Forward-looking statements - Statements contained in this report that are not historical fact are forward-looking statements within the meaning of the 'safe-harbor' provisions of the Private Securities Litigation Reform Act of 1995. Whenever used in this report, the words "estimate," "expect," "believe," or similar expressions are intended to identify such forward-looking statements. Forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Actual results will depend upon, among other things:

§ the actions of regulatory bodies with respect to allowed rates of return, continued recovery of regulatory assets and application of alternative regulation; § liquidity risks;
§ performance and continued operation of the Vermont Yankee nuclear power plant;
§ changes in the cost or availability of capital; § our ability to replace or renegotiate our long-term power supply contracts;
§ effects of and changes in local, national and worldwide economic conditions;
§ effects of and changes in weather; § volatility in wholesale power markets; § our ability to maintain or improve our current credit ratings;
§ the operations of ISO-New England; § changes in financial or regulatory accounting principles or policies imposed by governing bodies; § capital market conditions, including price risk due to marketable securities held as investments in trust for nuclear decommissioning, pension and postretirement medical plans;
§ changes in the levels and timing of capital expenditures, including our discretionary future investments in Transco;
§ the performance of other parties, including Vermont utilities and Transco, in joint projects; § our ability to successfully manage a number of projects involving new and evolving technology; § our ability to replace a mature workforce and retain qualified, skilled and experienced personnel; and § other presently unknown or unforeseen factors.

We cannot predict the outcome of any of these matters; accordingly, there can be no assurance as to actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

EXECUTIVE SUMMARY
Our core business is the Vermont electric utility business. The rates we charge for retail electricity sales are regulated by the Vermont Public Service Board ("PSB"). Fair regulatory treatment is fundamental to maintaining our financial stability. Rates must be set at levels to recover costs, including a market rate of return to equity and debt holders, in order to attract capital. As discussed under the heading Retail Rates and Alternative Regulation below, the PSB approved the plan that we proposed in August 2007, with modifications. The implementation of this plan will provide more timely adjustments to power, operating and maintenance costs, which will better serve the interests of customers and shareholders.

Our consolidated earnings for the second quarter of 2009 were $5.5 million, or 46 cents per diluted share of common stock, and $12.4 million, or $1.04 per diluted share of common stock, for the first six months. This compares to consolidated earnings of $4 million, or 38 cents per diluted share of common stock, for the second quarter and $9.9 million, or 94 cents per diluted share of common stock, for the first six months of 2008. The primary drivers of the year-over-year earnings variance for the second quarter and first six months are described in Results of Operations below.

We continue to focus on key strategic financial initiatives including: restoring our corporate credit rating to investment-grade; ensuring that our retail rates are set at levels to recover our costs of service; evaluating financing options to support current and future working capital needs; planning for replacement power when long-term power contracts begin to expire in 2012; working to support the governor's e-state initiative, which includes both broadband and smart grid components; and implementing our asset management plan to ensure we continue to provide safe, reliable service to our customers at the lowest possible cost.

RETAIL RATES AND ALTERNATIVE REGULATION
Retail Rates Our retail rates are approved by the PSB after considering the recommendations of Vermont's consumer advocate, the Vermont Department of Public Service ("DPS"). Fair regulatory treatment is fundamental to maintaining our financial stability. Rates must be set at levels to recover costs, including a market rate of return to equity and debt holders, in order to attract capital. The return on common equity of our regulated business did not exceed the allowed return for 2008.

On September 30, 2008, the PSB issued an order approving, with modifications, the alternative regulation plan proposal that we submitted in August 2007. The plan became effective on November 1, 2008. It expires on December 31, 2011, but we have an option to petition for an extension beyond 2011. The plan replaces the traditional ratemaking process and allows for quarterly rate adjustments to reflect changes in power supply and transmission-by-others costs ("PCAM adjustment"); annual base rate adjustments to reflect changing costs; and annual rate adjustments to reflect changes, within predetermined limits, from the allowed earnings level. Under the plan, the allowed return on equity will be adjusted annually to reflect one-half of the change in the yield on the 10-year Treasury note as measured over the last 20 trading days prior to October 15 of each year. The earnings sharing adjustment mechanism ("ESAM") within the plan provides for the return on equity of the regulated portion of our business to fall between 75 basis points above or below the allowed return on equity before any adjustment is made. If the actual return on equity of the regulated portion of our business exceeds 75 basis points above the allowed return, the excess amount is returned to ratepayers in a future period. If the actual return on equity of our regulated business falls between 75 and 100 basis points below the allowed return on equity, the shortfall is shared equally between shareholders and ratepayers. Any earnings shortfall in excess of 100 basis points below the allowed return on equity is recovered from ratepayers. These adjustments are made at the end of each fiscal year.

The PCAM adjustment and the ESAM are not subject to PSB suspension, but the PSB may open an investigation and, to the extent it finds, after notice and hearing, that the calculation was inaccurate or reflects costs inappropriate for inclusion in rates, it may require a modification of the associated adjustments to the extent necessary to correct the deficiencies.

On October 31, 2008, we submitted a base rate filing for the rate year commencing January 1, 2009 that reflected a 0.33 percent increase in retail rates. The result of the return on equity adjustment for 2009, in accordance with the plan, was a reduction of 0.44 percent, resulting in an allowed return on equity for 2009 of 9.77 percent. On November 17, 2008, the DPS filed a request for suspension and investigation of our filing. Citing concerns about staffing levels and inadequate supporting documentation for some proposed plant additions, the DPS recommended a 0.43 percent rate decrease.

On December 17, 2008, we filed a Memorandum of Understanding with the PSB setting forth agreements that we reached with the DPS regarding the PSB's investigation into our 2009 retail rates. Pursuant to the Memorandum of Understanding, we agreed to leave rates unchanged, with no increase or decrease, and that we and the DPS would request the PSB to open a docket to resolve the DPS's concerns regarding our level of staffing. On February 13, 2009, the PSB approved the Memorandum of Understanding, and ordered the rate investigation closed.

On February 2, 2009, we filed a motion with the PSB requesting to defer the incremental 2008 storm costs through our alternative regulation plan and collect through the ESAM over 12 months beginning on July 1, 2009. On February 3, 2009, the DPS filed a letter supporting our motion and on February 12, 2009, the PSB approved the request. The amount of the deferral, based on actual costs, was $3.2 million.

On May 1, 2009, we filed an ESAM report, including supporting documentation, with the PSB, requesting that rates be increased 1.15 percent for 12 months beginning with bills rendered July 1, 2009 to recover the $3.2 million of incremental 2008 storm costs. On June 15, 2009, the DPS recommended that the ESAM report be approved as filed. On June 30, 2009, the PSB accepted the DPS recommendation and approved the filing. The rate increase has been implemented as proposed.

The first quarter 2009 PCAM adjustment was calculated to be an over-collection of $0.6 million and is recorded as a current liability. On May 1, 2009, we filed a PCAM report, including supporting documentation, with the PSB, outlining the over-collection. On June 15, 2009, the DPS recommended the PCAM report be approved as filed. On June 30, 2009, the PSB accepted the DPS recommendation and approved the filing. The over-collection is being returned to customers over three months beginning July 1, 2009.

The second quarter 2009 PCAM adjustment was calculated to be an over collection of $0.5 million and is recorded as a current liability at June 30, 2009. On July 30, 2009, we filed a PCAM report, including supporting documentation, with the PSB, outlining the over-collection. The over-collection will be returned to customers over three months beginning October 1, 2009.

On February 13, 2009, the PSB opened an investigation into the staffing levels of the company as requested by us and the DPS. On March 25, 2009, the PSB convened a prehearing conference where we and the DPS agreed to a procedural schedule. We and the DPS further agreed that the scope of the technical hearings could be narrowed to devising a methodology for deriving productivity measures that would be tracked over time. The parties do not agree, however, as to what the substantive elements of that tracking methodology should be. Accordingly, the PSB ordered that the purpose of hearings in this proceeding will be to resolve this disagreement about the makeup of the productivity tracking methodology. Technical hearings were held in June 2009 and legal briefs were filed in July 2009. We anticipate an order from the PSB in sufficient time to reflect any implementation effects in the 2010 cost of service. We cannot predict the outcome of the docket at this time.

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows At June 30, 2009, we had cash and cash equivalents of $8.9 million compared to $6.6 million at June 30, 2008. The primary components of cash flows from operating, investing and financing activities for both periods are discussed in more detail below.

Operating Activities: Operating activities provided $20.5 million in the first six months of 2009. Net income, when adjusted for depreciation, amortization, deferred income tax and other non-cash income and expense items, provided $25.4 million. This included $5.3 million of distributions received from affiliates, most materially from our investments in Transco. Changes in working capital and other items used $4.9 million, including $6.2 million of pension and postretirement medical trust fund contributions, $5.7 million of interest payments and $3.2 million of income tax payments. These working capital items were partially offset by $6.5 million of income tax refunds received in the first quarter.

During the first six months of 2008, operating activities provided $15.9 million. Net income, when adjusted for depreciation, amortization, deferred income tax and other non-cash income and expense items, provided $18.8 million. This included $4.9 million of distributions received from affiliates, most materially from our investments in Transco. Changes in working capital and other items provided $2.9 million. This was primarily due to $7.2 million of employee benefit funding, including $6.2 million of pension and postretirement medical trust fund contributions, $1.2 million of income tax payments and $4.7 million of interest payments.

Investing Activities: Investing activities used $13.2 million in the first six months of 2009, including $12.9 million of construction and plant expenditures and $0.3 million for other investing activities. During the first six months of 2008, investing activities used $15.7 million for construction and plant expenditures and $0.1 million for other investments.

Financing Activities: In the first six months of 2009, financing activities used $5.1 million, including $5.5 million for dividends paid on common and preferred stock, $1 million for preferred stock sinking fund payments, and $0.6 million for capital lease payments and other financing activities. These items were partially offset by $1 million from exercised stock options and the dividend reinvestment program and a $1 million reduction in special deposits for preferred stock sinking fund payments.

During the first six months of 2008, financing activities provided $2.7 million, including $60 million from proceeds of the issuance of first mortgage bonds, $1.5 million from stock option exercises, and a $1 million reduction in special deposits for preferred stock sinking fund payments. These items were partially offset by $53 million to repay notes payable, $4.9 million for dividends paid on common and preferred stock, $1 million for preferred stock sinking fund payments, $0.7 million for debt issuance costs, and $0.2 million for other financing activities.

Financing Credit Facility: We have a three-year, $40 million unsecured revolving credit facility with a lending institution pursuant to a credit agreement dated November 3, 2008. Our obligation under the credit agreement is guaranteed by our wholly owned, unregulated subsidiaries, C.V. Realty and CRC. The purpose of the facility is to provide liquidity for general corporate purposes, including working capital needs and power contract performance assurance requirements, in the form of funds borrowed and letters of credit. At June 30, 2009, there were no borrowings or letters of credit outstanding under the credit facility.

Refinancing Plans: We are currently reviewing options to support working capital needs resulting from investments in our distribution and transmission system.

Covenants: At June 30, 2009, we were in compliance with all financial covenants related to our various debt agreements, articles of association, letters of credit and credit facility. A significant reduction in future earnings or a significant reduction to common equity could restrict the payment of common and preferred dividends or could cause us to violate our maintenance covenants. If we were to default on our covenants, the lenders could take such actions as terminate their obligations, declare all amounts outstanding or due immediately payable, or take possession of or foreclose on mortgaged property.

Investment opportunities in Transco Based on current projections, Transco expects to receive additional capital in 2009, 2010 and 2011, but its projections are subject to change based on a number of factors, including revised construction estimates, timing of project approvals from regulators, and desired changes in its equity-to-debt ratio. While we have no obligation to make additional investments in Transco, which are subject to available capital and appropriate regulatory approvals, we continue to evaluate investment opportunities on a case-by-case basis. Based on Transco's current projections, we could have an opportunity to make additional investments of up to $21 million in 2009, $43.5 million in 2010 and $12 million in 2011, but the timing and amount depend on the factors discussed above and the amounts invested by other owners.

Capital spending We expect to invest approximately $30 million to $35 million in 2009 primarily in our transmission and distribution infrastructure to ensure continued system reliability. This compares to capital expenditures of $36.8 million in 2008. These estimates are subject to continuing review and adjustment, and actual capital expenditures and timing may vary. As of June 30, 2009 capital expenditures were $12.9 million.

Performance Assurance We are subject to performance assurance requirements through ISO-New England under the Financial Assurance Policy of the FERC-approved tariff for NEPOOL members. We are required to post collateral for all net purchased power transactions since our credit limit with ISO-New England is zero. Additionally, we are currently selling power in the wholesale market pursuant to contracts with third parties, and are required to post collateral under certain conditions defined in the contracts.

At June 30, 2009, we had posted $6.8 million of collateral under performance assurance requirements for ISO-New England, of which $2.2 million was in cash and $4.6 million was represented by restricted cash. At December 31, 2008, we had posted $6.9 million of collateral under performance assurance requirements for certain power contracts, of which $3.3 million was in cash and $3.6 million was represented by restricted cash.

We are also subject to performance assurance requirements under our Vermont Yankee power purchase contract (the 2001 Amendatory Agreement). If Entergy-Vermont Yankee, the seller, has commercially reasonable grounds to question our ability to pay for our monthly power purchases, Entergy-Vermont Yankee may ask VYNPC and VYNPC may then ask us to provide adequate financial assurance of payment. We have not had to post collateral under this contract.

Cash flow risks Based on our current cash forecasts, we will require outside capital in addition to cash flow from operations and our $40 million unsecured revolving credit facility in order to fund our business over the next few years. Continued upheaval in the capital markets could negatively impact our ability to obtain outside capital on reasonable terms. If we were ever unable to obtain needed capital, we would re-evaluate and prioritize our planned capital expenditures and operating activities. In addition, an extended unplanned Vermont Yankee plant outage or similar event could significantly impact our liquidity due to the potentially high cost of replacement power and performance assurance requirements arising from purchases through ISO-New England or third parties. An extended Vermont Yankee plant outage could involve cost recovery via our forced outage insurance policy and recoveries under the PCAM but in general would not be expected to materially impact our financial results. Other material risks to cash flow from operations include: loss of retail sales revenue from unusual weather; slower-than-anticipated load growth and unfavorable economic conditions; increases in net power costs largely due to lower-than-anticipated margins on sales revenue from excess power or an unexpected power source interruption; required prepayments for power purchases; and increases in performance assurance requirements. See Retail Rates and Alternative Regulation above for additional information related to mechanisms designed to mitigate utility-related risks.

Off-balance-sheet arrangements We do not use off-balance-sheet financing arrangements, such as securitization of receivables, nor obtain access to assets through special purpose entities.

Prior to October 24, 2008, we leased our vehicles and related equipment under a single operating lease agreement. The individual leases under this agreement were mutually cancelable one year from lease inception. On November 14, 2008, we received notification from the lessor that this operating lease agreement would be terminated. Under the terms of the lease, we will be required to terminate all agreements under this lease by November 14, 2009 and pay the unamortized value of the equipment upon termination either by purchasing the equipment or through the sale of the equipment to a third party. At June 30, 2009, the unamortized value is $7.2 million.

On October 24, 2008, we entered into a second operating lease for vehicles and other related equipment with a different lessor. The lease schedules under this agreement are non-cancellable. At the end of any lease term, the lessor is entitled to recover a termination rental adjustment equal to 20 percent of the acquisition cost of the equipment. This payment can be recovered from us or through disposition of the equipment. In the case of disposition for less than 20 percent of the acquisition cost, our guarantee obligation is limited to 5 percent of the acquisition cost. If the entire lease portfolio guarantee had a fair value of zero at June 30, 2009, we would have been responsible for a maximum reimbursement of $2.2 million.

Global Economic Crisis Due to the global economic crisis, there has been a significant decline in lending activity. We expect to have access to liquidity in the capital markets when needed at reasonable rates. We also have access to a $40 million unsecured revolving credit facility. However, sustained turbulence in the global credit markets could limit or delay our access to capital. As part of our enterprise risk management program, we routinely monitor our risks by reviewing our investments in and exposure to various firms and financial institutions.

ACCOUNTING MATTERS
Critical accounting policies and estimates Our financial statements are prepared in accordance with U.S. GAAP, requiring us to make estimates and judgments that affect reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements. Our critical accounting policies and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Annual Report on Form 10-K.

Other See Note 1 - Business Organization and Summary of Significant Accounting Policies for a discussion of recently adopted accounting pronouncements and recent accounting pronouncements not yet adopted.

RESULTS OF OPERATIONS
The following is a detailed discussion of the results of operations for the second quarter and first six months of 2009 compared to the same period in 2008. It should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes included in this report.

Overview Our second quarter 2009 earnings increased by $1.5 million, or 8 cents per diluted share of common stock, compared to the same period in 2008. Earnings for the first six months of 2009 increased by $2.5 million, or 10 cents per diluted share of common stock, compared to the same period in 2008. The table below provides a reconciliation of the primary year-over-year variances in diluted earnings per share. The earnings per diluted share for each variance shown below are non-GAAP measures:

                                                                                        First Six
                                                                   Second Quarter        Months
                                                                                        2009 vs.
                                                                   2009 vs. 2008          2008
2008 Earnings per diluted share                                   $           0.38     $      0.94

Year-over-Year Effects on Earnings:
Lower purchased power expense                                                 0.16            0.23
Higher equity in earnings of affiliates                                       0.02            0.04
Lower other operating expenses                                               (0.01 )          0.03
Lower operating revenues                                                     (0.10 )         (0.13 )
Common stock issuance (Nov. 2008) - 1,190,000 additional shares              (0.05 )         (0.12 )
Higher transmission expense                                                  (0.01 )         (0.03 )
Other                                                                         0.07            0.08
2009 Earnings per diluted share                                   $           0.46     $      1.04

Note: The additional shares from the November 2008 stock issuance were excluded from the 11,684,149 average shares of common stock - diluted for the second quarter and the 11,669,823 average shares of common stock - diluted for the first six months, for the purposes of computing the individual EPS variances shown above in order to provide comparable information for 2009 vs. 2008. Operating Revenues Operating revenues and related mWh sales are summarized below.

                                Three months ended June 30                                Six months ended June 30
                           Revenues                                               Revenues
                        (in thousands)                mWh Sales                (in thousands)                   mWh Sales
                       2009         2008         2009          2008          2009          2008           2009            2008
Residential          $ 30,736     $ 31,190       213,622       218,134     $  69,702     $  69,702         497,716         499,129
Commercial             24,703       26,051       193,596       206,747        50,540        52,850         402,629         426,498
Industrial              7,476        7,865        85,622        91,862        16,286        17,495         181,902         196,787
Other                     467          467         1,590         1,579           937           932           3,176           3,149
  Total retail
sales                  63,382       65,573       494,430       518,322       137,465       140,979       1,085,423       1,125,563
Resale sales           17,131       16,177       244,586       230,655        31,064        29,679         448,434         435,792
Provision for rate
refund                 (1,101 )          0             -             -        (1,101 )         (62 )             -               -
Other operating
revenues                3,215        2,737             -             -         5,926         5,115               -               -
Total operating
revenues             $ 82,627     $ 84,487       739,016       748,977     $ 173,354     $ 175,711       1,533,857       1,561,355

Operating revenues decreased $1.9 million in the second quarter and $2.3 million in the first six months of 2009 as compared to 2008 due to the following:

Retail sales decreased $2.2 million in the second quarter and $3.5 . . .