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Executives

Ann Warrell - Investor Relations Specialist

Robert H. Young - President, Chief Executive Officer and Director

Pamela J. Keefe - Chief Financial Officer, Vice President, Treasurer

Dale A. Rocheleau - Senior Vice President - Legal and Public Affairs, Corporate Secretary

Analysts

Paul Ridzon - Keybanc Capital Markets

Paul Patterson - Glen Rock Associates

Peter Hark - Taylon Capital

Central Vermont Public Services (CV) Q4 2007 Earnings Call March 12, 2008 2:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Central Vermont Public Services earnings conference call. My name is Stacy and I will be your moderator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Miss Ann Warrell, Investor Relations Specialist. Please proceed.

Ann Warrell

Thank you and welcome, everyone to the Central Vermont Public Services 2007 fourth quarter and annual earnings teleconference. As Stacy said, my name is Ann Warrell and I am the investor relations specialist at CVPS.

Before we begin, I would like to point out to you that we may be discussing certain subjects related to our fourth quarter and 2007 annual earnings that may contain forward-looking statements. I would caution you that actual results could differ materially from those expressed in such forward-looking statements and I refer you to our Safe Harbor language that is contained in the fourth quarter and 2007 annual earnings press release that we issued yesterday. This release appears on the investor relations section of our website at www.cvps.com, along with slides that will be referred to throughout today’s call.

Also during the call today, we will be discussing earnings per share, which in all instances refers to diluted shares of common stock.

Leading today’s discussion are CVPS President and Chief Executive Officer, Bob Young, and Vice President, Chief Financial Officer and Treasurer, Pam Keefe. Bob will begin with an overview of the company’s earnings and an update on corporate and strategic developments. Pam will then describe the fourth quarter and 2007 financial results in detail. We will leave time to answer your questions at the conclusion of the call.

Now I’d like to turn things over to Bob.

Robert H. Young

Thank you, Ann and welcome, everyone. Yesterday we reported 2007 annual earnings of $15.8 million, or $1.49 per share of common stock. This compares to 2006 earnings of $18.4 million, or $1.66 per share.

In the fourth quarter of 2007, CVPS earned $5.3 million or $0.50 per share, compared to $6.3 million, or $0.59 per share during the same period in 2006. Pam will discuss our annual and quarterly financial performance in detail in a few minutes but I am pleased to say that the annual result exceeded our adjusted earnings guidance range of $1.35 to $1.45 per share. Despite significant unanticipated increases in transmission costs and storm costs in 2007, we achieved a sound level of performance. We were able to work through challenging events and make considerable progress in furthering our long-term strategic plan to improve customer service and reliability, continue to improve our financial strength, and collaborate on plans to create a vibrant electric future for Vermont.

I would like to take a few minutes now to describe some of these activities in further detail. Turning to slide one, you may recall that early in the year, storms threatened our superior reliability but not our customer service. In April, we were struck by the worst storm ever to hit our service territory, which knocked out power to 4% of our customers. With the help of over 150 contract line and tree crews, service restoration was completed in just four days.

During the clean-up, we were encouraged by the support of our customers and communities and following the storm, CVPS was honored by the Vermont Legislature for our service restoration efforts.

In January 2008, we were awarded the 2007 Emergency Recovery Award from the Edison Electric Institute for our storm response. EEI has said that CVPS is the smallest company in memory to receive this prestigious honor.

During this storm and others that swept through in January, February, March and August, for the third straight year we were still able to meet or exceed all of the 17 service and quality standards that are monitored by Vermont regulators. We also maintained customer satisfaction, as evidence by results from the survey conducted by JD Power & Associates. For overall customer satisfaction, CVPS ranked in the top third of utilities in the east region, more than 40 points above the regional average. For the second year in a row, CVPS ranked first among similarly sized utilities in the Northeast in several categories, including price and value, company image, billing, and payment.

Our goal is to continue this high level of customer service over the long-term. To do that, we are making considerable capital investments in our core electric utility business and in VELCO, Vermont’s transmission operator. This strategy will continue to build rate base over the next several years, which in turn will increase shareholder value.

As shown on slide two, in 2007 we invested $23 million in our core utility and we plan to continue base level capital spending in this range for the next several years. We will also take on special one-time projects, such as installation of voltage support equipment, known as synchronous condensers, and implementation of an automated meter infrastructure system over the next few years, which will increase incremental capital spending in the short-term.

For example, in 2008 our capital spending forecast is approximately $41 million, which reflects our ongoing asset management plan base spending, $11 million for the synchronous condensers, and $3 million to install an enterprise resource planning system.

In addition, we continue to make equity investments in VELCO to support its transmission upgrades. In December of 2007, we invested $53 million in VELCO. At this time, we do not believe we will be asked to make any substantial investment in 2008 but may invest additional equity in 2009 and beyond. We will update you on this schedule throughout the year.

Turning to slide three, on January 31st the Vermont Public Service Board approved the rate case settlement that we reached with the Department of Public Service last year. This decision increased rates 2.3% or $6.4 million annually, beginning February 1st and reduced our authorized return on equity four basis points to 10.71%. CVPS remains under an earnings cap. Even with the increase, the new rates remain among the lowest of any major utility in the Northeast.

We are not planning to file another traditional rate case this year as we did in 2006 and 2007. Instead, we are pursuing completion of the alternative regulation plan that was filed last August. We expect the Public Service Board will rule in the case in the third quarter. In the meantime, CVPS and the Department of Public Service are actively working to settle the case. If adopted, the alternative regulation plan would likely contain quarterly power cost adjustments and an annual base rate adjustment, as well as an annual earnings sharing mechanism. If an agreement is reached and approved by the board, it would obviate the need for a traditional rate case filing.

As you can see, we made good headway with our ongoing effort to improve our financial position and facilitate our return to an investment grade credit rating, which will better position our company and our state for the complex and critical effort to provide for Vermont’s electric future. We are making solid progress on this front as well, working with the state and other utilities to pursue all available options to ensure that over the long-term, electricity continues to be affordable and reliable for our customers

Moving to slide four, you will note that we entered into earnest negotiations with Hydro Quebec and Vermont Yankee to negotiate new long-term power contracts after the current contracts expire beginning in 2012. We expect to work out a proposal by the end of this year with Hydro Quebec, though I cannot discuss possible terms at this time due to confidentiality agreements that are in place.

We are also in discussion with Entergy over the Vermont Yankee contract and hope to have a contract proposal later this year. As you may recall, Entergy is seeking to re-license the plant beyond its current 2012 license expiration. Reaching a favorable agreement with the Vermont utilities will help bolster Entergy’s effort in the eyes of legislators and regulators who must determine whether to authorize continued plant operation.

CVPS will also investigate other domestic and Canadian contract opportunities in order to assure a diverse power portfolio in the future. We are actively analyzing the possibility of building new generation in Vermont. Last year a group of Vermont utilities, including CVPS, hired a consultant to study the feasibility of new in-state generation. The first phase of this study considered cost estimates and the economics of construction. The second phase is looking at infrastructure, fuel, transmission, and permitting and should shine more light on what could realistically be built, given all of the factors involved.

Concurrent with our contractual negotiations and generation study, the Department of Public Service conducted a statewide public engagement process supported by Vermont utilities to reveal the attributes that customers want to see in future power resources. The results show generally that Vermonters say they want more renewables in the mix and are willing to pay more for them. That said, cost will be a central factor in determining how much and what kind of resources to add to our power portfolio. We are keenly aware of the need to balance all of the interests at play.

At this point, I would like to turn the presentation over to Pam, who will discuss our financial results in depth. Pam.

Pamela J. Keefe

Thanks, Bob. For an overview of the fourth quarter and annual earnings, please refer to slide five. CVPS' fourth quarter 2007 net income decreased by $1 million, or $0.09 per share compared to the fourth quarter of 2006. Net income was primarily affected by a $5.2 million increase in other operating expenses, which included higher transmission and storm restoration costs. The transmission costs increase resulted from higher rates stemming from overall transmission expansion in New England and lower reimbursements under the NEPOOL Open Access Transmission Tariff.

These cost increases were partially offset by a $2.2 million decrease in purchased power expense due to lower average market prices, lower nuclear plant decommissioning costs, and fewer purchases from independent power producers.

Income tax expenses also decreased approximately $1 million in the fourth quarter of 2007, due to a true-up of accumulated deferred income taxes.

Overall revenues increased $1.3 million in the fourth quarter as a result of higher rates in 2007 and higher sales volume due to colder weather. Equity in earnings from affiliates increased $1.1 million, which represents higher earnings from VELCO in the fourth quarter of 2007 compared to the fourth quarter of 2006. On an annual basis, we earned $1.49 per share in 2007, slightly above our adjusted earnings guidance range of $1.35 to $1.45 per share.

Net income for 2007 decreased $2.6 million, or $0.17 per share compared to 2006. This decrease was due in large part to an $18.7 million increase in other operating expenses comprised mainly of transmission and storm restoration costs. The transmission costs are those I described earlier, while the increase in storm costs includes expenses from an April storm, which was the most devastating costly storm in CVPS history, and from several other major storms in 2007.

Partially offsetting these increases was a $8.7 million decrease in purchase power expense. This decrease resulted from lower Vermont Yankee plant output available for purchase due to a second quarter refueling outage, an unanticipated outage in the third quarter, and upgrade power that was resold in 2006, as well as lower output from independent power producers.

2007 operating revenue increased $3.4 million over 2006 due to a $17 million increase in retail sales and a $1.3 million increase in other operating revenue. The increase in retail sales was comprised of $11 million related to the 4.07% rate increase effective for 2007, and $6 million in increased sales volume.

The increase in other operating income resulted from the sale of additional transmission capacity on our share of phase one and two transmission facility rights. Offsetting these increases was a $14.2 million decrease in resale sales due to less power available for resale from Vermont Yankee and independent power producers as I described earlier.

Equity and earnings of affiliates increased $3.2 million year over year, resulting from our additional equity investments in VELCO during 2006.

For a more in-depth analysis of the company’s 2007 and fourth quarter financial performance, please refer to our earnings release and Form 10-K, which were issued yesterday.

Looking at slide six, the company’s cash position was $3.8 million at December 31st, which is in line with our expectations. We recognize that cash on hand, cash flow from operations, and our $25 million credit facility will not be sufficient to meet our planned capital spending of approximately $41 million in 2008.

Because we believe this level of spending is necessary to address aging infrastructure and technology, we are considering available financing options to fund a portion of this amount. I’ll provide you with an update later in the year when a decision has been reached.

In 2008, CVPS will also require additional capital to replace the short-term bridge facility used to make our $53 million equity investment in VELCO in December 2007. We will likely raise the capital through the issuance of first mortgage bonds.

We anticipate that 2008 investments in VELCO will be less than $2 million. We expect to make more substantial investments in 2009 and beyond but we do not yet know what the amounts may be. We will keep you updated on this as information becomes available.

For those of you who may not have seen our press release issued last month, CVPS has issued earnings guidance for 2008 in the range of $1.50 to $1.60 per share. This range represents our best estimate of our level of performance, given risk exposure to ISO New England transmission costs and the market price of power, which affects our spot market purchases and our sales of excess power.

With that, I’d like to turn the call back over to Bob.

Robert H. Young

Thank you, Pam. On balance, 2007 proved to be a good year for CVPS despite some challenging circumstances. We believe that 2008 performance will be solid as we pursue our long-term strategies as shown on slide seven. As I discussed with you earlier, we will continue to improve customer service because it is the bedrock of our business. We value our relationship with customers and in light of the April 2007 storm, they know we will do everything in our power to maintain reliability. We will not waiver from this overarching commitment.

We will make strides in improving our financial strength because our future depends on it. We have a solid plan in place and we are following it diligently. And finally, we will be a collaborative partner in creating an affordable, vibrant electric future for Vermont that will provide long-term shareholder value.

I look forward to updating you on our progress in the coming quarters. Thank you for joining us today. At this point, Pam and I would be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Paul Ridzon with Keybanc. Please proceed.

Paul Ridzon - Keybanc Capital Markets

Good afternoon. I have a couple of questions. Does Vermont have a formal public interest standard tied to the re-licensing of VY?

Robert H. Young

I’m going to ask Dale Rocheleau, our General Counsel, to answer that one.

Dale A. Rocheleau

Vermont has a standard -- there are two standards that we have to look at. One is a decision by the Vermont legislature on whether they will authorize the continued operation of VY after 2012, and that is a political or policy decision by the Legislature. Clearly the public interest would be considered in that process.

And then there is a legal standard that the Public Service Board has to consider in issuing a certificate under section 248 of Vermont statutes that allows the continued operation of VY, as well as the new contract that we may enter with VY, where there has to be an affirmative benefit for Vermont.

Paul Ridzon - Keybanc Capital Markets

So for the PSB to authorize the re-licensing, there has to be a demonstrable public benefit and then on the legislative side, it’s more of -- it’s kind of -- certainly it’s going to be an issue?

Dale A. Rocheleau

Yes.

Paul Ridzon - Keybanc Capital Markets

And then you mentioned the need for new generation -- I know there’s a lot of things on the table but could you just outline where on the dispatch curve that generation needs to fall?

Robert H. Young

I think while we haven’t expressly firmed that up, I think in all likelihood it would probably be a relatively small base load unit.

Paul Ridzon - Keybanc Capital Markets

Thank you very much.

Operator

(Operator Instructions) Your next question comes from the line of Paul Patterson with Glen Rock Associates. Please proceed.

Paul Patterson - Glen Rock Associates

You guys covered everything pretty well. I just wanted to touch base with you on this renewable portfolio standard and what you guys are actually looking at that. I mean, I read sort of an executive summary that I guess was put out. I didn’t read the whole thing but it looked like -- I’m just wondering how much the cost of these -- I mean, you mentioned about balancing the costs with the desire of people to have cleaner energy and I was just wondering how are you balancing that and how are you educating people about what the actual costs that might be associated with going down that route is?

Robert H. Young

I think the public outreach process to a great extent helped deal with the issue of costs, sort of explaining what the relative costs were of different resources that are available to us as we think about our portfolio.

With regard to the issue of the -- in effect, the speed requirement, if you will, at this point in time, what the Legislature is now proposing is that we have 5% plus whatever growth we have in demand between 2006, I believe, and 2012 -- 2005 and 2012, so that -- whatever that growth is and the 5% is what we have to have as sort of a speed, a renewable portfolio by the end of --

Paul Patterson - Glen Rock Associates

I’m sorry, what is the 5% growth of -- 5% growth in what?

Robert H. Young

No, it would be a 5% baseline plus whatever the growth in sales is between the end of ’05 and the end of ‘012. So it’s -- some people would say they have a 10% mandated requirement. Ours is a 5% base plus whatever our growth is in that five, six-year timeframe.

Paul Patterson - Glen Rock Associates

What does that suggest in terms of the amount of resources you have to get?

Robert H. Young

Well I think it’s a little confusing because it’s a statewide requirement so it’s not tied directly to CVPS. But if I were to guess, it’s probably in the range of 10% to 12%. I don’t think overall the state’s demand for power is growing at much more than say a percent or so a year, so that’s probably a reasonable guess of what it might be.

Paul Patterson - Glen Rock Associates

And how do you expect to meet those needs? Is that an opportunity for you guys? I mean, I know that you guys were sort of in that -- you were -- but I mean, what do you -- or is that something you just contract with --

Robert H. Young

It’s not necessarily directly an opportunity for us but there are a number of opportunities being discussed or projects developed here in Vermont at this point in time that would qualify under that framework. And while we can’t say definitively today that those projects will be enough to meet the goal, we are hopeful that what we see on the horizon will be enough to take care of the demand, otherwise I would presume that our only other recourse would be to buy outside the state in the renewable marketplace.

Paul Patterson - Glen Rock Associates

Okay, and then just finally with the alternative regulation plan, you guys are in settlement discussions. Do you have any -- can you give us a little bit more of a flavor as to how those -- I mean, you mentioned I guess that if -- I guess if there wasn’t a settlement, it would be late in 2008 that you’d actually -- third quarter of 2008 that you’d actually have a decision, or is that timeframe associated with you guys have a settlement?

Robert H. Young

No, I think our expectation is based on the filing we made with the public board that we would get a decision in the alt reg docket by roughly the third quarter. If we -- we could make a settlement with the Department of Public Service anywhere along in the process and obviously we would like that because that means that basically the public and the company are on the same page as to what this should look like and that always makes it easier for the Public Service Board to say yes or to be a lot more open to the proposed solution.

Paul Patterson - Glen Rock Associates

Okay, and you guys are pretty optimistic that that could happen in the next couple of months I guess, right?

Robert H. Young

Well, I wouldn’t characterize us as being optimistic. We are having productive discussions and we hope we arrive at a settlement with the department but at the same time, the docket process has started and we will be filing testimony, preparing for hearings if we do not reach -- well, whether we reach a settlement or not.

Paul Patterson - Glen Rock Associates

Okay, great. Thanks a lot, guys.

Operator

Your next question comes from the line of Peter [Hark] with [Taylon] Capital. Please proceed.

Peter Hark - Taylon Capital

I just want to make sure I understand again the negotiations that might be going on with Entergy to enter into a new purchase power contract for Vermont Yankee, in advance of perhaps hearing from the state legislature on getting the license extension. I was just hoping you could kind of review for us how you see the timing of things kind of playing out and what effectively would be the proposal. Would it be a contingent proposal on getting license extended beyond 2012?

Robert H. Young

Well, I think we expect that in the normal course of things, given the expiration of the plant license, that Entergy would probably provide -- would probably be applying for a license extension with the Public Service Board some time this spring. Now, in that process, exhibit A and earlier, Dale made the point that they have to show that re-licensing is in the public good, provides a benefit to Vermont. Now, exhibit A in their case would be a new contract with the Vermont Utilities. That’s the prima facie case for it’s in the public good. So that sort of speaks a little bit to some of the timing we’ve been thinking about here.

Peter Hark - Taylon Capital

Okay and is it at all influenced by the spin application that Entergy has made to the Public Service Board?

Dale A. Rocheleau

You’re probably talking about the spin co or the --

Peter Hark - Taylon Capital

Right, the spin co transaction that’s separate and apart from the license extension application.

Dale A. Rocheleau

It is a separate docket. CVPS is intervening in the case. It could come up in that docket but it’s too early to tell at this point.

Peter Hark - Taylon Capital

Okay, thanks. And then secondly, when you put out 2008 earnings guidance, I wanted to make sure I understood at least a few of the components. One is what your expectations are this year for sales, resale sales relative to where you were in 2007?

Pamela J. Keefe

I expect that they will be higher than 2007. In 2007, they went down because of the issues with the Vermont Yankee plant, so we didn’t have as much power available to resell. So I would expect a return to something more along 2006 or maybe somewhere in the middle there but definitely higher than ’07.

Peter Hark - Taylon Capital

Okay and Pam, that would be in terms of volumes, could you make maybe some comment on what you expect margins will be then?

Pamela J. Keefe

That’s hard to say. I don’t have right in front of me what our expectations are for the price, for the market price of power is but that’s obviously -- you know, we take our best guess at it but no one can really predict the market.

Peter Hark - Taylon Capital

Okay. Thanks very much.

Operator

(Operator Instructions) With no further questions in the queue, I’d like to turn the call back over to management for closing remarks.

Robert H. Young

Well, I thank you very much or we thank you all very much for your time and participation today and as always, if you have additional questions that you think of after the call and would like to ask us, please feel free to contact Pam or myself or Ann Warrell and we’d be happy to try to assist you. With that, thank you for participating and have a good day.

Operator

Thank you for your participation in today’s conference. To access the replay for this call, you may dial 888-286-8010, with replay access code 84108418. The replay will be available in approximately one hour. This concludes your presentation. You may now disconnect and have a great day.

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