NOTE 4 - INVESTMENTS IN AFFILIATES

VELCO Summarized consolidated financial information (including Transco) for the three months ended March 31 follows (dollars in thousands):

	Three months ended March 31
	2012			2011

Operating revenues	$	32,239		$	34,227
Operating income	$	18,898		$	19,715

Income before non-controlling interest and income tax	$	15,830		$	15,769
Less members' non-controlling interest in income		14,399			14,537
Less income tax		507			467
Net income	$	924		$	765

Company's common stock ownership interest		47.10	%		47.05	%
Company's equity in net income	$	219		$	360

Accounts payable to VELCO were $5.2 million at March 31, 2012 and $7.3 million at December 31, 2011.

Transco Summarized financial information (included above in VELCO's summarized consolidated financial information) for the three months ended March 31 follows (dollars in thousands):

	Three months ended March 31
	2012			2011
Operating revenues	$	32,268		$	34,411
Operating income	$	19,556		$	20,502
Net income	$	16,001		$	16,137

Company's direct ownership interest		36.59	%		36.68	%
Company's equity in net income	$	6,525		$	6,525

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 NOATT 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 $3.9 million for the three months ended March 31, 2012 and $2.3 million for the three months ended March 31, 2011. These amounts are included in Transmission - affiliates on our Condensed Consolidated Statements of Income. Accounts payable to Transco were $1.4 million at March 31, 2012 and $1.8 million at December 31, 2011.

VYNPC Summarized financial information at December 31 follows (dollars in thousands):

	Three months ended March 31
	2012			2011
Operating revenues	$	43,703		$	48,973
Operating (loss) income	$	(156	)	$	(253	)
Net income	$	90		$	91

Company's common stock ownership interest		63.64	%		58.85	%
Company's equity in net income	$	54		$	53

VYNPC's revenues shown in the table above include sales to us of $15.2 million for the three months ended March 31, 2012 and $17.1 million for the three months ended March 31, 2011. These amounts are included in Purchased power - affiliates on our Condensed Consolidated Statements of Income. Accounts payable to VYNPC were $3.9 million at March 31, 2012 and $5.9 million at December 31, 2011. The VY PPA terminated on March 21, 2012.

On March 30, 2012, VYNPC repurchased its common stock from Central Maine Power. This increased our equity ownership percentage from 58.85 percent to 63.64 percent.

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 own, through equity investments, 2 percent of Maine Yankee, 2 percent of Connecticut Yankee and 3.5 percent of Yankee Atomic. All three companies have completed plant decommissioning and the operating licenses have been amended by the NRC for operation of Independent Spent Fuel Storage Installations. All three remain responsible for safe storage of the spent nuclear fuel and waste at the sites until the DOE meets its obligation to remove the material from the sites. Our share of the companies' estimated costs are reflected on the Condensed Consolidated Balance Sheets as current and non-current regulatory assets and nuclear decommissioning liabilities. These amounts are adjusted when revised estimates are provided. At March 31, 2012, we had regulatory assets of $0.3 million for Maine Yankee, $3.3 million for Connecticut Yankee and $1.3 million for Yankee Atomic. These estimated costs are being collected from customers through existing retail rate tariffs. Total billings from the three companies amounted to $0.3 million for the first three months of 2012 and $0.4 million for the first three months of 2011. These amounts are included in Purchased power - affiliates on our Condensed Consolidated Statements of Operations.

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. 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. A decision is expected during the second quarter of 2012.

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.