NOTE 4 - INVESTMENTS IN AFFILIATES

Our equity method investments and equity in earnings from those investments follow (dollars in thousands):

				Investment				Equity in Earnings
				At December 31				As of December 31
	Direct
	Ownership			2011		2010		2011		2010			2009
Vermont Electric Power Company, Inc.:
Common stock (a)		47.10	%	$	11,928	$	11,875
Preferred stock (b)		49.19	%		362		287
Subtotal				$	12,290		12,162	$	1,419	$	1,473		$	1,776
Vermont Transco LLC (c)		36.59	%		164,726		156,338		26,100		19,322			15,348
Vermont Yankee Nuclear Power Corporation		58.85	%		2,817		2,875		212		293			328
Connecticut Yankee Atomic Power Company		2.00	%		42		43		0		0			13
Maine Yankee Atomic Power Company		2.00	%		43		41		2		14			2
Yankee Atomic Electric Company		3.50	%		56		55		0		(4	)		5
Total Investments in Affiliates				$	179,974	$	171,514	$	27,733	$	21,098		$	17,472

(a) Ownership percentage was 47.05 percent at December 31, 2010.

(b) Ownership percentage was 48.03 percent at December 31, 2010.

Undistributed earnings of these affiliates, included in Retained Earnings on our Consolidated Balance Sheets, amounted to $30.5 million at December 31, 2011 and $22.1 million at December 31, 2010. Of these amounts, $29.5 million at December 31, 2011 and $21.2 million at December 31, 2010 were from our investment in Transco.

VELCO and Transco VELCO, through its wholly owned subsidiary, Vermont Electric Transmission Company, Inc., and Transco own and operate an integrated transmission system in Vermont over which bulk power is delivered to all electric utilities in the state. Transco, a Vermont limited liability company, was formed by VELCO and its owners. In June 2006, VELCO transferred its assets to Transco in exchange for 2.4 million Class A Units, and Transco assumed all of VELCO's debt. VELCO and its employees now manage the operations of Transco under a Management Services Agreement between VELCO and Transco. Transco operates under an Operating Agreement among us, VELCO, Transco, Green Mountain Power and most of the other Vermont electric utilities. Transco also operates under the Amended and Restated Three Party Agreements, assigned to Transco from VELCO, among us, Green Mountain Power, VELCO and Transco.

Our ownership interest in VELCO is represented by common and preferred stock. The third quarter 2011 purchases of Readsboro and Vermont Marble increased our ownership percent of VELCO's common and preferred stock. Our ownership interest in VELCO's common stock was 47.10 percent at December 31, 2011 and 47.05 percent at December 31, 2010. Our ownership interest in VELCO's preferred stock was 49.19 percent at December 31, 2011 and 48.03 percent at December 31, 2010.

We did not invest in Transco in 2011 but invested $34.9 million in 2010. The third quarter 2011 purchases of Readsboro and Vermont marble marginally increased our ownership interest. Our direct ownership interest was 36.59 percent at December 31, 2011 and 36.68 percent at December 31, 2010. Our ownership interest in Transco is represented by Class A Units that receive a return on equity investments of 11.5 percent under the 1991 Transmission Agreement (“VTA”). Our total direct and indirect interest in Transco was 40.93 percent at December 31, 2011 and 41.02 percent at December 31, 2010. Transco is a variable interest entity but we are not the primary beneficiary.

Our December 2010 investment in Class A Units included 1,306,400 units related to a new specific facility in the Brattleboro, Vermont area. For 10 years, we are responsible for certain costs associated with the facility. At the end of 10 years, the specific facility will become a Transco common facility that is paid for by all the Vermont utilities receiving transmission service from Transco.

VELCO's summarized consolidated financial information (including Transco) for the years ended December 31 follows (dollars in thousands):

	2011		2010		2009
Operating revenues	$	136,092	$	104,016	$	93,596
Operating income	$	79,269	$	58,544	$	51,903

Income before non-controlling interest and income tax	$	62,738	$	50,029	$	42,214
Less members' non-controlling interest in income		58,144		45,728		36,202
Less income tax		2,081		1,056		2,338
Net income	$	2,513	$	3,245	$	3,674

	2011		2010
Current assets	$	68,983	$	38,639
Non-current assets		817,178		756,346
Total assets		886,161		794,985
Less:
Current liabilities		127,121		47,374
Non-current liabilities		341,571		345,869
Members' non-controlling interest		391,933		375,945
Net assets	$	25,536	$	25,797

Cash dividends received from VELCO were $1.3 million in 2011, 2010 and 2009. Accounts payable to VELCO were $7.3 at December 31, 2011 and $5.8 million at December 31, 2010.

Transco's summarized financial information (included above in VELCO's summarized consolidated financial information) for the years ended December 31 follows (dollars in thousands):

	2011		2010		2009
Operating revenues	$	135,130	$	103,547	$	93,085
Operating income	$	80,500	$	59,884	$	51,903
Net income	$	64,424	$	51,849	$	42,623

	2011		2010
Current assets	$	53,422	$	34,506
Non-current assets		798,732		746,351
Total assets		852,154		780,857
Less:
Current liabilities		102,133		33,175
Non-current liabilities		315,456		330,766
Mandatorily redeemable membership units		10,000		10,000
Net assets	$	424,565	$	406,916

Transmission services provided by Transco are billed to us under the VTA. All Vermont electric utilities are parties to the VTA. This agreement requires the Vermont utilities to pay their pro rata share of Transco's total costs, including interest and a fixed rate of return on equity, less the revenue collected under the ISO-NE Open Access Transmission Tariff and other agreements.

Transco's billings to us primarily include the VTA and charges and reimbursements under the NOATT. Included in Transco's operating revenues above are transmission services to us amounting to $11.2 million in 2011, a net credit of $3.8 million in 2010 and $8 million in 2009. These amounts are included in Transmission - affiliates on our Consolidated Statements of Income. Cash dividends received from Transco were $17.8 million in 2011, $12.7 million in 2010 and $9 million in 2009. Accounts payable to Transco were $1.8 million at December 31, 2011. There was no accounts payable due at December 31, 2010. There were no Accounts receivable from Transco at December 31, 2011 and $0.2 million at December 31, 2010.

VYNPC VYNPC sold its nuclear plant to Entergy-Vermont Yankee in July 2002. The sale agreement included a purchased power contract between VYNPC and Entergy-Vermont Yankee. Under the VY PPA, VYNPC pays Entergy-Vermont Yankee for generation at fixed rates and, in turn, bills the VY PPA charges from Entergy-Vermont Yankee with certain residual costs of service through a FERC tariff to the VYNPC sponsors, including us. The residual costs of service include VYNPC's other operating expenses, including any expenses incurred in administering the VY PPA and the power contracts, and an allowed return on equity. Our entitlement to energy produced by the Vermont Yankee plant is about 29 percent. See Note 18 – Commitments and Contingencies, Long-term Power Purchases.

Although we own a majority of the shares of VYNPC, the power contracts, sponsor agreement and composition of the board of directors, under which it operates, effectively restrict our ability to exercise control over VYNPC. VYNPC is a variable interest entity, but we are not the primary beneficiary.

VYNPC's summarized financial information at December 31 follows (dollars in thousands):

	2011			2010			2009
Operating revenues	$	179,155		$	168,592		$	183,411
Operating income (loss)	$	(1,569	)	$	(2,961	)	$	(2,991	)
Net income	$	360		$	497		$	557

	2011		2010
Current assets	$	25,376	$	26,844
Non-current assets		146,408		145,079
Total assets		171,784		171,923
Less:
Current liabilities		17,466		17,317
Non-current liabilities		149,531		149,721
Net assets	$	4,787	$	4,885

VYNPC's revenues shown in the table above include sales to us of $62.4 million in 2011, $58.7 million in 2010 and $64 million in 2009. These amounts are included in Purchased power - affiliates on our Consolidated Statements of Income. Accounts payable to VYNPC were $5.9 million at December 31, 2011 and December 31, 2010. Cash dividends received were $0.3 million in 2011, $0.2 million in 2010 and $0.3 million in 2009.

DOE Litigation: VYNPC has been seeking recovery of fuel storage-related costs from the DOE. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the disposal of spent nuclear fuel and high-level radioactive waste. VYNPC, as required by that Act, signed a contract with the DOE (the “Standard Contract”) to provide for the disposal of spent nuclear fuel and high-level radioactive waste from its nuclear generation station beginning no later than January 31, 1998. The Standard Contract obligated VYNPC to pay a one-time fee of approximately $39.3 million for disposal costs for all nuclear fuel used through April 6, 1983 (the “pre-1983 fuel”), and a fee payable quarterly equal to one mil per kilowatt-hour of nuclear generated and sold electricity after April 6, 1983. Except for the obligation to pay the one-time fee and the right to claims relating to the DOE's defaults under the Standard Contract with respect to the pre-1983 fuel, the Standard Contract was assigned to Entergy effective with the sale of the plant in 2002. VYNPC filed its lawsuit against the government for the DOE's breach in the U.S. Court of Federal Claims on July 30, 2002.

Through 2011, VYNPC has accumulated $143 million in an irrevocable trust to be used exclusively for meeting this obligation ($144.7 million including accrued interest) at some future date, provided the DOE complies with the terms of the aforementioned Standard Contract. Under the terms of the sale agreement, VYNPC retained the spent fuel trust fund assets, the related obligation to make this payment to the DOE when and if it becomes due, and its claims against DOE associated with the pre-1983 fuel. VYNPC collected the funds from us and other wholesale utility customers, under FERC-approved wholesale rates, and our share of these payments was collected from our retail customers.

On October 22, 2008, the trial judge presiding over VYNPC's case granted a motion for partial summary judgment filed by Entergy, and dismissed VYNPC's case. The judge ruled that VYNPC lacked any actionable claim that was not transferred to Entergy in the sale of the plant. On April 3, 2009, the trial judge reissued his decision to dismiss VYNPC's case under a special rule that would allow VYNPC to immediately appeal the decision to the United States Court of Appeals for the Federal Circuit (“the Federal Circuit”). However, on September 2, 2009, the Federal Circuit remanded the matter to the trial judge with instructions to vacate his most recent ruling. The effect of this action was to suspend VYNPC's appeal until the trial judge issued a final order in the related Entergy proceeding. The order was issued on October 15, 2010, and on December 13, 2010, VYNPC filed a Notice of Appeal to the Court of Appeals for the Federal Circuit.

In its appeal, VYNPC filed a legal brief on May 12, 2011, and it was followed by amicus curiae (“friend of the court”) briefs from the state of Vermont on May 19, 2011 and October 24, 2011. Reply briefs were filed by the DOE on December 5, 2011, VYNPC on December 22, 2011, and Entergy Nuclear-Vermont Yankee on January 4, 2012. The appeal is still pending.

We expect that our share of these awards, if any, would be credited to our retail customers; however, we are currently unable to predict the outcome of this case.

Maine Yankee, Connecticut Yankee and Yankee Atomic We are responsible for paying our ownership percentage of decommissioning and all other costs for Maine Yankee, Connecticut Yankee and Yankee Atomic. These plants are permanently shut down. All three collect decommissioning and closure costs through FERC-approved wholesale rates charged under power purchase agreements with us and several other New England utilities. Historically, our share of these costs has been recovered from retail customers through PSB-approved rates. We believe based on historical rate recovery that our share of decommissioning and closure costs for each plant will continue to be recovered through the regulatory process. However, if the FERC were to disallow recovery of any of these costs in their wholesale rates, there would be a risk that the PSB would disallow recovery of our share in retail rates. Information related to estimated decommissioning and closure costs for each plant based on their most recent FERC-approved rate settlements is shown below (dollars in millions):

	Remaining Obligations		Revenue Requirements		Company Share
Maine Yankee	$	105.7	$	18.8	$	0.4
Connecticut Yankee	$	137.5	$	175.2	$	3.5
Yankee Atomic	$	90.7	$	39.4	$	1.4

The remaining obligations are the estimated remaining total costs to be incurred by the respective Yankee companies to operate the supporting organization and decommission the plant, including onsite spent fuel storage, in 2011 dollars for the period 2012 through 2023 for Maine Yankee and Connecticut Yankee and through 2022 for Yankee Atomic. Revenue requirements are the estimated future payments by the sponsors to fund estimated FERC-approved decommissioning and other costs (in nominal dollars) for 2012 through 2013 for Maine Yankee, 2015 for Connecticut Yankee and 2014 for Yankee Atomic. Revenue requirements include Maine Yankee and Connecticut Yankee collections for required contributions to pre-1983 spent fuel funds. Yankee Atomic has already collected and paid these required pre-1983 contributions. These estimates may be revised from time to time based on information available to the company regarding estimated future costs. Our share of the estimated costs shown in the table above is included in regulatory assets and nuclear decommissioning liabilities (current and non-current) on the Consolidated Balance Sheets.

Maine Yankee: Maine Yankee's wholesale rates are currently based on a 2008 FERC-approved settlement. Our share of decommissioning and other costs amounted to $0.1 million in 2011, 2010 and 2009. These amounts are included in Purchased power - affiliates on the Consolidated Statements of Income.

Plant decommissioning activities were completed in 2005 and the NRC amended Maine Yankee's operating license in October 2005 for operation of the Independent Spent Fuel Storage Installation. This amendment reduced the size of the licensed property to include only the land immediately around the Independent Spent Fuel Storage Installation. Maine Yankee remains responsible for safe storage of the plant's spent nuclear fuel and waste at the site until the DOE meets its obligation to remove the material from the site.

Connecticut Yankee: Connecticut Yankee's wholesale rates are currently based on a 2010 FERC-approved filing. Our share of decommissioning and other costs amounted to $0.9 million in 2011 and $0.8 million in 2010 and 2009. These amounts are included in Purchased power - affiliates on the Consolidated Statements of Income.

Plant decommissioning activities were completed in 2007 and the NRC amended Connecticut Yankee's operating license in November 2007 for operation of the Independent Spent Fuel Storage Installation. This amendment reduced the size of the licensed property to include only the land immediately around the Independent Spent Fuel Storage Installation. Connecticut Yankee remains responsible for safe storage of the plant's spent nuclear fuel and waste at the site until the DOE meets its obligation to remove the material from the site.

Yankee Atomic: Yankee Atomic's wholesale rates are currently based on a 2010 FERC-approved filing. Based on the approved filing, Yankee Atomic agreed to no change in its revenue requirements from the 2006 FERC-approved settlement. The 2006 approved settlement also provides for reconciling and adjusting future charges based on actual decontamination and dismantling expenses and reporting decommissioning trust fund's actual investment earnings. Our share of decommissioning and other costs amounted to $0.4 million in 2011, 2010 and 2009. These amounts are included in Purchased power - affiliates on the Consolidated Statements of Income.

Plant decommissioning activities were completed in 2007 and the NRC amended Yankee Atomic's operating license in August 2007 for operation of the Independent Spent Fuel Storage Installation. This amendment reduced the size of the licensed property to include only the land immediately around the Independent Spent Fuel Storage Installation. Yankee Atomic remains responsible for safe storage of the plant's spent nuclear fuel and waste at the site until the DOE meets its obligation to remove the material from the site.

DOE Litigation: All three companies have been seeking recovery of fuel storage-related costs stemming from the default of the DOE under the 1983 fuel disposal contracts that were mandated by the United States Congress under the Nuclear Waste Policy Act of 1982. Under the Act, the companies believe the DOE was required to begin removing spent nuclear fuel and greater than Class C waste from the nuclear plants no later than January 31, 1998 in return for payments by each company into the nuclear waste fund. No fuel or greater than Class C waste has been collected by the DOE, and each company's spent fuel is stored at its own site. Maine Yankee, Connecticut Yankee and Yankee Atomic collected the funds from us and other wholesale utility customers, under FERC-approved wholesale rates, and our share of these payments was collected from our retail customers.

In 2006, the United States Court of Federal Claims issued judgment in the first phase of spent fuel litigation. Maine Yankee was awarded $75.8 million in damages through 2002, Connecticut Yankee was awarded $34.2 million through 2001 and Yankee Atomic was awarded $32.9 million through 2001. This decision was appealed in December 2006, and all three companies filed notices of cross appeals. In August 2008, the United States Court of Appeals for the Federal Circuit reversed the award of damages and remanded the cases back to the trial court. The remand directed the trial court to apply the acceptance rate in the 1987 annual capacity reports when determining damages.

A final ruling on the remanded case in favor of the three companies was issued on September 7, 2010. Maine Yankee was awarded $81.7 million, Connecticut Yankee was awarded $39.7 million and Yankee Atomic was awarded $21.2 million. The DOE filed an appeal on November 8, 2010 and the three Yankee companies filed cross-appeals on November 19, 2010.

Oral arguments before the United States Court of Appeals for the Federal Circuit were held on November 7, 2011. The court has yet to issue a decision. Interest on the judgments does not start to accrue until the appeals have been decided. Our share of the claimed damages of $3.2 million is based on our ownership percentages described above.

The Court of Federal Claims' original decision established the DOE's responsibility for reimbursing Maine Yankee for its actual costs through 2002 and Connecticut Yankee and Yankee Atomic for their actual costs through 2001. These costs are related to the incremental spent fuel storage, security, construction and other expenses of the spent fuel storage installation. Although the decision did not resolve the question regarding damages in subsequent years, the decision did support future claims for the remaining spent fuel storage installation construction costs.

In December 2007, the three companies filed a second round of damage cases against the DOE. On July 1, 2009, Maine Yankee, Connecticut Yankee and Yankee Atomic filed details related to the claimed costs for damages incurred for periods subsequent to the original case discussed above. In this second phase of claims, Maine Yankee claimed $43 million since January 1, 2003 and Connecticut Yankee and Yankee Atomic claimed $135.4 million and $86.1 million, respectively since January 1, 2002. For all three companies the damages were claimed through December 31, 2008. Our share of the claimed damages in this second round is $6.6 million is based on our ownership percentages described above.

The trial on this second round of claims began October 11, 2011. The DOE has made post-trial filings to keep the record in the cases open while they continue to review documents produced in discovery in an attempt to provide additional trial testimony on selected issues. The three companies have asked for the trial records to be closed in all cases and for a post-trial briefing schedule to be set.

On Thursday March 1, 2012, an order was issued in response to the DOE's motion to compel additional discovery in the Connecticut Yankee and Maine Yankee portions of the case. The Yankee Atomic evidentiary portion has already been closed. This decision closes discovery on Connecticut Yankee, grants potential but limited additional discovery on privileged documents in the Maine Yankee case, and, provides a post-trial briefing schedule that allows the cases to be ready for decision by early May 2012.

Due to the complexity of these issues and the potential for further appeals, the three companies cannot predict the timing of the final determinations or the amount of damages that will actually be received. Each of the companies' respective FERC settlements requires that damage payments, net of taxes and further spent fuel trust funding, if any, be credited to wholesale ratepayers including us. We expect that our share of these awards, if any, would be credited to our retail customers.