Beartooth Electric Cooperative, Inc

Beartooth Electric Cooperative, Inc.

Minutes of the Board of Trustees’ Meeting, January 9, 2018

Held at the offices of Beartooth Electric Cooperative

Beartooth Electric Cooperative will be referred to as BEC herein. The Glossary of Terms and Acronyms website link is

CalltoOrder:Board President, Julie Lindgren,calledthemeeting to order at 12:05p.m.

Present:Presiding:Julie Lindgren,

Arleen Boyd, Dan Dutton, Dick Nolan, and Bill Pascoe

Kevin P. Owens, General Manager

Eric Elton, Line Superintendent

Brad Prophet, Accountant

Kaaren Robbins, Communication & Member Services

Via telephone:

Larry Martin, Legal Counsel

Roxie Melton, District 2 Trustee

David Peterson, District 7 Trustee

Guest:

Frank Willett, Finance Committee

Eleanor Guerrero, Carbon County News

Michael Specht, Member

Bill Hand, Member

Walter Clapp, Member

Jim Rodgers, Member

Visitor comments:

Michael Specht:Michael addressed the board with his concern about seeing and hearing some things that botheredhim. He stated that itappears there is discussionabout the board putting out less communication directly or indirectly with the members. Hecontinuedthat everybody has put their faith in this board to do what is in our best interest,andhe would hate to see any kind ofstep back on the communications. He concluded with the message that he would like to make sure that the boardcontinues to be open and to keep communicating with people out there.

Board president, Julie Lindgren thanked Mike for his comments and invited him to stay for the board communication section of the agenda. Julie also referenced her editorial which appeared in the Carbon County Newspaper in December.Her editorial, submitted in rebuttal to an editorial by Eleanor Guerrero, discussed BEC’s continued transparency and commitment to communication, supported by a significantly increased communication budget in 2018.

Bill Hand:Bill stated that he would like to second the concern in regards to board communication. Bill continued that he believes we have a good mix of communication out there right now and to keep the communications open and strong.

Julie thanked Bill for his comments.

Approval of agenda:

A motion was made by Richard Nolan and seconded by Arleen Boyd, to approve the agenda with edits. Motion carried. Voting was unanimous.

Edits: Add board acceptance of the third quarter financials. Also add, Marty Tomlin (Lee Hauge), GIS report during the Line Superintendent’s report.

Approval of minutes:

A motion was made by Dan Dutton and seconded by Dick Nolan, to approve the November 28, 2017, regular board meeting minutes as presented. Motion carried. Voting was unanimous.

Committee/Trustee/AttorneyReports:

Risk Management Committee:

Combined Risk Management and Finance Committee, Meeting December 14, 2017

Red Lodge BEC Office.Reportis included in Board Book.

Attending: Frank Willett, Judith Gregory, Bill Pascoe, Julie Lindgren, Dan Dutton, Dick Nolan, Roxie Melton, Gil Boyer, Arleen Boyd, Kevin Owens

Present on phone: Attorney Larry Martin

Staff attending:Kaaren Robbins, Brad Prophet

The primary meeting objective was to review and recommend action to the board on the 2018 proposed Budget.General Manager Kevin Owens answered many questions from the committee and reviewed updated projected budget numbers addressing questions and suggested changes from the October risk management meeting.

There is an addition to the budget of a part time work order clerk. General Manager, Kevin Owens stated that he is confident a person with anaccounting background can be hired as budgeted.Payroll in 2018 will increase 2% and benefits 7%.

Discussion of rate classes and the definition of the classes clarified the kVA requirements for small business, large (50-1000 kVA) and industrial (1001 kVA and up).

Kevin summarized current Cushion of Credit deposits and recommended an annual evaluation of potential additional deposits based on available cash and interest rates from BEC lenders.The Cushion of Credit deposit generates 5% interest.The impact of 5% interest will change based on the cost of borrowing money to fund the deposit.

Recommendations.Board budget approval. The budget provides for the long-discussed improvements at the Pine Crest subdivision for which the committee endorses. Also recommended: approval of the income statement, cash flow and balance sheets adjusted to match end-of-year numbers.The committee recommends engaging consultant, Kim Mikkelson to update the seven-year (possibly 10-year) financial model following 2018 budget approval.

BEC Attorney, Larry Martin noted for consideration by the committee and board two cyber security issues his firm’s clients have encountered recently: 1) personal email addresses for board members may not be secure and 2) the Americans with Disabilities Act is addressing rights for access to facilities, programs and services including communication. Kevin reported an increase in the Cyber Security Liability Coverage from $500,000 to $1 million. He also noted that he ran across an ADA legal. He will follow-up with a legal brief on this. Larry also noted that BEC must be indemnified if someone hacks into our third-party systems. Kevin confirmed that this hasbeen raised with both NISC and Morrison Maierle. Kevin also announced that when BEC upgrades the network; all board members will receive a BEC email. Another IT deliverable is hiring a third-party to try hacking into our system. Kevin is currently working on this initiative. Arleen will provide a few companies that she is aware.

The Bylaws and Policy 309 states that the committee is responsible for looking at power supply. Committee member, Bill Pascoe outlined some current power supply developments and how the availability of renewable resources that do not carry fuel costs (like solar and wind and hydro) can impact operating costs (marginal costs) for power generation plants. He briefly described current impacts on power costs resulting from the availability of power generated by renewables in California. Bill will continue the report/discussion at the January 23 risk management meeting.

Next risk management meeting set for January 23 at noon with a presentation from Henry Dykema whose local company, Sundance Solar, provides solar and wind power systems design and installation.

Arleen introduced member, Walter Clapp. Walter is a lawyer,and his experience includes not only dealing with power issues and the energy industry in general, buthe is also experiencedin cyber security. Arleen presented Walter Clapp with the recommendation to accept him as a new appointee to the risk management Committee. The board agreed.

The cyber security discussion led to an inquiry regarding BEC’s future power supplier, Energy Keepers, Inc. Bill Pascoe will review this topic with them. BEC will transition to Energy Keepers, Inc. in five years.

A recommendation was made by Arleen Boyd to approve the appointment of Walter Clapp to the risk management committee. The board approved.

Finance Committee:

The Finance Committee met in combination with the Risk Management meeting on December 14. The committee reviewed the 2018 Budget and third quarter financials that are recommended for board approval during this meeting.

Bylaw Committee:

Arleen notified the Bylaw Committee of the possible change in the bylaws to the annual member meeting date. The board’s decision will be made following the December 2017 audit.

Dick Nolan mentioned inquiring with the Auditor to what degree the audit is performed, particularly regarding an auditfor fraud. Dan Dutton added the standardaudit is to look at the numbers and accept them. Fraud is not a standard audit item.Kevin Owens stated that typically areas to be auditedare discussed during a sit down before the audit. Julie commented that this audit is of particular importance as it is the first on as a standalone Beartooth. The Auditor sit down meeting will include Kevin, the board president,and the risk management chair.

Policy Committee:

There was no Policy Committee activity in December. Roxie will schedule a meeting on the proposed date of January 25. Roxie will meet with Kevin before this meeting to review her information, bring her policy book, review policies Kevin has noted requiring new language and send out a Doodle Poll.

Communication Committee:

Dick Nolan stated that there was no Communication Committee meeting in December. He noted that he was sorry that Mike Specht had to leave the meeting as he had expressed concern that somehow the board was contemplating a lack of transparency. Dick continued that someone has started this rumor, Julie-refuted it in the newspaper and Bill-refuted it in a letter back to a member, but unfortunately, with the speed with which rumors propagate, he thinks that someone planted the seed of distrust with membership and it is very unfortunate and far from the truth.

Kevin stated that it is very troubling to him that he received a lot of emails today, as the board did, talking about transparency and reducing communication with members. He stated, nothing can be farther than the truth. In the last few months, we have upped the communication to members through all channels. Our budget is increased next year with added direct communication to members with direct mail and community meetings. Whoever is propagating this stuff is very destructive not only to the board, but it certainly impacts his operation at the utility.

Arleen stated that she wanted to be clear, that she does understand where this comes from and in fact,she understands perfectly when Eleanor did her article;she was here, she heard us having our meeting and a statement that all communications would be done by operations. She stated that if she had walked out of that meeting as a member or a press person, she would not have thought you were going to do fewer communications or less communicating, but she would have been alarmed by the fact that it sounded as if the board was not going to be communicating directly with members anymore.

Julie stated that Eleanor left before it was discussedlater. The answer at that time was no we are just making changes, that Arleen and I would still be doing articles in Rural Montana, just not on a monthly basis.

Dick continued that the next scheduled committee meetings are January 24 with the primary agenda item the review of the 2018 Member Survey and February 13 with guest, Jody Severson (NRECA Communications).

Consent Agenda:

The board reviewed the consent agenda.

Brad reviewed financial pages 14-24 of the board book.

Page 17. In the lower area of the liabilities and other credits, is where the advanced payments of unapplied RUS loans (cushion of credit) appear. So, in that section,the RUS loan, FFB RUS loans and other long-term debt is a combination of CFC and the loans taken from CoBank for the Cushion of Credit.

On the cash,you will see $1.314. The reason is on Nov 30 we received the 2nd portion of the $1,054,000 CoBank loan,and on December 2 it was pulled out by the RUS for the Cushion of Credit.

Page 18. On the right-hand side, you’ll see a large discrepancy in the Operations Maintenance, the actual $153,000 and the budgeted $108,000. The push to get our GPS project completed kept line crews working in operations and maintenance (less than 8% in work orders).

Page 20. We have added the Regulatory Assets Amortization here versus it being shown in other areas.

Page 22. This is the select notes investments. With BEC’s cash now going to the RUS Cushion of Credit to earn 5%, we may not use select note investments (earning 1-1.5%)unless there is a surplus over our $500,000 in working capital.

Page 23. All names have been omittedfrom the register.

The attorney page will now be reportedin the quarterly financial review only.

Questions.

Frank Willett asked,

Page 19. Upcoming payments do not show the $1 million distribution. Brad noted that historically we have only noted loans. This is a loan prepayment. This is a movement from cash to a contra-liability-it goes into the negative of the unapplied RUS loan.

Page 20. Go to Pay Down Debt;the$42,000 is actually a net paydown – pay down has been made on loans we’ve taken on. This should be the total to date we have paid down in the 11-month period. Under capital spending,please designate the Cushion of Credit prepay as another line.Brad will now expand and show three lines- pay down of debt, the special pay down of debt, and the additional loans taken.

Bill Pascoe asked,

Page 24 in the check register. He asked what is a general retirement check rewrite? Brad explained there are checks sitting out there uncashed. A check rewrite occurs when a member notifies us they did not receive the check.We thencancel the previous check and write a new one. Brad will present the November Capital Credit Retirement check disbursement report detailing the 2,600 checks at the January 30 meeting.

Arleen asked if we are being responsible for contacting the members who have outstanding uncashed checks? There is a need to do more to just put it in our internal communications. So, we need to think about how to go out in the public domain and get the word out there. Larry explained in the district court’s opinion the obligation of a board of trustees in the state of Montana is to operate in a commercially reasonable fashion. Larry suggested that perhaps we take this up again at the next meeting after reviewingof BEC policies and defining what is commercially reasonable. Larry suggestedto provide a deadline for him to investigate.

A motion was made by Arleen Boyd and seconded by Dan Dutton, to approve the third quarter financials. Motion carried. Voting was unanimous.

Staff Reports:

Eric Elton provided the Line Superintendent report.

Page 33.

• Pole replacements are still in progress.

• 100% of the pole inspections have been completed on the Absarokee substation. The recent GIS project revealed that there are 3,547 poles in the Absarokee substation. There will be a short presentation on our GIS system later in the meeting.

• Talks continue to obtain the last two easements to progress with the Pine Crest project.

• One member added a 24kW solar array. A lack of engineering for the arraycaused several issues for the member as well as Beartooth. As a result, a lot of staff and engineering time was expended. Eric requested that during the board’s review of the interconnection agreement, to define in policy that any solar array above 10 KWmutbereviewed by an engineer with a letter on file with BEC. This array was notand problems could have been averted with the proper conductor sizing. Kevin stated that he wouldask Henry Dykema during his visit to the Risk Management meeting later this month, how installers are qualified or certified.

• Kevin, Eric, Jim,and Marty spent a day with Big Horn Electric Cooperative to review their TWACS meter system.

• BEC lost a couple of poles during the last ice storm with a hit and run in Columbus. It is unlikely BEC will recover these costs.

Page 25.

Kevin P. Owens reviewed the General Manager Report included in the Board Packet

Month/Year / Energy / WAPA / Morgan Stanley / Twin Eagle / Imbalance / Transmission / Total Cost / Cost per MWh
16-Nov / 5,427 / $16,076 / $180,411 / ($7,202) / $43,134 / $232,419 / $42.83
16-Dec / 9,083 / $18,422 / $239,048 / $46,227 / $47,435 / $351,132 / $38.66
17-Jan / 9,053 / $15,269 / $240,144 / $44,719 / $49,555 / $349,688 / $38.63
17-Feb / 6,845 / $16,028 / $202,680 / $11,268 / $46,770 / $276,745 / $40.43
17-Mar / 6,131 / $12,896 / $188,461 / $5,915 / $46,462 / $253,734 / $41.39
17-Apr / 5,205 / $13,837 / $157,177 / $1,503 / $47,064 / $219,580 / $42.19
17-May / 5,111 / $11,189 / $162,694 / ($166) / $47,603 / $221,321 / $43.30
17-Jun / 5,765 / $12,759 / $157,753 / $7,772 / $47,602 / $225,886 / $39.18
17-Jul / 7,362 / $13,971 / $201,274 / $24,849 / $48,569 / $288,662 / $39.21
17-Aug / 6,340 / $14,456 / $177,957 / $23,683 / $48,356 / $264,453 / $41.71
17-Sep / 5,338 / $12,234 / $157,192 / $10,916 / $45,928 / $226,270 / $42.39
17-Oct / 5,281 / $11,105 / $170,501 / ($1,091) / $47,058 / $227,573 / $43.09
17-Nov / 6,485 / $13,585 / $195,842 / $8,917 / $48,754 / $267,098 / $41.19
Total / 83,426 / $181,827 / $366,342 / $2,064,792 / $177,311 / $614,291 / $3,404,562 / $40.81

Lee Hauge, BEC Sub-ForemanPresentation: A look at the BEC GIS System

Leewhat we have in place and where we are going with our GIS We are accomplishing several information gathering topics:

1. Remapping every pole. (We started with Luther mapping 845 poles, then Absarokee 3,547 poles)
2. Renumbering with a system of 1) substation, 2) feeder, and 3) pole.
3. Inspecting testing the poles, looking at hardware, trees, riverways, roadways, etc.

We are doing this with an iPad system. We input the information, it goes to the cloud,and it is available immediately on our systems. Tom Kohley the system we are using. He has created systems such as mytopo.com, ranchmaps and an extensive county noxious weed program system. It is this program that he created the electric utility program from and then reprogramed for Beartooth.

Kaaren Robbins reviewed the Communication report.

The February Rural Montana is work in progress:

• Generator Safety
• Washington D.C. Youth Tour Candidate
• Scholarship deadline January 26

Operation Round Up – Richard Sederburg has resigned as President of the ORU Board to retire. The 2018 Board is as follows: Meg Hatch-President, Judy Strobbe-Vice President, Karen Reiner-Secretary, Janet Luloff will be joining the group as Member-at-large.

LIDD/LISD program. Bill Pascoe inquired whether we have the opportunity to change the eligibility requirements for the LIDD/LISD to allow more members to participate? Kevin offeredthat we are looking at changing the program to look at a base-rate discount vs. a kWh usage discount. This will be reviewedby a legal, state (MT & WY), and current policy perspective. A report will follow to the board.

Press Releases:

December:

• Tree Lighting
• Transparency
• Do Cooperatives pay taxes?

January:

• Budget approval
• Washington D.C. Youth Tour Candidate
• RFP-TWACS systems

Two-member Connections email releases: