VERMONT ELECTRIC COOPERATIVE, INC.
REGULAR MEETING OF THE BOARD OF DIRECTORS
JULY 27, 2010
APPROVED MINUTES

As required under the VEC By-Laws, notice of this meeting was sent to each Director by deposit in U.S. mail on July 21, 2010. 

CALL TO ORDER – AGENDA ITEM # 1
President Tom Bailey called the meeting to order at 12:11 p.m. in the Robert P. Northrop Boardroom at VEC offices in Johnson, Vermont. Present were Thomas Bailey and Directors Dorothy Allard, Dan Carswell, Michelle DaVia, Craig Kneeland, Bertrand Lague, Priscilla Matten, John Miller, Daniel Parsons, John Ward, Mark Woodward and Don Worth. Also present from VEC were CEO Dave Hallquist, COO Jeffery Wright, CFO Michael Bursell, Manager of Government Relations Randy Pratt, Manager of Corporate Services Liz Gamache, and Internal Communications Specialist Amanda Niklaus.

 MINUTES OF JUNE 29, 2010 REGULAR MONTHLY MEETING APPROVED – AGENDA ITEM #2

Miller moved and Lague seconded: 

That the minutes of the June 29, 2010 Regular Monthly meeting be approved as presented.  

The motion carried unanimously and the minutes were approved as presented. 

BOARD MINUTES TABLED FROM 6-29-2010 MEETING – AGENDA ITEM #3
Board Secretary  DaVia informed the Board that the concerns expressed during the previous regular Board meeting surrounding the process of recording Board minutes has now been resolved. She further explained that the most recent Board minutes were completed in-house and were satisfactory. She stated that she believes there to be no reason to take further action and praised VEC staff for providing minutes that now meet her expectations. 

FINANCIAL UPDATE – AGENDA ITEM #4
CFO Bursell and those present engaged in a discussion of the Financial Update. Bursell indicated that June results for VEC’s operating budget exceeded expectations with a positive operating variance of $122k. Despite the amount and severity of storms this year, VEC is still performing better than budget by $943k year-to-date.  Bursell indicated that the results for the month of July should also exceed budget expectations due to an unanticipated 10% improvement in sales.

Bursell indicated that while reviewing a system line loss report, a potential VELCO metering error was identified. As a result, VEC set aside $300k in fund reserves as a conservative approach to mitigating the error if confirmed.  A brief discussion ensued regarding VEC’s summer peak loads. 

Bursell continued his financial update by reporting on the following items: 

Capital Budget
The capital budget is performing better than budget for both the current month and year-to-date.

RFP for VEC Audit Services
The Finance Committee is prepared to make a recommendation to the Board regarding audit services. 

Banking
VEC has filed a request to receive approval from regulators for 2010 financing plans and a modification to the short term credit facilities.  Bursell stated that he received confirmation with the regulators that VEC’s information had been received.

TRANSCO Stock
The Finance Committee has recommended that VEC pursue the TRANSCO investment. Bursell indicated that the first step is to seek regulatory approval that would allow for VEC to make investments in TRANSCO this year. VEC is requesting $9 million in financing to procure $3 million in TRANSCO stock and the remaining dollar amount will fund the capital budget for this year.

Incumbency Signatures
Bursell explained that the Bank of New York Mellon, the trustee for all VEC bonds, requires that an incumbency certificate be completed every two years even if there are no changes in the incumbent officers. As a result, Bursell will be seeking signatures from President Bailey, Secretary DaVia and Treasurer Lague. 

Member Electronic Payments
Bursell informed the Board that VEC has received several inquiries from members regarding electronic payments. The main concerns expressed were regarding VEC’s inability to accept electronic banking from particular banks.  Bursell explained that the information VEC receives needs to be consistent with the security system in place. VEC has an obligation to protect member information and adhere to the Red Flag Policy. Secondly, VEC needs to ensure that electronic payments received can be correctly linked to the member account.  VEC has to achieve close to 100% accuracy on billing and payment postings according to the System Quality and Reliability Plan (SQRP). When billing errors occur, VEC is exposed to paying penalties. Lastly, banks that hire third parties also need to interface with VEC’s system in a secure manner. Bursell concluded that VEC encourages its members to use electronic banking and informed the Board that VEC offers other online payment services such as check pay and ebill. 

A brief discussion ensued regarding the electronic payments. 

Grant Program
VEC has billed approximately $1 million dollars to the Department of Energy (DOE) for work related to the ARRA smart grid grant. Bursell indicated that VEC should receive the first payment soon. 

Bursell stated that VEC is creating a project plan that will indicate how VEC plans to implement the NEK Connector grant.  Bursell explained that it’s critical for VEC to receive confirmation of its match for the Steel Tower Line before moving to the next phase of the NEK Connector project.  Although the Steel Tower Line project was funded through the capital budget, the second stage of the NEK project is not included in the IRP and is only approved because VEC received a grant award funded through the Economic Development Administration (EDA). 

Hallquist informed the Board that an informational presentation on grants is forthcoming. 

A lengthy discussion ensued regarding asset depreciation. 

Power Supply
Bursell referred Directors to the quarterly financial summary report included in the Board packet that summarizes the activity of the power supply area. CFO Bursell stated that VELCO has requested a study from ISO New England that would show the power supply portfolio in Vermont without Vermont Yankee. 

Bursell informed the Board that Green Mountain Power (GMP) recently hosted a Kingdom Community Wind workshop with the Public Service Board.  He summarized concerns the public had expressed regarding the project.  He added that VEC was able to work through details of the Purchase Power Agreement and the Joint Ownership Agreement following the workshop.  The Board will have an opportunity to approve the PPA when it is completed in three months. 

Directors continued to ask questions of CFO Bursell regarding his financial update and a brief discussion ensued regarding the Kingdom Community Wind project. 

AGENDA ORDER CHANGE
President Bailey requested that the Finance Committee Report in Agenda Item #9 be moved before Agenda Item #6 so the resolution request can be resolved before the Board’s guest, Chris Dutton, arrives. 

COMMITTEE REPORTS – AGENDA ITEM #9
Finance Committee
CFO Bursell presented to the Board a summary report on the Finance Committee’s evaluation of auditor services.  VEC received proposals from incumbent, Kittel Branagen Sargent (KBS), as well as, Gallagher Flynn and KPMG.  He explained the reason for conducting the request for proposals was to see if other opportunities exist and not because of dissatisfaction with VEC’s current vendor.  Bursell explained the evaluation process and summarized the following key points:

● KPMG was not competitive in price and therefore was not considered.

● KBS possessed the most utility experience in Vermont

● Gallagher Flynn, a consulting firm, presented a proposal from Bollan, Sheedy, Torani & Company. They possessed municipal experience in New York State but did not have regulatory experience in Vermont.

CFO Bursell further explained that the impact of changing auditors, specifically how the change would be viewed by the rating agencies, was considered in the decision making model. Based on these factors, the Finance Committee recommended that VEC select KBS for auditor services. 

Lague moved and Miller seconded:

To approve the recommendation made by the Finance Committee to select KBS for auditor services for the next five years. 

The Board engaged in a question and answer session around the specifics of the audit service proposals and a brief discussion ensued. 

The motioned carried unanimously. 

EXECUTIVE SESSION – AGENDA ITEM #6 

Ward motioned and DaVia seconded:

That the Board enter into Executive Session to discuss union contract negotiation strategy. 

The motion  carried unanimously. The Board entered into Executive Session at 1:05 p.m.

By majority vote of those Directors present the Executive Session ended at 1:32 p.m.

Amanda Niklaus left the meeting at 1:05 p.m. and returned at 1:34 p.m.

NE REGIONAL RELIABIITY STUDY – AGENDA ITEM #7
COO Wright presented to those Directors present the Northeast Regional Reliability Study. Wright explained the objective of this Study was to conduct a needs assessment of the northwestern portion of VELCO and VEC’s transmission systems. Wright indicated that this is the first occurrence where VEC, VELCO and ISO New England looked comprehensively at this area.  Overall, the Study identified several needs for reliability upgrades. Wright indicated that this is positive news for Kingdom Community Wind and for receiving Pool Transmission Facility treatment of Jay Tap.   There were seven alternatives analyzed in the Study; five of them were capable of reliably supporting the area load and three involved Jay Tap. 

Wright referred to Alternative # 1 listed on page 65 in the Board packet that was previously mailed to all Directors. He stated that this Alternative would be the most probable and favorable solution. He discussed in detail the five projects listed within Alternative #1 and made the following key points:

● The Jay Tap Substation project is already included as a component of the Kingdom Community Wind project as long as GMP pays for their 50% share. 

● The 10 MVAr of Switched Caps at VEC Burton Hill and Reconductor Highgate Richford projects already exist in VEC’s capital plan. 

● The VELCO Irasburg Transformer project would require a decision from VELCO in partnership with VEC because of a shared interest in the transformer. COO Wright stated the worst case scenario would be for VEC to replace the transformer and pay $2 million dollars.  This would require VEC to raise rates by 0.5% to cover the charges.

● The automation of the Mosher’s Tap 115kV switches project consists of updates to the Newport Substation as well as the automation of Mosher’s Tap switches. The 46 kV line from Newport to Mosher’s Tap has never been energized. 

Wright stated that the downside to pursuing Alternative #1 is that VEC’s investments could range from a $2 million dollar plan to an $18 million dollar plan (worst-case and unlikely scenario, if the KCW project did not move forward).  In conclusion, Wright stated that Alternative #1 provides the most benefit at the lowest cost for all stakeholders and it integrates well with existing VEC long range capital projects. 

The Board engaged in a question and answer session around the specifics of the study and a lengthy discussion ensued. 

MANAGEMENT UPDATES – AGENDA ITEM #8
Northlink Update
CEO Hallquist provided a brief update on the status of the Northlink project. He explained that Northern Enterprise has undergone a thorough audit of its operations and the findings may appear to have negative consequences.  He stated that VEC has no liability exposure.

Safety Audits
A Director expressed concerns surrounding the amount of safety field visits conducted a year. A request was made to Hallquist to commit to conducting more than four safety field visits a year.  Hallquist responded that he has set the expectation to the front-line managers to increase the frequency of their safety field visits.  A brief discussion ensued regarding VEC’s initiatives to obtain VPP Certification.

Smart Grid
Pratt informed the Board that Washington Electric Cooperative (WEC) has made a request for $1 million in grant funds to deploy AMI.  A brief discussion on smart grid technology ensued.  Pratt continued by providing a brief update on the status of the customer systems pilot program. CFO Bursell added that the cost of VEC employees participating on smart grid committees is tracked and half of the costs are charged to the DOE. 

Woodward moved and Ward seconded:

To enter Executive Session to  discuss inter utility contracts.

The motion  carried unanimously. The Board entered into Executive Session at 2:17 p.m.

By majority vote of those Directors present the Executive Session ended at 2:31 p.m. 

CEO Hallquist engaged in a question and answer session with Directors regarding the managers’ updates and a brief discussion ensued. 

Worth left the meeting at 2:33 p.m. and returned at 2:36 p.m. 

President Bailey called for break in the proceedings at 2:38 p.m.

The meeting resumed in the Robert P. Northrop Boardroom at 2:53 p.m. 

President Chris Dutton with Vermont Electric Power Company (VELCO) joined the meeting at 2:53 p.m. 

BOARD OF DIRECTORS TRAINING ON TRANSMISSION – AGENDA ITEM #5
CEO Hallquist introduced President Chris Dutton with VELCO and current Directors introduced themselves. CEO Hallquist explained that Dutton is present to provide an informative presentation on the future of transmission and answer questions from the Board. 

Dutton began his presentation by summarizing his background and describing the changes that drive the need to plan for power supply and transmission.  Dutton continued to discuss extensively the topic of transmission and a lengthy discussion ensued. 

The Board engaged in a question and answer session concerning the future of Vermont Yankee. Hallquist concluded that VEC should consider educating the membership on the impact of Vermont Yankee’s licensure as an obligation to provide information Vermonters need to make an informed decision. 

Chris Dutton left the meeting at 4:01 p.m. and did not return. 

A lengthy discussion ensued regarding the budget detail that was included in theVELCO presentation. 

COMMITTEE REPORTS – AGENDA ITEM #9 CONTINUED
Unaddressed from 6-29-2010 Executive Committee
Chairman Bailey stated that several Directors have requested training and $3k is currently available in the Director training budget. CFO Bursell presented several solutions to the Board that would support continuing Director’s education.  A brief discussion ensued regarding the potential for computer based Director training.  A Director expressed concerns on whether Directors are attending trainings that currently meet the Board’s needs. The Board discussed several solutions to providing economical Director training. 

A lengthy discussion ensued. 

Ward motioned and Carswell seconded:

To allow Directors, through discretion of the Chair, to use Director fee savings for training as long as it does not exceed sum of line items 611 and 651. 

A brief discussion ensued regarding the status of the Director’s fee account.

The motion passed by majority vote.

Wright left the meeting at 4:13 p.m. and returned at 4:34 p.m.
Hallquist left the meeting at 4:28 p.m. and returned at 4:31 p.m.
Pratt left the meeting at 4:31 p.m. and returned at 4:33 p.m.
Wright left the meeting at 4:40  p.m. and did not return. 

Miller motion and Lague seconded:           

That the meeting be recessed until Tuesday, August 3^rd, 2010 at 9 a.m. and all unaddressed agenda items be addressed at that time. 

No discussion was forthcoming and the motioned carried unanimously.

The meeting recessed at 4:50 p.m. 

Respectfully submitted:

Michelle DaVia, Secretary and Thomas Bailey, President

Signed minutes (PDF)