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SEC Comment Letter 2

May 26,
2005

VIA
FACSIMILE

Mr. H.
Christopher Owings

Mr.
Albert Yarashus

Mr.
Robert Babula

Securities
and Exchange Commission

Division
of Corporation Finance

Mail Stop
0308

450 Fifth
Street, N.W.

Washington,
DC 20549-0308

      Fax:

      202-772-9202

      Re:

      GREEN
      MOUNTAIN POWER CORPORATION

Form 10-K
for the year ended December 31, 2004 filed March 29, 2005

      File
      No. 1-8291

Dear
Messrs. Owings, Yarashus and Babula:

Green
Mountain Power Corporation (“GMP” or the “Company”) is providing the following
additional information in response to question 17 in your letter dated April 25,
2005 providing GMP with comments with respect to the Company’s Form 10-K for the
year ended December 31, 2004.

For your
convenience and reference, Staff comment 17 on Form 10-K and our original
response are reprinted below in italics.

Note
K. Hydro Quebec

17. Tell
us how you view the VJO Contract under SFAS no. 133. If you treat as a normal
purchase contract, please show us your analysis. We assume from your previous
disclosure of the fair market value of “the 9701 agreement” that contract
represents a mark-to-market derivative. If our assumption is incorrect, please
clarify. Please also tell us how you accounted for the $8 million payment
associated with writing the calls that constitute “the 9701
agreement”

RESPONSE:

We
describe the VJO Contract in Note K of our 2004 Form 10-K. The contract is a
full requirements contracts for use in the normal course of business. In
determining the appropriate accounting for the power supply contract with
Hydro-Quebec we determined whether the contract met the definition of a
derivative under FASB Statement No. 133, including amendments to that statement
(collectively referred to as FAS 133). We assessed whether the contract
possessed all three of the characteristics required by FAS 133, which
include:

    1.

      It
      has (1) one or more underlyings and (2) one or more notional amounts or
      payment provisions or both. We determined that the contract possessed an
      underlying but not a notional amount. In terms of underlyings there is a
      defined contract price in which the energy rates escalate at general
      inflation based on the US Gross National Product Implicit Price Deflator
      ("GNPIPD") and capacity rates are constant with the potential for small
      reductions if interest rates decrease below average values set in prior
      years. System load factors are also defined. In terms of a notional
      amount, we determined that the notional amount cannot be quantified given
      the default mechanism as described
below.

    2.

      It
      requires no initial net investment or an initial net investment that is
      smaller than would be required for the other types of contracts that would
      be expected to have a similar response to changes in market factors. The
      VJO Contract with Hydro-Quebec required no additional investment on our
      part.

    3.

      Its
      terms require or permit net settlement, it can be readily settled net by
      means outside the contract, or it provides for delivery of an asset that
      puts the recipient in a position not substantially different from net
      settlement. We determined that the VJO Contract possessed this
      characteristic given that the asset in this case, energy and capacity
      under the power contract, is readily convertible to cash. The New England
      wholesale power market provides the market mechanism that facilitates net
      settlement.

Based
on our assessment of the three characteristics outlined above, we determined
that the VJO Contract does not meet the definition of a derivative under FAS 133
because there is no notional amount. We are obligated to pay for capacity under
the terms of the contract, and only for the amount of energy delivered, which is
subject to the Vermont Joint Owner aggregate load factor.

The
default percentage requires that if the Vermont Joint Owners notify
Hydro-Quebec that
a delinquent party will cease to have any rights under the contract such rights
will be assumed by the remaining Vermont Joint Owners in proportion to their
pro-rata share of the delinquent party's obligation. In this case, we would be
obligated to pay our pro-rata share of the delinquent party's obligation under
the contract, and our obligation under the contract would increase to reflect
our pro-rata share of the delinquent party's obligation. The Vermont Joint
Owners includes Vermont utilities with varying obligation percentages under the
contract. In considering the guidance under DIG Issue A6, although the pro-rata
share of output would increase, this does not allow us the ability to quantify
the notional amount of the contract.

The
9701 Agreement is a derivative. Based on a VPSB approved accounting order dated
April 11, 2001, we record the change in fair value of derivatives as deferred
charges or deferred credits on the balance sheet, depending on whether the fair
value is an unrealized loss or gain. Because the Company applies this regulatory
accounting treatment to such transactions, we do not make a determination as to
whether the derivatives qualify as cash flow hedges.

Hydro-Quebec
obtained options to purchase certain amounts of energy at VJO Contract energy
prices through 2015 in return for an $8 million payment made to GMP by
Hydro-Quebec as we disclosed in Note K of Form 10-K. The VPSB issued an
accounting order dated December 31, 1996,requiring the Company to reflect the $8
million payment from Hydro-Quebec as revenue during 1997. In accordance with
such VPSB Order and SFAS 71, we recorded the $8 million of revenue during
1997.

I
discussed the above response with representatives of the Staff on May 11, 2005.
As a result of such discussions, GMP provides the following additional
information in support of the Company’s conclusion that the VJO contract lacks a
notional amount:

    ·

      Hydro-Quebec
      has the ability to reduce deliveries in the event of drought in Canada
      even though the contract is for system
power.

    ·

      Hydro-Quebec
      has the ability to exercise three options to reduce the load factor by a
      specified amount over the life of the
contract.

    ·

      Transmission
      system constraints limit VJO contract deliveries over the Phase I/II line
      connecting transmission systems between Quebec and Vermont. If the Company
      schedules VJO contract deliveries over Phase I/II and load is insufficient
      to meet minimum operating parameters for Phase II, the Company will not
      receive the power, nor will the Company be allowed to reschedule the power
      at a future time or be made whole in any other manner.

    ·

      The
      Company has previously not received energy for a period of approximately
      two months during an ice storm that struck Quebec during
    1998.

If you
have questions or require additional information, please contact me (802)
655-8452.

Very
truly yours,

Robert J.
Griffin

Vice
President, CFO, Treasurer and

Principal
Accounting Officer

cc:    C. L.
Dutton

     D. J.
Rendall, Jr.

E. P.
Murphy - Hunton & Williams