VERMONT ELECTRIC COOPERATIVE, INC.
REGULAR MEETING OF THE BOARD OF DIRECTORS
OCTOBER 26, 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 October 20, 2010.

CALL TO ORDER – AGENDA ITEM # 1
President Tom Bailey called the meeting to order at 12:06 p.m. in the Robert P. Northrop Boardroom at VEC offices in Johnson, Vermont. Present were Thomas Bailey and Directors 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 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. Also present was VEC member Schuyler Jackson.

 Hallquist briefly introduced VEC Member Schuyler Jackson to Board members and current Directors introduced themselves.  Jackson provided a history of his professional background and explained his interest in the utility industry. 

MINUTES OF SEPTEMBER 28, 2010 AND OCTOBER 11, 2010 CONTINUATION OF THE SEPTEMBER 28, 2010 REGULAR MONTHLY MEETING APPROVED – AGENDA ITEM #2 

Miller moved and Lague seconded: 

That the minutes of the September 28, 2010 and the October 11, 2010 Continuation of the September 28, 2010 meeting be approved as presented. 

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

CEO SUMMARY – AGENDA ITEM #3
Hallquist provided an overview of the meeting agenda. He explained that during this meeting, management will seek approval from the Board for three (3) key resolutions;

1. Approve a resolution to finance a $9 million bond
2. Approve the proposed 2011 operating budget
3. And, approve the proposed 2011 rate case

Hallquist indicated that the Finance Committee previously reviewed in detail the 2011 operating budget and will meet again to review the 2011 capital budget.  He stated that management will present the 2011 capital budget during the November Board meeting.   Hallquist also stated that, during this meeting, management will seek approval from the Board to execute revised employee pension plans and sell a parcel of land to VELCO for their state wide radio project. He indicated that because VEC owns VELCO stock, the VELCO Board decided to purchase the land at book value. He explained by doing this, the transaction won’t be funded through other utilities. He concluded that this will be discussed in greater detail during Wright’s operational update. 

DaVia moved and Miller seconded:

To enter into Executive Session to discuss personnel issues.

Motioned carried unanimously.

The Board entered into Executive Session at 12:16 p.m.

By majority vote of those Directors present the Executive Session ended at 12:40 p.m. 

MANAGEMENT UPDATES – AGENDA ITEM #4
Financial Update

CFO Bursell and those present engaged in a discussion of the Financial Update.

He reported that September results for VEC’s operating budget slightly exceeded expectations with a positive operating variance of $18k. VEC is continuing to perform better than budget by $743k year-to-date.  As VEC continues to write down the Ethan Allen generator asset for the balance of the year, it impacts earnings by $100k/month.  The capital budget is performing better than budget for both the current month by $282k and $120k year-to-date.  

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

2011 Budget & 2011 Rate Case
The operating budget and rate case are in their final stages and will be reviewed in detail during a later agenda item. However, Directors can find high level commentary concerning the operating budget and rate case in the financial services summary. 

VEC’s 2010 $9 Million Bond Financing
The $9 million bond is expected to be used to purchase $3.7 million in TRANSCO equity and reduce VEC’s short term credit facility with the balance of proceeds. The short term credit facility was used to fund VEC’s 2010 capital budget plan. Details of the financing plan were discussed extensively during the recent Finance Committee meeting. Bursell commented on the current low interest rates and believes this course of action will result in immediate benefits. He explained as part of the evaluation of the bond, he reviewed rate offers from three (3) different entities but is recommending that VEC utilize CFC’s Farmer Mac program to fund the bond.

Bursell provided those Directors present with a detailed explanation of the bond’s amortization schedules and a lengthy discussion ensued.

Bursell concluded that the loan package has received support from the Public Service Board and the Department of Public Service. 

A brief discussion ensued. 

Ward moved and Lague seconded:

            To approve the Resolution set forth. 

RESOLUTION
WHEREAS, Vermont Electric Cooperative, Inc. (the “Company”) has previously executed and delivered the First Mortgage Indenture, dated as of August 1, 1997, as supplemented and amended (as supplemented and amended, the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”);

WHEREAS, in order to borrow money for its corporate purposes, the Company, in accordance with Articles 2 and 4 of the Indenture, desires to issue a new series of First Mortgage Bonds secured by the Indenture, which it intends to issue in one or more series and designate as First Mortgage Bonds, 2010 Series A, in a principal amount not to exceed $9,000,000 (the “Series 2010A Bonds”);

WHEREAS, pursuant to Section 4.1 of the Indenture, prior to the issuance of the Series 2010A Bonds, the Company must furnish the Trustee with, among other things, a written application requesting authentication and delivery of the Series 2010A Bonds, an officers’ certificate, a supplemental indenture setting forth the terms and conditions of the Series 2010A Bonds and a certified resolution requesting that the Trustee authenticate and deliver the applied-for Series 2010A Bonds and specifying other matters required or permitted to be included and specifying the officers of the Company to whom to deliver the Series 2010A Bonds or upon whose orders to deliver the Series 2010A Bonds; WHEREAS, the Company informed the Public Service Board of the State of Vermont that it will seek amendments to certain requirements of the Indenture to ease compliance on an on-going basis, subject to the approval of the holders of the Bonds issued under the Indenture, which amendments, if approved, are to be set forth in the Eighteenth Supplemental Indenture (as defined below); and

WHEREAS, there has been presented to the Board of Directors of the Company a form of Eighteenth Supplemental Mortgage Indenture (the “Eighteenth Supplemental Indenture”) to the Indenture for the purpose of implementing the foregoing. 

The full resolution and supporting documents approved as presented are appended to these minutes. 

A brief discussion ensued regarding the bond’s financing plan. 

The motion carried unanimously. 

Operations Update
COO Wright and those present engaged in a discussion of the Operations Update. The following items were reported: 

Safety
Wright referred to his manager’s update that was included in the Board packet previously mailed to all Directors.  He provided Directors with safety benchmark data that compares VEC to other utility companies in the Northeast. He informed Directors that VEC is on track to meet its SQRP goals, including safety objectives.  

Reliability
At the end of third quarter, VEC is exceeding its SQRP goals for system reliability and is currently on track to exceed last year’s system performance measures.  

Jay Tap Project
Wright informed Directors that the Jap Tap project continues to remain on hold due to a delay in receiving environmental permits.  As a result, Wright stated that the project will not be commissioned until next spring. 

Richford Land Sale
Wright provided those Directors present with an overview of the VELCO request to purchase a .81 acre parcel of land for their Statewide Radio Project.  He indicated that VELCO has adopted a policy to treat all land transfers amongst their owners consistently. He further explained that VELCO’s policy is to pay or sell at net book value. This policy prevents other utility owners from receiving revenue from other utilities transactions. 

A brief discussion ensued regarding the details of the Statewide Radio Project. 

Directors asked questions concerning the difference between net book value and market value. Wright responded that the net book value is $1,500 and the market value appraised by the town is $22,000. 

Directors expressed a desire to ensure that the land purchase policy set forth by VELCO will be used consistently for all utilities. During the course of discussion the following addition to the VELCO Land Sale Resolution was suggested. That it include; “Additionally, VEC will formally request VELCO to modify the VTAM (Vermont Transmission Agreement Manual) to confirm that it is in accordance with VELCO established policy and that book value is the received price for all utilities.”  The Board informally agreed that the above phrase should be added to the resolution. 

A brief discussion ensued. 

Lague moved and Miller seconded:

To accept the Resolution set forth as amended.

RESOLUTION
That VERMONT ELECTRIC COOPERATIVE Inc. (VEC) be and hereby is authorized to execute, deliver and perform; 

THE SALE OF .81 ACRES OF LAND TO VELCO FROM ITS SUBSTATION PROPERTY IN RICHFORD, VT AS SHOWN IN THE SITE PLAN PROVIDED IN THE OCTOBER 2010 VEC BOD PACKET AT A COST NO LESS THAN NET BOOK VALUE PLUS ALL LEGAL AND OTHER FEES INCURRED AS PART OF THIS TRANSACTION, 

which has 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 LETTER OF INTENT 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. 

Additionally, VEC will formally request VELCO to modify the VTAM (Vermont Transmission Agreement Manual) to confirm that it is in accordance with VELCO established policy and that book value is the received price for all utilities. 

The motion carried unanimously.

Government Relations and Smart Grid Update
Consumer Behavior Study
Pratt reported that the planning and preparation phase of the Consumer Behavior Study has begun. This is the third component of the Smart Grid Investment Grant that also funds half of VEC’s AMI and Grid Automation projects.  The Consumer Behavior Study contract was signed and executed. The contract confirms that Efficiency Vermont will fund $750k of the Consumer Behavior Study project.  Pratt reported that the contract is contingent upon approval from the Department of Energy but believes the approval is forthcoming with no anticipated changes.  He stated that the deadline to begin the study is June 1, 2011 but VEC expects to begin as soon as April 2011. 

Pratt discussed further details regarding the Consumer Behavior Study and a brief discussion ensued. 

Pratt concluded that further project details will be discussed at length during the December Regular Meeting. 

Directors asked questions regarding the technology devices that will be selected for the study to be used inside members’ homes. Pratt responded that VEIC (Vermont Energy Investment Corporation) will be responsible for selecting the vendor that provides the technology devices inside the member’s home; not VEC. 

A brief discussion ensued regarding the technology component of the project. 

Regulatory Proceedings
Pratt reported the Low-Income Program Docket is not resolved.  VEC’s position has not changed on this issue. VEC remains steadfast in the position that it’s a matter of public policy and not the responsibility of the rate payers. 

Pratt also reported that a Proposal for Decision in the docket involving Sterling Valley members who have petitioned to transfer to Stowe Electric should be resolved in the next month.  VEC did not believe they made valid arguments to switch between providers but the Public Service Board (PSB) will decide.  Pratt clarified that this docket affects 96 VEC members. And if the PSB grants their request, Stowe Electric would be required to purchase those members from VEC at book value and upgrade their system in order to meet VEC’s technical requirements. 

Vermont Yankee
Pratt reported that there continues to be issues concerning a revenue sharing agreement that Green Mountain Power (GMP) and Central Vermont Public Service (CVPS) are slated to receive. VEC has argued that a revenue sharing should be shared between all Vermont utilities. 

A lengthy discussion ensued regarding the impact of Vermont Yankee being relicensed. 

Director Allard joined the meeting at 1:31 p.m. 

Corporate Services Update
Adoption Agreements and Addendum to Non-Union 401(k) Pension Plan

Gamache provided an overview of the request to approve two Board Resolutions, four Adoption Agreements, and an Addendum to an existing Adoption Agreement for Safe Harbor protection.  She explained in detail the background of the defined benefit plan. The implications of the plan means that employees hired after October 1, 2009 will receive an enhanced 401(k) plan which includes both employer match and base contributions. Gamache stated that this plan is more predictable, manageable and is less expensive than the defined benefit pension program. As a result, VEC will have greater control in managing budgets effectively. 

A brief discussion ensued regarding the elimination of the defined pension plan. 

A brief discussion ensued regarding VEC’s benefit plans compared to other Vermont utilities. 

A Director had requested further explanation regarding the purpose of the Safe Harbor agreements and Gamache provided a high level overview. 

A lengthy discussion ensued. 

During the course of discussion the following change was requested to the proposed NRECA 401(k) pension plans 46007-005 and 46007-006. That it be changed to say; “The Eligibility period for Employees to make Employee Elective Contributions and to receive Employer Contributions shall be the completion of One Month of Service.” The Board informally agreed that the eligibility should be changed from One Year of Service to One Month of Service. 

Gamache agreed to contact the NRECA to amend the proposed resolution to reflect the requested changes. 

Agenda Order Change
President Bailey requested that Agenda Item #4 Managers’ Reports be continued after Agenda Item #6 in order to allow time for Gamache to contact the NRECA. 

BREAK – AGENDA ITEM #5
President Bailey called for break in the proceedings at 1:56 p.m.
The meeting resumed in the Robert P. Northrop Boardroom at 2:15 p.m. 

VEC member Schuyler Jackson left the meeting at 2:15 p.m. and did not return. 

2011 OPERATING BUDGET & RATE CASE – AGENDA ITEM #6
CFO Bursell presented to those Directors present the 2011 operating budget and rate case filing that is recommended by VEC’s management team.  Bursell reported that the Finance Committee had met previously to review the budget in detail and today the information is being presented to the full Board in a high level format.  Bursell continued by stating that 70 percent of the proposed rate case was due to an increase in transmission costs.  The transmission increases are expected to impact all of the Vermont utilities. VEC is seeking to file a request for a rate increase by November 15, 2010.  

Bursell engaged in a question and answer session regarding the proposed 2011 operating budget and rate case. A length discussion ensued. 

A brief discussion ensued regarding the classification of budget items included in the capital budget versus operating budget. 

Gamache rejoined the meeting at 2:33 p.m. 

A lengthy discussion ensued regarding depreciation. 

Pratt left the meeting at 2:43 p.m. and returned at 2:45 p.m. 

Ward moved and Lague seconded:

To approve the 2011 operating budget and rate case as presented subject to final changes up to a rate increase of 2.99 percent with the final numbers to be presented to the Board for information only at the November Regular Monthly Meeting. 

A brief discussion ensued. 

Lague moved and Woodward seconded:

            To enter into Executive Session to discuss personnel.

Motion carried unanimously.

The Board entered into Executive Session at 2:52 p.m.

Niklaus left the room at 2:52 p.m. and returned at 2:56 p.m.

By majority vote of those Directors present the Executive Session ended at 2:56 p.m. 

The main motion carried unanimously. 

Gamache left the meeting at 3:04 p.m.

COMMITTEE REPORTS – AGENDA ITEM #7
Governance Committee

Chairman DaVia presented to those Directors present the final draft of the VEC Board of Directors harassment policy and proposed bylaw change. She explained that these documents derived from the recommendation of Attorney Cahill.  She reported that the Governance Committee approved the policy unanimously. 

Chairman DaVia engaged in a question and answer session regarding the proposed VEC Board of Directors harassment policy.  A brief discussion ensued.

DaVia moved and Miller seconded:

That VEC’s Board of Directors approves Board harassment policy B. 13 as written. 

A brief discussion ensued regarding document changes. 

The motion carried unanimously. 

Chairman DaVia discussed the proposed bylaw change. She referred to the legal recommendation of Attorney Stackpole whom indicated that having a harassment policy that has no punishment for egregious behavior makes having a harassment policy null and void. Therefore, VEC requested Attorney Cahill to write an amendment to the bylaws that would include appropriate disciplinary action. 

A lengthy discussion ensued regarding the disciplinary process written in the proposed bylaw. 

Directors expressed concerns regarding the Director removal process; specifically allowing Directors to remove other Directors from the VEC Board without member approval. 

A lengthy discussion ensued. 

Wright left the meeting at 3:18 p.m. and did not return.
Bursell left the meeting at 3:18 p.m. and did not return.

Gamache rejoined the meeting at 3:19 p.m.

Lague left the meeting at 3:32 p.m. and returned at 3:34 p.m. 

Ward moved and DaVia seconded:

To table the discussion in order to have an attorney present to answer Directors’ questions. 

The motion carried unanimously. 

MANAGEMENT UPDATES – AGENDA ITEM #4 CONTINUED
Corporate Services Update

Adoption Agreements and Addendum to Non-Union 401(k) Pension Plan

Gamache presented the first resolution that provides clarifying eligibility language for each 401(k) plan.  Additionally, it reflects the requested changes made by the Board earlier in the meeting. 

Ward moved and Lague seconded:

            To adopt the Resolution set forth as amended. 

RESOLUTION
WHEREAS, Vermont Electric Cooperative, Inc. is participating in the NRECA sponsored defined contribution plan, the 401(k) Pension Plan (the “401(k) Plan”), and; 

WHEREAS, The Board of Directors of Vermont Electric Cooperative, Inc. (“the Board”) now desires to amend this plan pursuant to Section 18.02 of the pension plan documents, and does hereby authorize the amendment effective January 1, 2011, by executing the appropriate Adoption Agreements; 

BE IT RESOLVED, that effective January 1, 2011, subgroups 46007-005 and 46007-006 shall be created to provide enhanced 401(k) plan provisions for Eligible Employees. The amendments to the 401(k) Plan is as follows: 

BE IT RESOLVED, that the amendments to the 401(k) Plan are as follows: 

The full resolution and Adoption Agreements approved as amended are appended to these minutes. 

The motion carried unanimously. 

Gamache presented the second resolution that requests authorization for Safe Harbor protection for two new 401(k) Plans. 

Lague moved and Matten seconded:

            To adopt the Resolution set forth as presented.

RESOLUTION
WHEREAS, Vermont Electric Cooperative, Inc. is a Participating Employer in the NRECA sponsored defined contribution plan, the 401(k) Pension Plan, and; 

WHEREAS, the Board of Directors of Vermont Electric Cooperative, Inc. (the “Board”), desires to have the 401(k) Pension Plan qualify under the 401(k) safe harbor as provided in IRC 401(k)(12) and; 

WHEREAS, Vermont Electric Cooperative, Inc.  and its Board have been informed of the safe harbor requirements through communications from NRECA, and after review and study of such communications, the Board has decided to adopt the necessary amendments to meet the safe harbor requirements under 401(k)(12) and; 

BE IT RESOLVED, that the Board does hereby authorize the adoption of the 401(k) safe harbor under the 401(k) Pension Plan effective on the first day of January, 2011 by executing an Addendum to the Adoption Agreement which includes the following provisions; 

The full resolution and Adoption Agreements approved as amended are appended to these minutes. 

The motion carried unanimously. 

OTHER BUSINESS – AGENDA ITEM # 8
There was no other business. 

PARKING LOT – AGENDA ITEM #9
There were no parking lot items. 

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

ADJOURN OR RECESS – AGENDA ITEM #10
There being no further business before the meeting,

Miller moved and Worth seconded: 

That the meeting be adjourned. 

No discussion was forthcoming and the motioned carried unanimously.

The meeting recessed at 4:03 p.m. 

Respectfully submitted:

Michelle DaVia, Secretary and Thomas Bailey, President

Signed minutes (.PDF)