VERMONT ELECTRIC COOPERATIVE, INC.
REGULAR MEETING OF THE BOARD OF DIRECTORS
SEPTEMBER 28, 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 September 22, 2010. 

CALL TO ORDER – AGENDA ITEM # 1
President Tom Bailey called the meeting to order at 12:05 p.m. in the Robert P. Northrop Boardroom at VEC offices in Johnson, Vermont. Present were Thomas Bailey and Directors Dorothy Allard, Dan Carswell, Craig Kneeland, Bertrand Lague, Priscilla Matten, John Miller, Daniel Parsons, John Ward, Mark Woodward and Don Worth. Also present from VEC were CEO David Hallquist, COO Jeffery Wright, CFO Michael Bursell, Manager of Corporate Services Liz Gamache, Manager of Government Relations Randy Pratt, and Internal Communications Specialist Amanda Niklaus.

MINUTES OF AUGUST 31, 2010 REGULAR MONTHLY MEETING APPROVED – AGENDA ITEM #2
Miller moved and Lague seconded: 

That the minutes of the August 31, 2010 Regular Monthly meeting be approved as presented. 

A brief discussion ensued regarding the level of detail included in the minutes. 

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

CEO SUMMARY – AGENDA ITEM #3
President Bailey briefly introduced a new meeting format to Directors. Hallquist explained that the purpose of the new format is to highlight important matters that require Directors’ attention.  He provided a general overview of the changes including a new agenda item called “parking lot.” Hallquist explained that this is a method to set aside topics for further discussion at the end of the meeting. He added that this new regular agenda item will keep the meeting on track and ensure important items are covered during the allotted time. 

Hallquist informed Directors that an extensive period of time will be spent discussing the Kingdom Community Wind project. He added that Wright will discuss capital projects, Pratt will provide highlights on the VEC and Vermont Energy Investment Corporation contract, and Gamache will present highlights from the 2010 NRECA Member Survey. 

Hallquist discussed with those Directors present a new prepaid metering program that if adopted could assist those members that have economic difficulties with paying their monthly electric bills.  He indicated that VEC is seeking additional federal grant funds to explore this program further. 

Directors asked questions regarding prepaid metering and Pratt provided a brief overview of the program. 

A brief discussion ensued regarding peak load savings. 

MANAGEMENT UPDATES – AGENDA ITEM #4
Financial Update
CFO Bursell and those present engaged in a discussion of the Financial Update.

He reported that August results for VEC’s operating budget exceeded expectations with a positive operating variance of $38k. VEC is continuing to perform better than budget by $760k year-to-date.  The capital budget is performing better than budget for both the current month by $54k and $401k year-to-date.  Bursell anticipates that both VEC budgets will meet or exceed approved budget expectations for the year 2010. 

A brief discussion ensued regarding the capital budget. 

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

Ethan Allen Cogeneration Unit
As mentioned during last month’s meeting, the Ethan Allen generator has been taken out of service and is being removed as an asset from VEC’s books. The write down of the Ethan Allen generator began this month and will impact earnings by $100k/month for the rest of the year. 

Pratt left the meeting at 12:43 p.m. and returned at 12:49 p.m. 

Post Retirement Health Care
Every three years, VEC is required to conduct an actuarial evaluation of the liability associated with providing health and life insurance benefits to former, retired Citizen Employees.  In previous years, VEC used Citizen’s actuarial consultant, Deloitte, but Bursell expressed concerns regarding the accuracy of those audits and informed the Board of his decision to select a new actuarial consultant.  He received recommendations from two Vermont accounting firms to select Annie Brown Voldman, PC for conducting this year’s VEC audit.  He believes the new audit results will show a significant negative adjustment in VEC’s liability for these benefits that could impact current year earnings. The audit is currently in progress and VEC is awaiting the results. 

Several Directors expressed concerns regarding the accuracy of the previous audits and questioned whether VEC should take action against the consultant company for providing incorrect information. 

Bursell indicated that Deloitte would not likely admit or confirm inaccuracy in their actuarial audit report and it could be very expensive to pursue Deloitte without any tangible benefits to VEC to offset the costs of pursuing the consultant company. 

A lengthy discussion ensued. 

Bursell concluded that he will inform the Board when more data becomes available. 

Budget/Rate Case
Bursell reported that VEC is in the data consolidation phase and a final draft of the 2011 budget and rate case is projected to be ready by October 8, 2010.  He indicated that the rate increase amount is consistent with the projections provided to the Board earlier in the year. 

Lague moved and Woodward seconded:

To enter into Executive Session to discuss territory rationalization.

Motioned carried unanimously.

The Board entered into Executive Session at 12:59 p.m.

By majority vote of those Directors present the Executive Session ended at 1:07 p.m. 

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

Power Supply
As part of the Public Service Board review process, a bus tour to the Kingdom Community Wind project site and a public hearing at the Lowell school was very well attended by the public. Bursell indicated that the group was split in those that supported and opposed the project. 

First Wind Sheffield Project
Appeals on the Sheffield Wind Project were denied and tree clearing has begun. The turbines and equipment will be onsite within the next thirty days.

A brief discussion ensued. 

Operations Update
Lague moved and Carswell seconded:

To go into Executive Session to discuss a personnel issue.

Motioned carried unanimously.

The Board entered into Executive Session at 1:12 p.m.

By majority vote of those Directors present the Executive Session ended at 1:31 p.m. 

Wright continued his operations update by reporting on the following items: 

Reliability
Despite considerable lightning storms this month, VEC’s system performed well and reliability numbers are the best VEC has ever achieved. 

Jay Tap Project
The project received a Certificate of Public Good but is awaiting approval for environment permits. Wright reported that the environment permitting process could take up to forty-five days and consequentially delay the project.

A brief discussion ensued regarding the Jay Tap project. 

Hallquist left the meeting at 1:33 p.m. and returned at 1:35 p.m. 

AMI
VEC is now able to read Berkshire meters from St. Rocks and Belvidere meters from Eden.  Wright reported that VEC has 90% AMI meters on the system that are being read remotely.

Wright engaged with the Board in a question and answer session regarding his operations update. 

Capital Plan
Wright explained VEC’s Ten Year Long Range Capital Plan and its four project categories:

1. Major Capital Projects
2. Capital Substation Projects
3. Capital Distribution Line Projects
4. Other Annual Capital Replacements

Wright explained that the first category consists of projects that are considered a priority and require completion. These projects are approved and monitored by the Department of Public Service. The second and third categories consist of smaller distribution, substation and line improvement projects.  Some of these projects are 50% funded through the American Recovery and Reinvestment Act (ARRA) which has been significantly helpful in completing these projects.  Category four includes smaller, annual capital costs of replacing equipment. 

Wright referred Directors to page 43 in the Board packet that was previously mailed to all Directors. He explained that this chart moving forward will be the primary form of communication to keep Directors informed on the status of each project that falls within each category. 

Wright engaged in a question and answer session with Directors regarding the results of the VEC Jay Area Responsibility Study.  A brief discussion ensued regarding the potential Highgate transformer project. 

VELCO Radio Initiative
VELCO is initiating statewide radio communications for all distribution utilities. They are in the process of securing radio tower sites and would like to purchase a parcel of land from VEC.  This topic will be discussed in greater detail at next month’s Board meeting as VEC begins negotiating the sale price with VELCO. 

President Bailey called for break in the proceedings at 1:52 p.m.
The meeting resumed in the Robert P. Northrop Boardroom at 2:06 p.m. 

Senior Resource Planner Craig Kieny joined the meeting at 2:06 p.m.

MANAGEMENT UPDATES – AGENDA ITEM #4 CONTINUED
Government Relations and Smart Grid Update

Pratt provided those Directors present with an overview of VEC’s customer behavior study plan with Vermont Energy Investment Corporation (VEIC) – the parent company of Efficiency Vermont. He explained that the study consists of three specific components and each will occur over the course of three years. The three components are:

1. The study of 700 members who will receive proactive customer service from Efficiency Vermont.
2. The study of 740 members that will possess in-home displays that send signals based on market energy prices.
3. The study of 220 members that will possess in-home display with end use control allowing for automatic shutoff of major energy appliances during peak prices. 

A brief discussion ensued regarding in-home displays. 

VEC and VEIC will collaborate on identifying member eligibility requirements for the study. 

A lengthy discussion ensued regarding broadband internet services. 

Pratt stated that another piece of the study consists of evaluating critical peak pricing.  He explained that critical peak pricing has three pricing structures:

1. Low, off-peak rate
2. High, on-peak rate
3. And variable-peak rate

Pratt provided an overview of each of these pricing structures.

A brief discussion ensued regarding the customer behavior study and water meters. 

Pratt provided an overview on the VEC and VEIC contract and explained that VEC is a sub-recipient of the ARRA grant funds.  Directors inquired about the cost of the study to VEC and Pratt responded that there are no out of pocket expenses. The only cost to VEC will be employees’ time spent contributing to the project. 

Lague moved and DaVia seconded:

It is resolved that the VEC Board of Directors authorizes management to contract with Vermont Energy Investment Corporation to conduct the Consumer Behavior Study as a part of the Smart Grid Investment Grant program. 

A brief discussion ensued. 

The motion carried unanimously and the contract was approved. 

A draft of this contract is appended to these minutes. 

Pratt continued his government relations update by reporting on the following items: 

VTEL
VEC is in the final stages of an agreement with Vermont Telephone Company (VTEL) to expand communications capabilities while enabling VTEL and the State to expand broadband availability. 

Pratt further explained to those Directors present how the agreement would work and engaged in a question and answer session. 

Corporate Services Update
Since the member survey provides VEC with information that helps set priorities for the upcoming year, Gamache proposed tabling the member survey presentation until the strategic planning portion of the meeting. 

KINGDOM COMMUNITY WIND – AGENDA ITEM #6
VEC Regulatory Attorney, Victoria Brown of Primmer Piper Eggleston and Cramer, joined the meeting via teleconference call at 2:38 p.m. 

This agenda item includes two agreements related to the Kingdom Community Wind (KCW) project with Green Mountain Power (GMP). The two agreements include a Purchase Power Agreement (PPA) and a Joint Ownership Agreement (JOA). Hallquist recognized that the PPA represents 4% of VEC’s power supply portfolio.  He continued by stating that the project model assumptions changed slightly since the September 2009 Regular Monthly Board meeting but is within 2%.  He stated that the price will be above market price for the first six years and referred to the Hydro Quebec contract that was above market price for the first twelve years. Bursell added that this contract will help VEC fulfill its Sustainably Priced Energy Development Program (SPEED) renewable energy requirements for 2017. 

Before the meeting, a Director had submitted to VEC management a list of seventeen questions associated with the Kingdom Community Wind project. In response, VEC management dispersed to all those Directors present these questions and included answers generated by VEC management.  The Board agreed to review each question and discuss the responses. 

CFO Bursell reviewed the questions and engaged in a question and answer session with Directors. 

The following questions and answers entailed lengthy discussions: 

A Director requested further clarity regarding the PPA that covers the event in which GMP would sell their piece of the contract. Attorney Brown responded that this provision is to protect VEC in the event which GMP sells their share of the contract. It prevents a third party from stepping in and jointly owning items with VEC. 

Wright left the meeting at 3:09 p.m. and returned at 3:11 p.m. 

A Director expressed concerns regarding the cost of the Good Neighbor Fund (GNF) included in the cost of the project. Hallquist provided a detailed explanation of how the GNF works. He concluded that the GNF impacts the price of the project but not the price of power, as the fund was actually paid for by a reduction in the lease payment to the landowner (Trip Wileman), and if the GNF was absolved, the cost of the lease would return to its former price. Therefore, it would not change the price VEC would pay for power. 

Gamache left the meeting at 3:13 p.m. and returned at 3:19 p.m.
Woodward left the meeting at 3:14 p.m. and returned at 3:17 p.m. 

A Director identified a change in megawatt output since the September 2009 Regular Monthly Board meeting but not a change in price. Senior Resource Planner Kieny responded that the information presented in September 2009 were assumptions. The reason for the change was because VEC identified a need to limit exposure to wind and the intermittency of wind generation. He concluded that management believed this was the most reasonable number. 

Bursell continued reviewing the questions and answers and a brief discussion ensued regarding the project’s impact on rates.

Ward left the meeting at 3:40 p.m. and returned at 3:42 p.m.
Parsons left the meeting at 3:44 p.m. and returned at 3:48 p.m. 

Bursell presented a brief summary of the Kingdom Community Wind project resolution. 

Carswell moved and Ward seconded: 

To accept the Resolution set forth. 

RESOLUTION
That VERMONT ELECTRIC COOPERATIVE Inc. (VEC) be and hereby is authorized to execute, deliver and perform the KINGDOM COMMUNITY WIND PROJECT TRANSMISSION LINE JOINT OWNERSHIP AGREEMENT and THE RENEWABLE ENERGY PURCHASE AGREEMENT between VEC and GREEN MOUNTAIN POWER (“KCW”), (the “Agreements”) which have been exhibited to this meeting and which shall be appended to the minutes hereof substantially in form and substance as presented; and 

That the CEO, CFO, COO, or any one or more of them be and hereby is and are authorized and directed on behalf of VEC to sign, execute and deliver, the said Agreements substantially in such form and substance as presented to this meeting and to do all things which any one or more of them by so doing deems in his, her or their sole judgment to be necessary or advisable to act on, carry out or perform the said Agreements or cause it to be acted on, carried out or performed; and 

That the CEO, CFO, COO, or any one or more of them be and hereby is and are authorized and directed on behalf of VEC to sign, execute and deliver any and all instruments or documents of whatever kind or character which any one or more of them by so doing deems in his, her or their sole judgment to be necessary or advisable to act on, carry out or perform the said Agreements or cause it to be acted on, carried out or performed AND TO AGREE TO SUCH MODIFICATION OF THE KINGDOM COMMUNITY WIND PROJECT TRANSMISSION LINE JOINT OWNERSHIP AGREEMENT and THE RENEWABLE ENERGY PURCHASE AGREEMENT WHICH ANY ONE OR MORE OF THEM BY SO DOING DEEMS  IN HIS, HER OR THEIR SOLE JUDGMENT TO BE NECESSARY OR ADVISABLE TO CARRY OUT THE INTENT OF THIS BOARD OF DIRECTORS; and 

That all of the foregoing is contingent upon all approvals of state and federal boards, courts or tribunals or other bodies as are or may be required by law or the Bylaws. 

The motioned carried unanimously. 

Victoria Brown left the meeting at 3:48 p.m. and did not return

COMMITTEE REPORTS – AGENDA ITEM #7
Governance Committee
Chairman DaVia provided a Governance Committee update. She indicated that the Committee has reviewed the Board’s Harassment Policy and will seek Board approval once it undergoes additional legal review. 

STRATEGIC PLANNING – AGENDA ITEM # 8
President Bailey tabled this agenda item. 

OTHER BUSINESS – AGENDA ITEM #9
Annual Meeting
Pratt informed Directors that Attorney Brown had made a recommendation to VEC to hold its Annual Meeting late in May.  This recommendation is due to the timing of the Hydro Quebec contract requiring member vote. Directors discussed May 21, 2011 as a potential date. A brief discussion ensued.  Pratt concluded that he will seek additional legal advisement and report back to the Board. 

Board Training
The Northeast Association of Electric Cooperative is sponsoring two NRECA Director training courses. The training will be held in Cooperstown, NY on October 20, 2010 and October 21, 2010.  Additional details are included in the Board packet previously mailed to all Directors. Hallquist advised those Directors that have an interest to RSVP to Amanda Niklaus by Friday, October 8.  A brief discussion ensued. 

Hallquist left the meeting at 4:02 p.m. and returned at 4:03 p.m. 

PARKING LOT ISSUES – AGENDA ITEM #10
During this meeting, the following items were identified as parking lot agenda topics: 

• Peak savings from Smart Grid

• VTELdiscussion

• Exposure for post-retirement benefits

• Investigate mortgage holders on easements 

These topics will be tabled and discussed at next month’s regular Board meeting. 

ADJOURN OR RECESS – AGENDA ITEM #11
There being no further business before the meeting,

Miller moved and Lague seconded:

That the meeting be recessed and reconvene on Monday, October 11 at 9 a.m. 

No discussion was forthcoming and the motioned carried unanimously.

The meeting recessed at 4:05 p.m. 

Respectfully submitted:   

Michelle DaVia, Secretary and Thomas Bailey, President

Signed minutes (.PDF)