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

Topics To Cover Today Ø Regulated company update Ø Divestiture update Ø NUEI risk Topics To Cover Today Ø Regulated company update Ø Divestiture update Ø NUEI risk management Ø Enterprise risk management Northeast Utilities System 2

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

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

Competitive Business Divestiture Is Progressing Wholesale: Ø New England divestiture completed in 2005 Ø Competitive Business Divestiture Is Progressing Wholesale: Ø New England divestiture completed in 2005 Ø PJM contracts rapidly rolling off Ø NY municipal association contract continues through 2013 Services: Ø 4 of 6 businesses (electrical, HVAC, telecommunications performance contracting) completely sold Ø Most of 5 th business (Select Energy Contracting) sold Ø E. S. Boulos (electrical contractor) still to be divested Telecom: Ø All 2. 7 million shares of Globix (GEX) sold in April, netting $6. 7 million Retail: Ø Closed June 1 on sale to Hess Corporation – NU making three payments to Hess totaling $44 million Generation: Ø Bidding process under way for 1, 442 MW book of assets Ø Book value $825 million Northeast Utilities System 5

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

Risk Management Elsewhere At NUEI Ø Generation – Mt. Tom output significantly hedged through Risk Management Elsewhere At NUEI Ø Generation – Mt. Tom output significantly hedged through 2008 § Coal supplies also hedged through 2008 § SCR installation complete – Conventional hydro output unhedged Ø Services – SESI sold to Ameresco; parent performance guarantees gone in 12 months – Remaining services business, electrical contractor E. S. Boulos, no draw on capital Ø Retail – Sold to Hess Northeast Utilities System 7

Risk Management At NU: The Vision Ø Improve risk management and capital expenditure decision Risk Management At NU: The Vision Ø Improve risk management and capital expenditure decision making in order to increase NU’s ability to achieve its strategic vision Ø Development of an ERM framework was initiated in late 2004, with the assistance of PWC’s risk management consulting capabilities Ø 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 Northeast Utilities System 8

Moving Forward With ERM Ø The implementation phase of ERM within NU was initiated Moving Forward With ERM Ø The implementation phase of ERM within NU was initiated in the second quarter of 2005 Ø The implementation was based on the findings and recommendations of an internal multi-functional team working with PWC Ø Among the major recommendations: – Create a corporate risk function supported by independent Business Unit Risk Controllers “BURC” – Establish a corporate Risk and Capital Committee (“Ra. CC”) 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 Ra. CC – Establish capital project review standards and thresholds – Develop standard tools and techniques for analyzing, monitoring, and reporting on capital investments and risk Ø Accountability for risk taking remains with the business units Northeast Utilities System 9

NU’s Enterprise Management Organization ERM Organization Structure Board of Trustees CEO Ra. CC Chair NU’s Enterprise Management Organization ERM Organization Structure Board of Trustees CEO Ra. CC Chair 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 Northeast Utilities System 10

Background Of Risk Management Managers • Current position since 2005 • ENMAX (Calgary) 1998 Background Of Risk Management Managers • Current position since 2005 • ENMAX (Calgary) 1998 -2004 • Treasurer, VP-Strategy, other management positions NUEI Business Unit Risk Controller Director Enterprise Risk Management Transmission Business Unit Risk Controller Utility Business Unit Risk Controller Vacant • Current position since March 2006 • Manager, risk analysis, analytics, reporting 2003 -2006 • Analyst, Senior Engineer, Engineer 1995 -2003 Northeast Utilities System 11

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

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

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

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

Risk Assessment Dimension Ø Utilizing both a bottoms-up and tops-down approach, each business unit Risk Assessment Dimension Ø Utilizing both a bottoms-up and tops-down approach, each business unit is creating a “risk scorecard” which selects and rank orders key risks Ø 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 Ø Business unit assessments will be aggregated to create an enterprise dashboard Risk List by BU Risks Scored Using “Heat Map” Approach • Operational • Financial performance • Operation • Financial • Risks to the long-term strategy • Risks to the near-term operating plan, both financial and operational Impact • Strategic • Organizational Enterprise Dashboard • Risk to the corporate reputation Likelihood Northeast Utilities System 16

Implementation Timeline Ra. CC is the Risk and Capital Committee chaired by Chief Financial Implementation Timeline Ra. CC is the Risk and Capital Committee chaired by Chief Financial Officer NU Risk Policy approved by Ra. CC* Ra. CC Charter approved ERM Corporate Web page Capital Projects Approval Policy (Ca. PP) & Limits approved by Ra. CC Organizational Risk training completed Initiate Board Reporting UG & TG Risk Scorecards Capital Project Risk Scorecards ($10 M+ projects) Corporate Risk Scorecards Q 2 2006 Q 1 2006 Q 3 2006 TARGET COMPLETION DATE Ø NU Risk Policy, Ra. CC Charter approved in Q 1 2006, Capital Projects Approval Policy to be approved in Q 2 2006 Ø Organizational risk training targeted for completion in Q 2 2006 Ø ERM Corporate Web page developed Ø Operating Unit Risk Scorecards completed for all operating units by end of Q 2 2006, Corporate Center by Q 3 2006 Ø Capital Project Risk Scorecards developed for all capital projects $10 million and above by end of Q 2 2006 Northeast Utilities System 17

The Vision For Full Implementation Ø All sizeable capital projects are currently subject to The Vision For Full Implementation Ø All sizeable capital projects are currently subject to the ERM framework Ø In excess of $2 billion in capital projects approved, including the country’s single largest transmission line currently under construction ($1. 3 billion) Ø The 2006 strategic planning process is incorporating ERM principles and will be “risk assessed” prior to Board presentation Ø ERM will lead to robust scenario planning across all businesses Ø Quantitative relationships will identify natural hedges and exposures within the business Ø Improved organizational literacy will be achieved, leading to improved decision making and business execution Northeast Utilities System 18

ERM Accomplishments To Date Training Operations Capital Five 5 -hour top risk identification sessions ERM Accomplishments To Date Training Operations Capital Five 5 -hour top risk identification sessions with senior management from each business Credit function integrated into Business Unit Risk Controllers Capital project risk assessments completed for 4 SW CT transmission projects, LNG facility, Northern Wood Five dashboard identification workshops and 10 top risk drill down sessions for each business line Risk website developed 3 PSNH projects totaling $79 million due in 2006 15 one-hour training presentations delivered to managers and above, workshop handbook developed Risk assessment of key strategic assumptions Post-completion reviews scheduled for 6 projects in 2006 Northeast Utilities System 19

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