, and lower interest expense. Offsetting these positive factors was a 3.8 percent decline in retail electric sales and higher expenses including income taxes, pension costs, expenses related to uncollectible receivable balances, depreciation, and property taxes.

PSNH's distribution segment earnings for the first nine months of 2009 were $3.9 million higher than the same period of 2008 due primarily to higher generation-related earnings, lower carrying costs on credits owed to customers, recognition of gains on securities in the NU supplemental benefit trust, and higher revenues due to the August 1, 2009 distribution rate increase, partially offset by higher depreciation, property taxes, pension costs, expenses related to uncollectible receivable balances, and a 3.8 percent decrease in retail electric sales. For the 12 months ended September 30, 2009, PSNH's distribution segment Regulatory ROE was 7.4 percent (including generation), which reflects a Regulatory ROE for the distribution business of 3.9 percent. PSNH's generation segment has an authorized ROE of 9.8 percent. For the full year 2009, we expect PSNH's distribution segment Regulatory ROE to be approximately 7.5 percent.

WMECO's third quarter 2009 distribution segment earnings were $1.3 million higher than the same period in 2008 due primarily to the absence of a $1.4 million pre-tax charge for potential refunds to customers that was recorded in the third quarter of 2008, lower storm costs and employee benefit costs, and the recognition of gains on securities in the NU supplemental benefit trust, partially offset by higher property taxes, depreciation and amortization, and a 2.7 percent decrease in retail electric sales.

WMECO's distribution segment earnings for the first nine months of 2009 were $3.4 million higher than the same period in 2008 due primarily to the absence of a $1.6 million pre-tax charge related to a DPU ruling and a $1.4 million pre-tax charge for potential refunds to customers, both of which were recorded in 2008, lower operating costs including storm costs, and lower employee benefit costs.
Partially offsetting these positive factors were higher property taxes, depreciation and amortization, and a 5.3 percent decrease in retail electric sales. For the 12 months ended September 30, 2009, WMECO's distribution segment Regulatory ROE was 8.6 percent, and for the full year 2009, we expect it to be approximately 8 percent.

Yankee Gas's third quarter 2009 loss was $2.2 million greater than the same period in 2008 due primarily to higher expenses related to uncollectible receivable balances, employee benefit costs, and interest expense, partially offset by higher revenues attributable to a 5.8 percent increase in firm natural gas sales.

For the first nine months of 2009, Yankee Gas's earnings were the same as the first nine months of 2008. The 2008 earnings included a $5.8 million pre-tax charge for refunds of previous gas cost recoveries. The 2009 earnings reflect certain higher operating costs, including expenses related to uncollectible receivable balances, employee benefits, and interest expense, partially offset by higher revenues as a result of an 8.2 percent increase in firm natural gas sales, and the resolution of tax matters. For the 12 months ended September 30, 2009, Yankee Gas's Regulatory ROE was 8 percent, and for the full year 2009, we expect it to be approximately 8 percent.

. . .