Yampa Valley Electric Association

YAMPA VALLEY ELECTRIC ASSOCIATION, INC.
REGULAR MEETING OF THE BOARD OF DIRECTORS

The Board of Directors of Yampa Valley Electric Association, Inc. convened at 32 Tenth Street, Steamboat Springs, Colorado at 11:00 a.m. on July 20, 2007 for the regular meeting. 

The Chairman reconvened the meeting of June 16, declared all business was concluded and upon motion being duly made and seconded, the June 16, 2007 meeting was adjourned. 

The Chairman called the July 20, 2007 meeting to order.

Upon calling the roll, it was reported that the following directors were present: Dean Brosious, Peggy Espy, Bill Haight, Sam Haslem, Pat McClelland, Scott McGill, Chuck Perry, Jim Simos and Pud Stetson, being all the directors. 

The Chairman called for a change to the agenda for the power plant presentation and finance proposals to be considered as the first order of business.  He also noted that CFC should be added to the list of presenters.  Upon motion being duly made and seconded, the agenda change was unanimously approved.

Mr. Covillo introduced the representatives of North American Power Group.  Mike Ruffatto, President of NAPG,  presented an overview of the Two Elk Generation Project, the NAPG structure and the proposed YVEA transaction and participation.  He reviewed the history of NAPG and their projects to date.  He described the Two Elk Energy Park.  YVEA directors asked miscellaneous questions on the topics of governance, minority ownership, future participants and fuel supply.  Mr. Ruffatto responded to the director questions.

A motion was made, seconded and unanimously approved to meet in Executive Session for the purpose of hearing each individual finance presentation from the representatives of CoBank, Citigroup and CFC. 

Following the CoBank presentation in Executive Session, the meeting was recessed for lunch.

The meeting was reconvened in Executive Session for the presentations of Citigroup and CFC.

Following the finance presentations, the Board reconvened in regular session at approximately 3:40 p.m.

Directors discussed the need to reconvene the July 20 board meeting at a future date.  All directors concurred with the date and time of July 30, 2007, 10:00 a.m. 

The Board asked Mr. Covillo to review the financial presentations made with a comparison of the rates, fees and terms proposed by the various lenders.  There was lengthy discussion and review of each of the three presentations. 

Mr. McGill asked about the process and steps necessary to proceed with review of the power plant project.  Mr. Covillo stated that the first order of due diligence would be the hire of an engineering consultant, with C.H. Guernsey being the firm of choice.  He stated the Association’s FERC attorney, Bob O’Neil, is working on the participation agreement.  Mr. Covillo said contact is being made with PacifiCorp regarding trade, wheeling and firming of power. 

Mr. Haight asked about the possible escalating costs.  Directors discussed the implications of being a minority position in the Two Elk project. 

Mr. McGill questioned the concept of power purchase agreement versus being in the generation business.  Board members revisited previous discussion regarding participation by asset purchase or power purchase agreement. 

Mr. Haight commented that directors need to know the numbers that will be presented by the due diligence of an independent engineer.

There was further consideration and lengthy discussion of the philosophy and concept of power plant ownership.  Directors concurred that they need more information and analysis to continue evaluation of the concept. 

Mr. Haight stated the participation and asset agreement is needed.  Mr. Covillo said the lawyers will produce those documents. 

Board members reiterated that we must get the engineering consultant on board. 

Mr. McGill stated he needs to know the impact of the finance options on the rates to analyze YVEA retail rates with a purchase versus the continued purchase of power from Xcel Energy.  Mr. Covillo provided an estimated calculation.

Directors discussed the cost estimate and wheeling charges.

Mr. Haight asked the project cost to the Association during the five year construction period.  Directors discussed the impact to the financials, RUS requirements and capital credit refunds.  Mr. Covillo stated the Association would begin discussion with RUS of the ten year financial forecast and loan options. 

There was further lengthy discussion of the points made in the various lender presentations and proposals.

Directors asked for explanation of the ramp out provisions of the current contract with Xcel Energy and the expected rate if the Association becomes a partial power requirements purchaser.  Mr. Covillo responded that the rate would change but not significantly because of Xcel Energy’s overcapacity when their new power plant comes on line. 

The Board then returned to consideration of the regular agenda.

Directors considered approval of the previous month’s minutes.  Mr. McGill asked about the appointment of officers of the Board.  Mr. Covillo reviewed the bylaw requirement.  It was noted that the financials of the Association are accepted, not approved.  A motion was duly made and seconded to approve the minutes of the previous meeting as corrected.

RESOLVED that the minutes of the previous meeting be approved with correction that the financial reports are accepted.

There was no comment from the public.

There were no director comments.

The safety report was presented by Mr. Vaillancourt.  He stated that there were no accidents to report.  Upon motion being duly made and seconded, the following resolution was unanimously adopted:

RESOLVED that the safety report be accepted as presented.

Mr. Covillo discussed a matter not reviewed at the previous month’s meeting.  He discussed a property purchase offer near the James Brown Bridge.  He noted the property owner solicited input from the Chairman of the Board and other directors.  Board members considered the matter and upon motion being duly made and seconded, the following resolution was unanimously adopted:

RESOLVED that the Association is not interested in purchase of the identified property near the James Brown Bridge.

Mr. Covillo reported an NRECA change in the timeline for salary reporting and insurance plan renewals.  He noted the need to move the Executive Committee meeting to the month of September and the Policy Committee to October for the purpose of accommodating the NRECA changes.

Mr. Covillo reported the CREA SemiAnnual Meeting and reminded directors that the Association could make the reservation or directors could make their own arrangements.  Certain directors reported their reservations were already made.  Mr. McGill stated he thought the directors agreed to make their own reservations.

Appointment of voting delegates for NRECA, CFC, Federated, NRTC, CREA and Western United meetings was considered.  Upon motion being duly made and seconded, the following resolution was unanimously adopted:

RESOLVED that the Association’s voting delegates for NRECA, CFC, Federated, NRTC, CREA and Western United meetings be the Chairman and Vice Chairman of the Board.

The Chairman of the Board announced the following committee assignments for the upcoming year:

Audit Committee:  Haight, Chairman - Stetson - Espy - McGill           

Executive Committee - Stetson, Chairman - Simos - Haslem - Haight - Brosious          

Finance Committee:- Simos, Chairman - Stetson - McGill - Perry

Member Services Committee - Haslem, Chairman - Stetson, Espy - McGill            

Policy Committee - Brosious, Chairman - Stetson - Espy - Perry

The report of Paradigm Services was presented by Mr. Simos and Mr. Covillo.  They reviewed the year to date operating loss.

Mr. Covillo presented the report of BTA Associates.

Mr. Covillo and Mr. Miller presented the financial and statistical reports.  Upon motion being duly made and seconded, the following resolution was unanimously adopted:

RESOLVED that the financial and statistical reports be and are hereby accepted.

Ms. Uttech presented the KPA report for the second quarter of 2007 noting the variances from the standard.

Mr. Haslem presented the CREA report.  He discussed the global warming debate and a report by Bill Shroeder of Intermountain Rural Electric disputing some of the issues that are being reported as fact.

The Western United report was presented by Mr. Haight.  He said there was no meeting for the month but  reviewed the year end results of $5.46 million in margins.

The Chairman called for unfinished business but there was none.

There was no other new business.

There being no further business, the meeting was recessed. 

The directors reconvened at 32 Tenth Street, Steamboat Springs, Colorado at 10:00 a.m., July 30,  2007.

Mr. Stetson asked Mr. Covillo to present an update on conditions.

Mr. Covillo presented changes to the numbers of the Citigroup and CoBank loan terms.

Mr. Covillo discussed the long term implications to the Association financials, reviewed debt service coverage requirements of the banks, the RUS TIER requirement, accounting requirements of the present mortgage and further reviewed  the accounting implications of an additional $150 million debt. 

Mr. Haslem asked whether a possible contract extension could be achieved by negotiations with Xcel Energy.  Mr. Covillo responded and reviewed YVEA’s previous negotiations with Xcel.

Directors discussed power purchase agreement options versus asset purchase.

Mr. Haight questioned escalated costs of construction.  Mr. Covillo said those issues will be addressed in the agreements and contracts.  He stated the engineering procurement contract should identify both the timeline and costs.

Mr. Stetson requested the feasibility study before the Board is required to approve the Memo of Understanding.  Mr. Covillo said that the feasibility study would probably not be available at the next meeting of the Board.  Directors indicated their interest in the Memo of Understanding having clear options to back out if necessary based on the feasibility study results.

Mr. Sharp presented his comments to the directors based on review of the documents available to date.  He discussed his review of the preliminary asset purchase agreement and participation agreement.  He stated the directors should recognize they are drafted by a seller and are pro-seller.  He further pointed out the documents are the first cut and will be worked over by the General Manager and the Board’s FERC attorney.  He stated the concept is to sell an asset as a real estate transaction.  The document states the Board has done due diligence.  He said there is no buyer termination right in the asset purchase agreement.  The buyer cannot assign the asset without Two Elk agreement.  There are some indemnities on the assets that last six months.  The purchase contract is not contingent on obtaining a loan.  Mr. Sharp cautioned the Board that under the language of the participation agreement, you will have no voice.  He reviewed all points of concern in the current language. 

Mr. Sharp stated his only comment about the lenders is the review of cost and risk.  He cautioned directors to be careful about not having the funds tied down for the duration and to assess the alternatives as a business decision.

Directors stated the PacifiCorp wheeling needs to be a contingency.

Mr. Covillo stated the August 17 Memo of Understanding needs to be approved to proceed with  negotiation of the asset purchase and participation agreement.

Mr. Sharp encouraged directors to contact and discuss minority participation with other minority participants of NAPG plants.

Mr. McGill asked whether there is language in the documents to protect the Association against Two Elk or NAPG financial instability.  He asked whether that is addressed in the draft.  Mr. Sharp said not really.  The document provisions apply to all participants.  Mr. Sharp said the Board may want language in there to govern such events.  Mr. McGill asked could the YVEA contract be voided in case of their bankruptcy.  He said the directors should check further into NAPG.  Mr. Covillo agreed with Mr. Sharp’s recommendations to talk to others of their minority participation in NAPG projects.

Mr. Haight stated he was focusing on two important matters, RUS and the wheeling issues.  He asked where are we on the wheeling matter.  Mr. Covillo said that his call to PacifiCorp had not been returned and he would try to contact others at Pacific. 

Mr. Covillo provided explanation of YVEA’s delivery points.  He explained YVEA’s partial ownership of Mt. Harris and discussed the possible purchase of delivery points. 

Mr. Stetson stated that the purpose of the current meeting is to pick a financier.

The meeting was recessed for a brief break.

Upon reconvening, Mr. Simos asked whether directors could use the financial forecast program to examine the lender choices.  Mr. Covillo stated the directors will have a financial forecast by the next board meeting.

Mr. Haight stated he does not want to make a quick decision.

Ms. Espy voiced her concern regarding the compressed timeline.  Mr. Covillo stated the project had initially been presented to the Board in 2003.

Directors then discussed the decision to be made today, the timeline and concerns over the funds to be spent to proceed with the continued evaluation.

Mr. McGill asked whether the involvement of one of the potential lenders with another participant in the project raises conflict of interest issues.  Mr. McClelland responded that he felt their involvement in the project provides synergy and is not in conflict.  Mr. Sharp said the underwriting contract will specify the applicable terms.

Directors then held lengthy discussion of the various lenders.  Each individually indicated which of the lender terms were of interest to them.  Mr. Sharp asked what series of events is necessary for RUS funding to happen.  Mr. Covillo explained the current administration’s opposition to RUS lending to base load coal-fired power plants.  He said the RUS funding level is not currently available. 

Directors asked the General Manager to discuss which loan option he would recommend.  Mr. Covillo explained to the directors why the CoBank relationship would be easier for an RUS borrower.

Mr. Sharp offered his observations in borrowing from certain lenders and the issue of bonds.

A motion was made to proceed with investigation of the finance options of CoBank, to continue the due diligence necessary to evaluate a transaction with Two Elk Energy Park and for the Board to have ongoing input to the selection of finance options offered by CoBank.  Upon motion being duly made and seconded, the following resolution was adopted with a dissenting vote by Mr. McGill:

RESOLVED that Yampa Valley Electric Association, Inc. proceed with investigation of loan funds from CoBank for the possible asset purchase of a portion of Two Elk Energy Park.

Mr. Covillo informed directors that there is potential purchase proposal for Paradigm Services LLC.  He stated the buy-out offer may be tendered by one of the executives of Paradigm and asked for Board consensus in the matter.  Mr. Haight indicated his preference that the Paradigm Board decide the question of sale and if so, advertise it publicly.  Directors discussed Mr. Haight’s comments and offered further comment to the YVEA representatives on the Paradigm Board.

There being no further business, the meeting was recessed to the next regularly scheduled board meeting.

                                                                                                                                                                                                                                                                       Secretary

APPROVED:

                                                                       

            Chairman of the Board