----

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|   |   | Page(s) |
|--------|--------|---------|

|   | Report of Independent Registered Public Accounting Firm |  1 |
|--------|---------------------------------------------------------|---------|

|   | Consolidated Balance Sheets |  2 - 3 |
|--------|-----------------------------|-------------|

|   | Consolidated Statements of Income |  4 |
|--------|-----------------------------------|---------|

|   | Consolidated Statements of Stockholders’ Equity |  5 |
|--------|-------------------------------------------------------|---------|

|   | Consolidated Statements of Cash Flows |  6 - 7 |
|--------|---------------------------------------|-------------|

|   | Notes to Consolidated Financial Statements |  8 - 28 |
|--------|--------------------------------------------|--------------|

----

----

| VERMONT ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY                |   |
|--------------------------------------------------------------------|--------|
| Consolidated Balance Sheets                                        |   |
| December 31, 2010 and 2009                                    |   |
| Assets                                                             |   | 2010 |   |   | 2009 |   |
| Utility plant (notes 2 and 3)                                      |   | $ | 842,418,126 |   |   |   | 727,984,046  |   |
| Less accumulated depreciation and amortization                     |   |   | (107,874,057 | )   |   |   | (98,071,916 | )   |
| Net utility plant                                                  |   |   | 734,544,069  |   |   |   | 629,912,130  |   |
| Investment in Vermont Electric Transmission Company, Inc. (note 9) |   |   | 560,108  |   |   |   | 502,159  |   |
| Current assets:                                                    |   |   |   |   |   |   |   |   |
| Cash                                                               |   |   | 2,134,070  |   |   |   | 40,026,479  |   |
| Bond sinking fund deposits                                         |   |   | 564,000  |   |   |   | 526,000  |   |
| Bond interest deposits                                             |   |   | 4,537,947  |   |   |   | 4,573,388  |   |
| Accounts receivable:                                               |   |   |   |   |   |   |   |   |
| Affiliated companies                                               |   |   | 12,219,169  |   |   |   | 14,040,604  |   |
| Other                                                              |   |   | 9,929,570  |   |   |   | 7,953,242  |   |
| Note receivable – related party (note 9)                     |   |   | 125,000  |   |   |   | 925,000  |   |
| Materials and supplies                                             |   |   | 7,333,500  |   |   |   | 6,248,996  |   |
| Income tax receivable                                              |   |   | 336,145  |   |   |   | 169,995  |   |
| Prepaids and other assets                                          |   |   | 1,459,759  |   |   |   | 1,792,918  |   |
| Total current assets                                               |   |   | 38,639,160  |   |   |   | 76,256,622  |   |
| Regulatory and other assets:                                       |   |   |   |   |   |   |   |   |
| Regulatory assets                                                  |   |   | 9,167,401  |   |   |   | 8,919,131  |   |
| Unamortized debt expense, net                                      |   |   | 2,563,063  |   |   |   | 2,712,165  |   |
| Cash surrender value of life insurance policies (note 8)           |   |   | 3,770,968  |   |   |   | 3,487,486  |   |
| Deferred project costs and other                                   |   |   | 5,740,634  |   |   |   | 3,654,783  |   |
| Total regulatory and other assets                                  |   |   | 21,242,066  |   |   |   | 18,773,565  |   |
| Total assets                                                       |   | $ | 794,985,403 |   |   |   | 725,444,476  |   |
| See accompanying notes to consolidated financial statements.       |   |   |   |   |   |   |   |   |

----

| Capitalization and Liabilities                                |   | 2010   |              |   | 2009   |   |
|---------------------------------------------------------------|--------|--------|-------------------|--------|--------|--------|
| Capitalization:                                               |   |   |              |   |   |   |
| Stockholders’ equity:                                   |   |   |              |   |   |   |
| Class B common stock; $100 par value per share. Authorized    |   |   |              |   |   |   |
| 430,000 shares; issued and outstanding 219,977 shares         |   | $      | 21,997,700        |   |   |   | 21,997,700  |   |
| Class C common stock; $100 par value per share. Authorized    |   |   |              |   |   |   |   |   |
| 20,000 shares; issued and outstanding 19,901 shares           |   |   | 1,990,100    |   |   |   | 1,990,100  |   |
| Retained earnings                                             |   |   | 1,663,772    |   |   |   | 1,192,858  |   |
|                                                          |   |   | 25,651,572   |   |   |   | 25,180,658  |   |
| Class C preferred stock, $100 par value per share. Authorized |   |   |              |   |   |   |   |   |
| 125,000 shares; 97,068 shares issued and outstanding (note 6) |   |   | 145,602      |   |   |   | 145,602  |   |
|                                                          |   |   | 25,797,174   |   |   |   | 25,326,260  |   |
| First mortgage bonds, net of current maturities (note 3)      |   |   | 317,272,000  |   |   |   | 329,093,000  |   |
| Total capitalization attributable to VELCO                    |   |   | 343,069,174  |   |   |   | 354,419,260  |   |
| Equity interest of noncontrolling members in                  |   |   |              |   |   |   |   |   |
| Vermont Transco LLC (note 7)                                  |   |   | 375,944,428  |   |   |   | 295,401,424  |   |
| Total capitalization                                          |   |   | 719,013,602  |   |   |   | 649,820,684  |   |
| Commitments and contingencies (notes 8, 13 and 15)            |   |   |              |   |   |   |   |   |
| Current liabilities:                                          |   |   |              |   |   |   |   |   |
| Current maturities of long-term obligations (note 3)          |   |   | 11,821,000   |   |   |   | 2,313,115  |   |
| Notes payable to bank (note 4)                                |   |   | 44,917       |   |   |   | — |   |
| Bank overdraft                                                |   |   | 891,788      |   |   |   | 2,975,031  |   |
| Accounts payable:                                             |   |   |              |   |   |   |   |   |
| Affiliated companies                                          |   |   | 701,357      |   |   |   | 796,981  |   |
| Other                                                         |   |   | 20,148,197   |   |   |   | 21,971,950  |   |
| Accrued interest on bonds                                     |   |   | 4,534,585    |   |   |   | 4,573,254  |   |
| Accrued taxes                                                 |   |   | 562,321      |   |   |   | 468,156  |   |
| Accrued construction expenses                                 |   |   | 4,699,609    |   |   |   | 9,961,114  |   |
| Accrued expenses                                              |   |   | 3,970,593    |   |   |   | 5,706,505  |   |
| Total current liabilities                                     |   |   | 47,374,367   |   |   |   | 48,766,106  |   |
| Reserves and deferred credits:                                |   |   |              |   |   |   |   |   |
| Deferred cost of removal liabilities (note 11)                |   |   | 4,666,950    |   |   |   | 3,287,144  |   |
| Deferred tax liability (note 5)                               |   |   | 12,498,349   |   |   |   | 11,425,141  |   |
| Deferred compensation (note 8)                                |   |   | 4,836,176    |   |   |   | 5,769,612  |   |
| Deferred income and other                                     |   |   | 778,184      |   |   |   | 1,156,958  |   |
| Accrued pension and postretirement liabilities (note 8)       |   |   | 5,817,775    |   |   |   | 5,218,831  |   |
| Total reserves and deferred credits                           |   |   | 28,597,434   |   |   |   | 26,857,686  |   |
| Total capitalization and liabilities                          |   | $      | 794,985,403       |   |   |   | 725,444,476  |   |

----

|  VERMONT ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY |
|-----------------------------------------------------------|
|  Consolidated Statements of Income                   |
|  Years ended December 31, 2010, 2009 and 2008        |

|                                                                                                                                                                                                                                                           |   | 2010   |        |   | 2009   |   |       | 2008   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
| Operating revenues:                                                                                                                                                                                                                                            |   |   |        |   |   |   |       |   |   |
|    Transmission revenues                                                                                                                                                                                                                        |   | $      | 102,547,684 |   |   |   | 90,649,734 |   |   |   | 73,575,150 |   |
|    Sales of power                                                                                                                                                                                                                               |   |   | 468,517     |   |   |   | 510,823    |   |   |   | 460,479 |   |
|    Rent of transmission facilities to others                                                                                                                                                                                                    |   |   | 999,587     |   |   |   | 2,435,380  |   |   |   | 1,624,487 |   |
|                               Total operating revenues                                                   |   |   | 104,015,788 |   |   |   | 93,595,937 |   |   |   | 75,660,116 |   |
| Operating expenses:                                                                                                                                                                                                                                            |   |   |        |   |   |   |       |   |   |   |   |   |
|    Transmission expenses:                                                                                                                                                                                                                       |   |   |        |   |   |   |       |   |   |   |   |   |
|      Operations                                                                                                                                                                                                                       |   |   | 5,408,961   |   |   |   | 3,369,434  |   |   |   | 3,396,212 |   |
|      Maintenance                                                                                                                                                                                                                      |   |   | 6,490,760   |   |   |   | 5,625,653  |   |   |   | 4,854,048 |   |
|      Rents                                                                                                                                                                                                                            |   |   | 44,183      |   |   |   | 41,705     |   |   |   | 42,602 |   |
|    Purchased power                                                                                                                                                                                                                              |   |   | 468,517     |   |   |   | 510,823    |   |   |   | 460,479 |   |
|    Administrative and general expenses                                                                                                                                                                                                          |   |   | 5,581,386   |   |   |   | 7,718,153  |   |   |   | 8,672,359 |   |
|    Depreciation and amortization                                                                                                                                                                                                                |   |   | 16,031,969  |   |   |   | 13,942,091 |   |   |   | 10,740,097 |   |
|    Taxes other than income                                                                                                                                                                                                                      |   |   | 11,445,565  |   |   |   | 10,485,062 |   |   |   | 7,405,913 |   |
|                               Total operating expenses                                                   |   |   | 45,471,341  |   |   |   | 41,692,921 |   |   |   | 35,571,710 |   |
|                               Operating income                                                           |   |   | 58,544,447  |   |   |   | 51,903,016 |   |   |   | 40,088,406 |   |
| Other income:                                                                                                                                                                                                                                                  |   |   |        |   |   |   |       |   |   |   |   |   |
|    Interest                                                                                                                                                                                                                                     |   |   | 151,290     |   |   |   | 239,474    |   |   |   | 111,326 |   |
|    Equity in earnings of affiliated company (note 9)                                                                                                                                                                                            |   |   | 73,677      |   |   |   | 29,457     |   |   |   | 41,096 |   |
|                              Income before interest and other expense, noncontrolling interest and income tax |   |   | 58,769,414  |   |   |   | 52,171,947 |   |   |   | 40,240,828 |   |
| Interest and other expense:                                                                                                                                                                                                                                    |   |   |        |   |   |   |       |   |   |   |   |   |
|    Interest on first mortgage bonds                                                                                                                                                                                                             |   |   | 18,197,213  |   |   |   | 13,477,726 |   |   |   | 11,994,760 |   |
|    Other interest                                                                                                                                                                                                                               |   |   | 1,356,486   |   |   |   | 1,495,343  |   |   |   | 572,468 |   |
|    Amortization of debt expense                                                                                                                                                                                                                 |   |   | 148,791     |   |   |   | 101,560    |   |   |   | 97,788 |   |
|    Other                                                                                                                                                                                                                                        |   |   | (1,918      | )      |   |   | 12,708     |   |   |   | 27,602 |   |
|    Allowance for borrowed funds used during  construction                                                                                                                                                                             |   |   |        |   |   |   |       |   |   |   |   |   |
|                                                                                                                                                                                                                                                           |   |   | (4,394,038  | )      |   |   | (2,151,956 | )      |   |   | (3,256,055 | ) |
| Allowance for equity funds used during construction                                                                                                                                                                                                            |   |   | (6,566,209  | )      |   |   | (2,977,719 | )      |   |   | (4,884,082 | ) |
|                               Net interest and other expense                                             |   |   | 8,740,325   |   |   |   | 9,957,662  |   |   |   | 4,552,481 |   |
|                               Income before noncontrolling interest and income tax                       |   |   | 50,029,089  |   |   |   | 42,214,285 |   |   |   | 35,688,347 |   |
| Income tax (note 5)                                                                                                                                                                                                                                            |   |   | 1,055,646   |   |   |   | 2,337,632  |   |   |   | 2,174,944 |   |
|                               Net income                                                                 |   |   | 48,973,443  |   |   |   | 39,876,653 |   |   |   | 33,513,403 |   |
| Noncontrolling interest in the income of                                                                                                                                                                                                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Vermont Transco LLC (note 7)                                                                                                                                                                                                                                   |   |   | 45,728,401  |   |   |   | 36,201,872 |   |   |   | 30,712,296 |   |
|                               Net income attributable to VELCO                                           |   | $      | 3,245,042   |   |   |   | 3,674,781  |   |   |   | 2,801,107 |   |
|  See accompanying notes to consolidated financial statements.                                                                                                                                                                                             |   |   |        |   |   |   |       |   |   |   |   |   |

----

|  VERMONT ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY |
|-----------------------------------------------------------|
|  Consolidated Statements of Stockholders' Equity     |
|  Years ended December 31, 2010, 2009 and 2008        |

|                             |   |         |       |   |      |   |      |     |   |   |  Total         |   |
|----------------------------------|--------|--------------|------------|--------|-----------|--------|-----------|----------|--------|--------|---------------------|--------|
|                             |   | Common stock |       |   | Preferred |   |      | Retained |   |   | stockholders’ |   |
|                             |   | Class B      |       |   | Class C   |   |      | stock    |   |   | earnings            |   |   | equity |   |
| Balances at December 31, 2007    |   | $            | 21,997,700 |   |      |   | 1,990,100 |     |   |   | 145,602             |   |   |   | 266,198 |   |   |   | 24,399,600 |   |
| Net income attributable to VELCO |   |         | —    |   |      |   | —   |     |   |   | —             |   |   |   | 2,801,107 |   |   |   | 2,801,107 |   |
| Dividends declared and paid      |   |         | —    |   |      |   | —   |     |   |   | —             |   |   |   | (2,775,099 | ) |   |   | (2,775,099 | ) |
| Balances at December 31, 2008    |   |         | 21,997,700 |   |      |   | 1,990,100 |     |   |   | 145,602             |   |   |   | 292,206 |   |   |   | 24,425,608 |   |
| Net income attributable to VELCO |   |         | —    |   |      |   | —   |     |   |   | —             |   |   |   | 3,674,781 |   |   |   | 3,674,781 |   |
| Dividends declared and paid      |   |         | —    |   |      |   | —   |     |   |   | —             |   |   |   | (2,774,129 | ) |   |   | (2,774,129 | ) |
| Balances at December 31, 2009    |   |         | 21,997,700 |   |      |   | 1,990,100 |     |   |   | 145,602             |   |   |   | 1,192,858 |   |   |   | 25,326,260 |   |
| Net income attributable to VELCO |   |         | —    |   |      |   | —   |     |   |   | —             |   |   |   | 3,245,042 |   |   |   | 3,245,042 |   |
| Dividends declared and paid      |   |         | —    |   |      |   | —   |     |   |   | —             |   |   |   | (2,774,128 | ) |   |   | (2,774,128 | ) |
| Balances at December 31, 2010    |   | $            | 21,997,700 |   |      |   | 1,990,100 |     |   |   | 145,602             |   |   |   | 1,663,772 |   |   |   | 25,797,174 |   |

----

| VERMONT ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY                                     |   |
|-----------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Cash Flows                                                   |   |
| Years ended December 31, 2010, 2009 and 2008                                            |   |
|                                                                                    |   | 2010 |   |   | 2009 |   |   | 2008 |   |
| Cash flows from operating activities:                                                   |   |   |   |   |   |   |   |   |   |
| Net income                                                                              |   | $ | 48,973,443 |   |   |   | 39,876,653  |   |   |   | 33,513,403  |   |
|  Adjustments to reconcile net income to net cash provided by operating activities: |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                           |   |   | 15,460,619  |   |   |   | 13,370,741  |   |   |   | 10,168,747  |   |
| Amortization of regulatory assets                                                       |   |   | 571,350  |   |   |   | 571,350  |   |   |   | 571,350  |   |
| Amortization of debt expense                                                            |   |   | 148,791  |   |   |   | 101,560  |   |   |   | 97,788  |   |
| Deferred income tax expense                                                             |   |   | 1,073,208  |   |   |   | 1,318,778  |   |   |   | 2,235,745  |   |
| Equity in earnings of affiliated company                                                |   |   | (73,677 | )   |   |   | (29,457 | )   |   |   | (41,096 | )   |
| Dividends from subsidiary                                                               |   |   | 15,728  |   |   |   | 15,844  |   |   |   | 15,780  |   |
| Changes in assets and liabilities:                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                     |   |   | (154,893 | )   |   |   | (1,060,879 | )   |   |   | (280,425 | )   |
| Materials and supplies                                                                  |   |   | (1,084,504 | )   |   |   | 435,812  |   |   |   | (957,340 | )   |
| Income tax receivable                                                                   |   |   | (166,150 | )   |   |   | 480,946  |   |   |   | 103,861  |   |
| Accounts payable                                                                        |   |   | (4,383,557 | )   |   |   | 3,305,420  |   |   |   | 3,542,156  |   |
| Employee benefit plan funding                                                           |   |   | (220,676 | )   |   |   | 680,635  |   |   |   | (363,907 | )   |
| Deferred compensation                                                                   |   |   | (933,436 | )   |   |   | 325,757  |   |   |   | (108,961 | )   |
| Other assets and liabilities                                                            |   |   | (3,776,440 | )   |   |   | 830,768  |   |   |   | 141,604  |   |
| Net cash provided by operating activities                                               |   |   | 55,449,806  |   |   |   | 60,223,928  |   |   |   | 48,638,705  |   |
| Cash flows from investing activities:                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in bond sinking fund deposits                                                    |   |   | (38,000 | )   |   |   | (36,000 | )   |   |   | (33,000 | )   |
| Repayments to advances from related party                                               |   |   | 800,000  |   |   |   | (225,000 | )   |   |   | 150,000  |   |
| Capital expenditures, net                                                               |   |   | (121,510,078 | )   |   |   | (166,135,303 | )   |   |   | (98,712,016 | )   |
| Change in cash surrender value of life insurance policies                               |   |   | (283,482 | )   |   |   | (486,334 | )   |   |   | 588,770  |   |
| Net cash used in investing activities                                                   |   |   | (121,031,560 | )   |   |   | (166,882,637 | )   |   |   | (98,006,246 | )   |
| Cash flows from financing activities:                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in bank overdraft                                                                |   |   | (2,083,243 | )   |   |   | 1,380,293  |   |   |   | (218,324 | )   |
| Proceeds from bond issuance                                                             |   |   | — |   |   |   | 135,000,000  |   |   |   | — |   |
| Repayment of bonds                                                                      |   |   | (2,161,000 | )   |   |   | (2,014,000 | )   |   |   | (1,877,000 | )   |
| Debt issue costs                                                                        |   |   | 311  |   |   |   | (1,014,724 | )   |   |   | (47,370 | )   |
| Proceeds from (repayments of) notes payable to bank                                     |   |   | 44,917  |   |   |   | (20,857,520 | )   |   |   | 20,857,520  |   |
| Repayment of other long-term debt                                                       |   |   | (152,115 | )   |   |   | (292,121 | )   |   |   | (400,682 | )   |
| Issuance of VT Transco membership units                                                 |   |   | 67,962,280  |   |   |   | 60,047,790  |   |   |   | 38,683,000  |   |
| Distribution of VT Transco earnings to noncontrolling members                           |   |   | (33,147,677 | )   |   |   | (23,257,250 | )   |   |   | (19,578,060 | )   |
| Cash dividends on common stock                                                          |   |   | (2,758,597 | )   |   |   | (2,758,597 | )   |   |   | (2,758,597 | )   |
| Cash dividends on preferred stock                                                       |   |   | (15,531 | )   |   |   | (15,532 | )   |   |   | (16,502 | )   |
| Net cash provided by financing activities                                               |   |   | 27,689,345  |   |   |   | 146,218,339  |   |   |   | 34,643,985  |   |
| Net (decrease) increase in cash                                                         |   |   | (37,892,409 | )   |   |   | 39,559,630  |   |   |   | (14,723,556 | )   |
| Cash, beginning of year                                                                 |   |   | 40,026,479  |   |   |   | 466,849  |   |   |   | 15,190,405  |   |
| Cash, end of year                                                                       |   | $ | 2,134,070 |   |   |   | 40,026,479  |   |   |   | 466,849  |   |

----

| VERMONT ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY |   |
|-----------------------------------------------------|--------|
| Consolidated Statements of Cash Flows               |   |
| Years ended December 31, 2010, 2009 and 2008        |

|                                                                                                                                 |   | 2010   |      |   | 2009   |   |      | 2008   |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Supplemental disclosures of cash flow information:                                                                                   |   |   |      |   |   |   |      |   |   |
| Cash paid during the year for interest, net of amounts capitalized                                                                   |   | $      | 8,528,978 |   |   |   | 7,830,970 |   |   |   | 9,392,394 |   |
| Cash paid (refund) for income taxes                                                                                                  |   |   | 570,250   |   |   |   | (49,138   | )      |   |   | 500,296 |   |
|                                                                                                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| Noncash operating activities:                                                                                                        |   |   |      |   |   |   |      |   |   |   |   |   |
| The Company recorded an unfunded defined benefit pension and other postretirement obligation of $5,817,775 and $5,218,831 at         |   |   |      |   |   |   |      |   |   |   |   |   |
| December 31, 2010 and 2009, respectively, and a defined benefit pension and other postretirement regulatory asset of                 |   |   |      |   |   |   |      |   |   |   |   |   |
| $5,390,601 and $4,668,246 at December 31, 2010 and 2009, respectively.                                                               |   |   |      |   |   |   |      |   |   |   |   |   |
|                                                                                                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| In 2010, 2009, and 2008 the Company utilized alternative minimum tax credits and recorded an income tax receivable of $0,            |   |   |      |   |   |   |      |   |   |   |   |   |
| $641,776 and $(156,308), respectively.                                                                                               |   |   |      |   |   |   |      |   |   |   |   |   |
|                                                                                                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| Noncash investing activities:                                                                                                        |   |   |      |   |   |   |      |   |   |   |   |   |
| In 2010, 2009, and 2008, the Company recorded accrued construction expenses of $7,725,685, $(337,977), and $8,698,749, respectively. |   |   |      |   |   |   |      |   |   |   |   |   |
|                                                                                                                                 |   |   |      |   |   |   |      |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                                                         |   |   |      |   |   |   |      |   |   |   |   |   |

----

| (1)   | Summary of Significant Accounting Principles |
|-----------------|----------------------------------------------|

| (a)   | Description of Business |
|-----------------|-------------------------|

----

| (b)   | Consolidation |
|-----------------|---------------|

| (c)   | Regulatory Accounting |
|-----------------|-----------------------|

----

| (d)   | Revenue Recognition |
|-----------------|---------------------|

| (e)   | Utility Plant |
|-----------------|---------------|

| (f)   | Long-Lived Assets |
|-----------------|-------------------|

----

| (g)   | Allowance for Borrowed Funds Used during Construction (AFUDC) |
|-----------------|---------------------------------------------------------------|

| (h)   | Materials and Supplies Inventory |
|-----------------|----------------------------------|

| (i)   | Unamortized Debt Expense |
|-----------------|--------------------------|

| (j)   | Income Taxes |
|-----------------|--------------|

----

| (k)   | Pension and Other Postretirement Plans |
|-----------------|----------------------------------------|

| (l)   | Use of Estimates |
|-----------------|------------------|

| (m)   | Commitments and Contingencies |
|-----------------|-------------------------------|

| (n)   | Government Grants |
|-----------------|-------------------|

----

| (2)   | Utility Plant |
|-----------------|---------------|

|                                           |   | 2010   |        |   | 2009   |   |
|------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Land and rights of way                         |   | $      | 80,148,733  |   |   |   | 58,577,888 |   |
| Transmission equipment                         |   |   | 657,841,309 |   |   |   | 485,271,008 |   |
| Communications equipment                       |   |   | 22,542,074  |   |   |   | 15,163,134 |   |
| Buildings and office equipment                 |   |   | 59,813,941  |   |   |   | 46,971,015 |   |
| Construction work-in-process                   |   |   | 22,072,069  |   |   |   | 122,001,001 |   |
|                                           |   |   | 842,418,126 |   |   |   | 727,984,046 |   |
| Less accumulated depreciation and amortization |   |   | 107,874,057 |   |   |   | 98,071,916 |   |
|                                           |   | $      | 734,544,069 |   |   |   | 629,912,130 |   |

| (3)   | Long-Term Debt |
|-----------------|----------------|

| (a)   | First Mortgage Bonds |
|-----------------|----------------------|

|                                     |   | 2010   |        |   | 2009   |   |
|------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Series L, 7.30% due through 2018         |   | $      | 6,758,000   |   |   |   | 7,412,000 |   |
| Series N, 7.42%, due through 2012        |   |   | 19,727,000  |   |   |   | 20,813,000 |   |
| Series O, 6.26% due through 2034         |   |   | 22,608,000  |   |   |   | 23,029,000 |   |
| Series P, 5.72% due through 2036         |   |   | 30,000,000  |   |   |   | 30,000,000 |   |
| Series Q, 5.59% due through 2036         |   |   | 35,000,000  |   |   |   | 35,000,000 |   |
| Series R, 5.75% due through 2037         |   |   | 80,000,000  |   |   |   | 80,000,000 |   |
| Series S, 4.81% due through 2029         |   |   | 135,000,000 |   |   |   | 135,000,000 |   |
|                                     |   |   | 329,093,000 |   |   |   | 331,254,000 |   |
| Less bonds to be retired within one year |   |   | 11,821,000  |   |   |   | 2,161,000 |   |
|                                     |   | $      | 317,272,000 |   |   |   | 329,093,000 |   |

----

| Year ending December 31: |   |   |        |
|--------------------------|--------|--------|-------------|
| 2011                     |   | $      | 11,821,000  |   |
| 2012                     |   |   | 19,789,000  |   |
| 2013                     |   |   | 11,821,000  |   |
| 2014                     |   |   | 13,916,000  |   |
| 2015                     |   |   | 14,513,000  |   |
| Thereafter               |   |   | 257,233,000 |   |
| Total     |   | $      | 329,093,000 |   |

| (b)   | Other Debt |
|-----------------|------------|

| (4)   | Notes Payable to Bank |
|-----------------|-----------------------|

----

| (5)   | Income Taxes |
|-----------------|--------------|

|                                                                                                                          |   | 2010   |      |   | 2009   |   |      | 2008   |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|
| Federal:                                                                                                                      |   |   |      |   |   |   |      |   |   |
|       Current                                                                                        |   | $      | 75,871    |   |   |   | 744,661   |   |   |   | (228,422 | ) |
|       Deferred                                                                                       |   |   | 809,550   |   |   |   | 1,098,365 |   |   |   | 1,941,141 |   |
|                 Total federal                      |   |   | 885,421   |   |   |   | 1,843,026 |   |   |   | 1,712,719 |   |
| State:                                                                                                                        |   |   |      |   |   |   |      |   |   |   |   |   |
|       Current                                                                                        |   |   | (99,878   | )      |   |   | 274,193   |   |   |   | 167,621 |   |
|       Deferred                                                                                       |   |   | 270,103   |   |   |   | 220,413   |   |   |   | 294,604 |   |
|                 Total state                        |   |   | 170,225   |   |   |   | 494,606   |   |   |   | 462,225 |   |
|                 Total federal and state income tax |   | $      | 1,055,646 |   |   |   | 2,337,632 |   |   |   | 2,174,944 |   |

|                            |   | 2010   |            |   | 2009   |   |
|---------------------------------|--------|--------|-----------------|--------|--------|--------|
| Deferred tax assets:            |   |   |            |   |   |   |
| Deferred compensation           |   | $      | 453,642         |   |   |   | 1,548,140 |   |
| Other                           |   |   | 2,199,448  |   |   |   | 827,205  |   |
| Total gross deferred tax assets |   |   | 2,653,090       |   |   |   | 2,375,345 |   |
| Deferred tax liability:         |   |   |            |   |   |   |   |   |
| Utility plant depreciation      |   |   | (15,151,439     | )      |   |   | (13,800,486 | ) |
| Net deferred tax liability      |   | $      | (12,498,349     | )      |   |   | (11,425,141 | ) |

----

| (6)   | Equity Transactions |
|-----------------|---------------------|

| (7)   | Noncontrolling Member’s Equity of VT Transco |
|-----------------|----------------------------------------------------|

|                                          |   | Equity interest of     |        |
|-----------------------------------------------|--------|------------------------|-------------|
|                                          |   | noncontrolling members |        |
|                                          |   | 2010                   |        |   | 2009 |   |   | 2008 |   |
| Beginning balance                             |   | $                      | 295,401,424 |   |   |   | 222,409,012 |   |   |   | 172,591,776 |   |
| Issuance of membership units                  |   |                   | 67,962,280  |   |   |   | 60,047,790 |   |   |   | 38,683,000 |   |
| Income before tax of VT Transco               |   |                   | 45,728,401  |   |   |   | 36,201,872 |   |   |   | 30,712,296 |   |
| Distributions of VT Transco income before tax |   |                   | (33,147,677 | ) |   |   | (23,257,250 | ) |   |   | (19,578,060 | ) |
| Ending balance                                |   | $                      | 375,944,428 |   |   |   | 295,401,424 |   |   |   | 222,409,012 |   |

----

| (8)   | Pension and Other Postretirement Benefits |
|-----------------|-------------------------------------------|

| (a)   | Defined Benefit Plan |
|-----------------|----------------------|

|                                                       |   | Pension benefits |       |
|------------------------------------------------------------|--------|------------------|------------|
|                                                       |   | 2010             |       |   | 2009 |   |
| Change in projected benefit obligation:                    |   |             |       |   |   |   |
| Benefit obligation at beginning of year                    |   | $                | 17,171,882 |   |   |   | 17,053,020 |   |
|   Service cost                                        |   |             | 1,013,619  |   |   |   | 1,016,923 |   |
|   Interest cost                                       |   |             | 1,008,694  |   |   |   | 944,414 |   |
|   Actuarial loss (gain)                               |   |             | 1,363,118  |   |   |   | (1,108,509 | ) |
|   Benefits paid                                       |   |             | (533,439   | ) |   |   | (733,966 | ) |
|   Benefit obligation at end of year                   |   |             | 20,023,874 |   |   |   | 17,171,882 |   |
| Change in plan assets:                                     |   |             |       |   |   |   |   |   |
|   Fair value of plan assets at beginning of year |   |             | 12,875,783 |   |   |   | 10,881,288 |   |
|   Actual return on plan assets                        |   |             | 1,722,490  |   |   |   | 1,822,461 |   |
|   Employer contribution                               |   |             | 1,025,000  |   |   |   | 906,000 |   |
|   Benefits paid                                       |   |             | (533,439   | ) |   |   | (733,966 | ) |
|   Fair value of plan assets at end of year            |   |             | 15,089,834 |   |   |   | 12,875,783 |   |
| Funded status                                              |   | $                | (4,934,040 | ) |   |   | (4,296,099 | ) |
| Accumulated benefit obligation                             |   | $                | 14,680,249 |   |   |   | 12,575,266 |   |

----

|                            |   | 2010   |      |   | 2009   |   |
|---------------------------------|--------|--------|-----------|--------|--------|--------|
| Net actuarial loss              |   | $      | 4,217,808 |   |   |   | 3,527,325 |   |
| Unrecognized prior service cost |   |   | 329,184   |   |   |   | 381,660 |   |
|                            |   | $      | 4,546,992 |   |   |   | 3,908,985 |   |

|                               |   | Pension benefits |       |
|------------------------------------|--------|------------------|------------|
|                               |   | 2010             |       |   | 2009 |   |   | 2008 |   |
| Components of net periodic benefit |   |             |       |   |   |   |   |   |   |
|    cost:                 |   |             |       |   |   |   |   |   |   |
| Service cost                       |   | $                | 1,013,619  |   |   |   | 1,016,923 |   |   |   | 1,253,617 |   |
| Interest cost                      |   |             | 1,008,694  |   |   |   | 944,414 |   |   |   | 1,114,591 |   |
| Expected return on plan assets     |   |             | (1,078,827 | ) |   |   | (1,026,169 | ) |   |   | (1,135,735 | ) |
| Recognized net actuarial loss      |   |             | 28,974     |   |   |   | 11,235 |   |   |   | 27,818 |   |
| Net amortization                   |   |             | 52,476     |   |   |   | 52,476 |   |   |   | 65,596 |   |
| Net periodic benefit cost          |   | $                | 1,024,936  |   |   |   | 998,879 |   |   |   | 1,325,887 |   |

|                                        |   | Pension benefits |   |
|---------------------------------------------|--------|------------------|--------|
|                                        |   | 2010             |   |   | 2009 |   |   | 2008 |   |
| Weighted average assumptions:               |   |             |   |   |   |   |   |   |   |
| Discount rate, pension expense              |   |             | 6.00   | % |   |   | 6.00 | % |   |   | 6.25 | % |
| Discount rate, projected benefit obligation |   |             | 5.56   |   |   |   | 6.00 |   |   |   | 6.00 |   |
| Expected return on plan assets              |   |             | 7.50   |   |   |   | 7.50 |   |   |   | 7.50 |   |
| Rate of compensation increase               |   |             | 4.50   |   |   |   | 4.50 |   |   |   | 4.50 |   |

----

|                                       |   | Pension  |      |
|--------------------------------------------|--------|----------|-----------|
|                                       |   | benefit  |      |
|                                       |   | payments |      |
| Fiscal years ending December 31:           |   |     |      |
|    2011                     |   | $        | 471,660   |   |
|    2012                     |   |     | 499,034   |   |
|    2013                     |   |     | 571,281   |   |
|    2014                     |   |     | 772,596   |   |
|    2015                     |   |     | 524,374   |   |
|    2016 – 2020        |   |     | 4,853,538 |   |
| Expected contribution for next fiscal year |   |     | 1,200,000 |   |

|         |   | Fair value |       |   | Target |   |
|--------------|--------|------------|------------|--------|--------|--------|
| Asset class  |   | 2010       |       |   | 2009   |   |   | 2010 |   |   | 2009 |   |
| Money market |   | $          | 1,348,099  |   |   |   | 1,346,097 |   |   |   | 9 | % |   |   | 10 | % |
| Equities     |   |       | 9,306,708  |   |   |   | 7,704,246 |   |   |   | 62 |   |   |   | 60 |   |
| Fixed income |   |       | 4,435,017  |   |   |   | 3,825,440 |   |   |   | 29 |   |   |   | 30 |   |
| Total        |   | $          | 15,089,824 |   |   |   | 12,875,783 |   |   |   | 100 | % |   |   | 100 | % |

| (b)   | Postretirement Plan |
|-----------------|---------------------|

----

|                                             |   | 2010   |      |   | 2009   |   |
|--------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Change in projected benefit obligation:          |   |   |      |   |   |   |
| Benefit obligation at beginning of year          |   | $      | 1,496,132 |   |   |   | 1,594,557 |   |
| Service cost                                     |   |   | 107,413   |   |   |   | 93,871 |   |
| Interest cost                                    |   |   | 81,284    |   |   |   | 82,303 |   |
| Actuarial gain                                   |   |   | 128,721   |   |   |   | (90,981 | ) |
| Benefits paid                                    |   |   | (178,168  | )      |   |   | (183,618 | ) |
| Benefit obligation at end of year                |   |   | 1,635,382 |   |   |   | 1,496,132 |   |
| Change in plan assets:                           |   |   |      |   |   |   |   |   |
| Fair value of plan assets at beginning of year   |   |   | 573,400   |   |   |   | 773,509 |   |
| Actual return on plan assets                     |   |   | 47,118    |   |   |   | 83,017 |   |
| Employer contribution, net of VEBA reimbursement |   |   | 309,297   |   |   |   | (99,508 | ) |
| Benefits paid                                    |   |   | (178,168  | )      |   |   | (183,618 | ) |
| Fair value of plan assets at end of year         |   |   | 751,647   |   |   |   | 573,400 |   |
| Funded status                                    |   | $      | (883,735  | )      |   |   | (922,732 | ) |

----

|                                                |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Change in measurement date to be recovered in rates |   | $      | 38,911  |   |   |   | 61,145 |   |
| Net actuarial loss                                  |   |   | 804,698 |   |   |   | 718,116 |   |
|                                                |   | $      | 843,609 |   |   |   | 779,261 |   |
|                                                |   |   |    |   |   |   |   |   |

|                               |   | Postretirement benefits |    |
|------------------------------------|--------|-------------------------|---------|
|                               |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
| Components of net periodic benefit |   |                    |    |   |   |   |   |   |   |
|    cost:                 |   |                    |    |   |   |   |   |   |   |
| Service cost                       |   | $                       | 107,413 |   |   |   | 93,871 |   |   |   | 95,852 |   |
| Interest cost                      |   |                    | 81,284  |   |   |   | 82,303 |   |   |   | 113,129 |   |
| Expected return on plan assets     |   |                    | (42,747 | ) |   |   | (40,515 | ) |   |   | (71,111 | ) |
| Recognized net actuarial loss      |   |                    | 22,234  |   |   |   | 22,234 |   |   |   | 27,793 |   |
| Net amortization                   |   |                    | 37,768  |   |   |   | 32,953 |   |   |   | 37,360 |   |
| Net periodic benefit cost          |   | $                       | 205,952 |   |   |   | 190,846 |   |   |   | 203,023 |   |

----

|                                        |   | Postretirement benefits |   |
|---------------------------------------------|--------|-------------------------|--------|
|                                        |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
| Weighted average assumptions:               |   |                    |   |   |   |   |   |   |   |
| Discount rate, postretirement expense       |   |                    | 5.50   | % |   |   | 6.00 | % |   |   | 6.25 | % |
| Discount rate, projected benefit obligation |   |                    | 5.08   |   |   |   | 5.50 |   |   |   | 6.25 |   |
| Expected return on plan assets              |   |                    | 6.50   |   |   |   | 6.50 |   |   |   | 7.50 |   |
| Rate of compensation increase               |   |                    | 4.50   |   |   |   | 4.50 |   |   |   | 4.50 |   |

|                 |   | Fair value |    |   | Target |   |
|----------------------|--------|------------|---------|--------|--------|--------|
| Asset class          |   | 2010       |    |   | 2009   |   |   | 2010 |   |   | 2009 |   |
| Cash and equivalents |   | $          | 118,858 |   |   |   | 81,442 |   |   |   | 16 | % |   |   | 14 | % |
| Equities             |   |       | 553,043 |   |   |   | 491,958 |   |   |   | 73 |   |   |   | 86 |   |
| Fixed Income         |   |       | 79,746  |   |   |   | — |   |   |   | 11 |   |   |   | — |   |
| Total                |   | $          | 751,647 |   |   |   | 573,400 |   |   |   | 100 | % |   |   | 100 | % |

| (c)   | Supplemental Executive Retirement Plan |
|-----------------|----------------------------------------|

----

| (d)   | Deferred Compensation |
|-----------------|-----------------------|

| (e)   | Defined Contribution Plan |
|-----------------|---------------------------|

| (9)   | Investment in Affiliated Company |
|-----------------|----------------------------------|

----

|                                                 |   | Balance sheet |      |
|------------------------------------------------------|--------|---------------|-----------|
|                                                 |   | 2010          |      |   | 2009 |   |
| Net utility plant in service                         |   | $             | 2,247,805 |   |   |   | 2,318,792 |   |
| Other assets                                         |   |          | 940,281   |   |   |   | 1,689,585 |   |
| Total assets                                         |   | $             | 3,188,086 |   |   |   | 4,008,377 |   |
| Other liabilities                                    |   | $             | 2,627,979 |   |   |   | 3,506,218 |   |
| Stockholders’ investment                       |   |          | 560,107   |   |   |   | 502,159 |   |
| Total liabilities and stockholders’ investment |   | $             | 3,188,086 |   |   |   | 4,008,377 |   |

|               |   | Statement of income |       |
|--------------------|--------|---------------------|------------|
|               |   | 2010                |       |   | 2009 |   |   | 2008 |   |
| Operating revenues |   | $                   | 2,017,644  |   |   |   | 1,908,177 |   |   |   | 1,552,906 |   |
| Operating expenses |   |                | (1,932,053 | ) |   |   | (1,864,755 | ) |   |   | (1,495,194 | ) |
| Interest expense   |   |                | (11,914    | ) |   |   | (13,965 | ) |   |   | (16,616 | ) |
| Net income         |   | $                   | 73,677     |   |   |   | 29,457 |   |   |   | 41,096 |   |

| (10)   | Related Party Transactions |
|------------------|----------------------------|

----

| (11)   | Asset Retirement Obligations |
|------------------|------------------------------|

| (12)   | Fair Value of Financial Instruments |
|------------------|-------------------------------------|

|                                          |   | 2010     |        |   | 2009       |   |
|-----------------------------------------------|--------|----------|-------------|--------|------------|--------|
|                                          |   | Carrying |        |   |       |   |   | Carrying |   |   |   |   |
|                                          |   | amount   |        |   | Fair value |   |   | amount |   |   | Fair value |   |
| Financial assets:                             |   |     |        |   |       |   |   |   |   |   |   |   |
| Cash                                          |   | $        | 2,134,070   |   |       |   | 2,134,070 |   |   |   | 40,026,479 |   |   |   | 40,026,479 |   |
| Bond sinking fund deposits                    |   |     | 564,000     |   |       |   | 564,000 |   |   |   | 526,000 |   |   |   | 526,000 |   |
| Bond interest deposits                        |   |     | 4,537,947   |   |       |   | 4,537,947 |   |   |   | 4,573,388 |   |   |   | 4,573,388 |   |
| Accounts receivable                           |   |     | 22,148,739  |   |       |   | 22,148,739 |   |   |   | 21,993,846 |   |   |   | 21,993,846 |   |
| Notes receivable                              |   |     | 125,000     |   |       |   | 125,000 |   |   |   | 925,000 |   |   |   | 925,000 |   |
| Financial liabilities:                        |   |     |        |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable to bank                         |   | $        | 44,917      |   |       |   | 44,917 |   |   |   | — |   |   |   | — |   |
| Accounts payable                              |   |     | 20,849,554  |   |       |   | 20,849,554 |   |   |   | 22,768,931 |   |   |   | 22,768,931 |   |
| Accrued interest on bonds                     |   |     | 4,534,585   |   |       |   | 4,534,585 |   |   |   | 4,573,254 |   |   |   | 4,573,254 |   |
| Current maturities long-term obligations      |   |     | 11,821,000  |   |       |   | 11,821,000 |   |   |   | 2,313,115 |   |   |   | 2,313,757 |   |
| First mortgage bonds                          |   |     | 317,272,000 |   |       |   | 328,376,057 |   |   |   | 329,093,000 |   |   |   | 325,414,901 |   |
| Construction and other accrued expenses  |   |     | 8,670,202   |   |       |   | 8,670,202 |   |   |   | 15,667,619 |   |   |   | 15,667,619 |   |

----

| ·   | Cash, bond sinking fund deposits, bond interest deposits, trade accounts receivable, due from related parties, notes payable to banks, accounts payable, accrued interest on bonds, and accrued expenses: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short-term maturity of these instruments. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Notes receivable: Because of the short-term maturity of this instrument, carrying value approximates fair value. |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | Long-term debt and first mortgage bonds: The fair value of the Company’s long-term debt is determined by discounting the future cash flows of each instrument at rates that reflect, among other things, market interest rates. At December 31, 2010 and 2009, the Company utilized Moody’s long-term corporate bond yield average for utility entities with an Aa rating. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (13)   | Business and Credit Concentrations |
|------------------|------------------------------------|

| (a)   | Significant Customers |
|-----------------|-----------------------|

|            |   | 2010   |   |   | 2009   |   |
|-----------------|--------|--------|--------|--------|--------|--------|
| ISO New England |   |   | 41.0   | %      |   |   | 31.0 | % |
| CVPS            |   |   | 24.0   |   |   |   | 28.7 |   |
| GMP             |   |   | 18.0   |   |   |   | 22.3 |   |
|            |   |   | 83.0   | %      |   |   | 82.0 | % |

| (b)   | Significant Capital Projects |
|-----------------|------------------------------|

| (14)   | Federal Stimulus Funds |
|------------------|------------------------|

----

| (15)   | Commitments |
|------------------|-------------|

| (16)   | Subsequent Events |
|------------------|-------------------|

----