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| January 25, 2011 |
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VERMONT ELECTRIC COOPERATIVE, INC. REGULAR MEETING OF THE BOARD OF DIRECTORS JANUARY 25, 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 January 18, 2011.
CALL TO ORDER – AGENDA ITEM # 1 President Tom Bailey called the meeting to order at 11:57 a.m. in the Robert P. Northrop Boardroom at VEC offices in Johnson, Vermont. Present were Thomas Bailey and Directors Dorothy Allard, Daniel Carswell, Michelle DaVia, Craig Kneeland, Bertrand Lague, 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, Safety Manager Les Burns, and Internal Communications Specialist Amanda Niklaus. Also present was VEC member Schuyler Jackson.
MINUTES OF NOVEMBER 30, 2010 AND DECEMBER 28, 2010 REGULAR MONTHLY MEETING APPROVED – AGENDA ITEM #2 Kneeland moved and Miller seconded: That the minutes of the November 30, 2010 meeting be approved as presented. The motion carried unanimously and the minutes were approved as amended.
Miller moved and Lague seconded: That the minutes of the December 28, 2010 meeting be approved as presented. The motion carried unanimously and the minutes were approved as amended.
CEO SUMMARY – AGENDA ITEM #3 Hallquist provided an overview of the meeting agenda. He stated that this month’s Board meeting will highlight the following topics; 1.) System performance 2.) 2010 financial performance 3.) Status of Federal Emergency Management Agency (FEMA) funds and its impact to VEC’s 2010 operating budget
DaVia moved and Lague seconded: To enter into Executive Session to discuss contract issues. Motioned carried unanimously. The Board entered into Executive Session at 12:07 p.m.
Jackson left the meeting at 12:07 p.m. and returned at 12:24 p.m.
By majority vote of those Directors present the Executive Session ended at 12:23 p.m.
A safety drill commenced with Safety Manager Burns discussing ladder safety. The following tips were recommended;
Hallquist stated that he recently spent a day observing crews in the field. He reviewed the safety tailboards and reported that they are going well but improving communications will be a focus for the year. Hallquist informed those Directors present that he recently attended an introductory meeting with Liz Miller, the new Public Service Board (PSB) Commissioner, appointed by Governor Shumlin. During the meeting, Hallquist shared his concerns regarding increasing transmission costs. He discussed the primary drivers for increasing transmission costs and briefly discussed the need to meet Northern England Reliability Compliance (NERC) requirements.
A brief discussion ensued.
A lengthy discussion ensued regarding VELCO’s operating costs.
A Director expressed interest in engaging in a discussion concerning VEC’s vision statement. They stated that the new vision statement that management proposed did not include statements concerning the Cooperative’s vision to be environmentally and socially responsible. The proposed vision statement was; “We are committed to understanding and meeting the needs of our members by practicing the cooperative principles in a transparent and accountable manner. We are striving to be recognized for our reasonable rates, reliable service and technological advancements and will achieve success through the continue development of a highly skilled and engaged workforce.”
The Director stated that the vision should include VEC’s commitment to operating in a manner that is socially and environmentally responsible. They added that VEC is already demonstrating social and environmental responsibility through a variety of initiatives but believes there is room for improvement. A brief discussion ensued regarding VEC’s social and environmental initiatives. The Director concluded that she believes it’s important for the Board, VEC members and the general public to recognize VEC’s efforts.
Another Director stated that members of the Executive Committee had discussed the proposed vision statement during their most recent meeting and had a recommendation. The Executive Committee’s vision statement recommendation was read and a discussion ensued. A brief discussion ensued regarding environmental and social responsibility. Liz Gamache, VEC Manager of Corporate Services, joined the meeting at 12:43 p.m. The CEO Hallquist responded that the reason the social and environmental statements were removed from the vision statement was because goals and strategies within the strategic plan did not address VEC’s commitment to environment and social responsibility. A lengthy discussion ensued regarding how to measure social and environmental success. To table the vision statement discussion. By majority vote, the motion did not pass.
Ward moved and Kneeland seconded: To include in management’s proposed vision statement the following statement “VEC is committed to operating in a manner that is socially and environmentally responsible.” Motioned carried unanimously.
A brief discussion ensued.
Worth left the meeting at 1:04 p.m. and returned at 1:06 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 in December, the finance area performed a “soft-close” which provides preliminary numbers to use for planning and estimating purposes. However, Bursell indicated that several items require finalization and will change the reported preliminary results. The final numbers will be available in February. Bursell reported that the December results for VEC’s operating budget were negatively impacted due to the December 1, 2010 wind storm. As a result of the storm, the December operating budget had a negative operating variance of $700k. Bursell estimated that VEC will receive nearly a 70 percent reimbursement of the storm’s total cost from FEMA. As a result, VEC should be reflecting a billing adjustment that could result in an overall favorable variance for the 2010 year. Bursell stated that he believes the FEMA reimbursement will have a significant impact on the final results. Bursell reported that the capital budget exceeded expectations (actual spending lower than approved budget) with a positive variance for the 2010 year. Bursell continued his financial update by reporting on the following items:
Power Supply Market Purchase In order to continue our diversification of VEC’s power portfolio, VEC conducted a Request for Proposal (RFP) for power contracts for 2015 & 2016. Bursell explained that five companies submitted bids and BP Energy Company was selected for a 5MW strip of around the clock power. Additionally, VEC selected Morgan Stanley for a 5 MW 5 x 16 contract. He further explained the details of the power supply deal and concluded that this deal is a component of VEC’s long-term power supply strategy. VEC is expected to submit their Integrated Resource Plan (IRP) this year and power supply is a large component of the plan.
Fairpoint Communications has received approval of their bankruptcy plan. VEC is slated to receive payment of $233k within 10 days after Fairpoint officially emerges from bankruptcy expected on January 31, 2011.
During a recent CFO Forum, Bursell discussed TRANSCO extensively. He stated that other organizations have expressed a desire to identify a mechanism to continue taking advantage of TRANSCO investment yields without negatively impacting the distribution utilities balance sheet(s). He indicated that it was suggested to utilize a statewide financing company that could provide financing for equity purchases and use the TRANSCO stock as collateral. A brief discussion ensued. Bursell stated that at the next CFO Forum, VELCO will give an update on the possibility of using VELCO as a financing company for TRANSCO equity. Wright left the meeting at 1:22 p.m. and returned at 1:32 p.m. A Director inquired as to whether CFC could provide a solution. A lengthy discussion ensued.
VEC is currently being audited for Vermont sales tax compliance. Bursell indicated that this is VEC’s first sales tax audit and the finance area is taking advantage of the opportunity to ask questions. Bursell explained that the auditor will release its findings for the years 2008 through 2010. If the auditor finds errors, VEC will resolve the audit by either appealing or paying.
Burns referred those Directors present to page 105 in the board packet previously mailed to all Directors. He reviewed the performance metric data and discussed VEC’s safety performance. A brief discussion ensued regarding the PSB safety regulations.
Operations Update COO Wright and those present engaged in a discussion of the Operations Update. Wright stated that he will report on the following items: 1.) Preliminary reliability performance metrics 2.) Project updates 3.) VELCO project updates
Wright reported that VEC’s preliminary 2010 average outage frequency (SAIFI) result is 1.8 which is significantly lower than 2009’s reliability result of 2.08. Wright briefly discussed the various factors that contributed to the reliability improvements. A brief discussion ensued.
Wright informed those Directors present that the Jay Tap project has been progressing well, but the cold weather has been challenging. He indicated that the construction contractor informed VEC of a change order due to unexpected costs associated with snow removal and extreme cold. VEC needs to make a decision as to whether VEC will shut down the project for the winter or continue to pay additional costs associated with keeping the ground thawed. VEC is currently evaluating the contract and will keep the Board informed. The Department of Public Service (DPS) will begin their Kingdom Community Wind (KCW) public hearings next Wednesday, February 2. With regard to the KCW project, Wright stated that VEC had mailed letters to members who have not signed new easement agreements. The new easements entail constructing a new 50 foot Right of Way. Wright indicated that if VEC does not receive signed easement agreements or reach settlements with those members, VEC and GMP are considering condemnation. Wright engaged in a question and answer session regarding the legalities of constructing without a member landowner agreement. A brief discussion ensued.
VELCO Project Wright stated that VELCO’s list of projects is currently being refined. Last week, VELCO filed a petition for the VELCO Jay Tap Substation. Ward left the meeting at 1:57 p.m. and returned at 1:59 p.m.
Hallquist informed those Directors present that the technology piece of the consumer behavior study is still being determined. He stated that technology standards have not been defined. A brief discussion ensued. A brief discussion ensued regarding electro-magnetic radiation. Hallquist recommended that the Board take no position on the issue because there is no available data that supports the theory.
Miller left the meeting at 2:05 p.m. and returned at 2:07 p.m. Jackson left the meeting at 2:05 p.m. and did not return. Parsons left the meeting at 2:07 p.m. and returned at 2:10 p.m.
Corporate Services Update Miller moved and Carswell seconded: To enter into Executive Session to discuss personnel issues. Motioned carried unanimously.
Niklaus left the meeting at 2:08 p.m. and returned at 2:45 p.m. By majority vote of those Directors present the Executive Session ended at 2:29 p.m. President Bailey called for break in the proceedings at 2:29 p.m. The meeting resumed in the Robert P. Northrop Boardroom at 2:45 p.m.
Wright left the meeting at 2:29 p.m. and did not return. Burns left the meeting at 2:29 p.m. and did not return.
Bursell began the patronage capital discussion by explaining that when VEC produces earnings, it creates equity for the membership through capital credits. Capital credits reflect each member’s ownership in the cooperative. Ward left the meeting at 2:47 p.m. and did not return. Bursell referred Directors to page 136 in the Board packet previously mailed to all Directors. He reviewed the patronage capital credit chronological information. Bursell covered several issues related to the challenges with historical allocation of patronage capital to member accounts and the overall lack of useable records prior to 1987. Bursell referred Board members to the list of recommendations and issues included in the BOD packet that need attention beginning with page 138 in the board packet.
Bursell reviewed the items listed under Steps 1 and Steps 2 of the board packet. A brief discussion ensued. Bursell stated that he is seeking guidance from the Board on what the Board is willing to invest into resolving the incomplete information on historical patronage allocations. He indicated that money was not included in the 2011 budget to pay for such labor intensive work. Bursell stated that since many of the issues and challenges are considered to be a legal matter, he is requesting approval to spend $20k to obtain legal expertise. A brief discussion ensued. Hallquist left the meeting at 3:02 p.m. and returned at 3:07 p.m.
DaVia moved and Lague seconded: The Board authorizes management to spend up to $20k to accomplish the legal review of an implementation plan for historical patronage capital balances as summarized on item #2 on page 138 of the board packet on 1/25/2011. The motion carried unanimously.
1.) Should VEC consider changing the Bylaws this year? 2.) Or should VEC wait until next year once the work is complete? A brief discussion ensued regarding the risks of each scenario. It was recommended that legal consultation be obtained for this issue. Bursell informed those Directors present that no records exist between the years 1941 – 1963. Bursell engaged in a question and answer session and a lengthy discussion ensued. Hallquist left the meeting at 3:15 p.m. and returned at 3:22 p.m. It was recommended that Bursell pursue legal advice regarding uncertainties about how to proceed and report back to the Board with greater information. A lengthy discussion ensued. Hallquist left the meeting at 3:23 p.m. and returned at 3:23 p.m.
Bursell continued reviewing his presentation and posed a variety of questions. He engaged in a lengthy question and answer session regarding an allocations process. It was recommended that the Governance Committee meet to discuss the results of the legal opinion.
Bursell left the meeting at 3:46 p.m. and did not return. REVIEW CEO GOALS – AGENDA ITEM #6 Lague moved and Worth seconded: To enter into Executive Session to discuss personnel matter. Motioned carried unanimously. The Board entered into Executive Session at 3:47 p.m. Niklaus left the meeting at 3:47 p.m. and returned at 4:16 p.m. By majority vote of those Directors present the Executive Session ended at 4:16 p.m.
COMMITTEE REPORTS– AGENDA ITEM #7 Executive Committee President Bailey reported that the results of the CEO evaluation will be forthcoming.
Chairman Allard reported that members of the committee have discussed alternative solutions for the Coop Life section “Director Spotlight.” Because VEC has highlighted all its Directors, the committee is exploring the option of a Director question and answer section.
OTHER BUSINESS – AGENDA ITEM # 8 The NRECA Annual Meeting in Orlando, Florida was discussed. Director Miller expressed an interest in attending Director training. Hallquist briefly discussed the 73rd Annual Meeting of the Membership scheduled for Saturday, May 21. He indicated that the Board will need to agree upon a guest speaker. These items will be discussed during the February meeting.
PARKING LOT – AGENDA ITEM #9 No parking lot topics were identified.
ADJOURN OR RECESS – AGENDA ITEM #10 There being no further business before the meeting, Miller moved and Parsons seconded: That the meeting be adjourned. No discussion was forthcoming and the motioned carried unanimously. The meeting recessed at 4:23 p.m.
Respectfully submitted: Michelle DaVia, Secretary and Thomas Bailey, President
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