VEPP INC

THE STATE OF VERMONT HAS INITIATED A UNIQUE SYSTEM OF ELECTRIC POWER PURCHASING CREATED IN RESPONSE TO FEDERAL AND STATE LEGISLATION. THE PUBLIC UTILITIES REGULATORY POLICY ACT OF 1978 (PURPA) REQUIRES THAT ELECTRIC UTILITY COMPANIES PURCHASE ELECTRICITY OFFERED BY OWNERS OF CERTAIN QUALIFYING ELECTRIC GENERATING FACILITIES. SIMILARLY, A NEWER STATE LAW, V.S.A. 30 8005(A) ALSO REQUIRES ELECTRIC UTILITY COMPANIES TO PURCHASE ELECTRICITY OFFERED BY OWNERS OF CERTAIN QUALIFYING RENEWABLE ELECTRIC GENERATING FACILITIES. UNDER STATE LAW AND RULES PROMULGATED BY THE VERMONT PUBLIC UTILITY COMMISSION, RATES TO BE PAID FOR THIS ELECTRICITY ARE APPROVED BY THE PUBLIC UTILITY COMMISSION ON A STATEWIDE BASIS. VERMONT'S RETAIL UTILITIES ARE REQUIRED TO PURCHASE THIS ELECTRICITY ON A PRO RATA BASIS TO THEIR STATE LOAD.THE INTEGRATED SYSTEM OF ELECTRIC POWER PURCHASING IN THE STATE NECESSARILY REQUIRES THE STATE GOVERNMENT TO ASSUME FUNCTIONS MORE COMMONLY CARRIED OUT BY PRIVATE PARTIES. BECAUSE UTILITIES AND THE OWNERS OF MAJOR QUALIFIED FACILITIES TRANSACTING UNDER THIS SYSTEM DO NOT CONTRACT DIRECTLY WITH ONE ANOTHER FOR PURCHASE AND SALE OF ELECTRICITY, AN INTERMEDIARY IS REQUIRED TO ENSURE PROPER POWER AND FINANCIAL ACCOUNTING FOR THE STATEWIDE PURCHASING SYSTEM, TO MONITOR COMPLIANCE WITH CONTRACTS, AND IF NECESSARY TO ENFORCE THE TERMS OF THOSE CONTRACTS. THIS INTERMEDIARY IS KNOWN AS THE STANDARD OFFER FACILITATOR, AN ENTITY DESIGNATED BY THE PUBLIC UTILITY COMMISSION TO PERFORM THE POWER AND FINANCIAL ACCOUNTING FUNCTIONS ASSOCIATED WITH THE SYSTEM.ON APRIL 13, 2007 VEPP INC WAS DESIGNATED AS THE SPEED FACILITATOR FOR THE STATE (SUBSEQUENTLY CHANGED TO STANDARD OFFER FACILITATOR). IN THOSE CAPACITIES VEPP INC IS REQUIRED TO PURCHASE ELECTRICITY FROM THE OWNERS OF QUALIFYING RENEWABLE ENERGY GENERATION FACILITIES. VEPP INC IS ALSO REQUIRED TO ENTER INTO CONTRACTS FOR THE PURCHASE OF THE ELECTRICITY. EACH SUCH CONTRACT MUST BE APPROVED BY THE STATE COMMISSION AT RATES APPROVED BY THE STATE COMMISSION AT THE TIME THE CONTRACT IS EXECUTED. OTHER REQUIREMENTS OF THE STANDARD OFFER FACILITATOR INCLUDE BILLING AND COLLECTION OF PAYMENTS FROM THE ELECTRIC UTILITIES AND REMITTANCE TO THE OWNERS OF THE QUALIFIED FACILITIES, METERING QUALIFIED FACILITY OUTPUT, AND GENERALLY MANAGING THE STATEWIDE POWER PURCHASING PROGRAMS UNDER RULES OF THE STATE COMMISSION. VEPP INC PERFORMS THESE FUNCTIONS IN SUPPORT OF THE STATE, UNDER THE TERMS OF ITS DESIGNATION AS AN INSTRUMENTALITY OF THE STATE.