----

----

|                                                                                                                                                                                                                                          | Page                                                     |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------|
| Report      of Independent Registered Public Accounting Firm Balance      Sheets Statements      of Income Statements      of Members’ Equity Statements      of Cash Flows Notes      to Financial Statements | 1 2 –      3 4 5 6 7 -      24 |

----

----

| VERMONT      TRANSCO LLC                       |   |
|-----------------------------------------------------|--------|
| Balance      Sheets                            |   |
| December      31, 2008 and 2007                     |   |
|                                                |   |   |   |   |   |   |
| Assets                                              |   | 2008 |   |   | 2007 |   |
| Utility      plant (notes 2 and 4)                  |   | $ | 567,926,246 |   |   |   | 463,056,503  |   |
| Less      accumulated depreciation and amortization |   |   | (89,288,784 | )        |   |   | (80,955,529 | )        |
| Net      utility plant                              |   |   | 478,637,462  |   |   |   | 382,100,974  |   |
| Current      assets:                                |   |   |   |   |   |   |   |   |
|        Cash                                    |   |   | 72,900  |   |   |   | 129,287  |   |
| Bond      sinking fund deposits                     |   |   | 490,000  |   |   |   | 457,000  |   |
| Bond      interest deposits                         |   |   | 2,985,911  |   |   |   | 3,019,480  |   |
| Accounts      receivable:                           |   |   |   |   |   |   |   |   |
| Affiliated      companies                           |   |   | 1,122,329  |   |   |   | 1,973,452  |   |
| Other                                               |   |   | 6,261,636  |   |   |   | 5,386,210  |   |
| Due      from related party (note 8)                |   |   | 4,317,277  |   |   |   | 18,164,385  |   |
| Note      receivable – related party (note 8) |   |   | 700,000  |   |   |   | 850,000  |   |
| Note      receivable – VELCO (note 8)         |   |   | 10,000,000  |   |   |   | — |   |
| Materials      and supplies                         |   |   | 6,684,808  |   |   |   | 5,727,468  |   |
| Prepaids      and other assets                      |   |   | 1,156,118  |   |   |   | 3,646,795  |   |
| Total      current assets                           |   |   | 33,790,979  |   |   |   | 39,354,077  |   |
| Regulatory      and other assets:                   |   |   |   |   |   |   |   |   |
| Regulatory      assets                              |   |   | 4,802,235  |   |   |   | 5,373,585  |   |
| Unamortized      debt expense, net                  |   |   | 1,799,001  |   |   |   | 1,849,419  |   |
| Deferred      project costs and other               |   |   | 165,978  |   |   |   | 27,189  |   |
| Total      regulatory and other assets              |   |   | 6,767,214  |   |   |   | 7,250,193  |   |
| Total      assets                                   |   | $ | 519,195,655 |   |   |   | 428,705,244  |   |

----

| VERMONT      TRANSCO LLC                                     |   |
|-------------------------------------------------------------------|--------|
| Balance      Sheets                                          |   |
| December      31, 2008 and 2007                                   |   |
|                                                              |   |   |   |   |   |   |
| Members’      Equity and Liabilities                        |   | 2008 |   |   | 2007 |   |
| Capitalization:                                                   |   |   |   |   |   |   |
| Members’      equity (note 3)                               |   | $ | 249,678,381 |   |   |   | 198,201,791  |   |
| Mandatorily      redeemable membership units (notes 3, 8, and 12) |   |   | 10,000,000  |   |   |   | — |   |
| First      mortgage bonds, net of current maturities (note 4)     |   |   | 196,254,000  |   |   |   | 198,268,000  |   |
| Other      long-term debt, net of current maturities (note 4)     |   |   | 152,115  |   |   |   | 444,237  |   |
| Total      capitalization                                         |   |   | 456,084,496  |   |   |   | 396,914,028  |   |
| Commitments      and contingencies (notes 7, 11, and 12)          |   |   |   |   |   |   |   |   |
| Current      liabilities:                                         |   |   |   |   |   |   |   |   |
| Bank      overdraft                                               |   |   | 1,594,738  |   |   |   | 1,813,062  |   |
| Current      maturities of long-term obligations (note 4)         |   |   | 2,306,121  |   |   |   | 2,277,680  |   |
| Notes      payable to bank (note 5)                               |   |   | 20,857,520  |   |   |   | — |   |
| Accounts      payable:                                            |   |   |   |   |   |   |   |   |
| Associated                                                        |   |   | 811,020  |   |   |   | 124,774  |   |
|        Other                                                 |   |   | 7,050,989  |   |   |   | 6,603,258  |   |
| Accrued      interest on bonds                                    |   |   | 3,001,260  |   |   |   | 3,019,480  |   |
| Accrued      taxes                                                |   |   | 531,383  |   |   |   | 564,173  |   |
| Accrued      expenses                                             |   |   | 13,025,757  |   |   |   | 6,718,055  |   |
| Total      current liabilities                                    |   |   | 49,178,788  |   |   |   | 21,120,482  |   |
| Long-term      liabilities:                                       |   |   |   |   |   |   |   |   |
| Deferred      cost of removal liabilities                         |   |   | 2,175,131  |   |   |   | 1,108,834  |   |
| Due      to Vermont Electric Power Company, Inc. (note 1(b))      |   |   | 11,757,240  |   |   |   | 9,561,900  |   |
| Total      liabilities                                            |   |   | 63,111,159  |   |   |   | 31,791,216  |   |
| Total      capitalization and liabilities                         |   | $ | 519,195,655 |   |   |   | 428,705,244  |   |
|                                                              |   |   |   |   |   |   |   |   |
| See      accompanying notes to financial statements.              |   |   |   |   |   |   |   |   |

----

| VERMONT      TRANSCO LLC                                              |   |
|-----------------------------------------------------------------------|--------|
| Statements      of Income                                             |   |
| Years      ended December 31, 2008, 2007 and period from June 30,2006 |   |
| (date      of inception) through December 31, 2006                    |   |
|                                                                  |   |   |   |   |   |   |   |   |   |
|                                                                  |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Operating      revenues:                                              |   |   |   |   |   |   |   |   |   |
| Transmission      revenues                                            |   | $ | 73,575,150 |   |   |   | 49,903,641  |   |   |   | 17,563,491  |   |
| Rent      of transmission facilities to others                        |   |   | 1,624,487  |   |   |   | 1,562,284  |   |   |   | 766,740  |   |
|                                                                  |   |   | 75,199,637  |   |   |   | 51,465,925  |   |   |   | 18,330,231  |   |
| Operating      expenses:                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Transmission      expenses:                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Operations                                                            |   |   | 3,396,212  |   |   |   | 2,577,857  |   |   |   | 1,241,130  |   |
| Maintenance                                                           |   |   | 4,854,048  |   |   |   | 4,322,067  |   |   |   | 2,192,276  |   |
| Charges      for transmission facilities of others                    |   |   | 42,602  |   |   |   | 39,862  |   |   |   | 11,025  |   |
| Administrative      and general expenses                              |   |   | 8,672,360  |   |   |   | 8,913,458  |   |   |   | 2,238,715  |   |
| Depreciation      and amortization                                    |   |   | 10,740,097  |   |   |   | 8,268,529  |   |   |   | 2,676,613  |   |
| Taxes      other than income                                          |   |   | 7,405,913  |   |   |   | 5,422,076  |   |   |   | 2,020,248  |   |
| Total      operating expenses                                         |   |   | 35,111,232  |   |   |   | 29,543,849  |   |   |   | 10,380,007  |   |
| Operating      income                                                 |   |   | 40,088,405  |   |   |   | 21,922,076  |   |   |   | 7,950,224  |   |
| Other      (income) expenses:                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on first mortgage bonds                                 |   |   | 11,994,760  |   |   |   | 11,228,262  |   |   |   | 2,830,693  |   |
| Other      interest expense                                           |   |   | 572,468  |   |   |   | 3,137,004  |   |   |   | 1,971,249  |   |
| Amortization      of debt expense                                     |   |   | 97,788  |   |   |   | 95,261  |   |   |   | 42,965  |   |
| Other                                                                 |   |   | 27,602  |   |   |   | 27,726  |   |   |   | — |   |
| Interest      income                                                  |   |   | (111,327 | )        |   |   | (103,200 | )        |   |   | (23,975 | )        |
| Allowance      for borrowed funds used during construction            |   |   | (3,256,055 | )        |   |   | (4,457,120 | )        |   |   | (2,397,315 | )        |
| Allowance      for equity funds during construction                   |   |   | (4,884,082 | )        |   |   | (1,910,194 | )        |   |   | — |   |
| Total      other expenses, net                                        |   |   | 4,441,154  |   |   |   | 8,017,739  |   |   |   | 2,423,617  |   |
| Income      before tax                                                |   | $ | 35,647,251 |   |   |   | 13,904,337  |   |   |   | 5,526,607  |   |
|                                                                  |   |
| See      accompanying notes to financial statements.                  |   |

----

| VERMONT      TRANSCO LLC                                                                                             |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|
| Statements      of Changes in Members’ Equity                                                                  |   |
| Years      ended December 31, 2008, 2007 and period from June 30, 2006 (date of      inception) through December 31, 2006 |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |   |   | Total |   |
|                                                                                                                      |   | Membership      units |   |   | Members’ |   |   | members’ |   |
|                                                                                                                      |   | Class      A |   |   | Class      B |   |   | equity |   |   | equity |   |
| Issuance      of membership units                                                                                         |   | $ | 70,369,480 |   |   |   | 7,630,620  |   |   |   | — |   |   |   | 78,000,100  |   |
| Income      before tax                                                                                                    |   |   | — |   |   |   | — |   |   |   | 5,526,607  |   |   |   | 5,526,607  |   |
| Distribution      of income before tax to members                                                                         |   |   | — |   |   |   | — |   |   |   | (1,899,627 | )        |   |   | (1,899,627 | )        |
| Balances      at December 31, 2006                                                                                        |   | $ | 70,369,480 |   |   |   | 7,630,620  |   |   |   | 3,626,980  |   |   |   | 81,627,080  |   |
| Membership      units at December 31, 2006                                                                                |   |   | 7,036,948  |   |   |   | 763,062  |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2006                                                                                        |   | $ | 70,369,480 |   |   |   | 7,630,620  |   |   |   | 3,626,980  |   |   |   | 81,627,080  |   |
| Issuance      of membership units                                                                                         |   |   | 105,765,060  |   |   |   | 7,984,940  |   |   |   | — |   |   |   | 113,750,000  |   |
| Income      before tax                                                                                                    |   |   | — |   |   |   | — |   |   |   | 13,904,337  |   |   |   | 13,904,337  |   |
| Distribution      of income before tax to members                                                                         |   |   | — |   |   |   | — |   |   |   | (11,079,626 | )        |   |   | (11,079,626 | )        |
| Balances      at December 31, 2007                                                                                        |   | $ | 176,134,540 |   |   |   | 15,615,560  |   |   |   | 6,451,691  |   |   |   | 198,201,791  |   |
| Membership      units at December 31, 2007                                                                                |   |   | 17,613,454  |   |   |   | 1,561,556  |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2007                                                                                        |   | $ | 176,134,540 |   |   |   | 15,615,560  |   |   |   | 6,451,691  |   |   |   | 198,201,791  |   |
| Issuance      of membership units                                                                                         |   |   | 22,782,180  |   |   |   | 15,900,820  |   |   |   | — |   |   |   | 38,683,000  |   |
| Income      before tax                                                                                                    |   |   | — |   |   |   | — |   |   |   | 35,647,251  |   |   |   | 35,647,251  |   |
| Distribution      of income before tax to members                                                                         |   |   | — |   |   |   | — |   |   |   | (22,853,661 | )        |   |   | (22,853,661 | )        |
| Balances      at December 31, 2008                                                                                        |   | $ | 198,916,720 |   |   |   | 31,516,380  |   |   |   | 19,245,281  |   |   |   | 249,678,381  |   |
| Membership      units at December 31, 2008                                                                                |   |   | 19,891,672  |   |   |   | 3,151,638  |   |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to financial statements.                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| VERMONT      TRANSCO LLC                                                                                                                      |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Statements      of Cash Flows                                                                                                                 |   |
| Years      ended December 31, 2008 and 2007and period from June 30,    2006                                                                        |   |
| (date      of inception) through December 31, 2006                                                                                            |   |
|                                                                                                                                               |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Cash      flows from operating activities:                                                                                                         |   |   |   |   |   |   |   |   |   |
| Income      before tax                                                                                                                             |   | $ | 35,647,251 |   |   |   | 13,904,337  |   |   |   | 5,526,607  |   |
| Adjustments      to reconcile income before tax to net cash                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| provided      by operating activities:                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                                                                                 |   |   | 10,168,747  |   |   |   | 7,691,370  |   |   |   | 2,395,055  |   |
| Amortization      of regulatory asset                                                                                                              |   |   | 571,350  |   |   |   | 577,159  |   |   |   | 281,558  |   |
| Amortization      of debt expense                                                                                                                  |   |   | 97,788  |   |   |   | 95,261  |   |   |   | 42,392  |   |
| Changes      in assets and liabilities:                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts      receivable                                                                                                                           |   |   | (24,303 | )        |   |   | (2,679,060 | )        |   |   | (2,582,296 | )        |
| Materials      and supplies                                                                                                                        |   |   | (957,340 | )        |   |   | 4,381,043  |   |   |   | (3,840,276 | )        |
| Regulatory      asset                                                                                                                              |   |   | — |   |   |   | (27,875 | )        |   |   | (331,366 | )        |
| Accounts      payable                                                                                                                              |   |   | 2,099,253  |   |   |   | (8,965,121 | )        |   |   | 5,498,048  |   |
| Due      from related party                                                                                                                        |   |   | 13,847,108  |   |   |   | (321,116 | )        |   |   | 209,080  |   |
| Other      assets and liabilities                                                                                                                  |   |   | 10,837,489  |   |   |   | 2,362,208  |   |   |   | (4,292,267 | )        |
| Net      cash provided by operating activities                                                                                                     |   |   | 72,287,343  |   |   |   | 17,018,206  |   |   |   | 2,906,535  |   |
| Cash      flows from investing activities:                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Change      in bond sinking fund deposits                                                                                                          |   |   | (33,000 | )        |   |   | (32,000 | )        |   |   | (14,000 | )        |
| Advances      to related party                                                                                                                     |   |   | (10,000,000 | )        |   |   | (17,664,000 | )        |   |   | — |   |
| Capital      expenditures, including interest capitalized                                                                                          |   |   | (105,638,938 | )        |   |   | (123,721,527 | )        |   |   | (84,241,577 | )        |
| Change      in construction payables                                                                                                               |   |   | (965,275 | )        |   |   | 3,983,315  |   |   |   | 4,528,078  |   |
| Repayments      received from related party notes receivable                                                                                       |   |   | 150,000  |   |   |   | — |   |   |   | — |   |
| Net      cash used in investing activities                                                                                                         |   |   | (116,487,213 | )        |   |   | (137,434,212 | )        |   |   | (79,727,499 | )        |
| Cash      flows from financing activities:                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Change      in bank overdraft                                                                                                                      |   |   | (218,324 | )        |   |   | 1,813,062  |   |   |   | — |   |
| Proceeds      from bond issuance                                                                                                                   |   |   | — |   |   |   | 80,000,000  |   |   |   | 35,000,000  |   |
| Repayment      of bonds                                                                                                                            |   |   | (1,877,000 | )        |   |   | (1,748,000 | )        |   |   | (829,000 | )        |
| Debt      issue costs                                                                                                                              |   |   | (47,370 | )        |   |   | (357,675 | )        |   |   | (227,111 | )        |
| Net      borrowings of notes payable to bank                                                                                                       |   |   | 20,857,520  |   |   |   | — |   |   |   | — |   |
| Repayments      of notes payable to bank                                                                                                           |   |   | — |   |   |   | (61,470,000 | )        |   |   | (8,430,000 | )        |
| Repayment      of other long-term debt                                                                                                             |   |   | (400,682 | )        |   |   | (688,476 | )        |   |   | (467,290 | )        |
| Issuance      of membership units                                                                                                                  |   |   | 38,683,000  |   |   |   | 113,750,000  |   |   |   | 54,000,000  |   |
| Issuance      of mandatorily redeemable membership units                                                                                           |   |   | 10,000,000  |   |   |   | — |   |   |   | — |   |
| Distribution      of income before tax to members                                                                                                  |   |   | (22,853,661 | )        |   |   | (11,079,626 | )        |   |   | (1,899,627 | )        |
|        Net cash provided by financing activities                                                                                              |   |   | 44,143,483  |   |   |   | 120,219,285  |   |   |   | 77,146,972  |   |
| Net      (decrease) increase in cash                                                                                                               |   |   | (56,387 | )        |   |   | (196,721 | )        |   |   | 326,008  |   |
| Cash,      beginning of year                                                                                                                       |   |   | 129,287  |   |   |   | 326,008  |   |   |   | — |   |
| Cash,      end of year                                                                                                                             |   | $ | 72,900 |   |   |   | 129,287  |   |   |   | 326,008  |   |
| Supplemental      disclosures of cash flow information:                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      paid for interest, net of amounts capitalized                                                                                            |   | $ | 9,392,394 |   |   |   | 8,300,276  |   |   |   | 2,230,783  |   |
| Supplemental      noncash financing activities:                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Effective      June 30, 2006, the Company received transmission and other operating      assets of $223,275,298 and assumed certain liabilities of |   |
| $199,275,198      from Vermont Electric Power Company, Inc. in exchange for issuance of      membership units which totaled $24,000,100.           |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to financial statements.                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |

----

| (1)   | Summary      of Significant AccountingPrinciples |
|-----------------|--------------------------------------------------|

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

| Assets      transferred  |   | $      | 223,275,298       |   |
|--------------------------|--------|--------|-------------------|--------|
| Liabilities      assumed |   |   | 199,275,198  |   |
| Net      assets          |   | $      | 24,000,100        |   |

|                                                   |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| VELCO                                                  |   |   | 14     | %      |   |   | 13 | % |
| Central      Vermont Public Service Corporation (CVPS) |   |   | 33     |   |   |   | 40 |   |
| Green      Mountain Power Company (GMP)                |   |   | 29     |   |   |   | 33 |   |

| (b)   | Corporate      Manager |
|-----------------|------------------------|

----

|                                            |   | 2008   |            |   | 2007   |   |
|-------------------------------------------------|--------|--------|-----------------|--------|--------|--------|
| Liability      due to taxes collected           |   | $      | 9,464,588       |   |   |   | 7,385,150  |   |
| Liability      due to pension and benefit costs |   |   | 2,292,652  |   |   |   | 2,176,750  |   |
| Due      to VELCO                               |   | $      | 11,757,240      |   |   |   | 9,561,900  |   |

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

----

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

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

----

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

| (g)   | Allowance      for Borrowed Funds Used DuringConstruction |
|-----------------|-----------------------------------------------------------|

| (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)   | Recently      Adopted Accounting Policies |
|-----------------|-------------------------------------------|

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

|                                                |   | 2008   |              |   | 2007   |   |
|-----------------------------------------------------|--------|--------|-------------------|--------|--------|--------|
| Land      and rights of way                         |   | $      | 32,813,905        |   |   |   | 20,906,960  |   |
| Transmission      equipment                         |   |   | 428,726,805  |   |   |   | 269,712,622  |   |
| Communications      equipment                       |   |   | 11,162,825   |   |   |   | 8,675,040  |   |
| Buildings      and office equipment                 |   |   | 42,669,595   |   |   |   | 30,969,133  |   |
| Construction      work-in-process                   |   |   | 52,553,116   |   |   |   | 132,792,748  |   |
|                                                |   |   | 567,926,246  |   |   |   | 463,056,503  |   |
| Less      accumulated depreciation and amortization |   |   | 89,288,784   |   |   |   | 80,955,529  |   |
|                                                |   | $      | 478,637,462       |   |   |   | 382,100,974  |   |

----

| (3)   | Members’      Equity |
|-----------------|----------------------------|

|                                            |   | 2008   |             |   | 2007   |   |              | 2006   |   |
|-------------------------------------------------|--------|--------|------------------|--------|--------|--------|-------------------|--------|--------|
| Village      of Barton                          |   | $      | —          |   |   |   | 5,209        |   |   |   | 171,738  |   |
| Village      or Morrisville                     |   |   | 1,311,867   |   |   |   | 1,290,448    |   |   |   | 604,849  |   |
| Village      of Orleans                         |   |   | —          |   |   |   | 5,340        |   |   |   | 175,926  |   |
| Town      of Readsboro                          |   |   | —          |   |   |   | 775          |   |   |   | 25,555  |   |
| Swanton Village                            |   |   | 612,110     |   |   |   | 612,110      |   |   |   | 611,505  |   |
| Vermont      Electric Cooperative               |   |   | 5,289,123   |   |   |   | 5,265,670    |   |   |   | 4,513,796  |   |
| Washington      Electric Cooperative            |   |   | 2,929,675   |   |   |   | 2,397,923    |   |   |   | 830,188  |   |
| Central      Vermont Public Service Corporation |   |   | 87,698,447  |   |   |   | 78,840,936   |   |   |   | 24,477,609  |   |
| Village      of Stowe                           |   |   | 19,451,068  |   |   |   | 750,568      |   |   |   | 750,257  |   |
| Village      of Northfield                      |   |   | 306,503     |   |   |   | 306,503      |   |   |   | 306,376  |   |
| Green      Mountain Power Corporation           |   |   | 77,559,339  |   |   |   | 65,439,819   |   |   |   | 17,934,059  |   |
| City      of Burlington Electric Department     |   |   | 9,841,861   |   |   |   | 5,580,740    |   |   |   | 3,727,862  |   |
| Village      of Enosburg                        |   |   | —          |   |   |   | 7,675        |   |   |   | 253,010  |   |
| Town      of Hardwick                           |   |   | —          |   |   |   | 11,652       |   |   |   | 384,143  |   |
| Village      of Hyde Park                       |   |   | 139,562     |   |   |   | 139,562      |   |   |   | 139,504  |   |
| Village      of Jacksonville                    |   |   | —          |   |   |   | 1,879        |   |   |   | 61,954  |   |
| Village      of Johnson                         |   |   | —          |   |   |   | 5,187        |   |   |   | 171,006  |   |
| Village      of Ludlow                          |   |   | —          |   |   |   | 16,513       |   |   |   | 544,267  |   |
| Vermont      Electric Power Company, Inc.       |   |   | 27,269,351  |   |   |   | 25,609,998   |   |   |   | 25,169,945  |   |
| Village      of Lyndonville                     |   |   | —          |   |   |   | 23,464       |   |   |   | 773,531  |   |
| Vermont      Public Power Supply Authority      |   |   | 17,269,475  |   |   |   | 11,889,820   |   |   |   | — |   |
|                                            |   | $      | 249,678,381      |   |   |   | 198,201,791  |   |   |   | 81,627,080  |   |

----

| (4)   | Long-Term      Debt |
|-----------------|---------------------|

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

|                                          |   | 2008   |              |   | 2007   |   |
|-----------------------------------------------|--------|--------|-------------------|--------|--------|--------|
| Series      L, 7.30% due through 2018         |   | $      | 8,021,000         |   |   |   | 8,588,000  |   |
| Series      N, 7.42%, due through 2012        |   |   | 21,823,000   |   |   |   | 22,761,000  |   |
| Series      O, 6.26% due through 2034         |   |   | 23,424,000   |   |   |   | 23,796,000  |   |
| 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  |   |
|                                          |   |   | 198,268,000  |   |   |   | 200,145,000  |   |
| Less      bonds to be retired within one year |   |   | 2,014,000    |   |   |   | 1,877,000  |   |
|                                          |   | $      | 196,254,000       |   |   |   | 198,268,000  |   |

| 2009       |   | $      | 2,014,000         |   |
|------------|--------|--------|-------------------|--------|
| 2010       |   |   | 2,161,000    |   |
| 2011       |   |   | 2,321,000    |   |
| 2012       |   |   | 19,789,000   |   |
| 2013       |   |   | 2,321,000    |   |
| Thereafter |   |   | 169,662,000  |   |
| Total      |   | $      | 198,268,000       |   |

----

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

| Year      ending December 31: |   |   |          |
|-------------------------------|--------|--------|---------------|
| 2009                          |   | $      | 292,121       |   |
| 2010                          |   |   | 152,115  |   |
| Total                         |   | $      | 444,236       |   |

| (5)   | Notes      Payable to Bank |
|-----------------|----------------------------|

| (6)   | Income      Taxes |
|-----------------|-------------------|

| (7)   | Pension      and Other Postretirement Benefits |
|-----------------|------------------------------------------------|

----

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

|                                                |   | Pension      benefits |             |
|-----------------------------------------------------|--------|-----------------------|------------------|
|                                                |   | 2008                  |             |   | 2007 |   |
| Change      in projected benefit obligation:        |   |                  |             |   |   |   |
| Benefit      obligation at beginning of year        |   | $                     | 13,985,144       |   |   |   | 14,660,027  |   |
| Service      cost                                   |   |                  | 1,253,617   |   |   |   | 758,614  |   |
| Interest      cost                                  |   |                  | 1,114,591   |   |   |   | 817,913  |   |
| Actuarial      loss (gain)                          |   |                  | 1,250,017   |   |   |   | (1,285,274 | )        |
| Benefits      paid                                  |   |                  | (550,349         | )        |   |   | (966,136 | )        |
| Benefit      obligation at end of year              |   |                  | 17,053,020  |   |   |   | 13,985,144  |   |
| Change      in plan assets:                         |   |                  |             |   |   |   |   |   |
| Fair      value of plan assets at beginning of year |   |                  | 12,654,874  |   |   |   | 11,335,391  |   |
| Actual      return on plan assets                   |   |                  | (2,549,237       | )        |   |   | 1,450,619  |   |
| Employer      contribution                          |   |                  | 1,326,000   |   |   |   | 835,000  |   |
| Benefits      paid                                  |   |                  | (550,349         | )        |   |   | (966,136 | )        |
| Fair      value of plan assets at end of year       |   |                  | 10,881,288  |   |   |   | 12,654,874  |   |
| Funded      status                                  |   | $                     | (6,171,732       | ) |   |   | (1,330,270 | )        |

|                                                |   | 2008   |            |   | 2007   |   |
|-----------------------------------------------------|--------|--------|-----------------|--------|--------|--------|
| Prior      service cost                             |   | $      | 434,136         |   |   |   | 499,732  |   |
| Effect      of the change in measurement date to be |   |   |            |   |   |   |   |   |
| recovered      in rates                             |   |   | 265,178    |   |   |   | — |   |
| Net      actuarial loss                             |   |   | 5,443,363  |   |   |   | 536,192  |   |
|                                                |   | $      | 6,142,677       |   |   |   | 1,035,924  |   |

----

|                                |   | Pension      benefits |       |
|-------------------------------------|--------|-----------------------|------------|
|                                |   | 2008                  |       |   | 2007 |   |   | 2006 |   |
| Components      of net periodic     |   |                  |       |   |   |   |   |   |   |
| benefit      cost:                  |   |                  |       |   |   |   |   |   |   |
| Service      cost                   |   | $                     | 1,253,617  |   |   |   | 758,614 |   |   |   | 730,234 |   |
| Interest      cost                  |   |                  | 1,114,591  |   |   |   | 817,913 |   |   |   | 747,678 |   |
| Expected      return on plan assets |   |                  | (1,135,735 | ) |   |   | (825,620 | ) |   |   | (717,834 | ) |
| Recognized      net actuarial loss  |   |                  | 27,818     |   |   |   | 81,154 |   |   |   | 128,359 |   |
| Net      amortization               |   |                  | 65,596     |   |   |   | 52,476 |   |   |   | 52,476 |   |
| Net      periodic benefit cost      |   | $                     | 1,325,887  |   |   |   | 884,537 |   |   |   | 940,913 |   |

|                                   |   | Pension      benefits |   |
|----------------------------------------|--------|-----------------------|--------|
|                                   |   | 2008                  |   |   | 2007 |   |   | 2006 |   |
| Weighted      average assumptions:     |   |                  |   |   |   |   |   |   |   |
| Discount      rate, pension expense    |   |                  | 6.25   | % |   |   | 5.75 | % |   |   | 5.50 | % |
| Discount      rate, projected benefit  |   |                  |   |   |   |   |   |   |   |   |   |   |
|          obligation     |   |                  | 6.00   |   |   |   | 6.25 |   |   |   | 5.75 |   |
| Expected      long-term rate of return |   |                  |   |   |   |   |   |   |   |   |   |   |
|          on plan assets |   |                  | 7.50   |   |   |   | 7.50 |   |   |   | 7.50 |   |
| Rate      of compensation increase     |   |                  | 4.50   |   |   |   | 4.50 |   |   |   | 4.50 |   |

|                                            |   | Pension  |      |
|-------------------------------------------------|--------|----------|-----------|
|                                            |   | benefit  |      |
|                                            |   | payments |      |
| Fiscal      year ending December 31:            |   |     |      |
| 2009                                            |   | $        | 544,272   |   |
| 2010                                            |   |     | 539,318   |   |
| 2011                                            |   |     | 423,236   |   |
| 2012                                            |   |     | 563,951   |   |
| 2013                                            |   |     | 693,517   |   |
| 2014      – 2018                          |   |     | 3,922,961 |   |
| Expected      contribution for next fiscal year |   | $        | 1,350,000 |   |

----

|              |   | Plan      assets |   |   | Target |   |    |
|-------------------|--------|------------------|--------|--------|--------|--------|---------|
| Asset      class  |   | 2008             |   |   | 2007   |   |    | percentage |   | Benchmark |
| Money      market |   |             | 9      | %      |   |   | — | % |   |   | — | % |   |
| Equity            |   |             | 68     |   |   |   | 65      |   |   |   | 65 |   | S&P      500; Russell 2500; MSCI |
| Fixed      income |   |             | 23     |   |   |   | 35      |   |   |   | 35 |   | EAFE      Lehman US Aggregate; |
| Total             |   |             | 100    | %      |   |   | 100     | % |   |   | 100 | % | US      Aggregate, CSFP |

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

----

|                                                |   | Postretirement      benefits |            |
|-----------------------------------------------------|--------|------------------------------|-----------------|
|                                                |   | 2008                         |            |   | 2007 |   |
| Change      in projected benefit obligation:        |   |                         |            |   |   |   |
| Benefit      obligation at beginning of year        |   | $                            | 1,570,138       |   |   |   | 1,805,014  |   |
| Service      cost                                   |   |                         | 95,852     |   |   |   | 67,397  |   |
| Interest      cost                                  |   |                         | 113,129    |   |   |   | 88,743  |   |
| Actuarial      gain                                 |   |                         | (28,096         | )        |   |   | (278,855 | )        |
| Benefits      paid                                  |   |                         | (156,466        | )        |   |   | (112,161 | )        |
| Benefit      obligation at end of year              |   |                         | 1,594,557  |   |   |   | 1,570,138  |   |
| Change      in plan assets:                         |   |                         |            |   |   |   |   |   |
| Fair      value of plan assets at beginning of year |   |                         | 617,810    |   |   |   | 582,628  |   |
| Actual      return on plan assets                   |   |                         | (125,623        | )        |   |   | 47,137  |   |
| Employer      contribution                          |   |                         | 437,788    |   |   |   | 100,206  |   |
| Benefits      paid                                  |   |                         | (156,466        | )        |   |   | (112,161 | )        |
| Fair      value of plan assets at end of year       |   |                         | 773,509    |   |   |   | 617,810  |   |
| Funded      status                                  |   | $                            | (821,048        | ) |   |   | (952,328 | )        |

|                                                     |   | 2008   |          |   | 2007   |   |
|----------------------------------------------------------|--------|--------|---------------|--------|--------|--------|
| Prior      service cost                                  |   | $      | —       |   |   |   | 111,172  |   |
| Change      in measurement date to be recovered in rates |   |   | 115,602  |   |   |   | — |   |
| Net      actuarial loss                                  |   |   | 884,552  |   |   |   | 921,644  |   |
|                                                     |   | $      | 1,000,154     |   |   |   | 1,032,816  |   |

----

|                                    |   | Postretirement      benefits |          |
|-----------------------------------------|--------|------------------------------|---------------|
|                                    |   | 2008                         |          |   | 2007 |   |   | 2006 |   |
| Components      of net periodic benefit |   |                         |          |   |   |   |   |   |   |
| cost:                                   |   |                         |          |   |   |   |   |   |   |
| Service      cost                       |   | $                            | 95,852        |   |   |   | 67,397  |   |   |   | 49,395  |   |
| Interest      cost                      |   |                         | 113,129  |   |   |   | 88,743  |   |   |   | 97,581  |   |
| Expected      return on plan assets     |   |                         | (71,111       | )        |   |   | (42,203 | )        |   |   | (35,526 | )        |
| Recognized      net actuarial loss      |   |                         | 27,793   |   |   |   | 40,041  |   |   |   | 54,109  |   |
| Net      amortization                   |   |                         | 37,360   |   |   |   | 22,234  |   |   |   | 22,234  |   |
| Net      periodic benefit               |   |                         |          |   |   |   |   |   |   |   |   |   |
| cost                                    |   | $                            | 203,023       |   |   |   | 176,212  |   |   |   | 187,793  |   |

|                                  |   | Postretirement      benefits |   |
|---------------------------------------|--------|------------------------------|--------|
|                                  |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
| Weighted      average assumptions:    |   |                         |   |   |   |   |   |   |   |
| Discount      rate, pension expense   |   |                         | 6.25   | % |   |   | 5.75 | % |   |   | 5.50 | % |
| Discount      rate, projected benefit |   |                         |   |   |   |   |   |   |   |   |   |   |
| obligation                            |   |                         | 6.25   |   |   |   | 6.25 |   |   |   | 5.75 |   |
| Expected      return on plan assets   |   |                         | 7.50   |   |   |   | 7.50 |   |   |   | 7.50 |   |
| Rate      of compensation increase    |   |                         | 4.50   |   |   |   | 4.50 |   |   |   | 4.50 |   |

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

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

----

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

| (8)   | Related      Party Transactions |
|-----------------|---------------------------------|

| (9)   | Asset      Retirement Obligations |
|-----------------|-----------------------------------|

----

| (10)   | Fair      Value of Financial Instruments |
|------------------|------------------------------------------|

|                        |   | 2008     |        |   | 2007            |   |
|-----------------------------|--------|----------|-------------|--------|-----------------|--------|
|                        |   | Carrying |        |   |            |   |   | Carrying |   |   |   |   |
|                        |   | amount   |        |   | Fair      value |   |   | amount |   |   | Fair      value |   |
| Financial      assets:      |   |     |        |   |            |   |   |   |   |   |   |   |
| Cash                        |   | $        | 72,900      |   |            |   | 72,900 |   |   |   | 129,287 |   |   |   | 129,287 |   |
| Accounts      receivable    |   |     | 7,383,965   |   |            |   | 7,383,965 |   |   |   | 7,359,662 |   |   |   | 7,359,662 |   |
| Notes      receivable       |   |     | 10,700,000  |   |            |   | 10,700,000 |   |   |   | 850,000 |   |   |   | 850,000 |   |
| Financial      liabilities: |   |     |        |   |            |   |   |   |   |   |   |   |   |   |   |   |
| Notes      payable to bank  |   |     | 20,857,520  |   |            |   | 20,857,520 |   |   |   | — |   |   |   | — |   |
| Accounts      payable       |   |     | 7,862,009   |   |            |   | 7,862,009 |   |   |   | 7,388,357 |   |   |   | 7,388,357 |   |
| Long      term debt         |   |     | 2,458,236   |   |            |   | 2,459,198 |   |   |   | 2,721,917 |   |   |   | 2,732,748 |   |
| First      mortgage bonds   |   |     | 196,254,000 |   |            |   | 200,555,031 |   |   |   | 198,268,000 |   |   |   | 199,583,120 |   |
| Due      to VELCO           |   |     | 11,757,240  |   |            |   | 11,757,240 |   |   |   | 9,561,900 |   |   |   | 9,561,900 |   |

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

| ·   | Notes      receivable: The fair value is determined as the present value of future      contractual cash flows discounted at an interest rate that reflects the      risks inherent in those cash flows. The discount rate is 2% and      approximates rates currently offered by local lending institutions for      loans of similar terms to companies with comparable credit      risk. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | 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, 2008 and 2007, the Company utilized Moody’s long-term      corporate bond yield average for utility entities with an Aa      rating. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11)   | Business      and Credit Concentrations |
|------------------|-----------------------------------------|

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

----

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

| (12)   | Commitments |
|------------------|-------------|

----