----

----

|   |                                                             | Page         |
|--------|------------------------------------------------------------------|-------------------|
|   | Report      of Independent Registered Public Accounting Firm     | 1                 |
|   |        Consolidated      Balance Sheets                     |  2           |
|   |  Consolidated      Statements of Income                     |  4           |
|   |  Consolidated      Statements of Stockholders’ Equity |  5           |
|   |  Consolidated      Statements of Cash Flows                 |  6           |
|   |  Notes      to Consolidated Financial Statements            |  8 -      28 |

----

----

| VERMONT      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY           |   |
|-------------------------------------------------------------------------|--------|
| Consolidated      Balance Sheets                                   |   |
| December      31, 2008 and 2007                                         |   |
|                                                                    |   |   |   |   |   |   |
| Assets                                                                  |   | 2008 |   |   | 2007 |   |
| Utility      plant (notes 2 and 3)                                      |   | $ | 568,692,579 |   |   |   | 463,933,403  |   |
| Less      accumulated depreciation and amortization                     |   |   | (89,777,198 | )        |   |   | (81,382,989 | )        |
| Net      utility plant                                                  |   |   | 478,915,381  |   |   |   | 382,550,414  |   |
| Investment      in Vermont Electric Transmission Company, Inc. (note 9) |   |   | 488,546  |   |   |   | 463,230  |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Current      assets:                                                    |   |   |   |   |   |   |   |   |
| Cash                                                                    |   |   | 466,849  |   |   |   | 15,190,405  |   |
| Bond      sinking fund deposits                                         |   |   | 490,000  |   |   |   | 457,000  |   |
| Bond      interest deposits                                             |   |   | 2,985,911  |   |   |   | 3,019,480  |   |
| Accounts      receivable:                                               |   |   |   |   |   |   |   |   |
| Affiliated      companies                                               |   |   | 13,749,601  |   |   |   | 13,820,323  |   |
|        Other                                                       |   |   | 7,183,366  |   |   |   | 6,832,219  |   |
| Note      receivable – related party (note 10)                    |   |   | 700,000  |   |   |   | 850,000  |   |
| Materials      and supplies                                             |   |   | 6,684,808  |   |   |   | 5,727,468  |   |
| Income      tax receivable                                              |   |   | 650,941  |   |   |   | 754,802  |   |
| Prepaids      and other assets                                          |   |   | 1,776,088  |   |   |   | 3,815,433  |   |
| Total      current assets                                               |   |   | 34,687,564  |   |   |   | 50,467,130  |   |
|                                                                    |   |   |   |   |   |   |   |   |
| Regulatory      and other assets:                                       |   |   |   |   |   |   |   |   |
| Regulatory      assets                                                  |   |   | 11,945,066  |   |   |   | 7,442,325  |   |
| Unamortized      debt expense, net                                      |   |   | 1,799,001  |   |   |   | 1,849,419  |   |
| Cash      surrender value of life insurance policies (note 8)           |   |   | 3,001,152  |   |   |   | 3,589,922  |   |
| Deferred      project costs and other                                   |   |   | 165,978  |   |   |   | 27,189  |   |
| Total      regulatory and other assets                                  |   |   | 16,911,197  |   |   |   | 12,908,855  |   |
| Total      assets                                                       |   |   | 531,002,688  |   |   |   | 446,389,629  |   |

----

| VERMONT      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY      |   |
|--------------------------------------------------------------------|--------|
| Consolidated      Balance Sheets                              |   |
| December      31, 2008 and 2007                                    |   |
|                                                               |   |   |   |   |   |   |
| Capitalization      and Liabilities                                |   | 2008 |   |   | 2007 |   |
| 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                                             |   |   | 292,206  |   |   |   | 266,198  |   |
|                                                               |   |   | 24,280,006  |   |   |   | 24,253,998  |   |
| 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  |   |
|                                                               |   |   | 24,425,608  |   |   |   | 24,399,600  |   |
| First      mortgage bonds, net of current maturities (note 3)      |   |   | 196,254,000  |   |   |   | 198,268,000  |   |
| Other      long-term debt, net of current maturities (note 3)      |   |   | 152,115  |   |   |   | 444,237  |   |
| Total      capitalization                                          |   |   | 220,831,723  |   |   |   | 223,111,837  |   |
| Commitments      and contingencies (notes 8, 12 and 14)            |   |   |   |   |   |   |   |   |
| Current      liabilities:                                          |   |   |   |   |   |   |   |   |
| Current      maturities of long-term obligations (note 3)          |   |   | 2,306,121  |   |   |   | 2,277,680  |   |
| Notes      payable to bank (note 4)                                |   |   | 20,857,520  |   |   |   | — |   |
| Bank      overdraft                                                |   |   | 1,594,738  |   |   |   | 1,813,062  |   |
| Accounts      payable:                                             |   |   |   |   |   |   |   |   |
| Affiliated      companies                                          |   |   | 587,047  |   |   |   | 130,970  |   |
|   Other                                                  |   |   | 20,167,302  |   |   |   | 18,046,499  |   |
| Accrued      interest on bonds                                     |   |   | 3,001,260  |   |   |   | 3,019,480  |   |
| Accrued      taxes                                                 |   |   | 501,316  |   |   |   | 536,804  |   |
| Accrued      expenses                                              |   |   | 14,710,123  |   |   |   | 8,559,154  |   |
| Total      current liabilities                                     |   |   | 63,725,427  |   |   |   | 34,383,649  |   |
| Equity      interest of noncontrolling members in                  |   |   |   |   |   |   |   |   |
| Vermont      Transco LLC (note 7)                                  |   |   | 222,409,012  |   |   |   | 172,591,777  |   |
| Reserves      and deferred credits:                                |   |   |   |   |   |   |   |   |
| Deferred      cost of removal liabilities (note 10)                |   |   | 2,135,304  |   |   |   | 1,081,804  |   |
| Deferred      tax liabilities (note 5)                             |   |   | 9,464,587  |   |   |   | 7,385,150  |   |
| Deferred      compensation (note 8)                                |   |   | 5,443,855  |   |   |   | 5,552,814  |   |
| Accrued      pension and postretirement liabilities (note 8)       |   |   | 6,992,780  |   |   |   | 2,282,598  |   |
| Total      reserves and deferred credits                           |   |   | 24,036,526  |   |   |   | 16,302,366  |   |
| Total      capitalization and liabilities                          |   | $ | 531,002,688 |   |   |   | 446,389,629  |   |
| See      accompanying notes to consolidated financial statements   |   |   |   |   |   |   |   |   |

----

| VERMONT      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY     |   |
|-------------------------------------------------------------------|--------|
| Consolidated      Statements of Income                       |   |
| Years      ended December 31, 2008, 2007, and 2006                |   |
|                                                              |   |   |   |   |   |   |   |   |   |
|                                                              |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Operating      revenues:                                          |   |   |   |   |   |   |   |   |   |
| Transmission      revenues                                        |   | $ | 73,575,150 |   |   |   | 49,903,641  |   |   |   | 33,667,562  |   |
| Sales      of power                                               |   |   | 460,479  |   |   |   | 445,038  |   |   |   | 559,483  |   |
| Rent      of transmission facilities to others                    |   |   | 1,624,487  |   |   |   | 1,562,284  |   |   |   | 1,580,496  |   |
| Total      operating revenues                                     |   |   | 75,660,116  |   |   |   | 51,910,963  |   |   |   | 35,807,541  |   |
| Operating      expenses:                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Transmission      expenses:                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operations                                                        |   |   | 3,396,212  |   |   |   | 2,577,857  |   |   |   | 2,301,254  |   |
| Maintenance                                                       |   |   | 4,854,048  |   |   |   | 4,322,067  |   |   |   | 3,925,740  |   |
|         Rents                                           |   |   | 42,602  |   |   |   | 39,862  |   |   |   | 32,190  |   |
| Purchased      power                                              |   |   | 460,479  |   |   |   | 445,038  |   |   |   | 559,483  |   |
| Administrative      and general expenses                          |   |   | 8,672,359  |   |   |   | 8,913,458  |   |   |   | 5,314,717  |   |
| Depreciation      and amortization                                |   |   | 10,740,097  |   |   |   | 8,268,529  |   |   |   | 5,819,907  |   |
| Taxes      other than income                                      |   |   | 7,405,913  |   |   |   | 5,422,076  |   |   |   | 4,387,687  |   |
| Total      operating expenses                                     |   |   | 35,571,710  |   |   |   | 29,988,887  |   |   |   | 22,340,978  |   |
| Operating      income                                             |   |   | 40,088,406  |   |   |   | 21,922,076  |   |   |   | 13,466,563  |   |
| Other      income:                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                                                          |   |   | 111,326  |   |   |   | 103,201  |   |   |   | 51,857  |   |
| Equity      in earnings of subsidiary (note 9)                    |   |   | 41,096  |   |   |   | 50,832  |   |   |   | 157,356  |   |
| Income      before interest and other expense,                    |   |   |   |   |   |   |   |   |   |   |   |   |
| noncontrolling      interest, and income tax                      |   |   | 40,240,828  |   |   |   | 22,076,109  |   |   |   | 13,675,776  |   |
| Interest      and other expense:                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on first mortgage bonds                             |   |   | 11,994,760  |   |   |   | 11,228,262  |   |   |   | 5,166,421  |   |
| Other      interest                                               |   |   | 572,468  |   |   |   | 3,137,004  |   |   |   | 3,823,359  |   |
| Amortization      of debt expense                                 |   |   | 97,788  |   |   |   | 95,261  |   |   |   | 76,288  |   |
| Other                                                             |   |   | 27,602  |   |   |   | 27,726  |   |   |   | — |   |
| Allowance      for borrowed funds used during                     |   |   |   |   |   |   |   |   |   |   |   |   |
| construction                                                      |   |   | (3,256,055 | )        |   |   | (4,457,120 | )        |   |   | (3,390,820 | )        |
| Allowance      for equity funds during construction               |   |   | (4,884,082 | )        |   |   | (1,910,194 | )        |   |   | — |   |
| Net      interest and other expense                               |   |   | 4,552,481  |   |   |   | 8,120,939  |   |   |   | 5,675,248  |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before noncontrolling interest and income tax         |   |   | 35,688,347  |   |   |   | 13,955,170  |   |   |   | 8,000,528  |   |
| Noncontrolling      interest in the income of                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Vermont      Transco LLC (note 7)                                 |   |   | 30,712,296  |   |   |   | 9,483,361  |   |   |   | 3,245,386  |   |
| Income      before income tax                                     |   |   | 4,976,051  |   |   |   | 4,471,809  |   |   |   | 4,755,142  |   |
| Income      tax (note 5)                                          |   |   | 2,174,944  |   |   |   | 1,660,965  |   |   |   | 1,888,482  |   |
| Net      income                                                   |   | $ | 2,801,107 |   |   |   | 2,810,844  |   |   |   | 2,866,660  |   |
| See      accompanying notes to consolidated financial statements. |   |   |   |   |   |   |   |   |   |

----

| VERMONT      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY     |   |
|-------------------------------------------------------------------|--------|
| Consolidated      Statements of Stockholders’ Equity   |   |
| Years      ended December 31, 2008, 2007, and 2006                |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   | Total |   |
|                                                              |   | Common      stock |   |   | Preferred |   |   | Retained |   |   | stockholders’ |   |
|                                                              |   | Class      B |   |   | Class      C |   |   | stock |   |   | earnings |   |   | equity |   |
| Balances      at December 31, 2005                                |   | $ | 21,997,700 |   |   |   | 1,990,100  |   |   |   | 194,136  |   |   |   | 183,542  |   |   |   | 24,365,478  |   |
| Net      income                                                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,866,660  |   |   |   | 2,866,660  |   |
| Return      of capital                                            |   |   | — |   |   |   | — |   |   |   | (48,534 | )        |   |   | — |   |   |   | (48,534 | )        |
| Dividends      declared and paid                                  |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (2,820,721 | )        |   |   | (2,820,721 | )        |
| Balances      at December 31, 2006                                |   |   | 21,997,700  |   |   |   | 1,990,100  |   |   |   | 145,602  |   |   |   | 229,481  |   |   |   | 24,362,883  |   |
| Net      income                                                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,810,844  |   |   |   | 2,810,844  |   |
| Dividends      declared and paid                                  |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (2,774,127 | )        |   |   | (2,774,127 | )        |
| Balances      at December 31, 2007                                |   |   | 21,997,700  |   |   |   | 1,990,100  |   |   |   | 145,602  |   |   |   | 266,198  |   |   |   | 24,399,600  |   |
| Net      income                                                   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 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  |   |
| See      accompanying notes to consolidated financial statements. |   |   |   |   |   |   |   |   |   |

----

| VERMONT      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY              |   |
|----------------------------------------------------------------------------|--------|
| Consolidated      Statements of Cash Flows                            |   |
| Years      ended December 31, 2008, 2007, and 2006                         |   |
|                                                                       |   |   |   |   |   |   |   |   |   |
|                                                                       |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Cash      flows from operating activities:                                 |   |   |   |   |   |   |   |   |   |
| Net      income                                                            |   | $ | 2,801,107 |   |   |   | 2,810,844  |   |   |   | 2,866,660  |   |
| Adjustments      to reconcile net income to net cash provided by (used in) |   |   |   |   |   |   |   |   |   |   |   |   |
| operating      activities:                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                         |   |   | 10,168,747  |   |   |   | 7,691,370  |   |   |   | 5,325,654  |   |
| Amortization      of regulatory assets                                     |   |   | 571,350  |   |   |   | 577,159  |   |   |   | 494,253  |   |
| Amortization      of debt expense                                          |   |   | 97,788  |   |   |   | 95,261  |   |   |   | 76,289  |   |
| Deferred      income tax expense                                           |   |   | 2,079,437  |   |   |   | 1,089,386  |   |   |   | 982,316  |   |
| Equity      in earnings of subsidiary                                      |   |   | (41,096 | )        |   |   | (50,832 | )        |   |   | (157,356 | )        |
| Dividends      from subsidiary                                             |   |   | 15,780  |   |   |   | 15,938  |   |   |   | 62,000  |   |
| Changes      in assets and liabilities:                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts      receivable                                                   |   |   | (280,425 | )        |   |   | (2,822,531 | )        |   |   | (956,756 | )        |
| Materials      and supplies                                                |   |   | (957,340 | )        |   |   | 4,381,043  |   |   |   | (4,903,624 | )        |
| Income      tax receivable                                                 |   |   | 103,861  |   |   |   | (562,985 | )        |   |   | 438,145  |   |
| Regulatory      assets                                                     |   |   | — |   |   |   | (27,875 | )        |   |   | (2,163,235 | )        |
| Accounts      payable                                                      |   |   | 3,542,156  |   |   |   | (10,707,745 | )        |   |   | (1,844,893 | )        |
| Employee      benefit plan funding                                         |   |   | (363,907 | )        |   |   | (30,951 | )        |   |   | (62,719 | )        |
| Deferred      compensation                                                 |   |   | (108,961 | )        |   |   | (157,584 | )        |   |   | 313,845  |   |
| Other      assets and liabilities                                          |   |   | 8,031,386  |   |   |   | 2,479,661  |   |   |   | (1,034,253 | )        |
| Net      cash provided by (used in) operating activities                   |   |   | 25,659,883  |   |   |   | 4,780,159  |   |   |   | (563,674 | )        |
| Cash      flows from investing activities:                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Return      of investment in subsidiary                                    |   |   | — |   |   |   | — |   |   |   | 50,000  |   |
| Change      in bond sinking fund deposits                                  |   |   | (33,000 | )        |   |   | (32,000 | )        |   |   | (29,000 | )        |
| Advances      to related party                                             |   |   | 150,000  |   |   |   | (850,000 | )        |   |   | — |   |
| Capital      expenditures, net                                             |   |   | (105,480,215 | )        |   |   | (123,690,176 | )        |   |   | (118,852,278 | )        |
| Construction      payables                                                 |   |   | (965,275 | )        |   |   | 3,983,315  |   |   |   | 4,528,078  |   |
| Change      in cash surrender value of life insurance policies             |   |   | 588,770  |   |   |   | (308,005 | )        |   |   | (373,243 | )        |
| Net      cash used in investing activities                                 |   |   | (105,739,720 | )        |   |   | (120,896,866 | )        |   |   | (114,676,443 | )        |

----

| VERMONT      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY                                                                                                                                                           |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated      Statements of Cash Flows (continued)                                                                                                                                                             |   |
| Years      ended December 31, 2008, 2007, and 2006                                                                                                                                                                      |   |
|                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |
| Change      in bank overdraft                                                                                                                                                                                           |   |   | (218,324 | )        |   |   | 1,813,062  |   |   |   | — |   |
| Proceeds      from bond issuance                                                                                                                                                                                        |   |   | — |   |   |   | 80,000,000  |   |   |   | 65,000,000  |   |
| Repayment      of bonds                                                                                                                                                                                                 |   |   | (1,877,000 | )        |   |   | (1,748,000 | )        |   |   | (1,628,000 | )        |
| Debt      issue costs                                                                                                                                                                                                   |   |   | (47,370 | )        |   |   | (357,675 | )        |   |   | (960,849 | )        |
| (Repayments      of) proceeds from notes payable to bank, net                                                                                                                                                           |   |   | 20,857,520  |   |   |   | (61,470,000 | )        |   |   | 120,000  |   |
| Proceeds      from other long-term debt                                                                                                                                                                                 |   |   | — |   |   |   | — |   |   |   | — |   |
| Repayment      of other long-term debt                                                                                                                                                                                  |   |   | (400,682 | )        |   |   | (688,476 | )        |   |   | (1,060,918 | )        |
| Return      of preferred stock capital                                                                                                                                                                                  |   |   | — |   |   |   | — |   |   |   | (48,534 | )        |
| Issuance      of VT Transco membership units                                                                                                                                                                            |   |   | 38,683,000  |   |   |   | 113,750,000  |   |   |   | 54,000,000  |   |
| Distribution      of VT Transco earnings to noncontrolling members                                                                                                                                                      |   |   | (19,578,060 | )        |   |   | (7,110,796 | )        |   |   | (776,171 | )        |
| Undistributed      earnings of VT Transco – noncontrolling members                                                                                                                                                |   |   | 30,712,296  |   |   |   | 9,483,361  |   |   |   | 3,245,383  |   |
| Issuance      of Class B common stock                                                                                                                                                                                   |   |   | — |   |   |   | — |   |   |   | — |   |
| Cash      dividends on common stock                                                                                                                                                                                     |   |   | (2,758,597 | )        |   |   | (2,758,597 | )        |   |   | (2,758,597 | )        |
| Cash      dividends on preferred stock                                                                                                                                                                                  |   |   | (16,502 | )        |   |   | (15,530 | )        |   |   | (62,124 | )        |
| Net      cash provided by financing activities                                                                                                                                                                          |   |   | 65,356,281  |   |   |   | 130,897,349  |   |   |   | 115,070,190  |   |
| Net      increase (decrease) in cash                                                                                                                                                                                    |   |   | (14,723,556 | )        |   |   | 14,780,642  |   |   |   | (169,927 | )        |
| Cash,      beginning of year                                                                                                                                                                                            |   |   | 15,190,405  |   |   |   | 409,763  |   |   |   | 579,690  |   |
| Cash,      end of year                                                                                                                                                                                                  |   | $ | 466,849 |   |   |   | 15,190,405  |   |   |   | 409,763  |   |
| Supplemental      disclosures of cash flow information:                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      paid during the year for interest, net of amounts    capitalized                                                                                                                                              |   | $ | 9,392,394 |   |   |   | 8,300,276  |   |   |   | 5,129,638  |   |
| Cash      paid for income taxes                                                                                                                                                                                         |   |   | 500,296  |   |   |   | 1,210,550  |   |   |   | 992,950  |   |
| Noncash      financing activities:                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|            The Company recorded an unfunded defined benefit pension and other      postretirement obligation of $6,992,780 and $2,282,598 at                                                   |   |
|               December      31, 2008 and 2007 and a defined benefit pension and other postretirement      regulatory asset of $7,142,831 and |   |
|                    $2,068,740 at December 31, 2008 and 2007 in connection with the adoption      of SFAS No. 158.                                      |   |
|                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements.                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |

----

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

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

----

| (o)   | Recently      Issued Accounting Standards |
|-----------------|-------------------------------------------|

----

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

|                                                |   | 2008   |              |   | 2007   |   |
|-----------------------------------------------------|--------|--------|-------------------|--------|--------|--------|
| Land      and rights of way                         |   | $      | 32,813,905        |   |   |   | 20,906,960  |   |
| Transmission      equipment                         |   |   | 429,493,138  |   |   |   | 270,589,522  |   |
| 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  |   |
|                                                |   |   | 568,692,579  |   |   |   | 463,933,403  |   |
| Less      accumulated depreciation and amortization |   |   | 89,777,198   |   |   |   | 81,382,989  |   |
|                                                |   | $      | 478,915,381       |   |   |   | 382,550,414  |   |

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

|                                          |   | 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 |   |

----

| Year      ending December 31: |   |   |              |
|-------------------------------|--------|--------|-------------------|
| 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       |   |

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

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

----

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

|                         |   | 2008   |            |   | 2007   |   |            | 2006   |   |
|------------------------------|--------|--------|-----------------|--------|--------|--------|-----------------|--------|--------|
| Federal:                     |   |   |            |   |   |   |            |   |   |
| Current                      |   | $      | (228,422        | )      |   |   | 461,236    |   |   |   | 717,970  |   |
| Deferred                     |   |   | 1,941,141  |   |   |   | 913,267    |   |   |   | 737,674  |   |
| Total      federal           |   |   | 1,712,719  |   |   |   | 1,374,503  |   |   |   | 1,455,644  |   |
| State:                       |   |   |            |   |   |   |            |   |   |   |   |   |
| Current                      |   |   | 167,621    |   |   |   | 110,343    |   |   |   | 188,196  |   |
| Deferred                     |   |   | 294,604    |   |   |   | 176,119    |   |   |   | 244,642  |   |
| Total      state             |   |   | 462,225    |   |   |   | 286,462    |   |   |   | 432,838  |   |
| Total      federal and state |   |   |            |   |   |   |            |   |   |   |   |   |
| income      tax              |   | $      | 2,174,944       |   |   |   | 1,660,965  |   |   |   | 1,888,482  |   |

|                                 |   | 2008   |            |          | 2007   |   |
|--------------------------------------|--------|--------|-----------------|---------------|--------|--------|
| Deferred      tax assets:            |   |   |            |          |   |   |
| Deferred      compensation           |   | $      | 1,530,656       |          |   |   | 1,540,052  |   |
| Alternative      minimum tax credit  |   |   | 641,776    |          |   |   | 485,468  |   |
| Other                                |   |   | 866,790    |          |   |   | 641,163  |   |
| Total      gross deferred tax assets |   |   | 3,039,222  |          |   |   | 2,666,683  |   |
| Deferred      tax liabilities:       |   |   |            |          |   |   |   |   |
| Utility      plant depreciation      |   |   | (12,503,809     | )        |   |   | (10,051,833 | )        |
| Net      deferred tax liability      |   | $      | (9,464,587      | )             |   |   | (7,385,150 | )        |

----

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

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

|                                               |   | Equity      interest ofnoncontrolling      members |        |
|----------------------------------------------------|--------|----------------------------------------------------|-------------|
|                                               |   | 2008                                               |        |   | 2007 |   |
| Beginning      balance                             |   | $                                                  | 172,591,777 |   |   |   | 56,469,212 |   |
| Issuance      of membership units                  |   |                                               | 38,683,000  |   |   |   | 113,750,000 |   |
| Income      before tax of VT Transco               |   |                                               | 30,712,296  |   |   |   | 9,483,361 |   |
| Distributions      of VT Transco income before tax |   |                                               | (19,578,060 | ) |   |   | (7,110,796 | ) |
| Ending      balance                                |   | $                                                  | 222,409,013 |   |   |   | 172,591,777 |   |

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

----

|                                                |   | 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 |   |
| 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      return on plan assets   |   |                  | 7.50   |   |   |   | 7.50 |   |   |   | 7.50 |   |
| Rate      of compensation increase    |   |                  | 4.50   |   |   |   | 4.50 |   |   |   | 4.50 |   |

|                                            |      |                        |                        |                      |   |   |   | Pensionbenefitpayments |
|-------------------------------------------------|-----------|-----------------------------|-----------------------------|---------------------------|--------|--------|--------|------------------------|
|  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: |
| Fixed      income |   | 23     |          | 35    |   | 35    |   | MSCI      EAFE Lehman           |
|              |   |                       |               |                 | Total  |                 | 100%   |                            | 100%   |   | 100%   |   | US      Aggregate;CSFB |

----

|                                                |   | 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 |   |

----

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

----

|                                                      |   | Balance      sheet |            |
|-----------------------------------------------------------|--------|--------------------|-----------------|
|                                                      |   | 2008               |            |   | 2007 |   |
| Net      utility plant in service                         |   | $                  | 2,393,670       |   |   |   | 2,471,855  |   |
| Other      assets                                         |   |               | 1,561,437  |   |   |   | 1,629,845  |   |
| Total      assets                                         |   | $                  | 3,955,107       |   |   |   | 4,101,700  |   |
| Other      liabilities                                    |   | $                  | 3,466,561       |   |   |   | 3,638,470  |   |
| Stockholders’      investment                       |   |               | 488,546    |   |   |   | 463,230  |   |
| Total      liabilities and stockholders’ investment |   | $                  | 3,955,107       |   |   |   | 4,101,700  |   |

|                        |   | Statement      of income |       |
|-----------------------------|--------|--------------------------|------------|
|                        |   | 2008                     |       |   | 2007 |   |
| Operating      revenues     |   | $                        | 1,552,906  |   |   |   | 2,168,615  |   |
| Operating      expenses     |   |                     | (1,495,194 | )        |   |   | (2,081,327 | )        |
| Other      income (expense) |   |                     | (16,616    | )        |   |   | (36,456 | )        |
| Net      income             |   | $                        | 41,096     |   |   |   | 50,832  |   |

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

----

| (11)   | 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (12)   | Business      and Credit Concentrations |
|------------------|-----------------------------------------|

|                 |   | 2008   |   |   | 2007   |   |
|----------------------|--------|--------|--------|--------|--------|--------|
| ISO      New England |   |   | 29.2   | %      |   |   | 18.7 | % |
| CVPS                 |   |   | 28.9   |   |   |   | 31.5 |   |
| GMP                  |   |   | 22.9   |   |   |   | 24.2 |   |
|                 |   |   | 81.0   | %      |   |   | 74.4 | % |

| (13)   | Self      Insurance |
|------------------|---------------------|

| (14)   | Commitments |
|------------------|-------------|

----

----