Summary of NORTHEAST UTILITIES

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related combined notes included in this Annual Report on Form 10-K. References in this Annual Report to "NU," the "Company," "we," "us" and "our" refer to Northeast Utilities and its subsidiaries. All per share amounts are reported on a diluted basis.

Refer to the Glossary of Terms included in this Annual Report on Form 10-K for abbreviations and acronyms used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

The only common equity securities that are publicly traded are common shares of NU. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities allocated to such business but rather represent a direct interest in our assets and liabilities as a whole.
EPS by business is a financial measure not recognized under GAAP that is calculated by dividing the Net Income Attributable to Controlling Interest of each business by the weighted average diluted NU common shares outstanding for the period. The discussion below also includes non-GAAP financial measures referencing our 2012, 2011, and 2010 earnings and EPS excluding certain impacts related to NU's merger with NSTAR, a 2011 non-recurring charge at CL&P for the establishment of a reserve to provide bill credits to its residential customers and donations to charitable organizations, and certain non-recurring benefits from the settlement of tax issues in 2010. We use these non-GAAP financial measures to evaluate and to provide details of earnings results by business and to more fully compare and explain our 2012, 2011 and 2010 results without including the impact of these non-recurring items. Due to the nature and significance of these items on Net Income Attributable to Controlling Interest, we believe that the non-GAAP presentation is more representative of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance by business.
These non-GAAP financial measures should not be considered as an alternative to reported Net Income Attributable to Controlling Interest or EPS determined in accordance with GAAP as an indicator of operating performance.

Reconciliations of the above non-GAAP financial measures to the most directly comparable GAAP measures of consolidated diluted EPS and Net Income Attributable to Controlling Interest are included under "Financial Condition and Business Analysis - Overview - Consolidated" in Management's Discussion and Analysis, herein.

Financial Condition and Business Analysis

Merger with NSTAR:

On April 10, 2012, NU and NSTAR completed our merger. Pursuant to the terms and conditions of the Agreement and Plan of Merger, as amended (the Merger Agreement), NSTAR merged into NSTAR LLC, becoming a wholly-owned subsidiary of NU. Unless otherwise noted, the results of NSTAR LLC and its subsidiaries, hereinafter referred to as "NSTAR," are included from the date of merger, April 10, 2012, through December 31, 2012 throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.

The transaction was structured as a merger of equals in a tax-free exchange of shares. Pursuant to the Merger Agreement, NU issued to NSTAR shareholders 1.312 NU common shares for each issued and outstanding NSTAR common share. As a result, NU issued approximately 136 million common shares to the NSTAR shareholders.

Executive Summary

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

Results and Outlook:

We earned $525.9 million, or $1.89 per share, in 2012, compared with $394.7 million, or $2.22 per share, in 2011. Excluding after-tax merger-related costs of $107.6 million, or $0.39 per share, we earned $633.5 million, or $2.28 per share, in 2012. Excluding after-tax merger-related costs of $11.3 million, or $0.06 per share, and a non-recurring charge at CL&P of $17.9 million, or $0.10 per share, we earned $423.9 million, or $2.38 per share, in 2011. The non-recurring 2011 charge at CL&P relates to the establishment of a reserve to provide bill credits to its residential customers and donations to charitable organizations (storm fund reserve). Improved earnings results in 2012 were due primarily to the inclusion of NSTAR effective April 10, 2012 as well as higher transmission segment earnings as a result of increased investments in the transmission infrastructure.

The addition of NSTAR effective April 10, 2012 provided an earnings contribution of $182.9 million in 2012. Due to the timing of the merger closing, NSTAR results for the first three months of 2012 are not reflected in NU's 2012 results.

Our transmission segment earned $249.7 million, or $0.90 per share, in 2012, compared with $199.6 million, or $1.12 per share, in 2011.

Our electric distribution segment, which includes generation, earned $292.3 million, or $1.04 per share, in 2012, compared with $189.1 million, or $1.06 per share, in 2011. The 2012 results include $51.1 million, or $0.19 per share, of after-tax merger settlement agreement costs and the 2011 results include the CL&P storm fund reserve.

Our natural gas distribution segment earned $30.8 million, or $0.11 per share, in 2012, compared with $31.7 million, or $0.18 per share, in 2011. The 2012 results include $2.1 million, or $0.01 per share, of after-tax merger settlement agreement costs.

NU parent and other companies recorded net losses of $46.9 million, or $0.16 per share, in 2012, compared with net losses of $25.7 million, or $0.14 per share, in 2011. The 2012 and 2011 results include $54.4 million, or $0.19 per share, and $11.3 million, or $0.06 per share, respectively, of after-tax merger costs.

We project capital expenditures of approximately $5 billion from 2013 through 2015. Of the $5 billion, we expect to invest approximately $2.5 billion in our electric and natural gas distribution segments, and $2.3 billion in our electric transmission segment. In addition, we project capital expenditures of approximately $1.6 billion from 2016 through 2017 in our electric transmission segment.

Legislative, Regulatory, Policy and Other Items:

On June 15, 2012, Connecticut enacted the "Enhancing Emergency Preparedness and Response Act," which is intended to enhance the state's emergency preparedness and response in the event of natural disasters. Among numerous provisions, the bill required the PURA to establish emergency performance standards for utilities and allows the PURA to levy penalties for failure to meet those standards.

On August 1, 2012, efforts to settle a complaint filed at FERC by various New England parties concerning the base ROE earned by New England transmission owners ended without a settlement. Soon thereafter, litigation began before a FERC trial judge. In the fourth quarter of 2012, additional testimony and complaints were filed. On January 18, 2013, the FERC trial staff filed testimony and analysis recommending a base ROE of 9.66 percent based on the midpoint of their analysis with a range of reasonableness of 6.82 percent to 12.51 percent. Hearings are scheduled for May 2013, a trial judge's ruling is due in September 2013, and a FERC decision is expected in 2014.

On August 1, 2012, PURA issued a final decision in the investigation of CL&P's performance related to both Tropical Storm Irene and the October 2011 snowstorm.
The decision concluded that CL&P was deficient and inadequate in its preparation, response, and communication to both storms, and identified certain penalties that could be imposed on CL&P during its next rate case. However, PURA will consider and weigh the extent to which CL&P has taken steps to improve current practices in future storm response in determining any potential penalties. We believe such steps to improve current storm preparation and response practices have been successfully executed in recent storms, and that CL&P's response to these 2011 storms was prudent and consistent with industry standards, and that it is probable that it will be able to recover its deferred costs.

On August 3, 2012, Massachusetts Governor Patrick signed into law "An Act Relative to Competitively Priced Electricity in the Commonwealth." The Act establishes distribution rate case requirements for both electric and natural gas utility companies, as well as limiting settlement agreements, establishes new timing on rate case proceedings, and establishes requirements for all distribution companies to enter into additional long-term renewable energy distribution contracts.

On August 6, 2012, Massachusetts Governor Patrick signed into law "An Act relative to emergency service response of public utility companies" to help improve utility companies' emergency response and communication, as well as indicate how any assessed penalties will be provided to customers.

On October 29, 2012, Hurricane Sandy caused extensive damage to our electric distribution system across all three states resulting in deferred storm restoration costs of $204 million. Approximately 1.5 million of our 3.1 million electric distribution customers were without power during or following the storm. We believe the storm restoration costs meet the criteria for specific cost recovery in each state in which we operate and, as a result, we do not expect the storm to have a material impact on our results of operations.

On December 11, 2012, in separate orders issued by the DPU, NSTAR Electric and WMECO received penalties of $4.1 million and $2 million, respectively, related to the investigation into the electric utilities' responses to Tropical Storm Irene and the October 2011 snowstorm. The DPU stated that NSTAR Electric failed to communicate and prioritize restoration efforts in both storms and WMECO failed to prioritize restoration efforts in the October snowstorm. On December 28, 2012, NSTAR Electric and WMECO each filed appeals arguing the DPU penalties should be vacated. While we believe NSTAR Electric and WMECO should ultimately prevail upon appeal, we are unable to conclusively state that a favorable outcome is probable.

On January 16, 2013, PURA approved the $300 million plan CL&P filed on July 9, 2012 to improve the resiliency of the CL&P electric distribution system. The plan is consistent with the terms of the Connecticut settlement agreement among NU, NSTAR, and various Connecticut state agencies.

On February 8, 2013, a blizzard caused damage to the electric delivery systems of CL&P and NSTAR Electric. We have estimated that approximately 71,000 and 350,000 of CL&P and NSTAR Electric's distribution customers, respectively, were without power during or following the storm. We believe that this storm will cost between $100 million to $120 million, with approximately 90 percent of those costs relating to NSTAR Electric. We expect the storm restoration costs to meet the criteria for specific cost

recovery in each state in which we operate and, as a result, we do not expect the storm to have a material impact on our results of operations.

On February 19, 2013, Connecticut issued a final comprehensive energy strategy (strategy). The strategy includes a series of policy proposals that aim to expand energy choices, including natural gas, improve environmental conditions, create clean energy jobs, and enhance the quality of life for customers in the state. Many of the recommendations in the strategy will require actions by the PURA and potentially the legislature.

NPT has identified a new route in the northern-most part of the project's route where PSNH did not own any rights of way. We expect to file the new route with the DOE in the first quarter of 2013, and we believe that NPT will be completed in early 2017. We estimate the costs of the Northern Pass transmission project will be approximately $1.2 billion.

Liquidity:

Cash and cash equivalents totaled $45.7 million as of December 31, 2012, compared with $6.6 million as of December 31, 2011, while cash capital expenditures totaled $1.5 billion in 2012, compared with $1.1 billion in 2011.

Cash flows provided by operating activities in 2012 totaled $1.05 billion, compared with operating cash flows of $901.1 million in 2011 (amounts are net of RRB payments). The improved cash flows were due primarily to the addition of NSTAR, which contributed $450.8 million of operating cash flows (net of RRB payments) to NU since the date of the merger, April 10, 2012. Offsetting the favorable NSTAR cash flow impact was an increase in storm restoration costs, NUSCO Pension Plan cash contributions, 2012 customer bill credits and NU Parent merger transaction cost payments.

In 2012, we issued $850 million of new long-term debt consisting of $400 million by NSTAR Electric, $300 million by NU Parent, and $150 million by WMECO. These new issuances were used primarily to repay $716.8 million of existing long-term debt, of which $663 million matured in 2012 ($400 million at NSTAR Electric and $263 million at NU Parent) and WMECO's tax-exempt PCRBs of $53.8 million scheduled to mature in 2028. Additionally, CL&P remarketed $62 million of tax-exempt PCRBs in April 2012 and redeemed $116.4 million of tax-exempt PCRBs in October 2012. As of December 31, 2012, approximately $730 million of NU's current liabilities relate to long-term debt that will be paid in the next 12 months.

On March 26, 2012, CL&P entered into a five-year $300 million unsecured revolving credit facility. The credit facility is intended to finance short-term borrowings that CL&P incurred to fund costs of restoring power following Tropical Storm Irene and the October 2011 snowstorm. As of December 31, 2012, CL&P had $89 million in borrowings outstanding under this credit facility.

On July 25, 2012, NU and certain of its subsidiaries jointly entered into a five-year $1.15 billion revolving credit facility, and NSTAR Electric entered into a five-year $450 million revolving credit facility. The new facilities expire on July 25, 2017 and will be used primarily to backstop NU's $1.15 billion commercial paper program and NSTAR Electric's $450 million commercial paper program. As of December 31, 2012, NU and NSTAR Electric had $1.15 billion and $276 million in borrowings outstanding under their respective commercial paper programs.

On January 15, 2013, CL&P issued $400 million of 2.5 percent first mortgage bonds that will mature on January 15, 2023. The proceeds, net of issuance costs, were used to repay CL&P's revolving credit facility borrowings of $89 million and $305.8 million of its commercial paper program borrowings.

On February 5, 2013, our Board of Trustees approved a common dividend payment of $0.3675 per share, payable March 28, 2013 to shareholders of record as of March 1, 2013. The dividend represented an increase of 7.1 percent over the $0.343 per share quarterly dividend paid in December 2012.

Overview


Consolidated:  A summary of our earnings by business, which also reconciles the
non-GAAP financial measures of consolidated non-GAAP earnings and EPS, as well
as EPS by business, to the most directly comparable GAAP measures of
consolidated Net Income Attributable to Controlling Interest and diluted EPS,
for 2012, 2011 and 2010 is as follows:


                                                         For the Years Ended December 31,
                                            2012 (1)                    2011                     2010
(Millions of Dollars, Except Per
Share Amounts)                        Amount      Per Share     Amount     Per Share     Amount     Per Share
Net Income Attributable to
Controlling Interest (GAAP)          $  525.9    $     1.89    $ 394.7    $     2.22    $ 387.9    $     2.19
Regulated Companies                  $  626.0    $     2.25    $ 438.3    $     2.46    $ 384.0    $     2.16
NU Parent and Other Companies             7.5          0.03      (14.4)        (0.08)      (2.4)        (0.00)
Non-GAAP Earnings                       633.5          2.28      423.9          2.38      381.6          2.16
Merger and Related Costs
(after-tax)                            (107.6)        (0.39)     (11.3)        (0.06)      (9.4)        (0.06)
Storm Fund Reserve                         -              -      (17.9)        (0.10)         -             -
Non-Recurring Tax Settlements              -              -          -             -       15.7          0.09
Net Income Attributable to
Controlling Interest (GAAP)          $  525.9    $     1.89    $ 394.7    $     2.22    $ 387.9    $     2.19

(1)

Results include the operations of NSTAR from the date of merger, April 10, 2012, through December 31, 2012.

The after-tax merger and related costs for 2012 consisted of the following charges:

Transaction and integration-related costs of $34 million at NU parent related to investment advisory fees, attorney fees, and consulting costs;

Change in control costs and other compensation costs of $13.5 million at NU parent and NSTAR;

A $23.6 million charge at CL&P related to the Connecticut settlement agreement, pursuant to which CL&P agreed to forego recovery of $40 million (pre-tax) of deferred storm restoration costs associated with Tropical Storm Irene and the October 2011 snowstorm;

A $14.8 million charge at CL&P for customer bill credits related to the Connecticut settlement agreement;

An aggregate of $12.8 million of charges at NSTAR Electric, NSTAR Gas, and WMECO for customer bill credits related to the Massachusetts settlement agreement; and

An $8.9 million charge at NU parent for the establishment of a fund to advance Connecticut energy goals related to the Connecticut settlement agreement.

Excluding the impacts of the 2012 and 2011 merger and related settlement agreement costs and the 2011 storm fund reserve, our 2012 earnings increased by $209.6 million, as compared to 2011, due primarily to the inclusion of NSTAR effective April 10, 2012, and higher transmission segment earnings as a result of increased investments in the transmission infrastructure. On an earnings per share basis, the 2012 NSTAR earnings contribution of $182.9 million ($204.5 million in non-GAAP earnings) was partially offset by the issuance of approximately 136 million common shares to close the merger. Offsetting these favorable earnings impacts were lower retail electric and firm natural gas sales due primarily to significantly milder weather in the first quarter of 2012, compared with the first quarter of 2011, higher pension and healthcare costs, higher depreciation and property taxes.

Regulated Companies: Our Regulated companies consist of the electric distribution, natural gas distribution, and transmission segments. Generation activities of PSNH and WMECO are included in our electric distribution segment.
A summary of our segment earnings for 2012, 2011 and 2010 is as follows:

                                           For the Years Ended December 31,
(Millions of Dollars)                    2012 (1)          2011          2010
Net Income - Regulated Companies       $     572.8     $     420.4     $  384.0
(GAAP)

Electric Distribution                  $     343.4     $     207.0     $  173.5
Transmission                                 249.7           199.6        177.8
Natural Gas Distribution                      32.9            31.7         32.7
Net Income - Regulated Companies             626.0           438.3        384.0
(Non-GAAP)
Merger Settlement Agreement Costs            (53.2)              -            -
(after-tax) (2)
Storm Fund Reserve (3)                           -           (17.9)           -
Net Income - Regulated Companies       $     572.8     $     420.4     $  384.0
(GAAP)

(1)

Results include NSTAR Electric and NSTAR Gas earnings from the date of merger, April 10, 2012, through December 31, 2012.

(2)

Merger settlement agreement costs are attributable to the electric distribution segment ($51.1 million) and the natural gas distribution segment ($2.1 million).

(3)

The storm fund reserve is attributable to the electric distribution segment.

The higher 2012 transmission segment earnings, as compared to 2011, were due primarily to the inclusion of the NSTAR Electric transmission business and increased investments in the transmission infrastructure, including GSRP, which is under construction in western Massachusetts and northern Connecticut.

Our electric distribution segment earned $292.3 million in 2012, compared with $189.1 million in 2011. Excluding the impacts of the 2012 merger settlement agreement costs and the 2011 storm fund reserve, our electric distribution segment earned $343.4 million in 2012 and $207 million in 2011. The higher earnings were due primarily to the addition of NSTAR Electric. Excluding $10.9 million of after-tax merger settlement agreement costs, which related to customer bill credits, NSTAR Electric's distribution business earned $150.2 million from April 10, 2012 through December 31, 2012. For further information regarding NSTAR Electric's earnings, see "Results of Operations - NSTAR Electric Company and Subsidiaries - Earnings Summary" in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Offsetting this favorable earnings impact was lower retail revenue, which was primarily the result of warmer than normal weather in the first quarter of 2012 as compared to colder than normal weather in the first quarter of 2011. In addition, our electric distribution segment had higher pension and employee benefit costs, higher depreciation and property taxes, and the DPU October snowstorm penalty ($2 million pre-tax) imposed on WMECO in December 2012, partially offset by the favorable impacts of the CL&P and PSNH 2010 distribution rate case decisions.
As a result of these decisions, the CL&P rates increased effective July 1, 2011, which resulted in a full year favorable impact to earnings in 2012, while the PSNH rates increased effective July 1, 2012.

Our natural gas distribution segment earned $30.8 million in 2012, compared with $31.7 million in 2011. Excluding the impact of the merger settlement agreement costs, our natural gas distribution segment earned $32.9 million in 2012. The higher earnings were due primarily to the addition of NSTAR Gas' results.
Excluding $2.1 million of after-tax merger settlement agreement costs, which related to customer bill credits, NSTAR Gas' earnings were $6.6 million from April 10, 2012 through December 31, 2012. Offsetting this favorable earnings impact was a decrease in total firm natural gas sales, which was primarily the result of warmer than normal weather in the first quarter of 2012 as compared to colder than normal weather in the first quarter of 2011, and higher pension expense, depreciation and property taxes. These costs were partially offset by lower operations and maintenance costs as well as the favorable impact of the Yankee Gas 2011 rate case decision resulting in the additional increase to annualized rates effective July 1, 2012.

A summary of our retail electric GWh sales and percentage changes, as well as changes in CL&P, NSTAR Electric, PSNH and WMECO retail electric GWh sales, and our firm natural gas sales and percentage changes in million cubic feet, as well as changes in Yankee Gas and NSTAR Gas' sales in million cubic feet, for 2012, as compared to 2011, is as follows:

For the Year Ended December 31, 2012 Compared to 2011

                      Sales (GWh)            Percentage
NU - Electric    2012 (1)        2011         Increase
Residential          19,719      14,766             33.5%
Commercial           24,117      14,301             68.6%
Industrial            5,462       4,418             23.6%
Other                   420         327             28.6%
Total                49,718      33,812             47.0%

For the Year Ended December 31, 2012 Compared to 2011

                              NSTAR
                 CL&P      Electric (2)      PSNH        WMECO
              Percentage    Percentage    Percentage   Percentage
              Increase/     Increase/     Increase/    Increase/
Electric      (Decrease)    (Decrease)    (Decrease)   (Decrease)
Residential       (1.1)%          0.2 %       (0.1)%       (1.0)%
Commercial        (1.2)%         (1.7)%        0.0 %        0.7 %
Industrial         0.5 %         (4.6)%        0.7 %       (0.9)%
Other              2.3 %        (12.2)%       (1.0)%       (5.7)%
Total             (0.9)%         (1.4)%        0.1 %       (0.3)%

(1)

NU retail electric sales include the sales of NSTAR Electric from the date of merger, April 10, 2012, through December 31, 2012.

(2)

Results for NSTAR Electric represent its standalone retail electric sales for the year ended December 31, 2012 and 2011.

                                                 For the Year Ended
                                         December 31, 2012 Compared to 2011
                                               Sales
                                       (million cubic feet)        Percentage
NU - Firm Natural Gas                  2012 (1)        2011         Increase
Residential                                22,535      13,508             66.8%
Commercial                                 27,906      17,175             62.5%
Industrial                                 19,453      16,197             20.1%
Total                                      69,894      46,880             49.1%
Total, Net of Special Contracts (2)        64,140      38,197             67.9%



                                          For the Year Ended
                                          December 31, 2012
                                           Compared to 2011
                                      Yankee Gas   NSTAR Gas (3)
                                      Percentage
                                      Increase/     Percentage
Firm Natural Gas                      (Decrease)     Decrease
Residential                               (7.6)%         (10.7)%
Commercial                                (3.5)%          (2.9)%
Industrial                                (2.5)%          (0.4)%
Total                                     (4.3)%          (6.2)%
Total, Net of Special Contracts (2)        2.3 %

(1)

NU firm natural gas sales include the sales of NSTAR Gas from the date of merger, April 10, 2012, through December 31, 2012.

(2)

Special contracts are unique to the customers who take service under such an arrangement and generally specify the amount of distribution revenue to be paid to Yankee Gas regardless of the customers' usage.

(3)

NSTAR Gas' sales data for the year ended December 31, 2012 compared to 2011 has been provided for comparative purposes only.

Weather and, to a lesser extent, fluctuations in fuel costs, conservation measures, and economic conditions affect sales to our customers. Industrial sales are less sensitive to temperature variations than residential and commercial sales. Weather impacts electric sales primarily during the summer and natural gas sales during the winter in our service territories (natural gas sales are more sensitive to temperature variations than electric sales).
Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur, particularly when weather patterns experienced are consistently colder or warmer. In addition, our . . .