VERMONT ELECTRIC COOPERATIVE, INC.
REGULAR MEETING OF THE BOARD OF DIRECTORS
OCTOBER 27 2009

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, 2009.

CALL TO ORDER – AGENDA ITEM # 1
President Thomas Bailey called the meeting to order at 9:08 a.m. in the Robert P.

Northrop Boardroom at VEC offices in Johnson, Vermont. Present were Thomas Bailey and Directors Dorothy Allard, Michelle DaVia, Bertrand Lague, Howard Leighton, Priscilla Matten, John Miller, Daniel Parsons, John Ward, John Westie, and Mark Woodward. Dan Carswell and Steve Wolfgram were absent. Also present from VEC were CEO David Hallquist, CFO Mike Bursell, Manager of Corporate Services Elizabeth Gamache, Manager of Government Relations Randy Pratt, Sr. Power Resource Planner Craig Kieny, Budgeting and Financial Forecaster Christina Metivier and Manager of Communications Kathryn Kantorski.

MINUTES OF SEPTEMBER 29, 2009 REGULAR MONTHLY MEETING APPROVED –AGENDA ITEM #2

Miller moved and Lague seconded:

That the minutes of the regular meeting held September 29, 2009 be approved as presented.

Lague left the meeting at 9:12 a.m. and returned at 9:16 a.m.

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

President Bailey requested an interruption in the order of the agenda so that Manager of Government Relations Randy Pratt could give updates to the Board.

Fairpoint Bankruptcy
VEC along with CVPS & GMP have obtained a local attorney because of the Fairpoint Chapter 11 Bankruptcy filing. VEC is one provider of their electricity, consequently Fairpoint is required to file intent that they will continue to pay their electric bill. VEC also has concerns regarding the joint ownership of poles and Fairpoint’s share of vegetation management costs since we are considered an unsecured creditor.

Smart Grid Grant Awards
VELCO filed a joint application on behalf of Vermont’s twenty [20] electric distribution utilities and Efficiency Vermont for stimulus funding to cover 50% of a $133 million smart grid implementation. VEC is requesting approximately $9M of which 50% or $4.5M would be a match by VEC. The match is covered by work already scheduled in the VEC capital plan. There is also a demonstration grant with Efficiency Vermont pending.

Comcast
Discussions continue with Comcast regarding their build of infrastructure in the Islands. In a settlement with the state, VEC was deemed responsible for $1M of the costs (an unbudgeted expense) to reset poles in the Islands. The project was scheduled to be complete by November 1, 2009. The project is running beyond the anticipated completion date and the cost to date is $1.4M. Based on these facts VEC decided to halt the use of contract crews to complete the work.

FINANCIAL UPDATE – AGENDA ITEM #3
CFO Bursell introduced Craig Kieny and Christina Metivier to the Board and recognized them as key employees in the budget process. He also commended Christina for all of the skills that she brings to the budget process.

CFO Bursell and those present engaged in a discussion of the Financial Update included in the Board packet, which was distributed to all Directors prior to the meeting.

School Street
CFO Bursell told Directors that all of permits for School Street have been approved and that Lamoille Housing Partnership is soliciting bids for construction and retrofitting of the site. He expects the transaction to close in late Dec. of 2009 or early Jan. of 2010.

Kieny left the meeting at 9:53 a.m. and returned at 9:54 a.m.

Federal Stimulus Smart Grid Grant
Pratt informed the Board that Vermont was awarded $68M of the Federal Stimulus Smart Grid Grant.

Pratt told Directors that there are three [3] major components of the grant funding for VEC:

1. VEC will complete deployment of smart meters to the remaining 20% of our membership; 80% already have smart meters installed;
2. Develop and implement a demonstration program of approximately 500 members potentially in the Islands who will participate in real time pricing by using home area networks and in home displays to control usage during peak times; and
3. VEC is to upgrade our substations so they are ready for grid automation.

Gamache left the meeting at 10:02 a.m. and returned at 10:10 a.m.

17^th Supplemental Mortgage Indenture of $6MM
CFO Bursell indicated that CoBank was awarded the $6M financing of the supplemental indenture.

Lague moved and Miller seconded:

That the Board approve Resolution for the 17^th Supplemental Mortgage Indenture of $6M.

The motion carried unanimously by those Directors present. Said Resolution of the 17^th Supplemental Mortgage Indenture as presented to the Board is appended to these minutes.

Kingdom Community Wind
One Director asked for clarification regarding language in the KCW summary in reference to the percentage of development costs that VEC is responsible to pay back to GMP once the wind farm becomes operational. Discussion ensued and Bursell explained that when the project was modeled VEC mistakenly applied a factor of double the development costs and it should have been triple the development costs.

Hallquist left meeting at 10:15 a.m. and returned at 10:17 a.m.

End of Quarter Financial Information
Management has slowed down some of VEC’s spending. Use of outside contractors has halted, overtime for capital projects has been reduced. The focus now will be on labor expense projects and the Williston substation AMI with deployment of approximately 1000 meters.

DaVia left the meeting at 10:17 a.m. and returned 10:20 a.m.

Woodward left the meeting at 10:20 a.m. and returned after break.

Safe Harbor
Corporate Services Manager Elizabeth Gamache gave an overview to Directors of the proposed change in the Safe Harbor 401(k) Pension Plan. Gamache explained that the provision requires that the management group be treated like the rest of the employees and be required to wait a year before they are eligible to participate in the 401(k) Pension Plan.

Lague moved and Miller seconded:

That the Board approve the Resolution authorizing the adoption of the Safe Harbor 401(k) Provisions under the 401(k) Pension Plan [46007-001].

The motioned carried unanimously by those Directors present. Said Resolution of the Safe Harbor 401(k) Provisions as presented to the Board is appended to these minutes.

President Bailey called for a short break in the proceedings at 10:25 a.m.

The meeting resumed in the Robert P. Northrop Boardroom at 10:37 a.m.

Hallquist joined the meeting at 10:38 a.m.

Kieny joined the meeting at 10:38 a.m.

VEC OPERATING BUDGET – ITEM #4
CFO Bursell gave Directors a brief introduction to the process that management underwent developing this Operating Budget. He explained that this budget was developed in parallel with the creation of the November rate case application, thus eliminating the duplication of work. CEO Hallquist commended management’s diligence in producing the budget being presented to Directors and for being fully prepared to answer Director’s questions today.

CFO Bursell summarized the key drivers of the budget as outlined on page 88 of the Board packet and noted changes that had been made to the spreadsheet since it was mailed to the Board on October 20, 2009. Bursell told Directors that it is important to note that VEC will not be impacted by the ISO rule change for three [3] years. Bursell asked Senior Power Resource Planner Craig Kieny to explain the ISO rule change and Installed Capability Requirement (ICAP). Kieny explained that the power supply total average cost of $77.10/MW (power supply only) was down from the 2009 budget of $78.36/MW. The main drivers in the decrease in average costs are a reduction in ICAP expenses and the 2009 Budget assuming a 3% excess compared to a 5% shortfall projected for 2010.

Hallquist left the meeting at 11:11 a.m. and returned at 11:21 a.m.

Budgeting and Financial Forecaster
Budgeting and Financial Forecaster, Christina Metivier gave an overview of the spreadsheets and the schedules used to provide more accurate and automated information. Directors had an opportunity to ask questions of Ms. Metivier and CFO Bursell.

Factors affecting labor and benefits
Corporate Services Manager, Elizabeth Gamache gave a summary of some of the factors affecting labor and benefits. Gamache referred Directors to page 108 of the Board packet; Schedule 6-C. The Operating Budget 2009 compared to Proposed Budget 2010.  Gamache told Directors that the key drivers of change could be found under total direct compensation, total benefits and other payroll related costs which equal total payroll costs. Gamache indicated that there was a total increase of approximately 3.5% in 2010. She then referred Directors to Page 95 of the Board packet and explained that by utilizing part-time and temporary employees, VEC can maintain an equivalent number of employees from 2009 to 2010.

Directors asked questions of Gamache regarding the payroll and benefits supporting documentation.

Hallquist left the meeting at 11:53 p.m. and returned at 11:59 a.m.

LUNCH BREAK

President Bailey called for a break in the proceedings at 12:00 noon

The meeting resumed in the Robert P. Northrop Boardroom at 12:45 p.m.

Hallquist left the meeting at 12:46 p.m. and returned at 12:55 p.m.

VEC OPERATING BUDGET – ITEM #4 continued
CFO Bursell referred Directors to page 71 of the Board packet hitting on the highlights of the changes for 2010 from 2009.

RATE CASE - ITEM #5
Bursell told the Directors that basically everything for the rate case has been discussed and covered in this operating budget presentation. Extensive discussion ensued.

Hallquist left the meeting at 1:09 p.m.
Gamache left the meeting at 109 p.m.
Pratt joined the meeting at 1:11 p.m.

There being no further questions of the management team,

Lague moved and Miller seconded:

RESOLUTION:
That the Board approve the 2010 rate case and budget as presented in today’s Board of Director meeting, and authorize management the discretion to adjust up to a 2% rate increase.

The motion carried unanimously.

Kieny and Metivier left the meeting at 1:17 p.m. and did not return.

ANNUAL MEETING PROPOSAL –  ITEM #6
CFO Bursell referred to the letter in the Board packet from Liz Gamache recommending that for 2010 Annual meeting the Board approve that we would go back to the previous format of having the traditional breakfast followed by the business meeting.

Ward moved and DaVia seconded:

That Board direct management to reinstate the old style meeting to be held on Saturday, May 15, 2010, with the details of the meeting to be worked out by the appropriate committee and/or staff.

The motion carried unanimously.

Management will present three options for locations to the Board at the November regular meeting of the Board of Directors.

Westie left the meeting at 1:33 p.m. and returned at 1:34 p.m.

MANAGERS’ REPORTS - #7
Low income electricity subsidy program
One Director requested that the Board’s position on funding of the low income subsidy program be reaffirmed. VEC’s Board feels strongly that this should be funded through the State of Vermont general fund not through surcharges on utility bills. Pratt informed the Board that a tentative agreement was reached with AARP that they will support a stipulation that funding through electric utilities will not be included in the proposal.

Energy demonstration project at Coventry.

Pratt joined the meeting at 1:43 pm.

Pratt told the Board that the town of Coventry through Casella submitted four [4] applications; a solar application, a wind application, a bio-gasification application and one for WEC’s methane generating plant. Three [3] of the applications were accepted and one [1] application (solar) was not accepted. The parameters were set at a 50MW cap as the total for all technologies combined. No one technology could make up more than 12 ½MW of the 50MW.  Pratt said there were a total of 196 applications for solar consisting of 171MW, yet only 12MW of the 171 were actually approved. It is Pratt’s belief that this was due to the fact that the price for solar at .30 cents was too high.

Gamache left the meeting at 1:45 p.m. and returned at 1:47 p.m.

COMMITTEE REPORTS – AGENDA ITEM #8
There were no committee reports.

OTHER BUSINESS-AGENDA ITEM # 9
There was no other business.

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

Ward moved and Lague seconded that:

The meeting be continued until November 24, 2009.

No discussion was forthcoming and the motioned carried unanimously.

The meeting adjourned at 1:55 p.m. to be continued at 12:00 noon, November 24, 2009.

[Signed Minutes] (PDF)