Enterprise Risk Management Review Standard & Poor’s June 19, 2006

1. Northeast Utilities System Enterprise Risk Management ReviewStandard & Poor’sJune 19, 2006

2. Topics To Cover Today • Regulated company update • Divestiture update • NUEI risk management • Enterprise risk management

3. Regulated Company Update - Legislature • New Hampshire • Governor Lynch signed mercury reduction bill allowing upgrade of Merrimack coal-fired station • No action on second PSNH wood-fired plant • Connecticut • Regular 2006 legislative session ended without action on generation stimulus bill

4. Rate Case Update • PSNH • Filed request for $49 million T&D increase • Reached settlement on $24 million temporary increase effective 7/1/06 • WMECO • CL&P

5. Competitive Business Divestiture Is Progressing Wholesale: • New England divestiture completed in 2005 • PJM contracts rapidly rolling off • NY municipal association contract continues through 2013 Services: • 4 of 6 businesses (electrical, HVAC, telecommunications performance contracting) completely sold • Most of 5th business (Select Energy Contracting) sold • E. S. Boulos (electrical contractor) still to be divested Telecom: • All 2.7 million shares of Globix (GEX) sold in April, netting $6.7 million Retail: • Closed June 1 on sale to Hess Corporation • NU making three payments to Hess totaling $44 million Generation: • Bidding process under way for 1,442 MW book of assets • Book value $825 million

6. Risk Management At NUEI Wholesale Until Final Divestiture • Every position hedged where possible • Risk management policies updated, effective June 1, 2006 • No trading • No new standard offer sales commitments • VaR limits lower • PJM book flattened and falling rapidly • 75% of March 2005 commitments will have rolled off by year-end 2006 • NYMPA positions flattened in early years, still open in later years • Daily reporting • Monthly Risk Oversight Committee meeting on positions • Regular reports to Board of Trustees

7. Risk Management Elsewhere At NUEI • Generation • Mt. Tom output significantly hedged through 2008 • Coal supplies also hedged through 2008 • SCR installation complete • Conventional hydro output unhedged • Services • SESI sold to Ameresco; parent performance guarantees gone in12 months • Remaining services business, electrical contractor E. S. Boulos, no draw on capital • Retail • Sold to Hess

8. Risk Management At NU: The Vision • Improve risk management and capital expenditure decision making in order to increase NU’s ability to achieve its strategic vision • Development of an ERM framework was initiated in late 2004, with the assistance of PWC’s risk management consulting capabilities • The specific rationale for moving forward was based on: • Management’s and the Board’s need to capture, understand, monitor and mitigate risk on a continuous basis • The company’s recently announced multi-billion dollar distribution and transmission capital program had the potential to expose the company to numerous financial and operation risks • Prudently incurred costs may give rise to financial losses as a result of recovery lags • Robust risk and capital management provided a methodological basis for defending decisions questions by regulators • Capital commitments, energy marketing and procurement exposed the company to cash flow volatility and financing risk • A belief that a proper application of an ERM framework would advance the company’s and its management’s financial and operational literacy

9. Moving Forward With ERM • The implementation phase of ERM within NU was initiated in the second quarter of 2005 • The implementation was based on the findings and recommendations of an internal multi-functional team working with PWC • Among the major recommendations: • Create a corporate risk function supported by independent Business Unit Risk Controllers “BURC” • Establish a corporate Risk and Capital Committee (“RaCC”) and working group – integrate risk and capital expenditure decisions • Clarify the roles and charters of existing corporate and Board committees and coordinate them with that of the RaCC • Establish capital project review standards and thresholds • Develop standard tools and techniques for analyzing, monitoring, and reporting on capital investments and risk • Accountability for risk taking remains with the business units

10. NU’s Enterprise Management Organization ERM Organization Structure Board of Trustees CEO Chair RaCC CFO Corporate ERM Group Director UG Risk Controller President Utility Group TG Risk Controller President Transmission Unreg. Risk Controller President Select Energy Senior Risk Analyst

11. Background Of Risk Management Managers • Current position since 2005 • ENMAX (Calgary) 1998-2004 • Treasurer, VP-Strategy, other management positions • Current position since March 2006 • Manager, risk analysis, analytics, reporting 2003-2006 • Analyst, Senior Engineer, Engineer 1995-2003

12. The Risk And Capital Committee • Approved and oversees ERM policies and procedures • Meets monthly • Executive management membership • Chaired by CFO • Capital projects reviewed • Risk scorecard review

13. Implementing Enterprise Risk Management Culture • Develop a leadership team that understands ERM • Create an environment where all levels of employees are encouraged to question and challenge • Develop an orientation and education program that is mandatory for all employees • Develop a common language • Demonstrate that inappropriate/unethical behavior is unacceptable and action is taken • Incent appropriate behavior • Understand and communicate the risk/reward inter-relationship • Demonstrate the role of risk management in every employee’s job

14. Define The Language Of Risk Management • Risk: Uncertainty around outcomes • Risks: Uncertainty drivers • Critical Outcomes: Define business success • Impact: What can we lose or gain? • Likelihood: Given current controls… • Risk Score: Impact X Likelihood • Dashboard: Critical outcomes (gauges) and maximum impacts (level 5 outcomes) • Mitigation/control: Response?

15. Determines the legitimacy of the business case and value of the investment in terms of achieving the corporate strategic goals The ERM Process Is Currently In Implementation Capital Project Approval Dimension A Socratic evaluation of the efficacy of the business case’s premises and conclusion by an expert who has no agency conflicts A quantitative and qualitative description of how an investment helps achieve the firm’s strategic goals Continually compares the investment to the case projections to determine the investment’s viability Business manager identifies potential capital requirement to support business goals Cross functional peer managers review the case’s assumptions, risks, and analysis RaCC evaluates the case and BURC’s assessment to make its recommendation to the CEO Need Peer Review Committee Approval Independent Analysis Proposal Monitoring Business manager develops a business case for making the investment in NU’s standard template BURC examines the case’s assumptions (stress tests), risks, analysis, and strategic goal fit and compares the investment to alternatives BURC reviews the investment’s progress, provides routine and event-driven reports back to the RaCC, and records its performance for use in future business case development Driven by economics, regulation, operations and customer demand Enhances the case’s quality before independent analysis

16. Risk Assessment Dimension • Utilizing both a bottoms-up and tops-down approach, each business unit is creating a “risk scorecard” which selects and rank orders key risks • Risks are processed through a dashboard that assesses impact on several scales, including financial, legal, reputation, strategy, business continuity, customer service and environmental, health and safety • Business unit assessments will be aggregated to create an enterprise dashboard Enterprise Dashboard Risks Scored Using “Heat Map” Approach Risk List by BU • Operational • Financial performance • Operation • Financial • Strategic • Organizational • Risks to the long-term strategy • Risks to the near-term operating plan, both financial and operational • Risk to the corporate reputation Impact Likelihood

17. Implementation Timeline UG & TG Risk Scorecards RaCC is the Risk and Capital Committee chaired by Chief Financial Officer Organizational Risk training completed Capital Projects Approval Policy (CaPP) & Limits approved by RaCC Capital Project Risk Scorecards ($10M+ projects) RaCC Charter approved Initiate Board Reporting ERM Corporate Web page Corporate Risk Scorecards NU Risk Policy approved by RaCC* Q2 2006 Q3 2006 Q1 2006 TARGET COMPLETION DATE • NU Risk Policy, RaCC Charter approved in Q1 2006, Capital Projects Approval Policy to be approved in Q2 2006 • Organizational risk training targeted for completion in Q2 2006 • ERM Corporate Web page developed • Operating Unit Risk Scorecards completed for all operating units by end of Q2 2006, Corporate Center by Q3 2006 • Capital Project Risk Scorecards developed for all capital projects $10 million and above by end of Q2 2006

18. The Vision For Full Implementation • All sizeable capital projects are currently subject to the ERM framework • In excess of $2 billion in capital projects approved, including the country’s single largest transmission line currently under construction ($1.3 billion) • The 2006 strategic planning process is incorporating ERM principles and will be “risk assessed” prior to Board presentation • ERM will lead to robust scenario planning across all businesses • Quantitative relationships will identify natural hedges and exposures within the business • Improved organizational literacy will be achieved, leading to improved decision making and business execution

19. ERM Accomplishments To Date

20. Keys To ERM’s Long-Term Success • Highly dependent on the overall organizational participation, executive sponsorship, communication and buy-in • Equally dependent on the skills and experience of the risk management organization, both at the business unit level and corporate • The process must ultimately engage the entire organization and address risk as a cultural matter • ERM must be integrated with other company processes, including strategic planning, budgeting, compliance, SOX, etc. • Results and successes must be communicated within the organization